Virginia Society of Tax & Accounting Professionals Tax Tips Newsletter Articles

Issue Number: IR-2025-62

Thu, 29 May 2025 16:53:54 GMT

Inside This Issue

Tax pros: Register now for the 2025 IRS Nationwide Tax Forum

Attendees get up to 18 continuing education credits, digital accounts services support, networking opportunities, advice on practice management and more

WASHINGTON — The IRS encourages tax professionals to register now for the 2025 IRS Nationwide Tax Forum, coming this summer to Chicago, New Orleans, Orlando, Baltimore and San Diego.

The IRS Nationwide Tax Forum is the agency’s largest annual outreach event designed and produced for the tax professional community. This year’s curriculum features required continuing education sessions on tax law and ethics as well as hot topics like changes to the tax code, cybersecurity, online tools, digital assets and disaster reporting.

Enrolled agents, certified public accountants, Annual Filing Season Program (AFSP) participants and other tax professionals can earn up to 18 continuing education (CE) credits.

Locations and registration details

The following is the 2025 IRS Nationwide Tax Forum lineup:

Location	Forum dates	Standard rate pre-registration deadline
Chicago, IL	July 1-3	June 17
New Orleans, LA	Aug. 5-7	July 22
Orlando, FL	Aug. 26-28	Aug. 12
Baltimore, MD	Sept. 9-11	Aug. 26
San Diego, CA	Sept. 16-18	Sept. 2

Attendees who act by the June 10 early bird deadline can take advantage of the lowest registration rate of $265 per person. Standard pricing of $319 begins after June 10 and ends two weeks before the start of each forum. On-site registration is also available at a cost of $399.

Members of the following partner associations can save an additional $10 on the early bird rate:

American Bar Association (ABA)
American Institute of Certified Public Accountants (AICPA)
National Association of Enrolled Agents (NAEA)
National Association of Tax Professionals (NATP)
National Society of Accountants (NSA)
National Society of Tax Professionals (NSTP)

Members should contact their association directly for a Nationwide Tax Forum discount code.

Forum highlights

Attendees get more than continuing education when they attend the IRS Nationwide Tax Forum. Additional benefits include the:

National Tax Forum Expo Hall – Each IRS tax forum features a two-day expo with representatives from the tax, banking and business communities offering products, services and expertise with the tax professional in mind. Inside the exhibit hall, attendees can also visit the IRS Zone to meet experts from areas such as customer accounts and enforcement. IRS staff will also demonstrate new features on IRS Online Accounts and take attendee feedback.

Digital Account Services Room – Tax professionals can get help creating an IRS Online Account, resolving issues with their preparer tax identification number (PTIN) or Centralized Authorization File (CAF) and more. Appointments will be available on location.

Scams & Schemes Panel Discussion – The Council for Electronic Revenue Communication Advancement (CERCA) and the IRS will host a presentation that will better equip tax pros to protect themselves and their practices with the latest on identifying and avoiding tax scams.

Special pre-forum events

Practice Management – On Mondays at 5 p.m., IRS partners from the NAEA, NATP, NSA, NSTP and Padgett Business Services will present ideas on how new and established tax professionals can attract and manage their customers, increase productivity and have a more satisfying work-life balance.

Annual Filing Season Refresher – Also on Mondays, IRS association partners will offer an optional Annual Filing Season Refresher for participants in the IRS Annual Filing Season Program.

Registration information

For more information, and to register online, visit Nationwide Tax Forum.

Navigating the Gig Economy: Tax Challenges for Workers and Businesses

Tue, 15 Aug 2023 16:00:00 GMT

Download Volume 13, Issue 4 Document Here

TaxTips
Volume 13, Issue 4
Distribution 8/12/2023; Publication 8/15/2023

Navigating the Gig Economy: Tax Challenges for Workers and Businesses
The gig economy refers to a labor market characterized by short-term contracts or freelance work as opposed to permanent jobs. It encompasses a wide range of industries, from ride-sharing and food delivery services to freelance writing and graphic design. Instead of being classified as traditional employees, many workers in the gig economy are considered independent contractors or self-employed individuals.

Tax Challenges for Independent Contractors
As an independent contractor, one of the primary challenges is managing taxes. Unlike employees who receive a regular paycheck with taxes withheld by their employers, independent contractors are responsible for calculating and paying their own taxes. This means that they need to set aside a portion of their earnings to cover income taxes, as well as self-employment taxes (which is the equivalent of Social Security and Medicare taxes withheld and paid by an employer).

Moreover, independent contractors may not have access to the same tax benefits as employees. For example, they may not be eligible for certain deductions, such as those related to employee benefits, health insurance premiums, or retirement plans. This can make it more difficult for independent contractors to reduce their taxable income and overall tax liability.

Another complication for independent contractors is deducting business expenses. In traditional employment, employees may be able to get pre-tax reimbursement/deductions for certain work-related expenses, such as transportation costs or home office expenses. However, independent contractors must carefully track and document their business-related expenses to claim deductions against their contractor income.

Common business expenses that independent contractors may incur include equipment or tools, software subscriptions, licensing costs, marketing expenses, and professional development costs. Keeping detailed records of these expenses is essential for accurately reporting deductions and minimizing taxable income.

Tax Challenges for Businesses
On the flip side, businesses that hire independent contractors also face tax challenges in the gig economy. When companies hire employees, they are typically responsible for withholding and remitting payroll taxes on behalf of their workers. However, when they engage independent contractors, the tax obligations differ.

Businesses that hire independent contractors are not generally required to withhold payroll taxes for them. Instead, independent contractors are responsible for reporting and paying their own self-employment taxes, which include Social Security and Medicare taxes. However, in some cases, businesses are required to comply with backup withholding rules when independent contractors provide the wrong Taxpayer Identification Number (TIN) or incorrectly report income on a tax return, which means that the business must withhold a certain percentage from all future payments to that contractor and deposit the withholdings directly with the IRS. Furthermore, misclassifying employees as independent contractors can lead to severe tax consequences and potential legal issues for businesses – IRS can assess back payroll taxes for payments that are later deemed as wages, and there can be legal ramifications for not providing certain benefits to those who are truly employees but being disguised as independent contractors. Therefore, businesses must ensure compliance with tax rules and laws surrounding worker classification.

Tax Compliance and Future Considerations
To navigate the tax challenges in the gig economy, both workers and businesses should prioritize tax compliance and proactive planning. Independent contractors should set aside a portion of their earnings to cover taxes and consult with tax professionals or use tax software to ensure accurate reporting. Keeping organized records of business expenses is crucial for maximizing deductions and reducing taxable income.

Businesses, on the other hand, should carefully review worker classification to ensure compliance with tax laws. Consulting with legal and tax professionals can help businesses determine whether a worker should be treated as an employee or an independent contractor. This can help avoid potentially costly penalties and liabilities associated with misclassification.

***

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Insert a link to your newsletter, website, or blog before you post these:

Our latest blog: “Navigating the Gig Economy: Tax Challenges for Workers and Businesses” is available now! Subscribe here: [link]

The gig economy refers to a labor market characterized by short-term contracts or freelance work as opposed to permanent jobs: [link]

Instead of being classified as traditional employees, many workers in the gig economy are considered independent contractors or self-employed individuals. Learn more in our latest blog article: [link]

As an independent contractor, one of the primary challenges is managing taxes. Learn more here: [link]

Independent contractors may not have access to the same tax benefits as employees, including being eligible for certain deductions. Find out more in our latest blog article: [link]

A large complication for independent contractors is deducting business expenses. Learn more here: [link]

To navigate the tax challenges in the gig economy, both workers and businesses should prioritize tax compliance and proactive planning. Learn more here: [link]

Understanding Tax Fraud: Consequences and Penalties

Tue, 01 Aug 2023 16:00:00 GMT

Download Volume 13, Issue 3 Document Here

TaxTips
Volume 13, Issue 3
8/1/203

Understanding Tax Fraud: Consequences and Penalties
Tax fraud is a serious offense that involves intentionally evading or misrepresenting information on tax returns to avoid paying the correct amount of taxes. In the United States, it is taken very seriously by both federal and state authorities, and anyone caught engaging in such activities could be subject to significant penalties and even criminal charges, including possible prison time.

Tax fraud occurs when individuals or businesses use deliberate deception to reduce their tax liability. It is important to note that tax fraud is different from tax avoidance, which involves using legal strategies to reduce tax exposure. Furthermore, making an honest mistake on a tax return is not considered tax fraud. Intentional and willful acts of deception are necessary to classify an action as fraudulent.

There are several common forms of tax fraud:

Underreporting Income: Willful failure to report all or a portion of earned income is one of the most prevalent forms of tax fraud. This can involve unreported cash payments, offshore accounts, or even failure to report income derived from illegal activity.
Inflating Deductions or Expenses: While the Internal Revenue Code allows taxpayers to claim certain expenses against their income before calculating their tax liability, reporting excessive deductions or inflating expenses beyond what is allowed by law is another story. This may involve fabricating or exaggerating business expenses, charitable contributions, or personal deductions.
Falsifying Documents: Creating false documents or altering existing ones to support fraudulent claims on tax returns is a serious offense. This can include forging receipts, invoices, or other financial records, destroying pertinent documentation, as well as knowingly filing an incorrect tax return.

Legal Ramifications and Penalties
Engaging in tax fraud can lead to severe legal consequences and penalties. The Internal Revenue Service has the authority to pursue civil and criminal charges against tax fraud offenders. Here are some of the potential penalties:

Civil Penalties: The IRS can impose civil penalties, which are financial sanctions, on individuals found guilty of tax fraud. These penalties may include fines, interest on unpaid taxes, and additional fees based on the amount of tax owed.
Criminal Charges: In more serious cases, tax fraud can result in criminal charges. If convicted, individuals may face imprisonment, substantial fines, or both. The severity of the penalties depends on the extent of the fraud, the amount of taxes evaded, and the individual's criminal history.
Asset Seizure: The government may seize assets, such as bank accounts, real estate, vehicles, or other property, to recover unpaid taxes resulting from tax fraud. This can have long-lasting financial consequences for the offender.
Reputation and Professional Consequences: Tax fraud convictions can harm an individual's reputation and result in the loss of professional licenses, difficulty securing future employment, and damage to personal and business relationships.

Tax fraud is a serious offense that undermines the integrity of the tax system and affects society as a whole. It is crucial to understand and fulfill tax obligations honestly and accurately. If you have concerns or questions regarding your tax situation, it is advisable to consult a qualified tax professional or seek guidance from the appropriate tax authorities.

***

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Insert a link to your newsletter, website, or blog before you post these:

Our latest blog: “Understanding Tax Fraud: Consequences and Penalties” is available now! Subscribe here: [link]

Making an honest mistake on a tax return is not considered tax fraud: [link]

There are several common forms of tax fraud, including underreporting Income. Learn more in our latest blog article: [link]

Tax fraud is different from tax avoidance, which involves using legal strategies to reduce tax exposure. Learn more here: [link]

There are several common forms of tax fraud, including inflating deductions or expenses. Find out more in our latest blog article: [link]

There are several common forms of tax fraud, including falsifying documents. Learn more here: [link]

Engaging in tax fraud can lead to severe legal consequences and penalties. Learn more in our latest blog article: [link]

The Internal Revenue Service has the authority to pursue civil and criminal charges against tax fraud offenders. Learn more here: [link]

The Digital Transformation of Taxes: Making Filing, Compliance, and Audits Easier Than Ever

Sat, 15 Jul 2023 16:00:00 GMT

Download Volume 13, Issue 2 Document Here

TaxTip
Volume 13, Issue 2
Distribution 7/12/2023; Publication 7/15/2023

The Digital Transformation of Taxes: Making Filing, Compliance, and Audits Easier Than Ever
Tax season has traditionally been a stressful time for many Americans, involving stacks of paperwork, confusing forms, and difficult-to-understand terminology. Tax authorities have also historically struggled with overseeing and ensuring taxpayer compliance. However, thanks to the digital revolution, tax digitalization is now transforming the way we handle the tax return and compliance process.

Simplified Tax Filing
The days of wrestling with mountains of forms and deciphering complex tax jargon are long gone! The digitalization of tax systems has introduced user-friendly online platforms that simplify the process of tax filing. These platforms guide taxpayers through a step-by-step process, prompting them to enter the necessary information and calculate their tax obligations accurately. With the help of built-in error checks and real-time calculations, the risk of making mistakes is significantly reduced. These platforms also enable taxpayers to file their returns conveniently from the comfort of their homes or offices, and they are accessible via computers, tablets, and smartphones, allowing individuals to file their taxes using a device of their choice. Additionally, online platforms often offer built-in customer support, ensuring taxpayers can receive assistance whenever needed.

Automation: Saving Time and Effort
Technology has played a vital role in automating various aspects of tax administration. Many tax systems use automation to streamline repetitive tasks, such as data entry and calculations. For example, automated systems can directly import financial data from various sources, such as employers, banks, and investment platforms, eliminating the need for manual data entry. This saves time and effort (and possibly cost for those who outsource tax preparation) and reduces the chances of human error.

Enhanced Compliance
With the implementation of digital tax systems, along with a more simplified process for taxpayers, compliance oversight by IRS and state tax departments has also become more efficient and effective. Tax authorities can use sophisticated algorithms and data analytics to detect potential non-compliance patterns and anomalies. This allows them to identify taxpayers who may have made errors or intentionally evaded taxes. By leveraging technology, tax authorities can ensure that everyone contributes their fair share and maintain a level playing field.

Digital Audits: A Streamlined Process
Digitalization has also revolutionized the audit process, making it less invasive and time-consuming. In the past, audits often involved extensive document gathering and in-person meetings. However, digital systems now allow taxpayers to submit supporting documents electronically, reducing the need for physical paperwork, and tax authorities can conduct virtual audits so that taxpayers do not need to be present in person. This streamlines the process, saves time, and reduces the burden on both taxpayers and auditors.

Tax digitalization in the United States has revolutionized the way we approach taxes, bringing convenience, efficiency, and accuracy to the forefront. Embracing the digital transformation of taxes allows individuals and businesses to save time, reduce errors, and contribute to a fairer and more transparent tax system.

***

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Insert a link to your newsletter, website, or blog before you post these:

Our latest blog: “The Digital Transformation of Taxes: Making Filing, Compliance, and Audits Easier Than Ever” is available now! Subscribe here: [link]

Thanks to the digital revolution, tax digitalization is now transforming the way we handle the tax return and compliance process. Learn more in our latest blog article: [link]

The digitalization of tax systems has introduced user-friendly online platforms that simplify the process of tax filing. Learn more in our latest blog article: [link]

With the implementation of digital tax systems, along with a more simplified process for taxpayers, compliance oversight by IRS and state tax departments has also become more efficient and effective. Learn more here: [link]

By leveraging technology, tax authorities can ensure that everyone contributes their fair share and maintain a level playing field. Find out more in our latest blog article: [link]

#TaxTip Digital systems now allow taxpayers to submit supporting documents electronically, reducing the need for physical paperwork, and tax authorities can conduct virtual audits so that taxpayers do not need to be present in person. Learn more here: [link]

Tax digitalization in the United States has revolutionized the way we approach taxes, bringing convenience, efficiency, and accuracy to the forefront. Learn more in our latest blog article: [link]

The days of wrestling with mountains of forms and deciphering complex tax jargon are long gone! Learn more here: [link]

Navigating the World of Digital Taxes in the United States: Unraveling the Complexities of the Digital Economy

Sat, 01 Jul 2023 16:00:00 GMT

Download Volume 13, Issue 1 Document Here

TaxTips
Volume 13, Issue 1
7/1/2023

Navigating the World of Digital Taxes in the United States: Unraveling the Complexities of the Digital Economy
As technology has continued to advance and transform, our lives have become intertwined with digital goods and services. We buy e-books, stream movies, subscribe to online music platforms, and even seek services from freelancers through online platforms. The digital economy has revolutionized the way we live, work, and connect with one another.

Taxation of Digital Goods
Digital goods encompass a wide range of products (such as digital music, videos, online games, etc.), and when it comes to taxing these goods, in the United States they are generally treated similarly to physical goods. Unlike in certain other countries, there is currently no Value Added Tax (VAT) at either the Federal or State level on such assets in the United States. However, many states apply sales tax to digital goods based on the location of the buyer (like how they tax traditional products), but these tax laws vary from state to state. For example, some states have identified which digital goods are subject to sales tax, and if a digital good doesn’t fall into one of the specific categories, the product is not subject to tax in the state. Alternatively, some other states take the position that any property “perceptible to the senses” falls within the definition of tangible personal property and would therefore be subject to sales tax, and many digital goods would meet that classification.

Taxation of Digital Services
Digital services include streaming platforms, cloud storage, software-as-a-service (SaaS), online courses, and various subscription-based services. Taxation of digital services can involve a patchwork of different rules, and the landscape is constantly evolving. For example, some states have proposed imposing gross revenue taxes on certain digital activities, and some levy sales tax on such services based on the location of the customer. However, due to the dynamic nature of the digital economy, tax laws regarding these services are subject to change, so it's advisable to stay informed about the latest regulations in your jurisdiction.

Taxation of Online Platforms
Online platforms that facilitate digital transactions, like e-commerce marketplaces or gig economy platforms, have also come under scrutiny for tax purposes. In the United States, online platforms are generally not directly responsible for collecting and remitting taxes on behalf of their users. Instead, individuals and businesses using these platforms are typically responsible for reporting and paying taxes on their earnings. The IRS has been very clear that income earned from such platforms is reportable on a tax return and subject to income tax, even if the income is:

From part-time, temporary, or side work
Not reported on an information return form, like a 1099-MISC, 1099-K, or 1099-NEC
Paid in any form, including cash, property, goods, or virtual currency

Challenges of the Digital Economy
Taxing the digital economy presents unique challenges due to its global and borderless nature. One of the main challenges is identifying the appropriate jurisdiction to tax digital transactions, especially when goods or services are provided across state or national borders. Many states/jurisdictions have not addressed the matter of how to source digital goods and services, and the lack of a uniform rule opens the door for possible double taxation because two different jurisdictions could be legally entitled to tax the same digital transaction. This issue has prompted discussions at the international level to develop a framework for taxing digital activities.

In response to these challenges, some countries have introduced or proposed digital services taxes (DSTs) aimed at taxing revenue generated by multinational digital companies, so that those jurisdictions have increased taxing rights over the profits of such companies that sell into their local markets. However, the implementation and impact of such taxes remain subject to ongoing debate and negotiation.

As our world continues to embrace the digital revolution, understanding the taxation of digital goods, services, and online platforms becomes increasingly important. While taxation rules and regulations can be complex and subject to change, adopting a proactive approach and seeking professional advice can help individuals and businesses navigate the digital tax landscape more effectively and be prepared for a continuing unpredictable tax environment.

***

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Our latest blog: “Navigating the World of Digital Taxes in the United States: Unraveling the Complexities of the Digital Economy” is available now! Subscribe here: [link]

The Inflation Reduction Act: Healthcare, Business, and Other Provisions

Mon, 20 Feb 2023 17:00:00 GMT

Download Volume 12, Issue 17 Document Here

Tax Tips
Volume 12, Issue 17
For distribution 2/17/23; publication 2/20/23

The Inflation Reduction Act: Healthcare, Business, and Other Provisions

The Inflation Reduction Act of 2022 (the “Act”) includes a range of new tax rules addressing various areas. While one of its significant goals is to address climate change and jump-start clean energy production via expanded electric vehicle and energy efficiency credits, the Act also includes other provisions intended to address inflation by reducing the amount of government spending, imposing new revenue streams, and decreasing healthcare costs for Americans.

In this article, we’ll cover the non-energy provisions of the Act that affect your taxes.

Healthcare Provisions in the Act

The Affordable Care Act program is extended through 2025. With additional funding, this is expected to allow higher-income households to qualify for the Premium Tax Credit, as well as increase the subsidy for lower-income households.

The Act limits annual out-of-pocket costs of prescription drugs for seniors on Medicare to an estimated $4,000 by 2024 and $2,000 by 2025. Additionally, Medicare is able to negotiate certain prescription prices with drugmakers. Other Medicare benefits are expanded, including free vaccines and $35 per month insulin costs, by 2023.

Business Tax Provisions

Effective for tax years beginning on or after January 1, 2023, C corporations with average adjusted financial statement income greater than $1 billion over any consecutive three years will now pay a minimum 15% tax on corporate book income.

The Act creates a 1% excise tax on the value of publicly-traded stock that is repurchased by the corporation or certain subsidiaries, effective after December 31, 2022. This new tax excludes buybacks of less than $1 million, repurchases connected to contributions to retirement savings plans, repurchases treated as dividends, and certain other transactions.

The limitation on pass-through net business losses for noncorporate taxpayers that was enacted in the 2017 Tax Cuts and Jobs Act (TCJA) is extended through 2028. The business loss deduction in 2022 is limited to $540,000 for joint filers and $270,000 for all other filers.

Increased R&D credits are provided for eligible start-up businesses that elect to apply the credits against employer payroll tax liability instead of income tax. The eligible amount is increased from $250,000 to $500,000, effective January 1, 2023.

Other Provisions

The Act provides nearly $80 billion in additional funding to the IRS over the next ten years. Last year, social media posted that IRS would be hiring 87,000 armed personnel with this money. This is not true. This extra funding will increase hiring, but the new employees will work in operations, systems, and taxpayer services as well as collections. As of this writing, only four percent of IRS employees work in the Criminal Investigation Division.

As always, if you have any questions about any of these changes, feel free to reach out any time.

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Our latest blog: “The Inflation Reduction Act: Healthcare, Business, and Other Provisions” is available now! Subscribe here: [link]

Want to know more about the non-energy provisions of the Act that affect your taxes? Learn more in our latest blog article: [link]

The Inflation Reduction Act includes provisions intended to address inflation by reducing the amount of government spending, imposing new revenue streams, and decreasing healthcare costs for Americans. Learn more in our latest blog article: [link]

#BusinessTip:After 2023, taxpayers can elect to transfer their electric vehicle (EV) credit to treat it as a payment to the dealer. Learn more here: [link]

With the Inflation Reduction Act of 2022, the Affordable Care Act program is extended through 2025. Learn more in our latest blog article: [link]

DID YOU KNOW… The Inflation Reduction Act of 2022 provides nearly $80 billion in additional funding to the IRS over the next ten years. Learn more here: [link]

If you want to know more about the business tax provisions in the Inflation Reduction Act of 2022, you’ll want to check out our latest blog article: [link]

Have questions about some of the provisions included in the Inflation Reduction Act of 2022? Check out our latest blog for more info: [link]

Income Tax Deductions vs. Tax Credits… Which One Is Better?

Thu, 09 Feb 2023 17:00:00 GMT

Download Volume 12, Issue 16 Document Here

Tax Tips
Volume 12, Issue 16
For distribution 2/6/23; publication 2/9/23

Income Tax Deductions vs. Tax Credits… Which One Is Better?

While a deduction can reduce the amount of taxable income, credits can directly reduce the amount of tax owed, so they offer a greater tax benefit. Sometimes, credits can be refundable, which means that they might generate a refund for you even when you don’t owe tax. Below are some examples of different types of credits and deductions available for individual taxpayers. Keep in mind that each credit and/or deduction has specific criteria that need to be met in order to qualify.

Credits for Individuals

Child Tax Credit
Dependent Care Credit
Earned Income Tax Credit
Adoption Credit
Saver’s Credit
Foreign Tax Credit
Excess Social Security and RRTA tax withheld
Credit for Tax on Undistributed Capital Gain
Credit for Prior Year Minimum Tax
Residential Energy Credits
Plug-in Electric Drive Vehicle Credit
Premium Tax Credit (marketplace health care insurance credit)
American Opportunity Credit and Lifetime Learning Credit

If you feel you might qualify for one of these credits, be sure to ask your tax preparer about them.

Deductions for Individuals

The IRS provides each taxpayer with a standard deduction that reduces their adjusted gross income so they pay less tax. The amounts change each year, and are determined by filing status. In the 2022 tax year, here is a sampling of the standard deduction amounts.

Single; Married Filing Separately $12,950

Married Filing Jointly; Qualifying Widow(er) $25,900

Head of Household $19,400

Most taxpayers take the standard deduction, but the law allows you to take more if you have more qualifying deductions than the limits above. These are called itemized deductions and can include personal property tax, real estate tax, sales tax, charitable contributions, gambling losses, interest expense, home mortgage interest paid, and moving expenses, to name a few.

Students and teachers may be able to take education deductions, which include student loan interest paid, work-related educational expenses, and educational expenses paid by a teacher.

Self-employed individuals can claim work-related deductions related to business expenses, business use of car, and business use of home on Schedule C.

Health care deductions, such as medical and dental expenses or Health Savings Account (HSA) contributions can be deductible to those who participate in these plans.

For investors, deductions may include sale of home, Individual Retirement Arrangement (IRA) contributions, capital losses, bad debts, qualified opportunity zone investments, and debt forgiveness.

If you’d like to study deductions and credits on your own, the IRS website is a wealth of knowledge. If you don’t want to do that, you can always ask your tax professional. Filling out your tax organizer in a complete and thorough manner is the very first step to helping your tax pro identify the plethora of credits and deductions you may qualify for.

***

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Our latest blog: “Income Tax Deductions vs. Tax Credits… Which One Is Better?” is available now! Subscribe here: [link]

Do you know the different types of credits and deductions available for individual taxpayers? Learn about them in our latest blog article: [link]

The Child Tax Credit, Dependent Care Credit, Earned Income Tax Credit, and Adoption Credit are just some of the few tax credits available to qualified individual taxpayers. Learn more in our latest blog article: [link]

#BusinessTip: While a deduction can reduce the amount of taxable income, credits can directly reduce the amount of tax owed, so they offer a greater tax benefit. Learn more here: [link]

The IRS provides each taxpayer with a standard deduction that reduces their adjusted gross income so they pay less tax. This amount changes yearly and is dependent on filing status. Learn more in our latest blog article: [link]

DID YOU KNOW…while most taxpayers take the standardized deduction, the law allows you to take more if you have more qualifying deductions than the limits set by the standardized amount. These are known as itemized deductions. Learn more here: [link]

Filling out a tax organizer in a complete and thorough manner is the very first step to helping your tax pro identify the plethora of credits and deductions you may qualify for. Learn more about tax credits and deductions here: [link]

Keep in mind that each tax credit and/or deduction has specific criteria that need to be met in order to qualify. Find out more in our latest blog: [link]

The Inflation Reduction Act: Energy Efficiency Credits and Provisions

Thu, 26 Jan 2023 17:00:00 GMT

Download Volume 12, Issue 15 Document Here

Tax Tips
Volume 12, Issue 15
For distribution 1/23/23; publication 1/26/23

The Inflation Reduction Act: Energy Efficiency Credits and Provisions

The Inflation Reduction Act of 2022 (the “Act”) was recently passed, and it includes a range of new tax rules addressing various areas, including healthcare, energy, and tax measures. With one of its significant goals being to address climate change and jump-start clean energy production, the Act created a significant number of renewable energy sector benefits, including extended and expanded energy-efficiency credits and provisions.

If you have made any energy-related improvements to your home, let your tax professional know so they can consult with you on whether your investments qualify for these credits. Here is a brief rundown.

Expanded Credit for Home Energy Efficiency Improvements

Although the IRC 25C nonbusiness energy property credit already existed for various home energy efficiency improvements, the impact was limited because of it only applying to primary residences and being subject to a lifetime limitation of $500 for each taxpayer. The Act extends the previous credit for another year through the end of 2022 and expands the credit significantly beginning in 2023. Starting in 2023, the following new rules apply:

1.      The credit has a $1,200 annual limitation with no lifetime limit for most qualifying improvements.
2.      The credit is equal to 30 percent of the property’s cost.
3.      Certain subcategories under the $1,200 cap have their own annual limits - $600 for windows, $500 for exterior doors ($250 per door), $600 for energy equipment, and $150 for home energy audits. Heat pumps and biomass stoves have a $2,000 annual limit instead of $1,200.
4.      The credit can be claimed for improvements to any dwelling unit, not just a residence, and can include installation and enhanced wiring costs.

Extended Residential Clean Energy Credit

The IRC 25D residential energy efficiency property credit is also an existing credit already available, but while it originally allowed a 30 percent credit (mostly used for solar systems and related costs), it was reduced to 26 percent in recent years and was scheduled for additional reductions and eventual expiration. The Act renamed the credit to the residential clean energy credit and brought the credit back up to 30 percent starting in 2022, and it also extended the credit through 2034 (with reduced percentages in 2033 and 2034). It will completely expire in 2035 unless Congress continues it.

Clean Energy Credits for Businesses and Investors

This credit is similar to the residential credit for individuals, with the business investment tax credit for solar and other renewable energy technologies reduced from 30 percent to 26 percent in recent years and scheduled for further reductions and expiration. The Act brings this back to 30 percent for projects completed in 2022, 2023, and 2024 and is expanded to include energy storage technologies. For 2025 and beyond, the 30 percent credit still applies for geothermal projects, but it will also require projects to meet certain wage and apprenticeship standards and use source materials from within the United States. This will apply to such projects that start construction through 2034, but the credit will start to phase out for projects beginning after 2032 (26 percent for 2033 and 22 percent for 2034).

High-Efficiency Electric Home Rebate Program

While not a credit, this provision of the Act will create a program to award rebates to individuals or families who purchase certain energy-efficient improvements. Participants must earn less than 150 percent of the median income where they live to qualify. The rebate amounts will depend on the category of improvement or upgrade: for example, a stove, cooktop, range, or heat pump clothes dryer could qualify for a rebate of $840, while a rebate for a heat pump for space heating and cooling could be as high as $8,000. The percentage of the property’s cost awarded as a credit will vary depending on income level, and each family will be limited to no more than $14,000 in total rebates under the program. This program will run through 2031.

Other

There are other credits and incentives available under the Act to encourage production of electricity using clean energy and reduce carbon emissions – however, above are some of the most common provisions. Consult with your tax professional to learn more!

***

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Our latest blog: “The Inflation Reduction Act: Energy Efficiency Credits and Provisions” is available now! Subscribe here: [link]

If you have made any energy-related improvements to your home, let your tax professional know so they can consult with you on whether your investments qualify for these credits. Learn more in our latest blog article: [link]

The Inflation Reduction Act of 2022 created a significant number of renewable energy sector benefits, including extended and expanded energy-efficiency credits and provisions. Learn more in our latest blog article: [link]

#BusinessTip: The Inflation Reduction Act of 2022 brings the business investment tax credit for solar and other renewable energy technologies back up to 30 percent for projects completed in 2022 through 2024 and is expanded to include energy storage technologies. Learn more here: [link]

Starting in 2023, new rules have been applied for the nonbusiness energy property credit. This includes allowing the credit to be claimed for improvements to any dwelling unit, not just a residence. Learn more in our latest blog article: [link]

DID YOU KNOW… There is now a provision in the Inflation Reduction Act of 2022 that will create a program to award rebates to individuals or families who purchase certain energy-efficient improvements. Learn more here: [link]

There are many credits and incentives available under the Act to encourage production of electricity using clean energy and reduce carbon emissions. Check out some of the most common ones in our latest blog article: [link]

Have you made any energy-related improvements to your home? You may qualify for energy-efficiency credits! Find out more in our latest blog: [link]

The Inflation Reduction Act: Electric Vehicle Credits

Thu, 12 Jan 2023 17:00:00 GMT

Download Volume 12, Issue 14 Document Here

Tax Tips
Volume 12, Issue 14
For distribution 1/9/23; publication 1/12/23

The Inflation Reduction Act: Electric Vehicle Credits

Are you considering buying an electric vehicle in 2023? The rules have recently changed, due to the passage of the Inflation Reduction Act of 2022 (the “Act”) in the summer of 2022. This bill included a range of new tax rules addressing various areas, and one of its significant goals was to address climate change and jump-start clean energy production. In this article, we’ll specifically cover the portion of the bill that includes updates to the electric vehicle credits available.

Under the Act, existing electric vehicle (EV) credits have been expanded and modified. Although credits of up to $7,500 on the purchase of a new EV have been available for several years (with some limitations), the existing rules have been changed to make them more available to middle income taxpayers while also ramping up domestic manufacturing of EVs and their related components such as batteries.

Overall, there are now three EV tax credits available:

1. [Revised] IRC 30D qualified plug-in vehicle credit, renamed to the clean vehicle credit
The maximum credit remains at $7,500; however, there are income limits for qualifying automobiles placed in service after December 31, 2022.

Any vehicle placed in service after August 16, 2022 must have final assembly in North America in order to qualify (with a transition rule for any contracts entered into between January 1, 2022 and August 15, 2022).

After 2023, taxpayers can elect to transfer their credit to treat it as a payment to the dealer.

When purchasing an EV, be sure to request for your salesperson to give you the necessary tax information you need! For some manufacturers, the assembly location may vary depending on the specific vehicle and trim, and for that reason, it’s advised to ask the salesperson for the VIN of the car that you plan to purchase.

The Department of Energy has provided a VIN lookup tool that can be used to verify this information for a particular vehicle. Consumers can refer to a list published by to determine which models have final assembly in North America: https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

2. [New] IRC 25E previously-owned clean vehicle credit
A credit is now available for used EVs. Previously-owned clean vehicles placed in service after December 31, 2022 and before January 1, 2033 may qualify for the credit.

The credit is a nonrefundable credit equal to the lesser of $4,000 or 30% of the vehicle sale price.

There is also an income limit to qualify for this credit (with much lower limits than the 30D credit), and the sale price must be $25,000 or less.

3. [New] IRC 45W qualified commercial clean vehicle credit
This credit is available for commercial clean vehicles placed in service after December 31, 2022 and before January 1, 2033. The credit is 15% of the vehicle’s basis but increases to 30% for a vehicle not powered by a gasoline or diesel combustion engine, and it cannot exceed $40,000 (with other possible limitations).

There is no income limitation to claim it, but there are other requirements regarding the vehicle type and type of clean energy used. A taxpayer cannot claim the credit for a vehicle for which the taxpayer received the IRC 30D credit (#1).

Check with your tax professional to learn more about the new/revised electric vehicle credits and how they impact your specific tax situation.

***

Tweets

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Our latest blog: “The Inflation Reduction Act: Electric Vehicle Credits” is available now! Subscribe here: [link]

Are you considering buying an electric vehicle in 2023? Some rules have changed with the passage of the Inflation Reduction Act of 2022. Learn more in our latest blog article: [link]

Under the Inflation Reduction Act of 2022, existing electric vehicle (EV) credits have been expanded and modified. Learn more in our latest blog article: [link]

#BusinessTip: After 2023, taxpayers can elect to transfer their electric vehicle (EV) credit to treat it as a payment to the dealer. Learn more here: [link]

A credit is now available for used EVs. Previously-owned clean vehicles placed in service after December 31, 2022 and before January 1, 2033 may qualify for the credit. Learn more in our latest blog article: [link]

DID YOU KNOW… There are now three EV tax credits available following the passage of the Inflation Reduction Act of 2022. Learn more here: [link]

If you’re thinking about buying an electric vehicle (EV) in 2023, you don’t want to miss the latest info on EV tax credits in our latest blog article: [link]

One of the significant goals of the Inflation Reduction Act of 2022 was to address climate change and jump-start clean energy production. Check out how it affects electric vehicles in our latest blog: [link]

Need to Correct Your Already-Filed Tax Return?

Thu, 29 Dec 2022 17:00:00 GMT

Download Volume 12, Issue 13 Document Here

BizBoost News
Volume 12, Issue 13
For distribution 12/26/22; publication 12/29/22

Need to Correct Your Already-Filed Tax Return?

There is now a choice for tax professionals who need to make changes to a tax return that has already been filed with the IRS.

Superseding vs. Amended Tax Returns

You’re likely already familiar with the amended tax return. An amended return is filed subsequent to the originally-filed or superseding return and after the due date (including extensions).

Introducing the superseding return: A superseding return is a revision of an originally-filed return that is submitted within the current filing period (before that return’s due date, including extensions).

A superseding return “supersedes” (replaces) the original return rather than amending it.

When Should a Superseding Return Be Used?

Although the issue of superseding returns goes back to a court case from the 1940s, it has recently gained attention again, in part because of processing and guidance delays associated with the COVID-19 pandemic. Some of the more common situations that have come up where a superseding return could be relevant include:

There are additional reporting requirements that come out after submission of the original return, but before the due date, that must be addressed to ensure compliance (a more recent example of this relates to Payroll Protection Program (PPP) expense deductibility and disclosures).
A taxpayer expedites filing of their return (for example, to provide it for dependent financial aid purposes or, more recently, to take advantage of COVID-related stimulus payment/recovery rebate relief), and then receives a form or discovers missing information after-the-fact that must be factored into the return.
The IRS or State requires filing of a new form, but it is not finalized or available for e-file until after the original filing deadline, so the taxpayer files the return but must add the applicable form(s) later to ensure compliance (a recent example relates to new foreign reporting on Schedules K-2 and K-3).
A taxpayer files a return and neglects to make or change an important binding election; although the election cannot be made or revoked on an amended return, it can be on a superseding return because that return replaces the original filing and is generally treated as the original return (one example of this would be the de minimis safe harbor election, which must be made every year and is irrevocable).
A taxpayer erroneously files a blank or incomplete return and wants to avoid underreporting or other accuracy-related penalties.

When and How to File a Superseding Return

As noted, a superseding return must be filed on or before the due date for the current filing period, including extensions. Individual superseding returns must be paper filed, and the filing must include a whole new copy of the 1040 return with the applicable changes factored in (with all necessary schedules and attachments) and should have “SUPERSEDING RETURN” written across the top of the first page. Although individual superseding returns cannot be electronically filed, many tax programs now support e-filing of superseding corporate and partnership returns, which typically ensures faster processing.

It is important to note that although the recommendation is to file a superseding individual return on a regular 1040 form, as you would ordinarily file the original return, any amended personal returns that are filed before the due date (including extensions) will automatically be treated as superseding, so you also have the option to just file Form 1040-X.

Additionally, some tax professionals recommend the strategy of filing extensions for all clients each year, even if the plan is to file prior to the original filing deadline, because if a taxpayer files a return by the original due date and discovers an error after that date, but before the extended due date, a superseding return can still be submitted. This is not an option for returns that were not put on extension – once the initial deadline passes, only an amended return can be submitted to report any changes.

If you’d like to discuss this topic and how it might affect your tax return filing, please reach out any time.

***

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Our latest blog: “Need to Correct Your Already-Filed Tax Return?” is available now! Subscribe here: [link]

There is now a new choice for tax professionals who need to make changes to a tax return that has already been filed with the IRS. Learn more in our latest blog article: [link]

#BusinessTip:Although individual superseding returns cannot be electronically filed, many tax programs now support e-filing of superseding corporate and partnership returns, which typically ensures faster processing. Learn more here: [link]

Do you know the difference between superseding and amended tax returns? Learn the differences and which one is best for you in our latest blog article: [link]

DID YOU KNOW… An amended return is filed subsequent to the originally-filed or superseding return and after the due date (including extensions). A superseding return “supersedes” (replaces) the original return rather than amending it. Learn more here: [link]

Although the issue of superseding returns goes back to a court case from the 1940s, it has recently gained attention again, in part because of processing and guidance delays associated with the COVID-19 pandemic. Learn some of the more common situations that have come up where a superseding return could be relevant in our latest blog article: [link]

Have you learned about superseding tax returns yet? This return is different from an amended return in many ways. Sign up for our newsletter to learn more: [link]

End of the Year Tax Reminders for Business Owners

Thu, 15 Dec 2022 17:00:00 GMT

Download Volume 12, Issue 12 Document Here

BizBoost News
Volume 12, Issue 12
For distribution 12/12/22; publication 12/15/22

End of the Year Tax Reminders for Business Owners

Performing these tasks at year-end will help your tax professional prepare your return accurately, plus it will make your tax professional very happy when you have these answers at the ready!

· Write down the odometer reading on the vehicles you use for business. It is important to know what percent you are using the vehicle for business and what percent you are using for personal. You should have a mileage log, but even if you just write down your odometer once a year, you’ll know how many total miles you drove for the year.

· If you carry inventory, you are required to do a count once a year showing the value.

· If you have payroll, verify if your EDD employment rate has changed for the upcoming year. You should have received a letter with the percentage in early December.

· Collect any W-9s from vendors. Verify if you paid anyone over $600 that will require a 1099. You will also need to send out a 1096. Visit the IRS website to order forms: https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns

· Back up data from the computer. Double check the backups are copying correctly.

· Update service account passwords and who has access to them. For security reasons, it is important to periodically update passwords and review/reassess which individuals have access to them.

· Copy thermal receipts. Many receipts that you get from office supply stores, gas, etc., are on thermal paper. The image will fade over time. Make a copy of the receipt because if you are audited, the IRS will want to see the details, not the credit card statement. Better yet, scan all of your receipts into a document management system and toss the paper.

· Verify when corporate minutes will be due for the coming year and mark the calendar.

· Review your business plan and make any necessary changes. What do you project your gross revenue to be for the upcoming year? How will that compare with the current year? What will you do to increase your profits?

· If you use QuickBooks, set the closing date and password on QuickBooks file.

Getting these necessary clerical tasks out of the way will make it easier for everyone.

***

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Our latest blog: “End of the Year Tax Reminders for Business Owners” is available now! Subscribe here: [link]

We’ve compiled a list of tasks to perform at year-end that will help your tax professional prepare your return accurately. It will also make your tax professional very happy when you have these answers at the ready! Learn more in our latest blog article: [link]

A few things you can do to prepare for tax season are:

•Write down the odometer reading on the vehicles you use for business

•If you carry inventory, you are required to do a count once a year showing the value

•If you have payroll, verify if your EDD employment rate has changed for the upcoming year

Learn more in our latest blog article: [link]

#BusinessTip: Do these things at year-end to prepare for tax season:

•Verify when corporate minutes will be due for the coming year and mark the calendar

•Review your business plan and make any necessary changes

•If you use QuickBooks, set the closing date and password on QuickBooks file

Find more tips here: [link]

Are you prepared for tax season? It’s never too early to get started! We’ve compiled a list of things you can start doing now. Getting these necessary clerical tasks out of the way will make it easier for everyone: [link]

DID YOU KNOW… There are numerous things you can start doing now to make tax season easier. Learn more in our latest blog article: [link]

We have a couple end of year tax reminders for business owners! Find the full list in our latest blog article: [link]

Do you know what you can do to prepare for tax season, now? Sign up for our newsletter to access the full list of year-end to-dos that will make your upcoming tax season much easier! [link]

9 Things to Do Before Year-End to Reduce Your Tax Bill

Thu, 01 Dec 2022 17:00:00 GMT

Download Volume 12, Issue 11 Document Here

BizBoost News
Volume 12, Issue 11
For distribution 11/28/22; publication 12/01/22

9 Things to Do Before Year-End to Reduce Your Tax Bill

Who doesn’t want to pay fewer taxes? The key to minimizing your tax bill is to plan ahead and select the strategies that work for your situation. When April 15, 2023 rolls around, it’s simply too late for tax planning, so now is the time to be proactive and save on your 2022 taxes.

Here are nine ideas to try.

1. Maximize Retirement Contributions Through Your Employer’s 401(k) Plan
This type of plan allows you to contribute pre-tax dollars to retirement, and contributions directly reduce taxable wage income. While contributions to IRAs and other types of retirement accounts can be done after year-end/up through the due date of your tax return, deferrals through an employer 401(k) plan must be completed by year-end, so make sure you will be able to contribute the desired amount for the year by 12/31. For tax year 2022, you can contribute up to $20,500 if under age 50, and $27,000 if 50 or older by year-end.

2. Harvest Investment Losses to Offset Capital Gains
If you have sold stock or other property that has generated capital gains, consider whether you have investment losses you can generate before year-end to reduce the overall capital gain you report/pay tax on. For example, if you have stock you’ve held for some time that has consistently been in a loss position, selling by year-end will allow you to offset those other capital gains – and also possibly find a better use for those funds that were invested.

It is always ideal to time capital gains and losses in the same year if you can because they can offset each other, and you are only able to deduct up to $3,000 of overall loss per year. So, if you have a large capital gain in one year and a large capital loss in the next, you will have had to pay tax on that capital gain in that first year, but then might not fully realize the benefit of the loss in the latter year for a number of years, because of that $3,000 per year limitation (unless other capital gains come up to offset it). If they happen in the same year, they would be netted together and the tax benefit would be fully received in the current year. Timing is everything!

3. Bunch Deductions So You Can Itemize
Because the Tax Cuts and Jobs Act (TCJA) both increased the standard deduction and capped the deduction for state and local income taxes paid when itemizing at $10,000, many taxpayers are finding that they benefit more from taking the standard deduction. However, this prevents them from receiving any direct benefit/deduction for certain expenses, like charitable donations and health care costs over a certain level. One way around this is to strategically time the payment of these costs so you can bunch them together and take advantage of itemizing deductions every other year. For example, if you already made donations earlier in the year and know that you plan to for 2023, consider paying your 2023 donations early/by year-end 2022 in order to exceed the standard threshold and take advantage of itemizing for the upcoming tax year.

4. Defer Income
If you are self-employed or an independent contractor, consider delaying invoicing clients for work to time it so you receive the income in January 2023 instead of December 2022. This will allow you to keep that income off of your 2022 return, and therefore hold off on paying tax on that income for another year.

5. Donate Appreciated Stock to Charity
The benefits of doing this are two-fold: you avoid capital gains/tax and also receive a charitable deduction for the appreciated value of the stock. Just be sure that you are actually going to itemize and won’t be taking the standard deduction, because the charitable deduction benefit is only available to you if you itemize deductions. 6. Purchase Business Equipment

If you are a business owner and have been thinking about purchasing equipment for your business (machinery, computers, software, a vehicle, etc.), now is the time to do it! With the expanded accelerated depreciation options that came out of the Tax Cuts and Jobs Act (which will be reduced in future years), many of these items qualify for significantly higher deductions – possibly even 100 percent. Whereas in prior years you may have had to deduct the cost of these items over a number of years, you will now likely be able to deduct them fully in the year purchased, or at least take a much higher first-year deduction. This will reduce the profit of your business, which directly reduces your taxable income and tax liability.

7. Install Solar Panels
Consider installing solar panels on your home prior to year-end to take advantage of the newly enhanced solar tax credit. When you install a solar system, 30 percent of your total project costs can be claimed as a credit on your IRS tax. So, if you spend $10K on the system, you will directly reduce your tax bill by $3,000.

The 30 percent credit will be in effect through 2032, after which the credit decreases to 26 percent for systems installed in 2033 and 22 percent for systems installed in 2034. The tax credit expires in 2035 unless renewed by Congress.

8. Invest in a Qualified Opportunity Zone Fund
As part of the Tax Cuts and Jobs Act, taxpayers can now defer payment of capital gains tax to 2026 by investing the proceeds of a sale in a qualified opportunity zone. These zones are located all over the country and were designated as areas that would benefit from economic development. Tax can be deferred on the portion of the gain that was used to benefit the distressed zone.

The investment must be made within 180 days of the sale that generated the capital gains, so if you’ve already had a property sale in 2022 and would like to explore this, you’ll want to pay attention to the timeframe and act accordingly.

9. Meet With Your Tax Professional to Review Your Projected Tax Bill and Discuss Strategies
It can be extremely beneficial to meet with your tax professional before year-end and review a projection of your tax situation for the year, discussing possible strategies for reducing your tax bill. You may be able to strategize to get yourself in a lower tax bracket and allow for taking advantage of more deductions and credits, which might not be available to you at a higher income level.

In order for your tax professional to project your tax liability for the year, you’ll need to provide information regarding your income for the year – pay stubs, Profit & Loss reports if you have a business, information regarding investment income, as well as details regarding any other types of income or any changes to your situation from the prior year.

Schedule a time with your tax professional in November or early December so you have time to take any necessary actions to reduce your tax bill for the year!

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “9 Things to Do Before Year-End to Reduce Your Tax Bill” is available now! Subscribe here: [link]

Who doesn’t want to pay fewer taxes? The key to minimizing your tax bill is to plan ahead and select the strategies that work for your situation. Learn more in our latest blog article: [link]

When April 15, 2023 rolls around, it’s simply too late for tax planning, so now is the time to be proactive and save on your 2022 taxes! Learn more in our latest blog article: [link]

#BusinessTip:If you are a business owner and have been thinking about purchasing equipment for your business, doing it now can reduce your tax bill! With the expanded accelerated depreciation options that came out of the Tax Cuts and Jobs Act, many equipment items qualify for significantly higher deductions. Learn more: [link]

#TaxTip: Schedule a time with your tax professional in November or early December so you have time to take any necessary actions to reduce your tax bill for the year! Learn more about how to starting preparing for tax season here: [link]

DID YOU KNOW… One way to reduce your tax bill is to maximize retirement contributions through your employer’s 401(k) plan. This type of plan allows you to contribute pre-tax dollars to retirement, and contributions directly reduce taxable wage income. For tax year 2022, you can contribute up to $20,500 if under age 50, and $27,000 if 50 or older by year-end. Learn more here: [link]

DID YOU KNOW… By getting started early, you may be able to strategize with your tax professional to get yourself in a lower tax bracket and allow for taking advantage of more deductions and credits. Sign up for our newsletter to learn more: [link]

SECURE Act and Required Minimum Distributions Proposed IRS Regulations

Thu, 17 Nov 2022 17:00:00 GMT

Download Volume 12, Issue 10 Document Here

BizBoost News
Volume 12, Issue 10
For distribution 11/14/22; publication 11/17/22

SECURE Act and Required Minimum Distributions Proposed IRS Regulations

When the SECURE Act went into effect on January 1, 2020, there were many open questions from tax professionals and taxpayers about Required Minimum Distributions (RMDs) and how certain provisions of the new legislation should be treated. Some of the language in a number of the provisions was not defined well or was left open to substantial interpretation. However, earlier this year, the U.S. Department of Treasury released proposed regulations under the SECURE Act, which help to provide a window into the IRS interpretation of this law.

The proposed regulations provided much-needed clarification on a number of SECURE Act provisions. Some of the most notable items include:

1. “Eligible Designated Beneficiary” (EDB) Clarifications.
One of the most significant changes made by the SECURE Act was the implementation of the 10-Year Rule, which requires most non-spouse beneficiaries to distribute the entirety of their inherited retirement accounts by the end of the tenth year after the decedent’s death. However, some individuals who are EDBs are allowed to “stretch out” post-death RMDs and not conform to the new 10-year payment rules. The regulations further clarify elements of the EDB qualifications, including:

At what point does a minor child of the IRA owner/retirement plan account holder reach the age of majority? Under previous guidance it was thought that a minor child would reach age of majority based on state law, which could be as late as 26 if the child is still in school. However, these regulations clarify that such minors reach the age of majority on their 21^st birthday, so the 10-Year-Rule kicks in at that time.
What constitutes a disabled beneficiary under the EDB rules? The regulations confirm that the definition of “disability” under IRC Section 72(m)(7) should be used to determine if a beneficiary is an EDB. The individual must be unable to perform any job because of a physical or mental impairment that can be expected to result in death or last indefinitely (or, in the case of a disabled child, the regulations clarify that the beneficiary must have a physical or mental impairment that results in marked or severe functional limitations that are expected to result in death or last indefinitely). Furthermore, the regulations add a “safe harbor” that a beneficiary is considered disabled if they’ve been deemed so by the Social Security Administration.

2. Timing of 10-Year-Rule Deadline.
For designated non-EDBs, the entire inherited retirement account must be withdrawn in its entirety within 10 years after the death of the IRA owner/retirement plan participant’s death. The regulations make it clear that the deadline is December 31^st of the 10^th year, not the 10-year anniversary of the date of death.

3. Certain Non-EDBs are Subject to Both the 10-Year-Rule and Annual RMDs in Years One Through Nine.
To the surprise of some taxpayers and tax practitioners, certain non-EDBs are subject to the annual RMD rule in the years leading up to the 10-year payment deadline. A non-EDB is subject to the annual RMD requirement if the IRA owner/retirement plan participant died after his or her required beginning date (RBD), which is the date by which the first RMD would have been due. The RBD for a traditional IRA owner born before 7/1/1949 is April 1^st of the year following the year the owner turns 70.5; if born after 6/30/49, it is April 1^st of the year following the year the owner becomes age 72. For a retirement plan participant, the RBD is the later of April 1^st of the year the participant turns age 72 or retires from the company offering the plan. If the owner or retirement plan participant died before his or her RBD, there is no annual RMD requirement for the non-EDB – only the 10-year payment rule must be satisfied.

4. Trust as Designated Beneficiary/Eligibility for 10-Year Distribution Rule.
The regulations clarify that the following requirements must be met in order for a trust to be treated as a designated beneficiary (certain “see-through” trusts):

The trust is valid under state law
The trust is irrevocable or will become irrevocable upon the death of the individual who established the trust
The trust beneficiaries are identifiable from the trust document
A copy of the trust instrument is provided to the IRA trustee or retirement plan administrator

If the trust meets these four criteria by 9/30 of the year following the year of death of the IRA owner/retirement plan participant, then the trust beneficiaries are considered beneficiaries for computing the post-death RMDs, and the 10-Year Rule applies. However, for trusts that don’t meet these rules, the trust beneficiaries cannot be considered designated beneficiaries, and the existing five-year rule applies instead.

There are many other clarifying details in the Treasury’s proposed regulations, so be sure to review the language to gain additional insight into the various topics covered. While the regulations are still proposed and subject to change, taxpayers are required to take into account a good-faith interpretation of the SECURE Act, so complying with these proposed regulations is an appropriate step in satisfying that requirement.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “SECURE Act and Required Minimum Distributions Proposed IRS Regulations” is available now! Subscribe here: [link]

When the SECURE Act went into effect on January 1, 2020, there were many open questions from tax professionals and taxpayers about Required Minimum Distributions (RMDs) and how certain provisions of the new legislation should be treated. Learn about the recently proposed regulations in our latest blog article: [link]

Earlier this year, the U.S. Department of Treasury released proposed regulations under the SECURE Act, which help to provide a window into the IRS interpretation of this law. Learn more in our latest blog article: [link]

When the SECURE Act went into effect on January 1, 2020, there were many questions about Required Minimum Distributions (RMDs) and how certain provisions of the new legislation should be treated. Find out how the recent proposed regulations clarify this topic here: [link]

The proposed regulations released this year provide a much-needed clarification on a number of SECURE Act provisions. Some of the most notable items include:

“Eligible Designated Beneficiary” (EDB) Clarifications
Timing of 10-Year-Rule Deadline
Certain Non-EDBs are Subject to Both the 10-Year-Rule and Annual RMDs in Years One Through Nine
Trust as Designated Beneficiary/Eligibility for 10-Year Distribution Rule

Learn more here: [link]

DID YOU KNOW... Under previous guidance, it was thought that a minor child would reach age of majority based on state law, which could be as late as 26 if the child is still in school. However, the recent regulations under the SECURE Act clarify that such minors reach the age of majority on their 21st birthday, so the 10-Year-Rule kicks in at that time. Learn more here: [link]

While the recent regulations under the SECURE Act are still just proposed and subject to change, taxpayers are required to take into account a good-faith interpretation of the SECURE Act, so complying with these proposed regulations is an appropriate step in satisfying that requirement. Learn more in our latest blog article: [link]

The recent proposed regulations under the SECURE Act by the U.S. Department of Treasury clarify details regarding numerous topics. Sign up for our newsletter to learn more about these changes: [link]

Filing a Final Return for a Deceased Taxpayer

Thu, 03 Nov 2022 16:00:00 GMT

Download Volume 12, Issue 9 Document Here

BizBoost News
Volume 12, Issue 9
For distribution 10/31/22; publication 11/03/22

Filing a Final Return for a Deceased Taxpayer

Dealing with the passing of a loved one in your family can be overwhelming. Unfortunately, tax requirements are one of the many items you’ll need to address, but we can help you through the process. Here is a little more about what’s required.

A final tax return in the year the loved one passes away will need to be filed. Whether or not they were legally married at the time of passing will dictate who files the return. It will either be the surviving spouse or the estate administrator (or a person they hire).

Surviving Spouse

The IRS considers someone married for the entire year, provided that the surviving spouse doesn’t remarry during the year.
The surviving spouse can choose their filing status, whether it be married filing jointly or married filing separately.
When filing the final return for the deceased spouse, it is necessary to include the taxpayer’s date of death.
The surviving spouse will file the customary 1040 tax return form and report all income and deductions as they did when the decedent was alive.
If an overpayment of taxes occurs, the surviving spouse will receive a refund. If a balance is owed, the surviving spouse must pay it or enter into an installment agreement.

Personal Representative or Administrator

According to the IRS, a personal representative of an estate is an executor, administrator, or anyone who is in charge of a decedent’s property. Generally, this person is named in a decedent’s will to administer the estate and distribute property according to the decedent’s wishes. An administrator is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor can’t or won’t perform their duties.

As with the case of a surviving spouse, either the personal representative or administrator will file the final 1040 tax return form for the deceased taxpayer, including the date of death. The return will include all income and deductions that the deceased taxpayer is entitled to claim (generally, all income received/expenses paid prior to death).

If taxes are owed to the IRS, the personal representative or administrator is responsible to remit payment from the decedent’s assets to the IRS. Alternatively, if the deceased taxpayer has an overpayment of taxes and is owed a refund, the personal representative or administrator must file Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, with the return.

Due Date

The final return is due by the regular April tax deadline unless an extension to file has been submitted, which would push the deadline to October.

If we can help you with the tax requirements of a death in your family, please reach out anytime.

***

Tweets

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Our latest blog: “Filing a Final Return for a Deceased Taxpayer” is available now! Subscribe here: [link]

When a loved one dies, a final tax return in the year the loved one passes away will need to be filed. Whether or not they were legally married at the time of passing will dictate who files the return. Learn more in our latest blog article: [link]

DID YOU KNOW… According to the IRS, a personal representative of an estate is an executor, administrator, or anyone who is in charge of a decedent’s property. This person is named in a decedent’s will to administer the estate and distribute property according to the decedent’s wishes. Learn more: [link]

DID YOU KNOW…You have to file a final tax return when a loved one dies. Learn more about this process here: [link]

DID YOU KNOW… If taxes are owed to the IRS, the personal representative or administrator is responsible to remit payment from the decedent’s assets to the IRS. Alternatively, if the deceased taxpayer has an overpayment of taxes and is owed a refund, the personal representative or administrator must file Form 1310 with the return. Learn more here: [link]

Filing a final tax return for a deceased taxpayer can be confusing. Learn more about how this process works in our latest blog article: [link]

Do you know who is responsible for filing your deceased loved one’s final tax return? Sign up for our newsletter to learn more: [link]

Checklist for Clean Books

Thu, 20 Oct 2022 16:00:00 GMT

Download Volume 12, Issue 8 Document Here

BizBoost News
Volume 12, Issue 8
For distribution 10/17/22; publication 10/20/22

Checklist for Clean Books

Keeping your business’s books clean all year long can help to provide more accurate financial statements and reports as well as an easier tax time. Here is a checklist of activities to perform periodically to keep your books clean.

1. Make sure all bank accounts are reconciled.
2. Make sure all credit card accounts are reconciled.
3. Update year-end inventory balance, if applicable.
4. Review liability accounts and balance statements.
5. Check for any old, uncleared items in the bank and credit card registers.
6. Verify that there are no negative numbers on the financial statements, or provide an explanation as to why. With limited exceptions, generally the only legitimate negative numbers would be depreciation, owner's equity and refunds.
7. Make sure the Chart of Accounts is clean. Merge duplicate or similar categories. Eliminate any "other" expenses (for example, "Advertising – Other"), as well as “miscellaneous” accounts. Sort the Chart of Accounts alphabetically.
8. Categorize any transactions listed as “Uncategorized Expenses,” “Ask my accountant,” or similar clearing account.
9. Review P&L Detail sorted by name for consistency in categorizing.
10. Enter the credit card charges through the end of December. With the cutoff date of credit cards, sometimes you must wait for the statement in February to get transactions from the last week of December.
11. Pull an Open Invoice report and clear out any old invoices that are not accurate. Deleting an invoice should only be done if a client is on a cash basis, not accrual. It will affect the tax return if you delete or change any invoice the client files on accrual basis.
12. Pull an Unpaid Bills report to see if any bills need to be deleted. Remember the rule on cash/accrual basis.
13. Ensure that the Profit & Loss is showing “Gross Wages,” not net. This helps match financial statements with payroll reports. Match to Tax & Wage Summary provided by payroll processor.
14. Separate out “Officer Gross Wages” from employee gross wages on the Profit & Loss report.
15. If the owner made any deposits to the business bank account, show the deposit as a loan or capital contribution (equity). You can also show the money deposited as an offset to the owner's draw account.
16. Check for eligible 1099 vendors, and make sure you have the proper forms in place to process their 1099 forms by January 31^st.
17. If a company has more than one vehicle, make sure they are listed separately, showing gas, insurance, repairs and registration per vehicle. Get the percentage of business use for each vehicle.
18. At year end, if you are using QuickBooks, set the Closing Date Password once everything is clean. If you are using another software, find out how to lock the balances for the prior year.

Keeping your books clean will help you make better business decisions on data that is more accurate.

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Checklist for Clean Books” is available now! Subscribe here: [link]

Keeping your business’s books clean all year long can help to provide more accurate financial statements and reports as well as an easier tax time. Learn more in our latest blog article: [link]

Do you check your business’s books throughout the year? This can help keep reports accurate and make taxes easier. Learn more in our latest blog article: [link]

#BusinessTip
When it comes to keeping your business’s books clean:
1. Make sure all bank accounts are reconciled.
2. Make sure all credit card accounts are reconciled.
3. Update year-end inventory balance, if applicable.
4. Review liability accounts and balance statements.
Access our full checklist here: [link]

DID YOU KNOW… Keeping your business’s books clean throughout the year can help you make better business decisions. Learn more here: [link]

Do you know how to keep your business’s books clean? Sign up for our newsletter to access our full checklist of activities to perform periodically:[link]

#BusinessTip
When it comes to keeping your business’s books clean:
1. Pull an Unpaid Bills report to see if any bills need to be deleted. Remember the rule on cash/accrual basis.
2. Ensure that the Profit & Loss is showing “Gross Wages,” not net. This helps match financial statements with payroll reports. Match to Tax & Wage Summary provided by payroll processor.
3. Separate out “Officer Gross Wages” from employee gross wages on the Profit & Loss report.
Access our full checklist here: [link]

Keeping your business’s books clean will help you make better business decisions on data that is more accurate. Learn more in our latest blog article: [link]

The “Dirty Dozen” IRS Tax Scams for 2022

Mon, 10 Oct 2022 17:58:36 GMT

Download Volume 12, Issue 7 Document Here

BizBoost News
Volume 12, Issue 7
For distribution 10/03/22; publication 10/06/22

The “Dirty Dozen” IRS Tax Scams for 2022

Each year, the IRS unveils its list of scams that target unsuspecting taxpayers. Below are five of the most common tax scams impacting taxpayers today, as well as tips to not become a victim:

1. Pandemic-related scams. Criminals still use the COVID-19 pandemic to steal people's money and identity with phishing emails, social media posts, phone calls, and text messages. These actions can lead to sensitive personal information being stolen, which scammers will use to harm victims in multiple ways, including trying to file a fraudulent tax return. Some of the scams people should continue to be on the lookout for include Economic Impact Payment and tax refund scams, unemployment fraud, fake employment offers on social media, and bogus charities that steal taxpayers' money. Read more at https://www.irs.gov/newsroom/irs-continues-with-dirty-dozen-this-week-urging-taxpayers-to-continue-watching-out-for-pandemic-related-scams-including-theft-of-benefits-and-bogus-social-media-posts on pandemic-related scams.
2. Offer in Compromise “mills.” If you owe the IRS a substantial amount of money that you are having trouble paying, you could fall victim to marketing claims of Offer in Compromise (OIC) "mills." An Offer in Compromise is a real IRS term for an agreement between the taxpayer and the IRS that creates a payment plan based on the taxpayer’s situation. The mills make ridiculous claims about how they can settle a person's tax debt for pennies on the dollar. The reality is that taxpayers pay the OIC mill a fee to get the same deal they could have gotten themselves by working directly with the IRS. These "mills" tend to be especially visible right after the filing season ends and taxpayers are trying to resolve their tax issues, perhaps after receiving a balance due notice in the mail, but they remain a problem all year long. Read more at https://www.irs.gov/newsroom/dirty-dozen-irs-urges-anyone-having-trouble-paying-their-taxes-to-avoid-anyone-claiming-they-can-settle-tax-debt-for-pennies-on-the-dollar-known-as-oic-mills on Offer in Compliance “mills”.
3. Potentially abusive arrangements. This group comprises of four types of transactions that are wrongfully promoted and likely to trigger an IRS audit in the future. These include using charitable remainder annuity trusts to eliminate taxable gains, contributing to Maltese (or other foreign) individual retirement arrangements, participating in foreign captive insurance arrangements, and using monetized installment sales. Read more at https://www.irs.gov/newsroom/irs-warns-taxpayers-of-dirty-dozen-tax-scams-for-2022 on these particular abusive arrangements.
4. Suspicious Communication. These forms of communication are designed to trick, surprise, or scare someone into responding before thinking. The IRS warns taxpayers to be on the lookout for suspicious activity across four common types of communication: email, social media, telephone, and text messages. Criminals use these bogus communications to trick victims into providing sensitive personal financial data, money, or other information. This information can be used to file false tax returns, access financial accounts, or for other schemes. Read more at https://www.irs.gov/newsroom/dirty-dozen-scammers-use-every-trick-in-their-communication-arsenal-to-steal-your-identity-personal-financial-information-money-and-more on suspicious communication.
5. Spear Phishing Attacks. Spear phishing is an email scam where criminals try to steal client data and tax preparers' identities to file fraudulent tax returns for refunds. Spear phishing can be directed towards any type of business or organization, so everyone needs to be on high alert and skeptical of strange emails requesting financial or personal information. For example, a recent spear phishing email used the IRS logo and a variety of subject lines such as "Action Required: Your account has now been put on hold" to steal tax professionals' software preparation credentials. The scam email will direct users to a website that shows the logos of several popular tax software preparation providers, and clicking on one of these logos will prompt a request for tax preparer account credentials. The IRS has observed similar spear phishing emails claiming to be from "tax preparation application providers." Tax pros and taxpayers should not respond or take any of the steps outlined in any such questionable emails. Read more athttps://www.irs.gov/newsroom/dirty-dozen-irs-security-summit-reiterate-recent-warning-to-tax-professionals-and-other-businesses-of-dangerous-spear-phishing-attacks on spear phishing scams.

Please take care to protect your personal financial information. For more on the IRS Dirty Dozen List, visit https://www.irs.gov/newsroom/dirty-dozen on the IRS website.

***

Tweets

Each year, the IRS unveils its list of scams that target unsuspecting taxpayers.

Criminals still use the COVID-19 pandemic to steal people's money and identity with phishing emails, social media posts, phone calls, and text messages. These actions can lead to sensitive personal information being stolen, which scammers will use to harm victims in multiple ways, including trying to file a fraudulent tax return.

Suspicious forms of communication are designed to trick, surprise, or scare someone into responding before thinking. The IRS warns taxpayers to be on the lookout for suspicious activity across four common types of communication: email, social media, telephone, and text messages.

If you owe the IRS a substantial amount of money that you are having trouble paying, you could fall victim to marketing claims of Offer in Compromise (OIC) "mills." An Offer in Compromise is a real IRS term for an agreement between the taxpayer and the IRS that creates a payment plan based on the taxpayer’s situation.

Spear phishing is an email scam where criminals try to steal client data and tax preparers' identities to file fraudulent tax returns for refunds. Spear phishing can be directed towards any type of business or organization, so everyone needs to be on high alert and skeptical of strange emails requesting financial or personal information.

There are four types of transactions that are wrongfully promoted and likely to trigger an IRS audit in the future.

Do you know the five most common tax scams impacting taxpayers?

Estimated Tax Payments – Do They Apply to You?

Wed, 28 Sep 2022 12:08:02 GMT

Download Volume 12, Issue 6 Document Here

BizBoost News
Volume 12, Issue 6
For distribution 9/19/22; publication 9/22/22

Estimated Tax Payments – Do They Apply to You?

There are two ways to make income tax payments to the IRS throughout the year: through the withholding amount on your paycheck, and through making estimated tax payments. If you have ever wondered about estimated tax payments, this article will explain what they are, if you need to make them, and how to make them if they are required for your tax situation.

Although you may never have had to worry about them before, a change in your income/situation may put you in a position of needing to make estimated tax payments during the year. If you fail to make estimated payments (and therefore fail to pay taxes on your income as you earn it), you may be in for a nasty surprise come tax time: a hefty tax bill along with an unwelcome penalty from the IRS.

Who is required to pay estimated tax payments?

In general, you are required to make quarterly estimated tax payments if both of the following apply:

1. You expect to owe at least $1,000 in federal tax after subtracting federal tax withholding and credits, and
2. You expect your federal withholding and credits to be less than the smaller of:

90 percent of the tax to be shown on your current year federal return, or
100 percent of the tax shown on your prior year federal return

There are additional rules for some type of taxpayers, such as farmers and fishermen.

If you receive your main income via paycheck as an employee who receives a W-2, chances are you won’t be subject to this requirement as long as your employer is withholding the proper amounts from your paychecks. The amount withheld is determined by the information on Form W-4 that you complete when you are hired.

What if you have income, but no paycheck? What if you have lots of income in addition to your paycheck? Chances are you will need to make estimated tax payments (or adjust your withholding). Most taxpayers who are subject to making estimated tax payments are those who have a large amount of income on which there is no tax withholding, including interest, dividend, capital gains, rental/royalty, or business income.

If you receive a paycheck, you can avoid making estimated payments by increasing your W-2 withholdings enough to cover any additional tax liabilities. Make sure to double check with your employer, to ensure that the correct information is being used to calculate your tax withholdings.

If you do have additional income and you don’t get a paycheck, or you do, but you simply don’t want to withhold more from your paycheck, you will need to make estimated tax payments.

What information do I need?

In order to determine the proper amount of estimated tax payments to make, you’ll need to approximate your adjusted gross income, taxable income, taxes, credits, and other deductions. Start with your prior year return information, and make changes based on what you know will be different. Form 1040-ES, which can be found on the IRS website, includes an Estimated Tax Worksheet to help you with this process.

When are these payments due?

Estimated tax payments are generally made in four installments. Payments are due by April 15th, June 15th, September 15th, and January 15th of the next year. These dates are based on quarterly payment periods (you pay tax on income earned during each applicable quarterly period); however, notice that the payment due dates aren’t all three months apart.

As a side note, you are not required to make the final payment on January 15th if you file your current year tax return by February 1st and pay the entire balance due with your return.

Where and how do I make my quarterly estimated tax payments?

There are various ways of making estimated tax payments for the current year, including:

Mailing the payment in with a voucher – Form 1040-ES
Paying by phone or electronically via EFTPS, the Electronic Federal Tax Payment System
Making a payment via EFT with your prior year e-filed return
Remitting a payment on the IRS website (or the appropriate state tax authority website; yes, you may need to make estimated tax payments to your state). Here’s the IRS link: https://www.irs.gov/payments
Applying an overpayment on your prior year return towards your current year estimated tax payments

Why should I consider making estimated tax payments?

The main reason is to avoid penalties and interest on underpayments. This can happen if your income varies a lot from year to year; you can get surprised by the changes.

Penalties and interest can add up quickly. They are calculated based on the number of days you are late – so, even if you’re already behind, don’t panic! You can address the situation now and minimize the dollar amount of penalties you are hit with.

Getting on track with making proper and timely estimated tax payments may help you in the long run. Getting hit with a large tax bill on April 15th is no fun, and by breaking your tax liability down into four installment payments, you may be doing yourself a big favor in forcing yourself to set those funds aside and having them available to make your payments (while simultaneously keeping the IRS at bay).

This can also help you to avoid a “snowballing” problem in the future – if you end up with a large bill that you cannot pay all at once, and you get on a payment plan with the IRS, it can be difficult to play catch-up.

Staying on top of your estimated tax payments requires you to be more disciplined and aware of your tax responsibilities as a taxpayer and/or business owner. If you need help getting these calculated or set up, please reach out any time.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Estimated Tax Payments – Do They Apply to You?” is available now! Subscribe here: [link]

There are two ways to make income tax payments to the IRS throughout the year: through the withholding amount on your paycheck, and through making estimated tax payments. Learn more in our latest blog article: [link]

If you have ever wondered about estimated tax payments, our latest blog article will explain what they are, if you need to make them, and how to make them if they are required for your tax situation. Access the article here: [link]

In general, you are required to make quarterly estimated tax payments if both of the following apply:

1. You expect to owe at least $1,000 in federal tax after subtracting federal tax withholding and credits, and

2. You expect your federal withholding and credits to be less than the smaller of:

90 percent of the tax to be shown on your current year federal return, or
100 percent of the tax shown on your prior year federal return

Learn more here: [link]

If you receive your main income via paycheck as an employee who receives a W-2, chances are you won’t need to make estimated tax payments, as long as your employer is withholding the proper amounts from your paychecks. The amount withheld is determined by the information on Form W-4 that you complete when you are hired. Learn more here: [link]

Employee Retention Credit Update

Wed, 28 Sep 2022 12:04:21 GMT

Download Volume 12, Issue 5 Document Here

BizBoost News
Volume 12, Issue 5
For distribution 9/05/22; publication 9/08/22

Employee Retention Credit Update

The Employee Retention Credit (ERC) was rolled out in March 2020 as part of the CARES Act to help businesses with the cost of keeping employees on payroll through the COVID-19 pandemic. It is a tax break in the form of refundable employment tax credits for those businesses that qualify.

Although the ERC is no longer available for the 2022 tax year, many businesses are still waiting to receive the credit or are working to claim it retroactively for prior quarters. Therefore, this remains a hot topic and there are a few important updates and reminders to be aware of.

Businesses Can Retroactively Claim the ERC

Some employers who qualified for the ERC for quarters in 2020 and 2021, but didn’t file a claim at the time, may think they have missed out on taking advantage of this opportunity. However, businesses have three years from the filing of the original IRS Form 941 (Employer’s Quarterly Federal Tax Return) to file amended returns to claim the credits. The qualifications and credit amounts are as follows:

For 2020:

Applies to wages paid after March 12, 2020 and on or before December 31, 2020
To be eligible, an employer must have experienced either a full or partial suspension of operations due to a COVID-related governmental order or a greater-than 50 percent reduction in gross receipts compared to the same quarter in 2019
The credit is 50 percent of qualified wages, which is capped at $10,000 per employee for the year (maximum annual credit of $5,000 per employee)

For 2021:

Applies to wages paid after December 31, 2020 and on or before September 30, 2021 (exception: extends through December 31, 2021 for “recovery startups”)
To be eligible, an employer must have experienced either a full or partial suspension of operations due to a COVID-related governmental order or a greater-than 20 percent reduction in gross receipts compared to the same quarter in 2019 (for 2021 there is an election available to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility – for example, for Q1 2021, the employer can elect to use Q4 2020 compared to Q4 2019 to determine if the gross receipts test is met)
The credit is 70 percent of qualified wages, which are capped at $10,000 per employee per quarter (maximum annual credit of $21,000 per employee)

Employee Retention Credit IRS Penalty Relief

The IRS stipulates that businesses must reduce their deductible payroll expenses on their income tax returns by the amount of the credit received or to be received, and this reduction must occur on the tax return for the year the credit is related to. This causes an increase to the bottom-line profit and associated income tax due, and in many cases triggers penalties for employers who did not remit enough in estimated taxes due to the jump in taxable profit.

The penalties may be even higher for employers who are still waiting to receive the credit, because it would create a hardship for them to remit the additional tax without having received the refund, so they wait even longer to pay their income taxes due – which causes the penalties to grow.

Per a news release from April 2022, the IRS is aware of this situation and has indicated that taxpayers may be eligible for relief from penalties if they can show reasonable cause and not willful neglect for failing to pay. While lack of funds is not generally accepted as reasonable cause, the underlying reason of not having received the ERC refund that triggered the additional tax could be.

Alternatively, another possibility is to claim relief using the First Time Penalty Abatement program, which can be used if the taxpayer:

Did not have to previously file a return or had no penalties for the three prior tax years
Filed all currently required returns or requested an extension of time to file
Paid, or arranged to pay, any tax due

Beware of Scam ERC Providers

There are a number of “specialty” providers popping up who are offering to recalculate the ERC for a percentage of the “take” or who are using an overly aggressive interpretation of the rules that likely wouldn’t hold up if scrutinized by the IRS. While many businesses legitimately qualify for the ERC, some of these providers are using risky practices to maximize the credit amount, which if later found to be wrong could lead to anything from civil penalties to criminal tax fraud. The IRS has a five-year statute of limitations on these ERC claims, so even if they aren’t yet auditing claims now, they very well could (and likely will) in the future.

So, what signs or red flags should you look for? You should be wary of working with any providers who:

Give specific credit amounts without reviewing all relevant information or documentation
Don’t ask for details regarding any changes in the business or impacts of COVID-related governmental orders
Do not provide any assurances about defending their work in the case of IRS scrutiny or an audit
Are not credentialed as CPAs, Enrolled Agents, or attorneys, or claim they are, but you can’t find them in the state or federal directories
Push back on regulations or guidance provided by the IRS
Claim that you don’t need to show any documentation or prove anything to the IRS
Have not been in existence that long and seem to have popped up during the peak of the pandemic, and whose CEO and team members appear to have little or no prior experience with tax credits
State that they are associated with established providers without providing proof of a link

If you have further questions about the ERC or any other taxes, feel free to contact us any time.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Employee Retention Credit Update” is available now! Subscribe here: [link]

Do you know the Employee Retention Credit qualifications and credit amounts for the 2020 tax year? Find the list and learn more about recent ERC updates here:[link]

Although the Employee Retention Credit is no longer available for the 2022 tax year, many businesses are still waiting to receive the credit or are working to claim it retroactively for prior quarters. Therefore, this remains a hot topic and there are a few important updates and reminders to be aware of. Learn more in our latest blog article: [link]

Some employers who qualified for the Employee Retention Credit for quarters in 2020 and 2021, but didn’t file a claim at the time, may think they have missed out on taking advantage of this opportunity. However, businesses have three years from the filing of the original IRS Form 941 (Employer’s Quarterly Federal Tax Return) to file amended returns to claim the credits. Learn more here: [link]

There are a number of “specialty” providers popping up who are offering to recalculate the Employee Retention Credit for a percentage of the “take” or who are using an overly aggressive interpretation of the rules that likely wouldn’t hold up if scrutinized by the IRS. Learn what red flags you should be aware of here: [link]

Do you know the Employee Retention Credit qualifications and credit amounts for the 2021 tax year? Learn more about recent ERC updates here: [link]

Have you kept up-to-date on the Employee Retention Credit? Sign up for our newsletter to learn more about the recent ERC updates: [link]

Do You Have a Bank Account in a Country Outside of the United States?

Fri, 26 Aug 2022 12:24:55 GMT

Download Volume 12, Issue 4 Document Here

BizBoost News
Volume 12, Issue 4
For distribution 8/22/22; publication 8/25/22

Do You Have a Bank Account in a Country Outside of the United States?

If you have a bank account in a foreign country, you may need to disclose it to a branch of the government that fights financial crimes. This is what tax professionals call FBAR reporting. FBAR stands for Foreign Bank and Financial Accounts Report.

Your foreign bank accounts may also impact your tax returns. Let’s take a look at this requirement.

FinCEN and FBAR

If you have a financial interest in or signature authority over a foreign financial account (including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account) exceeding certain thresholds, the Bank Secrecy Act (BSA) may require you to report the account yearly to the Department of Treasury by electronically filing a FinCEN 114, Report of Foreign Bank and Financial Accounts (FBAR).

Who Must File?

United States persons are required to file an FBAR if:

1) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and

2) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

By definition, United States persons include U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

There are filing exceptions for the following United States persons or foreign financial accounts:

• Certain foreign financial accounts jointly owned by spouses

• United States persons included in a consolidated FBAR

• Correspondent/Nostro accounts

• Foreign financial accounts owned by a governmental entity

• Foreign financial accounts owned by an international financial institution

• Owners and beneficiaries of U.S. IRAs

• Participants in and beneficiaries of tax-qualified retirement plans

• Certain individuals with signature authority over, but no financial interest in, a foreign financial account

• Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)

• Foreign financial accounts maintained on a United States military banking facility

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The IRS can waive the penalty for failure to timely file or request an extension for any person required to file an FBAR for the first time. Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty that generally starts at $10,000 (adjusted for inflation) per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 (as adjusted for inflation) or 50 percent of the balance in the account at the time of the violation, for each violation.

The FBAR is a calendar year report and is due April 15th of the year following the calendar year being reported, with a 6-month extension available. FinCEN will grant filers failing to meet the FBAR due date of April 15th an automatic extension to October 15th each year. A specific extension request is not required. The FBAR must be filed electronically through Fin-CEN’s BSA E-Filing System. The FBAR is not filed with a federal income tax return.

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File IRS Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR.

The Form 8938 filing requirement is in addition to the FBAR filing requirement. Form 8938 must be filed by certain U.S. taxpayers living in the U.S. and holding foreign financial assets with an aggregate value exceeding $50,000 ($100,000 MFJ) on the last day of the tax year, or more than $75,000 ($150,000 MFJ) at any time during the year.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

Schedules K-2 and K-3 – Do They Impact the FBAR?

The new K-2 and K-3 schedules must be filed by all pass-through entities (partnerships, S corporations, etc.) with items of international tax relevance, including those with foreign partners and international activities. These new schedules were created to provide more clarity for shareholders and partners as it relates to calculating their U.S. income tax liability or international-related deductions, credits, etc. (for example, information necessary to fill out the Foreign Tax Credit form and calculate the credit amount).

However, these schedules are separate from the FBAR filing, which involves disclosing an interest in and/or authority over certain foreign accounts, and doesn’t directly impact income tax liability or calculation of deductions and credits. While the passthrough entities subject to the K-2/K-3 filing requirements may have their own FBAR filing requirements as it pertains to the accounts that are generating the income/deduction/other items reported on these schedules, this is not necessarily related to any FBAR reporting requirement at the individual shareholder/partner level.

Foreign bank accounts, foreign income, and foreign taxes are highly complex in their reporting requirements and their effect on taxes. It is recommended that you work with your tax professional to ensure that you are fully in compliance with disclosing all the required foreign activity and data that pertains to your specific situation.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Do You Have a Bank Account in a Country Outside of the United States?” is available now! Subscribe here: [link]

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury that collects and analyzes data on financial transactions for the purposes of protecting the financial system from illicit use and combating domestic and international money laundering and related financial crimes. If you have a financial interest in or signature authority over a foreign financial account exceeding certain thresholds, the Bank Secrecy Act (BSA) may require you to report the account yearly to the Department of Treasury. Learn more in our latest blog article: [link]

United States persons are required to file an FBAR if:

1) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and

2) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. Learn more here: [link]

DID YOU KNOW…There are filing exceptions for United States persons or foreign financial accounts in regards to the FBAR (Foreign Bank and Financial Accounts Report). Learn more in our latest blog article: [link]

Foreign bank accounts, foreign income, and foreign taxes are highly complex in their reporting requirements and their effect on taxes. Learn more in our latest blog article: [link]

In our latest blog article, we explain the filing requirements regarding international bank accounts, as well as how to complete the reporting requirements and who is exempt. Sign up for our newsletter to learn more: [link]

Understanding the Puzzle of Varying IRS Authorizations

Fri, 26 Aug 2022 12:22:28 GMT

Download Volume 12, Issue 3 Document Here

BizBoost News
Volume 12, Issue 3
For distribution 8/08/22; publication 8/11/22

Understanding the Puzzle of Varying IRS Authorizations

When working with a tax professional or other professionals that want access to your IRS information, you might be asked to sign IRS forms that serve as legal authorization documents. There are a few different forms that grant varying powers to the people requesting them. This article will help you understand the differences among the forms you might be asked to sign.

IRS Form 8879: e-File Signature Authorization

The most common one is authorization to file your tax return. This is done on Form 8879, IRS e-file Signature Authorization. A tax professional will ask you to sign this form before e-filing your return for you. It is only good for the year you are filing the tax return; it has to be redone each year. The tax professional keeps this form in their records.

This form does not allow your tax preparer to speak to the IRS for you in any way; it only allows the e-file process to be complete.

IRS Form 2848: Power of Attorney

Only three kinds of people can legally represent you in front of the IRS: attorneys, CPAs, and Enrolled Agents (EAs). If you have hired a person with one of these credentials to answer an IRS letter on your behalf, represent you in an IRS audit, or speak to the IRS for you in any other way, they will ask you to sign a Power of Attorney (POA).

By definition, a Power of Attorney (POA) allows a taxpayer to designate an individual to discuss items listed on the POA with the IRS and represent them before the IRS. A Power of Attorney is good for six years, but can be extended by submitting a new POA. Additionally, a POA can be updated to revoke access to representing a taxpayer.

When completing a Power of Attorney, the following information will be required on the document:

1.      Taxpayer information (name, address, taxpayer identification number, daytime phone number)
2.      Representative(s) name, address, contact information, and/or CAF (centralized authorization file) number or PTIN (preparer tax identification number)
3.      Items the representative is allowed to discuss with the IRS, the tax form in question, and the year(s) (this is where the taxpayer can control the scope of the POA)
4.      Although less common, the taxpayer can authorize their representative to perform additional acts, such as signing a return on the taxpayer’s behalf or disclosing information to a third party
5.      Taxpayer’s signature and date
6.      Representative’s signature, date, and licensing information

Form 8821: Tax Information Authorization

A Tax Information Authorization gives a person the legal right to review some confidential taxpayer information. It does not allow the representative to act on a taxpayer’s behalf to resolve tax issues.

Completing a Tax Information Authorization allows any individual, corporation, firm, organization, or partnership you designate to receive your confidential IRS information (verbally or in writing) for the type of tax and year(s) you agree to.

When completing a Tax Information Authorization, the following information will be required on the document:

1.      Taxpayer information (name, address, taxpayer identification number, daytime phone number)
2.      Designee(s) name, address, contact information, and/or CAF (centralized authorization file) number or PTIN (preparer tax identification number), if applicable
3.      Tax information the designee is allowed to receive from the IRS, the tax form in question, and the year(s)
4.      Taxpayer’s signature and date

Other Ways to Grant IRS Authorization

Third Party Designee

There is a check box in the signature area on certain tax forms where you can appoint a person that the IRS can contact if they have questions about the return. This person can also provide the IRS with any missing information as well as check on refund or return status. The scope of their authority is specific to that one return and issues related to processing the return. It is good for one year.

A third-party designee does not have to be a tax professional; it can be a relative or friend who you trust with your financial information. We advise you to be very careful using this option; it’s a simple checkbox with a lot of power.

Verbal Approval

If you are in a phone conversation with the IRS, you can bring into the call someone who can speak for you. This authorization is only good for the one phone call.

Granting IRS Authorization

While these forms may appear similar, they each allow for different levels of access to a taxpayer’s confidential income tax information. Understanding the difference and being careful with whom you authorize can help you avoid complications in the future.

***

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Our latest blog: “Understanding the Puzzle of Varying IRS Authorizations” is available now! Subscribe here: [link]

Authorization to file your tax return is done on Form 8879, IRS e-file Signature Authorization. A tax professional will ask you to sign this form before e-filing your return for you. It is only good for the year you are filing the tax return; it has to be redone each year. Learn more in our latest blog article: [link]

If you are applying for a loan, the company granting the loan needs to verify your income, and they will typically do that by accessing your tax returns in the IRS records. This is where the Tax Information Authorization is used. A Tax Information Authorization gives a person the legal right to review some confidential taxpayer information. It does not allow the representative to act on a taxpayer’s behalf to resolve tax issues. Learn more here: [link]

DID YOU KNOW... There is a check box in the signature area on certain tax forms where you can appoint a person that the IRS can contact if they have questions about the return. This person can also provide the IRS with any missing information as well as check on refund or return status. Learn more here: [link]

While IRS tax authorization forms may appear similar, they each allow for different levels of access to a taxpayer’s confidential income tax information. Understanding the difference and being careful with whom you authorize can help you avoid complications in the future. Learn more in our latest blog article: [link]

Do you know the differences between IRS tax authorization forms? Sign up for our newsletter to access our full article explaining these differences: [link]

Where’s My IRS Refund?

Wed, 27 Jul 2022 11:06:05 GMT

Download Volume 12, Issue 2 Document Here

BizBoost News
Volume 12, Issue 2
For distribution 7/25/22; publication 7/28/22

Where’s My IRS Refund?

Did you know the IRS provides a tool on their website that allows taxpayers to check their refund status? The good news is you don’t have to rely on your tax professional to access this information; you can access it directly yourself.

Here’s the direct link: https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

How do I get started?

The “Where’s My Refund” tool can provide refund information for the three most current tax years. You’ll need the following information in order to complete the query:

Social Security (or ITIN) number
Filing Status (ex: married filing jointly)
Exact refund amount listed on your tax return

After entering in the requested information correctly, a progress bar will appear showing three stages:

Return received
Refund approved
Refund sent

The IRS processes most returns within 21 days, but occasionally a tax return may require additional review. Some of the most common delays in refund processing include:

If the return has errors or is incomplete
If the filer is the victim of identity theft or fraud
If credits aren’t properly accounted for

What happens if the refund is sent, but not received?

The “Where’s My Refund” tool will tell you what date your refund was sent to your bank account for direct deposit. If the refund hasn’t been received timely, take the following steps:

1.      Check with your financial institution
2.      Verify that the routing and bank account numbers on your return are correct
3.      If it’s determined that an error was made when providing routing or account information, the direct deposit will be returned to the IRS and they will issue a paper check through the mail instead.

What if I don’t have online access?

Taxpayers can call the IRS Refund Hotline at 800-829-1954. Be sure to have the same information on hand (SSN, filing status, refund amount) when using their automated system to inquire about refund status.

How do I check the status of my state tax refund?

If your state collects income tax, it is possible to check the status of your return online or by automated phone service. While each state uses a slightly different system to check the refund status, having your SSN and refund amount will be needed. Some states may also require your date of birth, filing status, or zip code. Use an internet search engine to determine the correct state website lookup tool.

Want more information?

The IRS has a page describing the Where’s My Refund tool. You can access it using this link: https://www.irs.gov/refunds

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Where’s My IRS Refund?” is available now! Subscribe here: [link]

The “Where’s My Refund” tool can provide tax refund information for the three most current tax years. You’ll need the following information in order to complete the query:

•Social Security (or ITIN) number

•Filing Status (ex: married filing jointly)

•Exact refund amount listed on your tax return

Learn more in our latest blog article: [link]

The “Where’s My Refund” tax tool will tell you what date your tax refund was sent to your bank account for direct deposit. If the refund hasn’t been received timely, there are steps you can take. Find out what these steps are here: [link]

The IRS processes most returns within 21 days, but occasionally a tax return may require additional review. Some of the most common delays in refund processing include:

•If the return has errors or is incomplete

•If the filer is the victim of identity theft or fraud

•If credits aren’t properly accounted for

Learn more here: [link]

DID YOU KNOW… If internet access is not available, taxpayers can call the IRS Refund Hotline at 800-829-1954 to check on their refund status. Learn more here: [link]

If your state collects income tax, it is possible to check the status of your return online or by automated phone service. While each state uses a slightly different system to check the refund status, having your SSN and refund amount will be needed. You can use an internet search engine to determine the correct state website lookup tool. Learn more in our latest blog article: [link]

Have you heard of the IRS tool, “Where’s My Refund?” This is a great resource for tracking your tax refund status. Sign up for our newsletter to learn more: [link]

IRS Mid-Year Mileage Rate Changes

Wed, 27 Jul 2022 11:02:44 GMT

Download Volume 12, Issue 1 Document Here

BizBoost News
Volume 12, Issue 1
For distribution 7/11/22; publication 7/14/22

IRS Mid-Year Mileage Rate Changes

We have all been impacted by the rising costs in 2022, and gas prices have been no exception. To help alleviate some of this burden for certain taxpayers, the IRS has announced an increase in three of the four standard mileage rates for the second half of 2022. This is an unusual step for the IRS – the last time a mileage rate change was put into effect in the middle of the year was in 2011 (the IRS normally updates the mileage rates once a year in the fall for the next calendar year).

This change is effective for miles driven from July 1, 2022 to December 31, 2022, and the increase is $.04/mile for each of the eligible mileage categories. This impacts self-employed drivers who use their cars for business purposes, taxpayers who travel for medical purposes, and active-duty military members who are moving. It also applies to mileage allowances / reimbursements paid to employees by their employers. The changes are as follows:

Business use: $.625/mile (up from $.585/mile from January to June 2022)
Medical travel: $.22/mile (up from $.18/mile from January to June 2022)
Military moving transportation: $.22/mile (up from $.18/mile from January to June 2022)

Be aware that the mileage rate for charitable use of a vehicle will stay at $.14/mile. It is set by statute and not subject to adjustments for inflation (it has remained the same since 1998).

Although these changes will not provide instant relief to all eligible taxpayers (other than employees benefiting from the immediate increase in mileage allowances and reimbursements), it could impact their taxes when they file their 2022 tax returns next April:

Self-employed individuals who use the standard mileage deduction will benefit from a higher auto deduction against their taxable business profit.
Taxpayers who itemize deductions and have total medical expenses exceeding 7.5 percent of their adjusted gross income will benefit from a higher medical mileage deduction.
Military members who traveled for purposes of moving will receive a higher adjustment to income for moving expenses than they would have before.

All of these result in a lower tax bill.

What You Need to Do

This mid-year change, while very much welcomed and needed, may cause confusion for taxpayers. It is important to keep solid records now to ensure that the deduction amounts are correct and to reduce stress and scrambling come tax time.

Because there are two different mileage rates for 2022, it will be critical to keep track of associated miles driven for each half of the year. Make sure to document beginning and ending mileage for each portion of the year, and keep a log of business, medical, and moving mileage during each half of 2022. There are mobile apps that automatically track mileage, which could make things easier for taxpayers.

Also, self-employed individuals should keep in mind that there are two ways to calculate their business auto deduction – the standard mileage deduction or actual expense deduction.

For those who choose the standard mileage deduction, only the standard mileage rate multiplied by the number of business miles driven can be deducted. Actual expenses (including depreciation deductions) cannot be separately factored in.
For those who choose actual expenses, the standard mileage rate change is a moot point – however, it is still critical to keep track of mileage data, because the deduction of actual costs and depreciation will be limited to the business use percentage (business miles divided by total miles driven for the year, multiplied by the actual annual vehicle expenses).

If you have questions about recordkeeping for this tax rate change or deductions for the business use of your vehicle in general, please reach out any time.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “IRS Mid-Year Mileage Rate Changes” is available now! Subscribe here: [link]

The IRS has announced an increase in some standard mileage rates for the second half of 2022. This is an unusual step for the IRS – the last time a mileage rate change was put into effect in the middle of the year was in 2011. Learn more in our latest blog article: [link]

The mid-year change of standard mileage rates by the IRS may cause confusion for taxpayers. It is important to keep solid records now to ensure that the deduction amounts are correct and to reduce stress and scrambling come tax time. Learn more in our latest blog article: [link]

The IRS increase in standard mileage rates is effective for miles driven from July 1, 2022 to December 31, 2022, and the increase is $.04/mile for each of the eligible mileage categories. The changes are as follows:

•Business use: $.625/mile (up from $.585/mile from January to June 2022)

•Medical travel: $.22/mile (up from $.18/mile from January to June 2022)

•Military moving transportation: $.22/mile (up from $.18/mile from January to June 2022)

Learn more in our latest blog article: [link]

The latest IRS increase in standard mileage rates could impact your taxes when you file your 2022 tax returns next April:

•Self-employed individuals who use the standard mileage deduction will benefit from a higher auto deduction against their taxable business profit.

•Taxpayers who itemize deductions and have total medical expenses exceeding 7.5 percent of their adjusted gross income will benefit from a higher medical mileage deduction.

•Military members who traveled for purposes of moving will receive a higher adjustment to income for moving expenses than they would have before. Find more here:

Learn more here: [link]

DID YOU KNOW…due to IRS changes, there are two different mileage rates for 2022. It will be critical to keep track of associated miles driven for each half of the year. Make sure to document beginning and ending mileage for each portion of the year, and keep a log of business, medical, and moving mileage during each half of 2022. Learn more here: [link]

Did you know that the IRS made changes to the standard mileage rates? Sign up for our newsletter to learn more about these changes and how they may affect your tax return: [link]

IRS Suspension of Certain Taxpayer Notices

Mon, 27 Jun 2022 14:28:19 GMT

Download Volume 11, Issue 27 Document Here

BizBoost News
Volume 11, Issue 27
For distribution 6/27/22; publication 6/30/22

IRS Suspension of Certain Taxpayer Notices

Receiving a notice from the IRS is often a stressful and intimidating experience. What makes it even worse, however, is when a taxpayer cannot easily speak with an IRS representative to get it resolved or is unable to get a timely response to any correspondence sent to IRS to dispute the proposed changes or tax due. Unfortunately, this has been the situation for many taxpayers (and even their tax professionals) over the last two years - in large part because of processing delays and staff shortages brought on by the COVID-19 pandemic. It has been almost impossible to reach an IRS representative over the phone, and correspondence mailed to the IRS is taking months instead of weeks to process. The good news is that IRS has recognized this problem and, as a result, put a temporary hold on sending certain types of notices to taxpayers.

The suspended notices primarily focus on those which may require extra processing or manual review of payments/returns, so this does not include all taxpayer notices. Below are the notices that are currently included on this list:

CP80, Unfiled Tax Return (IRS hasn’t received a tax return for a particular year/period but shows payments/credits on file)
CP59 and CP759, Unfiled Tax Return(s) – 1st Notice (No record of a prior-year tax return being filed)
CP516 and CP616, Unfiled Tax Return(s) – 2nd Notice
CP518 and CP618, Unfiled Tax Return(s) – Final Notice
CP501, Balance Due – 1st Notice (There is an outstanding balance due)
CP501, Balance Due – 2nd Notice
CP504, Balance Due – 3rd Notice, Intent to Levy (IRS communicates Intent to Levy (seize assets) if balance due not received)
2802C, Withholding Compliance Letter (Under-withholding of Federal tax from wages and instructions on how to correct)
CP259 and CP959, Return Delinquency (No record of prior year return being filed – business filers)
CP518 and CP618, Final Notice – Return Delinquency (business filers)

The IRS has stated that this suspension will last until the backlog of returns and correspondence is cleared, but has not given a specific date. If one of these notices has already been received, IRS has said there is no need to respond if it is inaccurate or reflects something that has already been resolved – however, they have also warned that if a taxpayer or tax professional believes a notice is accurate, steps should still be taken to resolve the issue as soon as possible. With a balance due notice, if accurate, penalties and interest will continue to accrue until it has been paid.

The IRS Commissioner has said there is a possibility that more types of notices will get added to this list, but for now, the focus is to ramp up efforts to reduce the inventory of outstanding returns/correspondence before providing any further relief. The IRS has recently announced hiring of additional staff as well as reallocation of resources to help succeed in these efforts, but hopefully this temporary suspension will reduce frustration and provide some peace of mind to taxpayers and tax professionals.

As always, if you need assistance with any IRS correspondence, we’re happy to help.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “IRS Suspension of Certain Taxpayer Notices” is available now! Subscribe here: [link]

Over the last two years, it has been almost impossible to reach an IRS representative over the phone, and correspondence mailed to the IRS is taking months instead of weeks to process, largely due to COVID-19 delays and shortages. Learn what the IRS is doing to handle this situation in our latest blog article: [link]

Receiving a notice from the IRS is often a stressful and intimidating experience. What makes it even worse is when a taxpayer cannot easily speak with an IRS representative. The good news is that the IRS has recognized this problem and, as a result, put a temporary hold on sending certain types of notices to taxpayers. Learn more in our latest blog article: [link]

DID YOU KNOW… The IRS has stated the recent suspension of certain types of notices will last until the backlog of returns and correspondence is cleared, but has not given a specific date. If you have already received one of these notices, the IRS has said there is no need to respond if it is inaccurate or reflects something that has already been resolved – however, they have also warned that if a taxpayer or tax professional believes a notice is accurate, steps should still be taken to resolve the issue as soon as possible. Learn more here: [link]

The IRS has put a temporary hold on sending certain types of notices to taxpayers. The suspended notices primarily focus on those which may require extra processing or manual review of payments/returns, so this does not include all taxpayer notices. Learn more here: [link]

The IRS Commissioner has said there is a possibility that more types of notices will get added to the recent list of suspended notices, but for now, the focus is to ramp up efforts to reduce the inventory of outstanding returns/correspondence before providing any further relief. Learn more about these changes here: [link]

The IRS has recently announced hiring of additional staff as well as reallocation of resources to help succeed in efforts to fix the problems in service due to delays and shortages, but hopefully the temporary suspension of certain types of notices will reduce frustration and provide some peace of mind to taxpayers and tax professionals. Learn more about these suspensions here: [link]

The IRS has suspended certain types of notices in an effort to reduce the inventory of outstanding returns/correspondence. Sign up for our newsletter to learn more about the recent changes made by the IRS: [link]

Learning About S Corporation Shareholder Basis

Mon, 27 Jun 2022 14:26:00 GMT

Download Volume 11, Issue 26 Document Here

BizBoost News
Volume 11, Issue 26
For distribution 6/13/22; publication 6/16/22

Learning About S Corporation Shareholder Basis

General Definition

If you have ownership in an S corporation, it is important to have a general understanding of basis. This number called “basis” increases and decreases with the activity of the company. The IRS defines it as the amount of a shareholder’s investment in the business for tax purposes.

When the S corporation files a tax return (Form 1120S), all shareholders receive a K-1 form to show profits, losses and deductions allocated to the shareholder. The K-1 does not state the taxable amount of the distribution, which is contingent on the stock basis.

The main purpose of basis is to determine if distributions are taxable or losses are deductible. The basis for each shareholder is calculated annually and must be tracked from day one of ownership.

Importance of Basis

It is important to calculate the basis for the following reasons:

If the shareholder receives a distribution and has basis to cover the amount, the withdrawal is not taxable to the shareholder.
If the shareholder has a loss in the company and has basis to cover the amount, the losses will be allowed to be taken in that tax year.
When the shareholder disposes of his/her stock, gain or loss on the disposition is calculated using the shareholder’s stock basis.

How Basis is Calculated

Think of basis like a checking account. The account goes up and down, but can never go negative. When there is a deposit of income, the basis goes up for all shareholders based upon percentage of ownership. When there is a payment of an expense, the basis goes down.

When a shareholder contributes money to the company, the basis goes up. When a shareholder withdraws money, the basis goes down.

Basis is also decreased by several activities like penalties the company had to pay, Section 179 deductions on assets or the non-deductible portion of meals and entertainment.

In year one, you start out with a zero basis. For the activity of the first year in business, you then have an ending basis. This ending basis in year one is your beginning basis number for year two. This continues as long as a person has ownership in a company.

Suspended Losses

Normally a shareholder that has basis in the company can reduce their other income (W-2 wages, interest, dividends, rental, etc.) on their personal tax return with the losses of the company. This is a really nice advantage of the S-corporation! However, if the shareholder does not have basis to go against that loss, the loss is suspended and disallowed for that tax year. The losses are carried over indefinitely until the shareholder has more basis.

Distributions

In general, if a shareholder withdraws money from the company outside of payroll, the distribution will only reduce the basis in the company. This is another benefit of an S-corporation! Regular corporations (C-corps) tax the shareholder for pulling out money, called dividends. You’ve probably heard the phrase, “double taxation on C-corps.” In an S-corporation, that does not happen if you have basis.

What happens if you don’t have basis and you pull money out? The amount that exceeds the basis will be taxed as a capital gain on the shareholder’s personal return. Here is an example:

Beginning Stock Basis = $25,000

Current year Loss = $-20,000

-----------

Ending Stock Basis = $5,000

Distributions = $10,000

-----------

Distribution Above Basis $5,000 = this is the amount the shareholder will be taxed at the capital gains rate.

Now do you see why tracking basis is important?

Reconstructing Basis

When you change tax preparers, a good sign that they are competent is if they ask for your basis schedules the first year they prepare your return. If they do not have the schedule, they will need to recreate it from year one. Reconstructing the basis is not very difficult as long as all the K-1’s and records are available for every year in business.

Two Types of Bases

There are two types of bases numbers that need to be tracked: stock basis and debt basis. Most of what you read above applies to stock basis.

Debt basis is a tad more complicated. For a shareholder to receive debt basis, the shareholder must make a direct loan to the corporation. The shareholder bears some risk in loaning the company money. You’ll want to formalize the loan with a promissory note and collect interest on the loan. Repayments of the loan are calculated against the debt basis. If the shareholder’s stock basis is zero, then losses are still allowed if there is debt basis. If the debt is repaid before the stock basis is restored, then all or part of the repayment of the loan may be taxable.

The End in Mind

Understanding and keeping track of basis is a good recordkeeping habit and will help you avoid surprises come tax time.

***

Tweets

Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Learning About S Corporation Shareholder Basis” is available now! Subscribe here: [link]

When an S corporation files a tax return, all shareholders receive a K-1 form to show profits, losses and deductions allocated to the shareholder. The K-1 does not state the taxable amount of the distribution, which is contingent on the stock basis. Learn more in our latest blog article: [link]

The main purpose of “basis” is to determine if distributions are taxable or losses are deductible. The basis for each shareholder is calculated annually and must be tracked from day one of ownership. Learn more here: [link]

It is important to calculate “basis” for the following reasons:

If the shareholder receives a distribution and has basis to cover the amount, the withdrawal is not taxable to the shareholder.
If the shareholder has a loss in the company and has basis to cover the amount, the losses will be allowed to be taken in that tax year.
When the shareholder disposes of his/her stock, gain or loss on the disposition is calculated using the shareholder’s stock basis.

Learn more here: [link]

DID YOU KNOW…You can think of basis like a checking account. The account goes up and down, but can never go negative. When there is a deposit of income, the basis goes up for all shareholders based upon percentage of ownership. When there is a payment of an expense, the basis goes down. Learn more in our latest blog article: [link]

There are two types of bases numbers that need to be tracked: stock basis and debt basis. Debt basis is a tad more complicated. For a shareholder to receive debt basis, the shareholder must make a direct loan to the corporation. The shareholder bears some risk in loaning the company money. Learn more in our latest blog article: [link]

Do you know the importance of basis in an S corporation and how to calculate it? Sign up for our newsletter to learn more: [link]

Form 7203 – S Corporation Shareholder Basis

Mon, 27 Jun 2022 14:23:44 GMT

Download Volume 11, Issue 25 Document Here

BizBoost News
Volume 11, Issue 25
For distribution 5/30/22; publication 6/2/22

Form 7203 – S Corporation Shareholder Basis

Form 7203 is a new form developed by IRS to replace the Shareholder’s Stock and Debt Basis worksheet that has previously been generated as part of returns for S corporation shareholders in most tax software programs. While this worksheet was not a required form and was provided for the shareholder’s internal tracking purposes, starting with the 2021 tax year, Form 7203 is a required attachment to Federal income tax returns of S corporation shareholders who:

Are claiming a deduction for their share of a loss from the S corporation (including losses not allowed in a prior year because of basis limitations),
Received a non-dividend distribution from the S corporation,
Disposed of stock in the S corporation, whether or not gain is recognized, or
Received a loan repayment from the S corporation.

The purpose of this form is to determine and report potential limitations of a shareholder’s share of an S corporation’s deductions, credits, and other items that can be deducted on the tax return, as well as possible taxable gain amounts that would not be readily determinable without the basis details.

The form consists of three sections:

Part I Shareholder Stock Basis

This section starts out with the shareholder’s stock basis at the beginning of the year (ending basis from prior year), then adds in any items that increase basis (income, interest, dividends, capital gains, etc.) and subtracts items that decrease basis (shareholder distributions, nondeductible expenses, business credits, etc.). Depending on the circumstances there may be amounts from Parts II and III that need to be entered here, but ultimately the ending stock basis for the year is determined on Line 15.

Part II Shareholder Debt Basis

This section only applies for shareholders who have loaned money to the corporation and have not been fully paid back, which creates something called debt basis. If that doesn’t apply, Part II can be skipped entirely.

This section starts out with the loan balance(s) at the beginning of the year (balance at end of prior year), adds any additional loans made, and then subtracts the principal amount of the debt repaid, to get to the end-of-year loan balance.

Then, the debt basis from beginning to end of year is calculated, which may be adjusted by any amount repaid by the company, any basis restored from previous losses that were deducted using debt basis (when no stock basis was available), and any current year losses in excess of stock basis that are being deducted as a result of having debt basis available. The ending debt basis is reported on Line 31.

If debt basis is less than the actual debt balance and any of the debt was repaid during the year, a portion of the repayment will be taxable – the reportable gain is calculated at the end of this section.

Part III Shareholder Allowable Loss and Deduction Items

This section is where the shareholder’s allowable loss and deduction items are calculated. The current year losses and deductions are combined with carryover loss/deduction items from prior years, and then the allowable current year amounts are determined based on the stock or debt basis available, with any carryover amounts (not usable in current year) reflected in the final column. As noted above, any allowable losses or deduction items that impact stock or debt basis will be reported in Part I and Part II, respectively, so that the correct ending basis balances are calculated.

Form 7203

Along with calculating the deductible amount of any loss/deduction items and helping to keep track of basis from year to year, this form will help IRS recognize when

a) a shareholder has taken distributions in excess of available basis, in which case the excess amount is reportable as a long-term capital gain, and

b) a shareholder has received repayment on a loan made to the company, but has a reduced debt basis because of previously claiming losses against that debt basis (in which case a portion of the loan repayment is taxable as a capital gain).

In the past, these items were not as easily recognizable by IRS and had a higher potential of getting missed in the reporting process.

Although this form reports information related to S corporation activity, it is generated with the shareholder’s 1040 (individual) return and not the 1120-S return. Most tax programs will likely still generate the basis worksheet with 1120-S returns as has been done in the past, and it’s important to make sure they are consistent with each other and that the information on each is accurate.

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Form 7203 – S Corporation Shareholder Basis” is available now! Subscribe here: [link]

Form 7203 is a required attachment to Federal income tax returns of S corporation shareholders who:

Are claiming a deduction for their share of a loss from the S corporation (including losses not allowed in a prior year because of basis limitations),
Received a non-dividend distribution from the S corporation,
Disposed of stock in the S corporation, whether or not gain is recognized, or
Received a loan repayment from the S corporation.

Learn more in our latest blog article: [link]

The purpose of Form 7203 is to determine and report potential limitations of a shareholder’s share of an S corporation’s deductions, credits, and other items that can be deducted on the tax return, as well as possible taxable gain amounts that would not be readily determinable without the basis details. Learn more here: [link]

Form 7203 consists of three parts:

Shareholder Stock Basis
Shareholder Allowable Loss and Deduction Items
Shareholder Allowable Loss and Deduction Items

Learn more about this new form here: [link]

Along with calculating the deductible amount of any loss/deduction items and helping to keep track of basis from year to year, Form 7203 will help IRS recognize when:

a shareholder has taken distributions in excess of available basis, in which case the excess amount is reportable as a long-term capital gain, and
a shareholder has received repayment on a loan made to the company, but has a reduced debt basis because of previously claiming losses against that debt basis (in which case a portion of the loan repayment is taxable as a capital gain).

Learn more here: [link]

Although Form 7203 reports information related to S corporation activity, it is generated with the shareholder’s 1040 (individual) return and not the 1120-S return. Most tax programs will likely still generate the basis worksheet with 1120-S returns as has been done in the past, and it’s important to make sure they are consistent with each other and that the information on each is accurate. Learn more in our latest blog article: [link]

Do you know how the new Form 7203 works? Sign up for our newsletter to access our latest article: [link]

Do You Need to File Schedules K-2 & K-3? A Look at Requirements, Exceptions/Relief, Filing Issues

Fri, 27 May 2022 11:57:59 GMT

Download Volume 11, Issue 24 Document Here

BizBoost News
Volume 11, Issue 24
For distribution 5/16/22; publication 5/19/22

Do You Need to File Schedules K-2 & K-3?
A Look at Requirements, Exceptions/Relief, Filing Issues

Starting with the 2021 tax year, IRS forms K-2 and K-3 are new schedules that may need to be included with 1065 (Partnerships), 1120S (S Corporations), or 8865 (Certain Foreign Partnerships) filings. These are all pass-through entity filings that include Schedule K-1, which reports a partner’s or shareholder’s share of the entity’s profits, losses, deductions, and credits for the year, and the K-2/K-3 schedules are an extension of that.

Specifically, these forms go into greater detail regarding items of international relevance that may impact foreign reporting at the individual member or shareholder level. These schedules were created to accommodate international provisions enacted as part of the Tax Cuts and Jobs Act in 2017, which increased the amount and type of information needed to calculate items of foreign tax relevance (for example, calculating the foreign tax credit).

Who Must File?

The general guidance from the IRS states that a pass-through entity “with items of international tax relevance” would be subject to these new reporting requirements. However, there has been a great deal of confusion about what this means. The basic interpretation might be that if a pass-through entity has no international activities and no foreign members or shareholders, the K-2/K-3 filing requirement won’t apply – however, that is not necessarily the case.

IRS updated its instructions to state that an entity “with no foreign source income, no assets generating foreign source income, and no foreign taxes paid or accrued may still need to report information on Schedules K-2 and K-3.” The most common example of this would be for partners/shareholders who claim a foreign tax credit on their individual returns – they may need information from the K-2 and K-3 filings to complete the associated form and calculate the credit.

Your tax professional will ask you and all of your partners and shareholders about your foreign activity, so please be patient with the extra questions this year. (It’s not us; it’s the IRS!) Also, any one partner could ask for Schedules K2 and K3, and this would mean that they need to be completed regardless of whether any partner/shareholder had foreign activity. Simply by the partner’s asking, it triggers the requirement.

The big takeaway here is that items of international tax relevance and the K2/K3 requirement should be determined at the partner/shareholder level, not just the entity level.

Exceptions/Relief

IRS released initial information regarding transitional relief, knowing that there would be an adjustment period for entities to achieve compliance. Per Notice 2021-39, certain transitional penalty relief could be granted to those filers who made a good faith effort to comply with the new reporting requirements.

However, after significant pushback, the IRS announced that it would provide additional relief for 2021. S corps and partnerships that have no foreign activities, no foreign partners or shareholders, and no knowledge of partners’ or shareholders’ need for information on international items of relevance will not be subject to the K-2/K-3 filing requirements for tax year 2021. There is no indication at this point that the relief will extend beyond the 2021 tax year, so these entities should be prepared to complete the filings for 2022 and beyond.

Filing Issues

Because Schedules K-2 and K-3 are new for 2021, it has taken/will take some time for tax software programs to have electronic filing capability for these forms. If a tax return was or will be electronically filed prior to the availability dates listed below, the schedules much be submitted as separate PDF files attached to the return (most tax programs should be able to accommodate electronic attachment of miscellaneous PDF forms).

Per IRS, here are the availability dates for electronic filing of the K-2/K-3 forms:

With Form 1065: March 20, 2022
With Form 1120-S: mid-June 2022
With Form 8865: January 2023

Although IRS expects that all of these will be available for e-filing for the upcoming (2022) tax year, the ability to file via PDF attachment will still be available, if preferred.

Frequently Asked Questions/Questions or Feedback for IRS

IRS has created a K-2 and K-3 Frequently Asked Questions (FAQ) page, which it has been keeping updated as new information comes to light. Be sure to monitor this page for any new updates: Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S, and 8865) | Internal Revenue Service (irs.gov) IRS has also provided an email address for questions/comments that come up, and is welcoming feedback from taxpayers about this new compliance requirement: lbi.passthrough.international.form.changes@irs.gov.

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Do You Need to File Schedules K-2 & K-3? A Look at Requirements, Exceptions/Relief, Filing Issues” is available now! Subscribe here: [link]

IRS forms K-2 and K-3 go into greater detail regarding items of international relevance that may impact foreign reporting at the individual member or shareholder level. These schedules were created to accommodate international provisions enacted as part of the Tax Cuts and Jobs Act in 2017. Learn more in our latest blog article: [link]

The basic interpretation regarding requirements for IRS forms K-2 and K-3 might be that if a pass-through entity has no international activities and no foreign members or shareholders, the K-2/K-3 filing requirement won’t apply – however, that is not necessarily the case. Click here to learn more: [link]

DID YOU KNOW… The general guidance from the IRS states that a pass-through entity “with items of international tax relevance” would be subject to the new K-2 and K-3 forms’ reporting requirements. Learn more here: [link]

Per IRS, here are the availability dates for electronic filing of the K-2/K-3 forms:

With Form 1065: March 20, 2022
With Form 1120-S: mid-June 2022
With Form 8865: January 2023

Although IRS expects that all of these will be available for e-filing for the upcoming (2022) tax year, the ability to file via PDF attachment will still be available, if preferred. Learn more here: [link]

DID YOU KNOW… Because Schedules K-2 and K-3 are new for 2021, it has taken/will take some time for tax software programs to have electronic filing capability for these forms. If a tax return was or will be electronically filed prior to the availability dates, the schedules much be submitted as separate PDF files attached to the return. Learn more in our latest blog article: [link]

Do you know if you need to file schedules K-2 and K-3? Sign up for our newsletter to learn more about the requirements, exceptions, and issues surrounding these new forms: [link]

Mortgage Interest Credit for First-Time Homebuyers

Fri, 27 May 2022 11:55:58 GMT

Download Volume 11, Issue 23 Document Here

BizBoost News
Volume 11, Issue 23
For distribution 5/2/22; publication 5/5/22

Mortgage Interest Credit for First-Time Homebuyers

With the cost of home ownership on the rise, it is important for first-time homebuyers to be aware of certain possible benefits available to help with affordability. One of these is the Section 25 mortgage interest credit, which can be claimed on a taxpayer’s Federal tax return for a portion of the mortgage interest paid.

Who Qualifies?

To receive this credit, a taxpayer must be issued a mortgage credit certificate (MCC). This is issued by a state or local government agency in the state of residence. In order to qualify for one, the taxpayer must be a first-time homebuyer, and the home securing the mortgage must be the taxpayer’s principal residence. Furthermore, the taxpayer must meet certain income and sales price limitations, and may be required to undergo some type of homebuyer education (these qualifications vary by state).

How Much Is It?

The mortgage interest credit is calculated on Form 8396, Mortgage Interest Credit. There are two amounts provided on the MCC that are used to calculate the credit – the certificate credit rate (CCR) and the certified indebtedness amount. The CCR is a percentage that is applied to mortgage interest amount paid to determine the amount of the credit – however, if it is more than 20 percent, the maximum allowable credit for a given year is $2,000 (it ranges from a minimum of 10 percent to a maximum of 50 percent). The certified indebtedness amount is the amount of the loan covered by the MCC – only the interest on that amount is eligible for the credit.

Another possible limit to the credit amount is based on tax liability. The credit is limited to something called the “applicable tax limit,” which is:

The taxpayer’s tax liability less any foreign tax credit and alternative minimum tax, minus
The total allowable nonrefundable tax credits (not including the mortgage interest credit, adoption credit, or the residential energy-efficient property credit).

Example 1:

Mortgage amount $200,000

Mortgage Interest paid during year $7,300

CCR: 30%

Interest paid x CCR = $2,190, but limited to $2,000 because CCR is more than 20%

Example 2:

Mortgage amount $200,000

Mortgage Interest paid during year $7,300

CCR: 20%

Applicable tax limit $1,300

Interest paid x CCR = $1,460, but credit limited to applicable tax limit of $1,300

What Happens to the Credit Amount I Can’t Use?

If a portion of the calculated credit amount is disallowed because of the CCR exceeding 20%, the excess over $2,000 cannot be carried forward. However, any credit amount in excess of the applicable tax limit can be carried forward for up to three years. So, in Example 2 above, the $160 of unused credit above the applicable tax limit amount is carried forward to the next year.

What Happens If I Refinance?

If you refinance your mortgage, you can still qualify for the credit if your existing MCC is reissued. The reissued certificate must meet the following requirements:

It must be issued to the holder of the existing certificate for the same property.
It must completely replace the existing certificate – no portion of the outstanding balance of the existing certificate can be retained.
The indebtedness and credit rate cannot exceed those of the existing certificate.
The reissued certificate cannot result in a higher calculated credit amount than what would otherwise have been allowed under the existing certificate (for any tax year).

Possible Disadvantages

For those taxpayers who deduct their mortgage interest on Schedule A, the deductible amount must be reduced by the amount of the credit received. It is still more advantageous to receive the credit than the additional deduction – furthermore, many taxpayers wouldn’t be impacted by this anyway, because more taxpayers are taking the standard deduction than previously (due to the increase in the standard deduction when the Tax Cuts and Jobs Act was passed). For those taking the standard deduction, there is no mortgage interest deduction to offset the credit against.

There are some situations where the credit may be subject to recapture, meaning that it must be repaid. If a taxpayer disposes of the residence within a nine-year period, some or all of the credit will be subject to recapture. However, if the taxpayer does not make significantly more income in the year of sale than in the year of purchase, or the taxpayer does not realize a gain on the sale of the home, the recapture amount would be reduced or possibly even eliminated. Some MCC programs will even reimburse taxpayers if they become subject to a recapture tax!

More Information

To find out more about the mortgage interest credit and how it is administered/how it might apply to their situation, taxpayers should contact their state or local government housing agency that is authorized to issue MCCs.More information can also be found in the IRS instructions for Form 8396: 2021 Form 8396 (irs.gov)

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “Mortgage Interest Credit for First-Time Homebuyers” is available now! Subscribe here: [link]

With the cost of home ownership on the rise, it is important for first-time homebuyers to be aware of certain possible benefits available to help with affordability. Learn more in our latest blog article: [link]

One possible benefit available to help with affordability of home ownership is the Section 25 mortgage interest credit, which can be claimed on a taxpayer’s Federal tax return for a portion of the mortgage interest paid. Learn more in our latest blog article: [link]

There are some situations where the Section 25 mortgage interest credit may be subject to recapture, meaning that it must be repaid. For example, if a taxpayer disposes of the residence within a nine-year period, some or all of the credit will be subject to recapture. Click here to learn more about this credit here: [link]

DID YOU KNOW… To receive the Section 25 mortgage interest credit, a taxpayer must be issued a mortgage credit certificate (MCC). This is issued by a state or local government agency in the state of residence. In order to qualify for one, the taxpayer must be a first-time homebuyer, and the home securing the mortgage must be the taxpayer’s principal residence. Learn more here: [link]

A possible limit to the Section 25 mortgage interest credit amount is based on tax liability. The credit is limited to something called the “applicable tax limit,” which is:

The taxpayer’s tax liability less any foreign tax credit and alternative minimum tax, minus
The total allowable nonrefundable tax credits (not including the mortgage interest credit, adoption credit, or the residential energy-efficient property credit).

Learn more here: [link]

DID YOU KNOW… The mortgage interest credit is calculated on Form 8396, Mortgage Interest Credit. There are two amounts provided on the MCC that are used to calculate the credit – the certificate credit rate (CCR) and the certified indebtedness amount. Learn more in our latest blog article: [link]

For those taxpayers who deduct their mortgage interest on Schedule A, the deductible amount must be reduced by the amount of the credit received. It is still more advantageous to receive the Section 25 mortgage interest credit than the additional deduction. Sign up for our newsletter to learn more about this credit: [link]

529 Plans

Wed, 27 Apr 2022 11:22:19 GMT

Download Volume 11, Issue 22 Document Here

BizBoost News
Volume 11, Issue 22
For distribution 4/18/22; publication 4/21/22

529 Plans

What is a 529 Plan?

A 529 Plan is an investment account that offers tax benefits when used to pay for qualified education expenses. Investments grow tax free and withdraws are tax- and penalty-free as long as they are used to pay for eligible expenses.

Most states offer their own 529 plan; you don’t have to be a resident of the particular state in order to establish an account. Many states also offer a state income tax deduction or tax credit for 529 plan contributions. There are even a handful of states that will give you a tax benefit for contributing to a different state’s 529 plan!

Who can contribute to a 529 Plan?

Anybody! The account has one owner and one beneficiary, but anyone (friends, family members) can contribute.

What happens if the beneficiary doesn’t use all of the funds?

The owner of the 529 plan is always in control of the account. They can name another person as a beneficiary (check with your 529 plan for eligibility), they can use the money themselves for qualified education expenses, or withdraw the funds (penalty applies).

Can 529 Plan Funds be used for other types of schooling?

You can withdraw up to $10,000 per year to pay for private elementary or high school tuition, penalty-free. Some states don’t conform to federal law, so be certain to check with your tax professional for your individual circumstances.

Eligible expenses related to attending trade schools, vocational programs, and registered apprenticeship programs are also allowed under a 529 plan.

What is a qualified expense?

For a withdraw to be free from penalty, the funds have to be used for a qualified expense. Qualified expenses include:

Tuition—full or part time attendance at an accredited institution

Room and Board—for on-campus students, this is the cost of housing and a meal plan. For off campus students, rent and food are a qualified expense, but the amount can’t exceed the school’s published Cost of Attendance. For example, if the school charges $7,000 per semester for housing, but the student’s off-campus housing costs $8,000 per semester, only $7,000 is a qualified expense and can be withdrawn tax- and penalty-free. The remaining $1,000 either needs to be paid out-of-pocket or would be subject to tax and penalties if paid from the 529 plan

Books and Supplies – textbooks, ebooks, lab fees, course fees, pens, paper, etc. required for a class is a qualified expense

Technology – computers, printers, and internet service are qualified expenses while you are enrolled in college

Student Loan Repayment – the IRS allows you to take up to $10,000 from a 529 plan to repay student loans. Check with your state to ensure that they conform to this law; some states do not and will assess taxes/penalties on the withdraw.

What isn’t a qualified expense?

There are certain expenses that seem like they should be a qualified expense but actually aren’t covered. Examples include:

Health Insurance

Fitness Club Memberships

Transportation

Cell Phone Plans

College Application and Testing Fees

An Easy Way to Save on Taxes

529 plans are a very common way to save taxes for families with children planning to go to college. If anyone in your household is currently attending educational programs or even plans to in the future, give us a call, and let us help you save on taxes with this deduction.

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “529 Plans” is available now! Subscribe here: [link]

A 529 plan is an investment account that offers tax benefits when used to pay for qualified education expenses. Investments grow tax free and withdraws are tax- and penalty-free as long as they are used to pay for eligible expenses. Learn more in our latest blog article: [link]

DID YOU KNOW… Most states offer their own 529 plan; you don’t have to be a resident of the particular state in order to establish an account. Many states also offer a state income tax deduction or tax credit for 529 plan contributions. Learn more about 529 plans in our latest blog article: [link]

Do you know what happens if the beneficiary of a 529 plan doesn’t use all of the funds? The owner of the 529 plan is always in control of the account. They can name another person as a beneficiary (check with your 529 plan for eligibility), they can use the money themselves for qualified education expenses, or withdraw the funds (penalty applies). Learn more here: [link]

Do you have a 529 plan? If so, do you know who can contribute to it?

The answer: Anybody! The account has one owner and one beneficiary, but anyone (friends, family members) can contribute. Learn more here: [link]

Have you heard of a 529 plan? A 529 plan is an investment account that offers tax benefits when used to pay for qualified education expenses. Learn more in our latest blog article: [link]

The difference between qualified and unqualified expenses when it comes to 529 plans can be confusing. Sign up for our newsletter to access our latest article, where we explain the difference as well as provide a full overview of 529 plans: [link]

New Research & Development Credit Documentation Requirements

Wed, 27 Apr 2022 11:20:50 GMT

Download Volume 11, Issue 21 Document Here

BizBoost News
Volume 11, Issue 21
For distribution 4/4/22; publication 4/7/22

New Research & Development Credit Documentation Requirements

In the fall of 2021, the IRS released guidance regarding new documentation requirements for companies looking to claim a Research & Development (R&D) credit refund. The extra documentation requirement is effective beginning in January 2022, and the information must be submitted with the annual tax return. The goal of the new requirements is to help IRS process R&D credit refunds more quickly and efficiently.

There are five items that will be needed for all R&D refund requests, using Form 6765:

1.      All business components
2.      All research activities performed
3.      All individuals who performed each research activity
4.      All information each individual looked to discover
5.      Total qualified employee wage, supply, and contract research expenses

A business component is defined as “any product, process, computer software, technique, formula, or invention which is to be held for sale, lease, or license, or used by the taxpayer in a trade or business of the taxpayer.” Taxpayers can disclose the relevant business components without going into details about how each one complied with the four-part test associated with the R&D credit.

The four-part test states that a claim must refer to an activity that is technological in nature, part of a process of experimentation, looks to eliminate uncertainty, and has a specific purpose or goal. As part of clarifying who was involved in research activities, the new information is required to include the purpose or goal of anyone who was part of the process. Additionally, IRS has stated that only titles or positions need to be provided for the individuals involved in the refund claim, but that companies should be prepared to provide full names if the IRS performs a more substantive review.

Because taxpayers will need to adjust to the new requirements and may provide partial or incorrect information initially, IRS is giving a grace period in the first year to fully comply with the new requirements. This grace period has been extended to 45 days and is only effective for the first year of transition. If the IRS determines that any part of the information is incomplete or incorrect, they will notify the taxpayer in writing, and missing information can be submitted via fax or mail. If the updated documentation is not supplied within 45 days, the refund claim will be denied – and after January 9th, 2023, any originally-filed incomplete refund claim will be rejected.

It's important to note that IRS is still accepting public comments regarding these new rules, so it’s possible the instructions could be revised based on any modifications as a result of this input. The American Institute of Certified Public Accountants (AICPA) has also formally requested that the start date of the new requirements be pushed back to allow more time for the public to comment, but IRS has not yet agreed to this recommendation. This new documentation requirement may create additional complications, so it will be critical for taxpayers to ensure that they understand the new requirements and submit the correct information on a timely basis.

***

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Insert a link to your newsletter, website or blog before you post these:

Our latest blog: “New Research & Development Credit Documentation Requirements” is available now! Subscribe here: [link]

In the fall of 2021, the IRS released guidance regarding new documentation requirements for companies looking to claim a Research & Development (R&D) credit refund. Learn more in our latest blog article: [link]

There are five items that will be needed for all R&D refund requests, using Form 6765:
1.All business components
2.All research activities performed
3.All individuals who performed each research activity
4.All information each individual looked to discover
5.Total qualified employee wage, supply, and contract research expenses
Learn more in our latest blog article: [link]

#BusinessTip: The extra documentation requirement for companies looking to claim a Research & Development (R&D) credit refund is effective beginning in January 2022, and the information must be submitted with the annual tax return. Click here to learn more: [link]

DID YOU KNOW… A business component is defined as “any product, process, computer software, technique, formula, or invention which is to be held for sale, lease, or license, or used by the taxpayer in a trade or business of the taxpayer.” Learn more here: [link]

The four-part test associated with the Research & Development Credit states that a claim must refer to an activity that is technological in nature, part of a process of experimentation, looks to eliminate uncertainty, and has a specific purpose or goal. Learn more about the new documentation requirements for R&D here: [link]

DID YOU KNOW… The American Institute of Certified Public Accountants (AICPA) has formally requested that the start date of the new Research & Development Credit requirements be pushed back to allow more time for the public to comment, but IRS has not yet agreed to this recommendation. Learn more in our latest blog article: [link]

The new documentation requirements for the Research & Development Credit may create complications, so it will be critical for taxpayers to ensure that they understand the new requirements and submit the correct information on a timely basis. Sign up for our newsletter to learn more about these changes: [link]

Understanding Your IRS Notice

Fri, 25 Mar 2022 11:27:47 GMT

Download Volume 11, Issue 20 Document Here

BizBoost News
Volume 11, Issue 20
For distribution 3/21/22; publication 3/24/22

Understanding Your IRS Notice

Dealing with the IRS can be stressful! There are taxpayers who receive an IRS notice and because they are so fearful, they will pay the notice without verifying the accuracy. The IRS may not have all the facts, so do not pay anything without checking the details. Also, do not ignore any letter sent by the IRS—doing so will only make the situation worse. Understanding your IRS notice empowers you to make the most informed decision for your situation.

The IRS sends notices and letters for the following reasons:

You have a balance due
You are owed a larger or smaller refund
The IRS has a question about your tax return
The IRS needs to verify your identity
The IRS needs more information to process your tax return
The IRS changed your return
There are delays in processing your return

(Remember, the IRS will never call you on the phone to collect money or verify your identity; if someone says they are the IRS on the phone, it’s a scam! Don’t fall for it.)

First, check the type of notice that the IRS sent you (example: Notice CP2000 indicates that the information contained in the tax return doesn’t match what was reported to the IRS by third parties) and review which tax year this applies to. This information will be included in either the upper right- or left-hand corner of the notice.

Read the notice carefully. If the tax return was changed by the IRS, compare the information listed on the notice with your tax return. Review line items thoroughly and determine what numbers are different.

In 2020 and 2021, the IRS fell behind processing returns and especially those that were filed on paper. That resulted in a LOT of IRS letters going out that were just plain wrong because the paper returns had not been entered into the system yet.

If you agree with the notice and there is a balance owed, make certain to pay it by the due date to avoid additional fees and penalties. If you can’t afford to pay the full amount listed, pay as much as you can now. If you need to pay over time, consider applying online for an installment agreement.

If you disagree with the notice, be sure to follow the instructions included in the letter that indicate how to dispute their findings. Often, you will need to provide not only an explanation of why you disagree, but also the documents that support your position. The notice will also tell you the timeframe you need to respond in and how to do it (ex: mail or fax). Responding timely preserves your right to appeal an IRS decision if you don’t agree with it!

And this is where you will probably want to get expert representation anyway, especially if the IRS says you owe a lot. The only three types of tax professionals that can represent you in front of the IRS are CPAs, Enrolled Agents, and attorneys.

Always provide any IRS correspondence to your tax preparer. There may be information contained in the notice that impacts the following tax year, which is important for your tax preparer to be aware of. Most of all, reach out to your tax preparer for assistance if you do not fully understand the notice. Getting them involved early could save you a lot of worry, and maybe even some money if penalties can be waived.

***

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Our latest blog: “Understanding Your IRS Notice” is available now! Subscribe here: [link]

If you receive a letter from the IRS do not ignore it - doing so will only make the situation worse. Understanding your IRS notice empowers you to make the most informed decision for your situation.Learn how to understand your IRS notice in our latest blog article: [link]

Our latest blog article will help you understand your IRS notice and what steps to take to handle the situation. Get instant access here: [link]

If you receive an IRS notice, first, check the type of notice that the IRS has sent (example: Notice CP2000 indicates that the information contained in the tax return doesn’t match what was reported to the IRS by third parties) and review which tax year this applies to. Learn more here: [link]

DID YOU KNOW… The IRS sends notices and letters for the following reasons:

You have a balance due
You are owed a larger or smaller refund
The IRS has a question about your tax return
The IRS needs to verify your identity
The IRS needs more information to process your tax return
The IRS changed your return
There are delays in processing your return

Learn how to handle an IRS notice here: [link]

Tax Tip: Always provide any IRS correspondence to your tax preparer. There may be information contained in the notice that impacts the following tax year, which is important for your tax preparer to be aware of. Learn more in our latest blog article: [link]

Do you know the steps to follow when you receive an IRS notice? Sign up for our newsletter to learn how to handle this stressful situation: [link]

Business Meals Deduction for 2021-2022 Tax Years

Fri, 25 Mar 2022 11:27:09 GMT

Download Volume 11, Issue 19 Document Here

BizBoost News
Volume 11, Issue 19
For distribution 3/7/22; publication 3/10/22

Business Meals Deduction for 2021-2022 Tax Years

As an incentive to help restaurants recover economically due to the COVID-19 pandemic, Congress has temporarily allowed that expenses for business-related meals are 100 percent tax deductible from January 1, 2021 through December 31, 2022. After that date, the federal tax deduction for business-related meals will return to the 50 percent level.

It’s important for a business owner to understand when the temporary 100 percent deduction applies and when the 50 percent limit is in effect. For that, the IRS has issued Notice 2021-25 for clarity.

For the cost of a meal to be 100 percent deductible, the food and beverages must be purchased from a restaurant. The IRS defines a restaurant as “a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” The 100 percent deduction is allowed as long as the expense isn’t “lavish or extravagant,” the business owner or their employee is present at the meal, and the meal is provided to the business owner or their client.

There are certain circumstances where the temporary 100 percent deduction does not apply. For example, pre-packaged food or beverages, such as food sold at a grocery store or a vending machine, do not qualify for the enhanced deduction. Additionally, because eating facilities located on a business premise are not considered restaurants, meals purchased from these sources remain limited to a 50 percent deduction.

Business owners are advised to keep track of the different types of meal expenses to determine their deductibility. A good way to do this is to create separate categories, accounts, or sub-accounts for 100 percent deductible meals and 50 percent deductible meals on their chart of accounts in their accounting software.

***

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Our latest blog: “Business Meals Deduction for 2021-2022 Tax Years” is available now! Subscribe here: [link]

DID YOU KNOW… Pre-packaged food or beverages, such as food sold at a grocery store or a vending machine, do not qualify for the enhanced business meal deduction. Additionally, because eating facilities located on a business premise are not considered restaurants, meals purchased from these sources remain limited to a 50% deduction. Learn more in our latest article: [link]

Our latest blog article reviews the rules for business meal deductions for the 2021-2022 tax years. Get instant access here: [link]

As an incentive to help restaurants recover economically due to the COVID-19 pandemic, Congress has temporarily allowed that expenses for business-related meals are 100% tax deductible from January 1st, 2021 through December 31st, 2022. Learn more here: [link]

It’s important for a business owner to understand when the temporary 100% deduction applies and when the 50% limit is in effect. Learn more in our latest blog article: [link]

DID YOU KNOW… There are certain circumstances where the temporary 100% business meal tax deduction does not apply. Find out more here: [link]

In regards to business meal deductions, business owners are advised to keep track of the different types of meal expenses to determine their deductibility. A good way to do this is to create separate categories for 100% deductible meals and 50% deductible meals on their chart of accounts. Learn more in our latest blog article: [link]

Do you know how business meal tax deductions work, and when meals are 100% deductible or 50% deductible? Sign up for our newsletter to learn more: [link]

IRS 2022 Limits

Thu, 24 Feb 2022 15:21:58 GMT

Download Volume 11, Issue 18 Document Here

BizBoost News
Volume 11, Issue 18
For distribution 2/21/22; publication 2/24/22

IRS 2022 Limits

Each year, the IRS adjusts tax rates, standard deduction amounts, and other limits to account for tax law updates and cost-of-living adjustments.

Currently for 2022, there are seven tax brackets: 10%, 12%, 24%, 32%, 35%, and 37%. Your filing status (example: single, married filing jointly, head of household) will be the determining factor of where your taxable income will fall within the tax brackets. Keep in mind that should the Build Back Better Act pass in its current form, tax brackets will be reorganized and expanded.

Standard deduction amounts will increase to $12,950 for individuals and married couples who file separately, $19,400 for head of household, and $25,900 for married couples who file jointly.

Long-Term Capital Gains tax rates (0%, 15%, and 20%) remain unchanged, but the income level has changed:

Married filing jointly: 0% rate for income up to $83,350. 15% rate for income between $83,351 and $517,200. 20% rate for income over $517,200

Single taxpayers: 0% rate for income up to $41,675. 15% rate for income between $41,676 and $459,750. 20% rate for income over $459,750

Head of household: 0% rate for income up to $55,800. 15% rate for income between $55,801 and $488,500. 20% rate for income over $488,500

Other popular limit increases and credit adjustments for 2022 include:

Estates of those who die during 2022 have an exclusion amount of $12,060,000
Annual exclusion for gifts increases to $16,000
Maximum adoption credit is $14,890
Earned income credit maximum limit is $6,935
Alternative Minimum Tax exemption amount for single filers is $75,900 and begins to phase out at $539,900. For joint filers, the exemption amount is $118,100 and begins to phase out at $1,079,800.
Foreign income exclusion amount is $112,000
Flexible Spending Arrangement contributions via salary reduction has increased to $2,850
401(k) limit increases to $20,500
Educator expenses increase to $300 for expenses paid for books, supplies, and other classroom materials.

For a detailed list of tax rate schedules and other tax changes, review the IRS’s Revenue Procedure 2021-45.

***

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Each year, the IRS adjusts tax rates, standard deduction amounts, and other limits to account for tax law updates and cost-of-living adjustments. Find out what they released for 2022 in our latest blog article: [link]

Our latest blog article reviews the IRS 2022 tax limits as well as other popular limit increases and credit adjustments. Get instant access here: [link]

Currently for 2022, there are seven tax brackets: 10%, 12%, 24%, 32%, 35%, and 37%. Your filing status will be the determining factor of where your taxable income will fall within the tax brackets. Keep in mind that should the Build Back Better Act pass in its current form, tax brackets will be reorganized and expanded. Learn more here: [link]

The tax brackets aren’t the only areas that get adjusted each year. Learn what other popular limit increases and credit adjustments for 2022 have been made in our latest blog article: [link]

DID YOU KNOW… Standard deduction amounts will increase to $12,950 for individuals and married couples who file separately, $19,400 for head of household, and $25,900 for married couples who file jointly for the 2022 tax year. Find out more here: [link]

Want to learn more about the IRS 2022 tax limits and how it may affect your situation? Find out what changes have been made in our latest blog article: [link]

How to Get Ready for Your Tax Accountant

Thu, 24 Feb 2022 15:20:13 GMT

Download Volume 11, Issue 17 Document Here

BizBoost News
Volume 11, Issue 17
For distribution 2/7/22; publication 2/10/22

How to Get Ready for Your Tax Accountant

It’s almost that time of year again...tax season! While it may still feel like you have plenty of time to prepare, planning ahead can help ensure that you file an accurate return and avoid potential delays in the processing of any refund you might be due. How can you make sure you have everything ready to go for your tax accountant once tax time arrives, to achieve as smooth of a process as possible? Below are some useful tips/reminders to help you prepare.

Organize Tax Records

Having organized tax documentation is crucial to ensuring that your tax return is prepared as completely and accurately as possible. The more orderly and thorough your tax records are, the less likely you are to experience tax reporting errors or processing/refund delays (and the less questions your tax professional will need to ask!). There are certain documents you can get in order now, including mileage logs or donation receipts; however, some external records will not be available until after year-end, including the following:

Forms W-2 from employers
Forms 1099 from banks and other payers (including for unemployment compensation, interest income, dividends/capital gains, or distributions from retirement accounts)
·Forms 1099-NEC for non-employee compensation (for independent contractors)
Forms 1099-MISC for rental or other miscellaneous income
Schedule K-1s from any partnerships you may be involved in

Furthermore, specific to the 2021 tax year, it is critical to have complete information related to any Advanced Child Tax Credit (ACTC) payments or Economic Impact Payments (EIP) that you received during the year. Your tax accountant will need to reconcile the payments to make certain you received everything you are entitled to (and to factor in any additional credits on your tax return if you did not), and to correctly account for any amounts you may need to repay. There are two letters from IRS that can be provided to your preparer to simplify this process: Letter 6419, which outlines the total ACTC payments for the year, and Letter 6475, which provides the total 2021 EIP amount received.

If you’re new to us, we’ll likely ask for prior year tax returns so we can see what was done in the past. If you have carryforward amounts, we can find that out from your prior returns and get them applied properly to this year’s return.

Checklist

Here’s a quick generic checklist:

Forms W-2 from employers
Forms 1099 from all sources, and don’t forget any unemployment income (that’s 1099G and surprise – it’s taxable)
Form 1095 if applicable
Schedule K-1s from partnerships, S corps, or trusts, etc.
List of estimated tax payments made
Closing statement of any homes or real estate purchased or sold
For new clients, copies of two prior years’ tax returns
Copy of the completed tax organizer sent by the tax professional
List of income and expenses from business or rental properties
Retirement contributions and distributions
Charitable contributions and receipts
Medical expenses and contributions
List of taxes, interest, and miscellaneous deductions for itemizing
Mileage logs

A good idea is to make a stack of papers (or better, create a folder on your computer) for all of the related tax documents. For the ones on paper, scan them in when you have a chance, and upload them to the client portal your tax professional provides. This will keep both of you organized and your time minimized when it comes to your taxes.

Access Your IRS Online Account

Taxpayers who register to access their online account on IRS.gov can obtain extremely useful information all in one place, with just a few clicks! Along with the information related to ACTC payments and EIP data referenced above, the following details are also accessible:

Key data from your most recent tax return (and additional records/transcripts)
Information related to your payment plan with IRS, if applicable
Five years of payment history, along with pending/scheduled payments

If you haven’t already set up your online account with IRS, you should act as soon as possible to create an account. If you have already accessed it in the past, make sure you are still able to log in without any issues.

Additionally, by having a conversation with your tax accountant sooner rather than later, you can have clear guidance on what is needed to make the tax preparation process as straightforward as possible. Communication is key – if you make sure you are on the same page now, you will reduce headaches when tax time arrives!

***

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Our latest blog: “How to Get Ready for Your Tax Accountant” is available now! Subscribe here: [link]

It’s almost that time of year again…tax season! While it may still feel like you have plenty of time to prepare, planning ahead can help ensure that you file an accurate return and avoid any potential delays in the processing of your refunds. Learn how to get ready for your tax accountant in our latest blog article: [link]

Our latest blog article reviews how you can make sure you have everything ready to go for your tax accountant once tax time arrives, to achieve as smooth of a process as possible. Get instant access here: [link]

Looking for tips to help you prepare for the upcoming tax season? Check out our latest blog article: [link]

DID YOU KNOW… For the 2021 tax year, it is critical to have complete information related to any Advanced Child Tax Credit (ACTC) payments or Economic Impact Payments (EIP) that you received during the year. Your tax accountant will need to reconcile the payments to make certain you received everything you are entitled to. Find out more here: [link]

Having a conversation with your tax accountant sooner rather than later can give you clear guidance on what you need to make the tax preparation process as straightforward as possible. Learn more in our latest blog article: [link]

DID YOU KNOW…Your tax professional may have a checklist that can help guide you on how to get ready for tax time. Sign up for our newsletter to learn more: [link]

Tax Provisions in the Infrastructure Investment and Jobs Act

Thu, 27 Jan 2022 13:18:00 GMT

Download Volume 11, Issue 16 Document Here

BizBoost News
Volume 11, Issue 16
For distribution 1/24/22; publication 1/27/22

Tax Provisions in the Infrastructure Investment and Jobs Act

While the Infrastructure Investment and Jobs Act of 2021 (IIJA) is primarily a bill that improves roads, bridges, and transit, as well as authorizing additional funding for energy, water, and broadband improvement, there are some tax-related provisions included.

Employee Retention Credit Changes

The Employee Retention Tax Credit (ERTC), which was a tax credit enacted under the CARES Act, is a provision designated to help small businesses retain their employees during the COVID-19 pandemic by refunding payroll costs already spent. The ERTC was extended to quarters three and four of 2021 by the American Rescue Plan Act, only to have Q4 taken away for most employers by IIJA. Under IIJA, only employers who qualify as a “recovery startup business” will have access to the tax credit in the fourth quarter of 2021. A recovery startup business meets the following criteria:

It began carrying on any trade or business after February 15, 2020, and
Average annual gross receipts is less than $1,000,000 for the preceding three tax years (or in most cases, for 2020 and 2021).

Employers that are non-recovery-startup businesses who qualify for the ERTC based on full or partial government shutdowns or a certain level of decline in gross receipts still have three years to file an amended 941 (or similar return, such as 943, etc.) to claim any credits they are eligible for.

The ERTC is a complicated area affected by several different pieces of legislation and rules that vary from quarter to quarter and situation to situation. Please do contact us if you feel your business may be eligible for the ERTC.

Cryptocurrency Disclosures

The IRS is giving fair warning on cryptocurrency that they will be focusing more and more on this area in future years. While the disclosure question about cryptocurrency first appeared on the 2020 Form 1040 tax return, the wording has been modified slightly for 2021:

“At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

Digital assets are defined as "any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology." The definition of brokers is also expanded.

Deadline Extensions for Disaster Victims

For taxpayers affected by federally declared disasters, a 60-day extension is granted for:

Filing income, estate, gift, employment, or excise tax return
Payment of income, estate, gift, employment, or excise tax
Filing a petition with the Tax Court or filing a notice of appeal on a Tax Court’s decision
Allowance of a credit or refund of any tax
Filing a claim for a tax credit or tax refund

To read more about the Infrastructure Investment and Jobs Act, review the fact sheet released by the White House.

***

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While the Infrastructure Investment and Jobs Act of 2021 is primarily a bill that improves roads, bridges, and transit, as well as authorizing additional funding for energy, water, and broadband improvement, there are some tax-related provisions included. Find out more in our latest blog article: [link]

Our latest blog article reviews the additional tax-related provisions included in the new Infrastructure Investment and Jobs Act of 2021. Get instant access here to learn more: [link]

In an effort to better regulate the cryptocurrency market, the tax reporting requirements for digital assets has been addressed in the new Infrastructure Investment and Jobs Act of 2021. Learn more here: [link]

The Employee Retention Tax Credit (ERTC), which was a tax credit enacted under the CARES Act, is a provision designated to help small businesses retain their employees during the COVID-19 pandemic by refunding payroll costs already spent. Under the Infrastructure Investment Jobs Act, only employers who qualify as a “recovery startup business” will have access to the tax credit in the fourth quarter of 2021. Learn more here: [link]

DID YOU KNOW… A recovery startup business is defined as a business that:

Began carrying on any trade or business after February 15, 2020, and
For which the average annual gross receipts for the 3-taxable-year period ending with the taxable year which precedes the calendar quarter for which the credit is determined does not exceed $1,000,000.

Learn how the Infrastructure Investment Jobs Act affects who qualifies as a recovery startup business here: [link]

With the new Infrastructure Investment Jobs Act, taxpayers affected by federally declared disasters are granted a 60-day extension for:

Filing income, estate, gift, employment, or excise tax return
Payment of income, estate, gift, employment, or excise tax
Filing a petition with the Tax Court or filing a notice of appeal on a Tax Court’s decision
Allowance of a credit or refund of any tax
Filing a claim for a tax credit or tax refund

Learn more in our latest blog article: [link]

Do you know how the new tax-related provisions included in the new Infrastructure Investment and Jobs Act of 2021 could affect you? Sign up for our newsletter to learn more: [link]

Updated Guidance - Paycheck Protection Program (PPP) Tax Treatment

Thu, 27 Jan 2022 13:16:44 GMT

Download Volume 11, Issue 15 Word Document

BizBoost News
Volume 11, Issue 15
For distribution 1/10/22; publication 1/13/22

Updated Guidance - Paycheck Protection Program (PPP) Tax Treatment

On November 18th, 2021, the IRS released three new revenue procedures – Rev Procs. 2021-48, 2021-49, and 2021-50 – to provide further guidance on the tax treatment of Paycheck Protection Program (PPP) amounts that are excluded from gross income as a result of loan forgiveness. This guidance was issued due to several uncertainties surrounding the tax implications of PPP loan forgiveness, including the timing/receipt of loan forgiveness, how partners/partnerships should allocate PPP forgiveness as exempt income as well as the associated deductions of expenses incurred with the funds, and the process for certain partnerships to file amended returns.

Rev. Proc. 2021-48

This statement of procedure indicates that the receipt of PPP forgiveness tax-exempt income may be treated as received or accrued when one of the following conditions is met:

Expenses eligible for forgiveness are paid or incurred
An application for loan forgiveness is filed
Loan forgiveness is granted

Furthermore, the issue of partial forgiveness is addressed, as it pertains to adjustments that must be made on amended returns, information returns, or administrative adjustment requests for certain partnerships. These adjustments must be made for the tax year in which the taxpayer treated the forgiveness tax-exempt income as received or accrued. The Rev. Proc. also clarifies that while this tax-exempt income is excluded from taxpayers’ gross income, it must be included in gross receipts for purposes of certain Federal tax provisions (for example, the gross receipts test for determining whether a C corporation or partnership may use the cash method of accounting for tax reporting purposes)

Rev. Proc. 2021-49

This guidance is specific to partnerships and how they may allocate deductions and tax-exempt income in connection with PPP loan forgiveness among partners. Some of the provisions in this guidance are as follows:

Partnerships may allocate the expenses in any matter in accordance with the partners’ interests in the entity.
The allocation of the tax-exempt income is based on the same allocation rules of the qualifying expenses.
There are corresponding adjustments that must be made with respect to partners’ bases in their partnership interests.

Rev. Proc. 2021-50

Under this Rev. Proc., IRS specifies that certain eligible partnerships under the Bipartisan Budget Act of 2015 (BBA) may file amended Forms 1065 (and provide amended Schedules K-1 to partners) on or before December 31, 2021, to adopt the guidance presented in Rev. Procs. 2021-48 and 2021-49. This allows such partnerships to avoid filing an Administrative Adjustment Request (AAR) to make the adjustments, which is generally how such partnerships are required to handle changes after a return has been filed. This may be more favorable due to administrative ease as well as other possible advantages, including faster refunds for partners (if applicable).

Timing, Timing, Timing

All this sounds crazy technical and it is! The bottom line is that these revenue procedures are very taxpayer-friendly, providing several options across years to minimize tax liability for taxpayers who obtained PPP forgiveness. There are multiple tax planning scenarios to consider, so feel free to contact us so we can go through them with you in a session customized to your situation.

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The new guidance on PPP tax treatment was issued due to several uncertainties surrounding the tax implications of PPP loan forgiveness, including the timing/receipt of loan forgiveness, how partners/partnerships should allocate PPP forgiveness as exempt income, and the process for certain partnerships to file amended returns. Learn more here: [link]

The Rev. Proc. 2021-48 statement of procedure indicates that the receipt of PPP forgiveness tax-exempt income may be treated as received or accrued when one of the following conditions is met:

Expenses eligible for forgiveness are paid or incurred
An application for loan forgiveness is filed
Loan forgiveness is granted

Learn more here: [link]

DID YOU KNOW… Rev. Proc. 2021-50 allows partnerships to avoid filing an Administrative Adjustment Request (AAR) to make adjustments, which is generally how such partnerships are required to handle changes after a return has been filed. Find out more here: [link]

The Rev. Proc. 2021-49 guidance is specific to partnerships and how they may allocate deductions and tax-exempt income in connection with PPP loan forgiveness among partners. Learn more in our latest blog article: [link]

Do you know how the three new IRS Revenue Procedures regarding the tax treatment of Paycheck Protection Program (PPP) could affect you? Sign up for our newsletter to learn more: [link]

How to Reconstruct Tax Records After a Disaster

Tue, 28 Dec 2021 13:11:33 GMT

BizBoost News
Volume 11, Issue 14
For distribution 12/27/21; publication 12/30/21

How to Reconstruct Tax Records After a Disaster

While it’s not always possible to prevent an emergency, you can reduce the likelihood that an emergency will become a disaster by being prepared. Here are some tips to do just that.

Store your documents in a waterproof and fireproof safe that is convenient to access.
Make copies of your important documents—store paper copies in a different location than the originals. If making digital copies, store them in the cloud and/or on a portable storage device
Make an inventory of your documents—critical documents to protect include identity documents, court orders, property records, financial and legal documents, and medical records.

In the event that you suffer a loss to your records, the IRS has helpful tips for reconstructing them.

For tax records, get free tax return transcripts instantly by visiting the Get Transcript tool on IRS.gov.
To request a copy of past returns by mail, file IRS Form 4506 and (if applicable) write the appropriate disaster designation, such as “HURRICANE HARVEY” in red letters across the top of the forms to expedite processing and waive the normal fee.
For personal residence and real estate, take photos or videos as soon after the disaster as possible. Contact the title company, escrow company, or bank that handled the purchase of your home to get copies of documents. Establish a basis or fair market value of the home by reviewing comparable sales within the same neighborhood. Review insurance policies, as they will establish a baseline figure for replacement value. If improvements were made to the home, reach out to the contractors who did the work to see if records are available. For inherited property, check court records for probate values. If the property was held in a trust, contact the attorney who handled the trust.
To establish the current fair market value of vehicles, research online tools such as Kelley Blue Book. If the vehicle was purchased from a dealership, ask for a copy of the purchase contract.
To catalogue lost items and values of personal property, look on mobile phones for pictures that might show items in question. Check websites that can help establish the cost and fair market value. If items were purchased with a credit or debit card, contact your credit card company or bank to request past statements. When no photos or videos exist, draw a floorplan showing where each piece of furniture was placed and take the time to list memorabilia contained on shelves and tables.

If you have been a victim of a disaster, you have far more important things to worry about than your taxes. Let us help you take that burden away so you can stay in compliance with the IRS and get on with more important things in life.

***

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Our latest blog: “How to Reconstruct Tax Records After a Disaster” is available now! Subscribe here: [link]

While it’s not always possible to prevent an emergency, you can reduce the likelihood that an emergency will become a disaster by being prepared. Learn more about how to reconstruct your tax records in our latest blog article: [link]

In the event that you suffer a loss to your tax records, the IRS has helpful tips for reconstructing them. Find these tips and how to prepare your tax records here: [link]

You can prepare your tax records for an emergency by:

Storing your documents in a waterproof and fireproof safe that is convenient to access.
Making copies of your important documents—store paper copies in a different location than the originals. If making digital copies, store them in the cloud and/or on a portable storage device
Making an inventory of your documents—critical documents to protect include identity documents, court orders, property records, financial and legal documents, and medical records.

Learn more here: [link]

Do you know how to prepare your tax records in case of an emergency? Do you know what to do if you suffer a loss? Learn more in our latest blog article here: [link]

One tip the IRS offers for reconstructing your tax records in the case of a loss is:

To establish the current fair market value of vehicles, research online tools such as Kelley Blue Book. If the vehicle was purchased from a dealership, ask for a copy of the purchase contract.

Find out more here: [link]

When emergencies happen, tax records can get lost. Although we cannot prevent emergencies, we can take measures to reduce the likelihood of a loss occurring. Learn more about preventative measures you can take and how to reconstruct your tax records in our latest blog article: [link]

Our latest blog article, “How to Reconstruct Tax Records After a Disaster” explains what steps you can take in the event of a loss of tax records. Sign up for our newsletter for instant access: [link]

IRS Taxpayer Advocate Service and the Taxpayer Bill of Rights

Tue, 28 Dec 2021 13:09:03 GMT

BizBoost News
Volume 11, Issue 13
For distribution 12/13/21; publication 12/16/21

IRS Taxpayer Advocate Service and the Taxpayer Bill of Rights

The Taxpayer Advocate Service is an independent organization within the IRS whose job it is to make sure every taxpayer is treated fairly and that they understand their rights. The Taxpayer Advocate Service offers free guidance for resolving tax problems. There are independent Taxpayer Advocates in each state who can help when a tax issue is causing personal financial difficulties, when there is an immediate threat of adverse action, and when the IRS fails to respond to your inquiries. Contact your local Taxpayer Advocatehere: https://www.taxpayeradvocate.irs.gov/contact-us/#FindlocalTAS

The Taxpayer Bill of Rights says that every taxpayer has the following rights:

The right to be informed– taxpayers have the right to know what they need to do to comply with tax laws and have the right to be informed of IRS decisions about their tax accounts
The right to quality service – taxpayers have the right to be treated courteously and professionally when dealing with the IRS, and be spoken to in a way that is easy to understand
The right to pay no more than the correct amount of tax – a taxpayer is only required to pay the amount of tax legally due, including interest and penalties
The right to challenge the IRS’s position and be heard – a taxpayer is allowed to object to proposed changes or actions made by the IRS
The right to appeal an IRS decision in an independent forum – taxpayers are entitled to fair and impartial appeal of most IRS decisions and have the right to take their cases to court
The right to finality– taxpayers have the right to know the maximum amount of time they have to challenge an IRS position as well as the maximum amount of time the IRS has to audit a tax year or collect a debt, and taxpayers have the right to know when the IRS has finished an audit
The right to privacy– taxpayers have the right to expect that any IRS contact will comply with the law and be no more intrusive than needed, and will follow all due process rights and allow for a collection due process hearing when applicable
The right to confidentiality– taxpayers have the right to expect that information provided to the IRS will be not be disclosed unless authorized by the taxpayer or by law.
The right to retain representation– taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS
The right to a fair and just tax system – taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers also have the right to seek help from the Taxpayer Advocate Service if their issues have not been resolved through normal channels

***

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The Taxpayer Advocate Service is an independent organization within the IRS whose job it is to make sure every taxpayer is treated fairly and that they understand their rights. Learn more in our latest blog article: [link]

The Taxpayer Bill of Rights includes:

The right to be informed – taxpayers have the right to know what they need to do to comply with tax laws and have the right to be informed of IRS decisions about their tax accounts

Find out what other rights are listed in the Taxpayer Bill of Rights in our latest blog article. Get instant access here: [link]

DID YOU KNOW… The Taxpayer Advocate Service offers free guidance for resolving tax problems. There are independent Taxpayer Advocates in each state who can help when a tax issue is causing personal financial difficulties, immediate threat of adverse action, as well as when the IRS fails to respond to your inquiries. Learn more here: [link]

Are you having tax problems with the IRS? Did you know the Taxpayer Advocate Service offers free guidance for resolving tax problems? Learn more about these services here: [link]

The Taxpayer Bill of Rights lists many rights that every taxpayer has, including the right to be informed, to quality service, to pay no more than the correct amount of tax, to challenge the IRS’ position and be heard, and to appeal an IRS decision in an independent forum. Learn more about these rights here: [link]

DID YOU KNOW…The Taxpayer Bill of Rights includes:

The right to pay no more than the correct amount of tax– a taxpayer is only required to pay the amount of tax legally due, including interest and penalties

Learn more in our latest blog article: [link]

Did you know there is a Taxpayer Bill of Rights? Learn about the IRS Taxpayer Advocate Services and the Taxpayer Bill of Rights in our latest blog article. Sign up for our newsletter for instant access: [link]

The “Dirty Dozen” IRS Tax Scams

Tue, 28 Dec 2021 13:05:51 GMT

BizBoost News
Volume 11, Issue 12
For distribution 11/29/21; publication 12/02/21

The “Dirty Dozen” IRS Tax Scams

Each year, the IRS unveils its list of scams that target unsuspecting taxpayers. Below are five of the most common tax scams impacting taxpayers today, as well as tips to not become a victim:

1.     Fake Charities are created to exploit natural disasters and other situations such as the current Covid-19 pandemic. Criminals set up fake charities and solicit donations by telephone, text, social media, or email. The fake charity might have a familiar-sounding name, tricking the taxpayer into thinking they are donating to a reputable charity. When requested, legitimate charities will provide their Employer Identification Number (EIN), which can be used to verify their legitimacy by using the IRS search tool: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

2.     Immigrant/Senior Fraud scammers target groups with limited English knowledge as well as senior citizens. The taxpayer may receive a threatening phone call from someone pretending to be an IRS representative. The caller might threaten jail time, loss of driver license, or deportation if their demands aren’t met. The first contact that the IRS makes with a taxpayer will typically be through the mail – they will not initiate communication by phone. Legitimate IRS employees will never use scare tactics such as threatening to revoke licenses or have a person deported.

3.     Offer in Compromise “mills”—an Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS to resolve a taxpayer’s tax debt. Taxpayers should be wary of misleading and aggressive sales claims that a company can settle tax debt for “pennies on the dollar” or that they can secure larger offer settlements, which often cost the taxpayer thousands of dollars in vendor charges. Taxpayers should first check if they qualify for an OIC by using the IRS online pre-qualifier tool: https://irs.treasury.gov/oic_pre_qualifier/.

4.     “Ghost” Tax Return Preparers will prepare a taxpayer’s return but refuse to sign the return as the paid preparer. Not signing a return is a red flag that the preparer may be looking for a quick profit by promising a big refund or charging fees based on the size of the refund. A “ghost” preparer may require payment in cash only, make up income to qualify the client for a tax credit, claim fake deductions to increase the size of the refund, or list their own bank account instead of the taxpayer’s for direct deposit of refunds. Avoid falling victim to an unscrupulous tax preparer by choosing your preparer wisely and reviewing their credentials and qualifications carefully.

5.     Unemployment Insurance Fraud typically involves individuals obtaining state or local assistance that they are not entitled to, often by coordinating with or against employers and financial institutions. This can entail multiple types of fraud, including identity-related fraud, employer-employee collusion fraud, misrepresentation of income fraud, and more. There are a number of financial red flags to indicate unemployment fraud, including (but not limited to):

Unemployment payments coming from a state other than the state where the customer supposedly resides/previously worked;
Multiple unemployment payments made within the same disbursement window;
Unemployment payments being made in the name of someone other than the account holder;
A higher amount of unemployment payments in the same timeframe compared to other similar customers

Stay alert to these situations to protect your financial health. For more on the Dirty Dozen, here is the IRS web page:

https://www.irs.gov/newsroom/irs-dirty-dozen-list-warns-people-to-watch-out-for-tax-related-scams-involving-fake-charities-ghost-preparers-and-other-schemes

***

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Each year, the IRS unveils its list of scams that target unsuspecting taxpayers. Learn about the five most common scams in our latest blog article: [link]

Our latest blog article reviews the five most common tax scams impacting taxpayers today, as well as tips to not become a victim. Get instant access here: [link]

DID YOU KNOW… Fake Charities are created to exploit natural disasters and other situations such as the current Covid-19 pandemic. When requested, legitimate charities will provide their Employer Identification Number (EIN), which can be used to verify their legitimacy by using the IRS search tool. Learn more about the most common tax scams here: [link]

A common tax scam is Immigrant/Senior Fraud. Scammers target groups with limited English knowledge as well as senior citizens. To avoid this type of scam, keep in mind that the first contact the IRS makes with a taxpayer will typically be through the mail – they will not initiate communication by phone. Legitimate IRS employees will never use scare tactics. Learn more here: [link]

Each year, the IRS unveils its list of scams that target unsuspecting taxpayers. You can learn about the five most common tax scams in our latest blog article, and find the whole IRS Dirty Dozen List on the IRS website: [link]

DID YOU KNOW… One of the most common tax scams is “Ghost” Tax Return Preparers. These people will prepare a taxpayer’s return but refuse to sign the return as the paid preparer. Learn more in our latest blog article: [link]

The five most common tax scams are Fake Charities, Immigrant/Senior Fraud, Offer in Compromise Solicitations, “Ghost” Tax Return Preparers, and Unemployment Insurance Fraud. Learn more about each of these scam types in our latest blog article. Sign up for our newsletter for instant access: [link]

What Happens if the IRS Prepares Your Tax Return?

Tue, 30 Nov 2021 13:39:53 GMT

BizBoost News
Volume 11, Issue 11
For distribution 11/15/21; publication 11/18/21

What Happens if the IRS Prepares Your Tax Return?

Have you ever wondered what happens if someone never files a tax return? The IRS has the ability to create a return on your behalf called a Substitute for Return orSFR.

Generally, unless you are self-employed, it’s easy for the IRS to create a return for you. Employers file Form W-2, which reports your wages and withholding. Banks and brokerage firms report your interest and dividends on 1099 forms. All of this and more are filed with the IRS. Therefore, information is readily available for a return to be created without your input.

And don’t count on the government giving you any credits or deductions you may be eligible for! IRS will not take into consideration whether you should be filing a joint return, have dependents you can claim, or have any other deductions or credits that could reduce your tax bill.

If you are self-employed, you’re not off the hook either. The IRS knows your occupation through licensing databases and prior year disclosures, and statistics are available to estimate what someone in your profession earns. Let’s say you are a hairdresser: the IRS knows based on audits of salon businesses what the average hairdresser makes in a day, including tips. The result could be a staggering tax bill!

Besides the fact that you won’t receive deductions and credits in the event an SFR is created, there is no statute of limitations since a return was never actually filed. That means there is no time limit for an audit or collection. The IRS also shares information with states, which means if your state has an income tax, you will be hearing from them as well.

If you haven’t filed returns and this happens, you will receive an IRS notice proposing to assess taxes based on the substitute return created. It is recommended that you file a return as soon as possible in order to trigger a reconsideration of the SFR. This will also start the statute of limitations on collections and audit.

Remember, it is almost always better to file your own tax return rather than allowing IRS to prepare an SFR for you. Even though you are still able to file your own return within a certain timeframe after an SFR is created, it may be subject to more scrutiny since the IRS must accept and process the return in place of the SFR. Avoid this from the start by filing your tax returns in a timely fashion!

***

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Our latest blog: “What Happens if the IRS Prepares Your Tax Return?” is available now! Subscribe here: [link]

Have you ever wondered what happens if someone never files a tax return? The IRS has the ability to create a return on your behalf called a Substitute for Return or SFR. Learn more in our latest blog article: [link]

It is almost always better to file your own tax return than to have the IRS create a Substitute for Return for you. For example, you won’t receive deductions and credits in the event an SFR is created, and there is no statute of limitations, meaning there is no time limit for an audit or collection. Learn more here: [link]

DID YOU KNOW…Unless you are self-employed, it’s easy for the IRS to create a tax return for you. Employers file Form W-2 reporting your wages and withholding, and banks and brokerage firms report your interest and dividends on 1099 forms - and this information is filed with the IRS. Learn more here: [link]

If you haven’t filed tax returns and the IRS creates a Substitute for Return, you will receive an IRS notice proposing to assess taxes based on the substitute return created. It is recommended that you file a return as soon as possible in order to trigger a reconsideration of the SFR. Learn more here: [link]

Remember, it is better to file your own tax return rather than allowing the IRS to prepare a Substitute for Return for you. Find out more here: [link]

Even though you are still able to file your own tax return within a certain timeframe after a Substitute for Return is created, it may be subject to more scrutiny since the IRS must accept and process the return in place of the SFR. Avoid this from the start by filing your tax returns in a timely fashion! Learn more in our latest blog article: [link]

Did you know the IRS can create a tax return for you if you do not file? Learn why it is always better to submit your own tax return in our latest blog article. Sign up for our newsletter for instant access: [link]

What You Should Know About Required Minimum Distributions

Tue, 30 Nov 2021 13:39:20 GMT

BizBoost News
Volume 11, Issue 10
For distribution 11/01/21; publication 11/04/21

What You Should Know About Required Minimum Distributions

With all the legislative changes related to retirement distributions over the last couple of years, it’s important to have a clear understanding of what to expect for the current year. In particular, it’s critical to know what to expect with Required Minimum Distributions (RMDs) for tax year 2021. RMDs are required distributions investors over a certain age must take out every year from their retirement savings accounts.

As part of the SECURE Act of 2019, the age when RMDs are required was increased from 70 ½ to 72 years. Furthermore, as part of the CARES Act passed in 2020, the RMD requirement was temporarily waived. So, what should you expect for 2021?

Unfortunately, there is no longer an RMD waiver for tax year 2021. Therefore, anyone age 72 or older as of December 31, 2021 must take their RMD by year-end to avoid a penalty. The only exception to this is if 2021 is the first year an individual is subject to the RMD requirement, in which case the due date is April 1, 2022. The RMD rules apply to traditional IRAs, inherited IRAs, and employer-sponsored plans.

For inherited IRAs, the RMD rules for beneficiaries depend on when the original owner passed away as well as the type of beneficiary. While non-spouse beneficiaries are generally required to withdraw the entire account balance of the inherited IRA within 10 years, spousal and other certain eligible beneficiaries may be allowed to take RMDs over their life expectancy. The taxation of the distributions depends on the type of account – no taxes will be owed on inherited Roth IRA distributions (assuming the original account owner held the account for at least five years), while distributions from an inherited traditional IRA account would be subject to taxation.

It is important to understand the various rules surrounding RMDs to avoid the steep 50 percent penalty that kicks in if you don’t comply with the rules and/or handle your distributions accurately. But what if you don’t need the funds? While you are still required to take the distributions when you meet the requirements, there are some options available if you don’t depend on the money to meet your spending needs, including reinvesting the proceeds in another allowable account (to take advantage of continued growth) or taking qualified charitable distributions (QCDs) that allow for gifting of up to $100,000 annually to a qualified charity (the latter of which are excluded from your taxable income and not subject to tax).

Be sure to work with a tax or financial professional so you know what to expect and can plan withdrawal strategies that put you in the best situation possible!

***

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Our latest blog: “What You Should Know About Required Minimum Distributions” is available now! Subscribe here: [link]

There have been many changes to Required Minimum Distributions in the last couple years. If you’re confused about what to expect for 2021, you can find out in our latest blog article. Get instant access here: [link]

It’s critical to know what to expect with Required Minimum Distributions (RMDs) for tax year 2021. RMDs are required distributions investors over a certain age must take out every year from their retirement savings accounts. Learn more here: [link]

DID YOU KNOW… There is no longer an RMD waiver for tax year 2021. Therefore, anyone age 72 or older as of December 31, 2021 must take their RMD by year-end to avoid a penalty. The only exception to this is if 2021 is the first year an individual is subject to the RMD requirement, in which case the due date is April 1, 2022. The RMD rules apply to traditional IRAs, inherited IRAs, and employer-sponsored plans. Learn more here: [link]

It is important to understand the various rules surrounding RMDs to avoid the steep 50% penalty that kicks in if you don’t comply with the rules/handle your distributions accurately. But what if you don’t need the funds? While you are still required to take the distributions when you meet the requirements, there are some options available if you don’t depend on the money. Learn more in our latest blog article: [link]

Do you know what to expect for 2021 when it comes to Required Minimum Distributions (RMDs)? Sign up for our newsletter to learn about the recent changes and what to expect: [link]

Refundable Payroll Tax Credits Still Available

Mon, 01 Nov 2021 12:21:45 GMT

BizBoost News
Volume 11, Issue 9
For distribution 10/18/21; publication 10/21/21

Refundable Payroll Tax Credits Still Available

When President Biden signed the American Rescue Plan Act of 2021 in the spring, two refundable payroll tax credits were extended and expanded: the Families First Coronavirus Response Act (FFCRA) and the COBRA Premium Assistance Credit.

In 2020, the FFCRA was mandated for all employers with less than 500 employees to provide paid family and sick leave for employees. In January 2021, paid leave became optional, but the credit is still available for employers providing leave.

The FFCRA was extended to last through the end of 2021 and expanded to promote vaccination and testing by creating two additional reasons for covered leave:

1 – Leave for employees receiving the COVID-19 vaccine or recovering from any side effects or illness related to the vaccine

2 – Leave for employees who are awaiting the results of a diagnostic test or medical diagnosis related to COVID

Another credit available for employers is for COBRA premium assistance for periods beginning after April 1, 2021 and before September 30, 2021. This credit is available for individuals who have been involuntarily terminated or had reduced work hours who choose continuation of health care under COBRA. The employer receives a refundable tax credit in the amount of premiums paid on behalf of the employee against its share of Medicare tax. Premiums exceeding the Medicare tax are refunded.

These credits can be used in advance by adjusting the federal withholding tax deposits and reporting the credit claimed on Form 941, Employer’s Quarterly Federal Tax Return. If the expected tax credit exceeds deposits available, an employer may file Form 7200 to request an advance of the tax credit – however, Form 941 must still be filed. An employer can also file an amended 941-X to claim the credit if the original Form 941 did not account for them.

Take advantage of these credits while you can!

***

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Our latest blog: “Refundable Payroll Tax Credits Still Available” is available now! Subscribe here: [link]

The Families First Coronavirus Response Act and the COBRA Premium Assistance Credit were expanded in the spring of 2021. Learn more about how you can take advantage of these credits here: [link]

In 2020, the FFCRA was mandated for all employers with less than 500 employees to provide paid family and sick leave for employees. In January 2021 paid leave became optional, but the credit is still available for employers providing leave. Learn more here: [link]

The FFCRA was extended to last through the end of 2021 and expanded to promote vaccination and testing by creating two additional reasons for covered leave:

1 – Leave for employees receiving the COVID-19 vaccine or recovering from any side effects or illness related to the vaccine

2 – Leave for employees who are awaiting the results of a diagnostic test or medical diagnosis related to COVID

Learn more about this expansion here: [link]

The COBRA premium assistance credit is available for individuals who have been involuntarily terminated or had reduced work hours who choose continuation of health care under COBRA. The employer receives a refundable tax credit in the amount of premiums paid on behalf of the employee against its share of Medicare tax. Premiums exceeding the Medicare tax are refunded. Find out more here: [link]

DID YOU KNOW…The FFCRA and COBRA credits can be used in advance by adjusting the federal withholding tax deposits and reporting the credit claimed on Form 941, Employer’s Quarterly Federal Tax Return. Learn more in our latest blog article: [link] Find out more here!

DID YOU KNOW… If the expected tax credit from the FFCRA and COBRA exceeds deposits available, an employer may file Form 7200 to request an advance of the tax credit – however, Form 941 must still be filed. Sign up for our newsletter to learn more: [link]

Updates to the Employee Retention Credit

Mon, 01 Nov 2021 12:21:03 GMT

BizBoost News
Volume 11, Issue 8
For distribution 10/04/21; publication 10/07/21

Updates to the Employee Retention Credit

In early August of this year, the IRS released additional guidance on the Employee Retention Credit. For 2021, the credit was expanded to allow businesses to receive a credit of up to $7,000 per employee per quarter if their operations were fully or partially shut down by government order or if they had a significant decline in gross receipts.

One of the biggest surprises and disappointments to come out of the guidance was the IRS conclusion that wages paid to majority owners and spouses do not qualify for the credit in most cases. How IRS arrived at this conclusion is a rather complex and confusing path that uses family attribution rules that view an entity as controlled by an owner’s family. Many tax professionals are split on whether the IRS has sufficient evidence to make this claim, so this is one that might see some court cases in the future.

The guidance also clarifies that employers are not required to use the alternative quarter election consistently from quarter to quarter. In 2021, this election allows employers to compare their gross receipts for the prior quarter, rather than the current quarter, to the corresponding calendar quarter in 2019. For example, an employer could elect to be a Q2 2021 eligible employer if its Q2 2021 gross receipts are less than 80 percent of its Q2 2019 gross receipts and could then make an alternative quarter election in Q3 2021, again relying on the gross receipts decline in Q2 2021.

Lawmakers are also considering ending the Employee Retention Credit early to move unused COVID relief funds to the infrastructure bill that the House will be voting on.

The ERC is a lucrative cash windfall for employers that do qualify. Don’t let complexity get in the way of claiming the credit if you are eligible. Give us a call so we can help you reduce your taxes with the ERC and any other credit you may be eligible for.

***

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Our latest blog: “Updates to the Employee Retention Credit” is available now! Subscribe here: [link]

In early August of this year, the IRS released additional guidance on the Employee Retention Credit. Find out what they released in our latest blog article: [link]

Our latest blog article reviews the additional guidance the IRS released on the Employee Retention Credit in August 2021. Get instant access here: [link]

For 2021, the Employee Retention Credit was expanded to allow businesses to receive a credit of up to $7,000 per employee per quarter if their operations were fully or partially shut down by government order or if they had a significant decline in gross receipts. Learn more here: [link]

One of the biggest surprises and disappointments to come out of the new Employee Retention Credit guidance was the IRS conclusion that wages paid to majority owners and spouses do not qualify for the credit in most cases. Learn more here: [link]

DID YOU KNOW… The new IRS guidance on the Employee Retention Credit clarifies that employers are not required to use the alternative quarter election consistently from quarter to quarter. In 2021, this election allows employers to compare their gross receipts for the prior quarter, rather than the current quarter, to the corresponding calendar quarter in 2019. Find out more here: [link]

According to the new guidance provided by the IRS in August 2021, lawmakers are considering ending the Employee Retention Credit early to move unused COVID relief funds to the infrastructure bill that the House will be voting on. Learn more in our latest blog article: [link]

Did you see the new guidance regarding the Employee Retention Credit provided by the IRS in August 2021? Do you know how it may affect your business? Sign up for our newsletter to learn more: [link]

What the Heck Is a Wash Sale?

Mon, 27 Sep 2021 18:58:32 GMT

BizBoost News
Volume 11, Issue 7
For distribution 9/20/21; publication 9/23/21

What the Heck Is a Wash Sale?

Investing has become much more accessible since Robinhood became a thing. But do you know what a wash sale is and how it will impact your tax return?

You have a stock, it dips, and you sell it thinking “Hey, I can use this loss on my tax return AND buy XYZ back at a lower price!” Sorry, but this is what creates a “wash sale,” and IRS does not allow the deduction of the loss in this type of scenario. The IRS defines a wash sale as selling a stock or security at a loss and within 30 days before or after the sale –

You buy a substantially identical stock or security
You acquire substantially identical stock or securities in a fully taxable trade
You acquire a contract or option to buy substantially identical stock or securities

Interestingly, there are no specific IRS guidelines explaining what substantially identical means.

Notice that the window for the wash sale is 30 days before or after the sale that created the loss was made. And if you think you can have your spouse buy the substantially identical stock so you can claim the loss, forget it – that is not allowed either.

So, what does a wash sale look like?

You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.

So why did the IRS make the wash sale rule? Basically, it is intended to stop taxpayers from creating a convenient or artificial loss. You will not completely lose the loss; it will just be added to the basis of the new stock.

***

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Our latest blog: “What the Heck is a Wash Sale?” is available now! Subscribe here: [link]

Investing has become much more accessible since Robinhood became a thing. But do you know what a wash sale is and how it will impact your tax return? Learn more in our latest blog article: [link]

What the heck is a wash sale? If you’re asking this question, check out our latest blog article, where we explain a what a wash sale is and how it could impact your tax return. Get instant access here: [link]

The IRS defines a wash sale as selling a stock or security at a loss and within 30 days before or after the sale you:

buy a substantially identical stock or security
acquire substantially identical stock or securities in a fully taxable trade
acquire a contract or option to buy substantially identical stock or securities

Learn more about wash sales here: [link]

Why did the IRS make the wash sale rule? Basically, it is intended to stop taxpayers from creating a convenient or artificial loss. You will not completely lose the loss; it will just be added to the basis of the new stock. Learn more about the wash sale rule here: [link]

The window for a wash sale is 30 days before or after the sale that created the loss was made. And if you think you can have your spouse buy the substantially identical stock so you can claim the loss, forget it – that is not allowed either. So, what does a wash sale look like? Find out more here: [link]

You have a stock, it dips, and you sell it thinking “Hey, I can use this loss on my tax return AND buy XYZ back at a lower price!” Sorry, but this is what creates a “wash sale,” and IRS does not allow the deduction of the loss in this type of scenario. Learn more about wash sales in our latest blog article: [link] Find out more here!

Now that investing has become easier with platforms like Robinhood, it is important to understand the terminology and rules of the investing world. For example, do you know what a wash sale is? Learn all about wash sales in our latest blog article. Sign up for our newsletter for instant access: [link]

Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?

Mon, 27 Sep 2021 18:57:21 GMT

BizBoost News
Volume 11, Issue 6
For distribution 9/06/21; publication 9/09/21

Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?

Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.

Short-term capital gains are derived if you hold an investment one year or less before disposing of it. Short-term gains are taxed as “ordinary income,” the same rate you pay on wages or business profits.

Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. See the table below:

Tax Filing Status	Income range at 0% Rate	Income range at 15% Rate	Income range at 20% Rate

Single	0 - $40,400	$40,401 to $445,850	> $445,850
Married Filing Jointly	0 - $80,800	$80,801 to $501,600	> $501,600
Married Filing Separately	0 - $40,400	$40,401 to $250,800	> $250,800
Head of Household	0 - $54,100	$54,101 to $473,750	> $473,750

Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals. These are taxed at 28% regardless of your income. Bear in mind, though, that tax rates on ordinary income range from 10% to 37%.

Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time!

***

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Our latest blog: “Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?” is available now. Subscribe here: [link]

Short-term capital gains are derived if you hold an investment one year or less before disposing of it, and are taxed at the same rate you pay on wages or business profits. Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. Learn more here: [link]

Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? Learn the difference between long and short-term gains in our latest blog article: [link]

Business Tip: The difference between short-term and long-term gains is important and should be considered carefully when investing. Learn about these differences in our latest blog article: [link]

DID YOU KNOW: Short-term capital gains are derived if you hold an investment one year or less before disposing of it. After one year, they become long-term gains. Learn more here: [link]

Long-term capital gains are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals. Find out more here: [link]

When investing, it is important to understand the difference between short-term and long-term capital gains, as the amount you are taxed on them can differ significantly. Find out more here! [link]

In our latest blog article, we explain the difference between short-term and long-term gains, and what effect they could have on your specific tax situation. Sign up for our newsletter to learn more: [link]

Are Gains on Cryptocurrency Taxable?

Wed, 25 Aug 2021 13:11:59 GMT

BizBoost News
Volume 11, Issue 5
For distribution 8/23/21; publication 8/26/21

Are Gains on Cryptocurrency Taxable?

The short answer to this question is: of course! As cryptocurrency has become a more popular investment vehicle among younger investors, this is a good question and one that is getting more attention from the IRS.

Buying and selling crypto, just like buying and selling a share of Tesla, is taxed as a capital gain. The capital gain holding periods apply as well. Keeping track of the gain or loss from crypto trading is easy if you are using a broker like Robinhood, which will issue you a Form 1099-B (Proceeds from Broker and Barter Exchanges).

However, if you use Coinbase or another crypto exchange, you will need to track the gains and losses on your own. Coinbase and Gemini are not brokers and will not issue a 1099-B. This means that you will need to keep track of the following:

Purchase Date
Purchase Price
Sale Date
Sale Price

This can get hairy if you are buying and selling pretty frequently, but it is taxable income and you are required to report it on your tax return.

What happens if you see a great deal on patio furniture at Overstock and purchase it with crypto? You will have a reportable gain or loss most likely. Currently, the IRS considers using crypto for purchases to be effectively selling the currency.

So, keep in mind that when investing or using crypto as currency, you need to keep track of the gains and losses for your tax return. The IRS is cracking down on these types of transactions, and you do not want anything to come back and bite you later!

***

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As cryptocurrency has become a more popular investment vehicle among younger investors, wondering whether gains are taxable is a good question and one that is getting more attention from the IRS. Learn more in our latest blog: [link]

Are gains on cryptocurrency taxable? The short answer to this question is: of course! Learn more about taxes on cryptocurrency in our latest blog article: [link]

Business Tip: When investing or using crypto as currency, you need to keep track of the gains and losses for your tax return. The IRS is cracking down on these types of transactions, and you do not want anything to come back and bite you later! Learn more about cryptocurrency taxes here: [link]

Do you currently use cryptocurrency? With its popularity growing, understanding the tax implications of cryptocurrency is important in order to avoid problems with the IRS. Sign up for our newsletter to learn more about cryptocurrency taxes: [link]

DID YOU KNOW… you might have to keep track of your own cryptocurrency taxes depending on what platform you use. For example, Robinhood will issue you Form 1099-B for your tax return. However, if you use Coinbase or another crypto exchange, they will not issue you a Form 1099-B, so you will need to track the gains and losses on your own. Learn more here: [link]

Currently, the IRS considers using cryptocurrency for purchases to be effectively selling the currency. Therefore, you’ll need to make sure you understand the taxes surrounding your cryptocurrency. Learn more in our latest blog article: [link]

Taxes regarding cryptocurrency can be a bit confusing. Buying and selling crypto, just like buying and selling a share of Tesla, is taxed as a capital gain. The capital gain holding periods apply as well. Find out more here: [link]

Cryptocurrency is becoming more and more popular. As the popularity grows, so does the IRS scrutiny surrounding cryptocurrency taxes. If you buy and sell with crypto, you’ll want to make sure you understand the tax implications. Learn more about cryptocurrency taxes in our latest blog article: [link]

The American Rescue Plan Act Creates ERTC Windfall for Startup Businesses

Wed, 25 Aug 2021 13:10:45 GMT

BizBoost News
Volume 11, Issue 4
For distribution 8/09/21; publication 8/12/21

The American Rescue Plan Act Creates ERTC Windfall for Startup Businesses

The American Rescue Plan Act extended the Employee Retention Tax Credit (ERTC) for the third and fourth quarters of 2021. It has also expanded the pool of eligible employers who can take the credit to include businesses started during the pandemic.

A Recovery Startup Business (RSB) is a business that was started after February 15, 2020 and has average annual receipts of no more than $1,000,000. While under the CARES Act, an employer had to experience a full or partial suspension of operations due to COVID-19-related governmental orders or a significant decline in gross receipts to take advantage of the ERTC, an RSB does not need to meet those requirements.

The time period to claim this credit for an RSB is from July 1, 2021 through December 31, 2021. It can be claimed on an originally filed Form 941 or an amended 941. As with other businesses, the credit continues to be capped at 70% of qualified wages limited to $10,000 per employee per quarter ($7,000 per quarter per employee), but an RSB is also limited to a maximum $50,000 in ERTC per quarter, regardless of the number of employees.

For new businesses, this is an incredible tax benefit and a great safety net to the normal struggles of any startup. The goal is to get employment back to pre-pandemic levels. The total benefit could be as high as a $100,000 cash infusion for 2021, so it’s definitely worthwhile for eligible employers to take advantage of this while available!

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The American Rescue Plan Act extended the Employee Retention Tax Credit (ERTC) for the third and fourth quarters of 2021. Learn more about this extension in our latest blog: __ Subscribe here: [link]

The American Rescue Plan Act extension of the Employee Retention Tax Credit (ERTC) expanded the pool of eligible employers who can take the credit to include businesses started during the pandemic. Learn more here: [link]

Business Tip: The time period to claim the Employee Retention Tax Credit for a Recovery Startup Business is from July 1, 2021 through December 31, 2021. It can be claimed on an originally filed Form 941 or an amended 941. Learn more about this extension here: [link]

The American Rescue Plan Act has created an alternate path for the Employee Retention Credit with its extension and expansion of the credit. Learn more in our latest blog article: [link]

A Recovery Startup Business is limited to a maximum $50,000 in ERTC per quarter, regardless of the number of employees, but it’s still a great cash flow boost to smaller startup businesses. Learn more here: [link]

A Recovery Startup Business (RSB) is a business that was started after February 15, 2020 and has average annual receipts of no more than $1,000,000. While under the CARES Act an employer had to experience a full or partial suspension of operations due to COVID-19-related governmental orders or a significant decline in gross receipts to take advantage of the ERTC, an RSB does not need to meet those requirements. Find out more here: [link]

Did you open a business after February 15, 2020 and have average annual receipts of no more than $1,000,000? If so, your business would classify as a Recovery Startup Business and does not need to meet the same requirements for the Employee Tax Credit. Find out more here: [link]

If you qualify as a Recovery Startup Business, the benefits of the Employee Retention Creditcould translate into $100,000 for 2021. It is definitely worthwhile for eligible employers to take advantage of this while available! Sign up for our newsletter to learn more about the expansion of the ERTC: [link]

PPP Forgiveness – Timing and Deadlines

Tue, 27 Jul 2021 12:05:01 GMT

BizBoost News
Volume 11, Issue 3
For distribution 7/26/21; publication 7/29/21

PPP Forgiveness – Timing and Deadlines

If your business received Paycheck Protection Program (PPP) funds as part of the COVID-19 pandemic and you still have not applied for or received forgiveness, you may be wondering about the deadline and/or next steps. While some banks may be pressuring you to apply for forgiveness right away, or you are feeling stressed because you have not applied or haven’t heard back yet, it’s important to know what the rules are and how much time you truly have.

A PPP recipient can apply for forgiveness once all loan proceeds for which forgiveness is being requested have been used. However, you do not necessarily have to apply for forgiveness right after the funds have been spent. A borrower can technically submit a forgiveness application any time before the maturity date of the loan (either two or five years from origination).

With that said, if you do not submit the application within 10 months of the end of your covered period (which starts when the money is deposited in your account and is the period over which the PPP funds are spent on eligible expenses – 8 to 24 weeks, depending on your situation), loan payments are no longer deferred, and you must start making payments to the lender. Therefore, it is highly recommended that you apply for forgiveness before the end of this deferral period (8 to 24 weeks + 10 months).

Taxpayers who have not filed their forgiveness application yet have likely benefited from waiting. Many who were eligible for PPP were also eligible for the Employee Retention Credit (ERC) and other payroll credits. Careful strategy is required to optimize both tax benefits since wages used for PPP forgiveness cannot also be claimed for the ERC. A slight downside of waiting is that the tax impact of PPP forgiveness at the federal and state level could require 2020 returns to be amended in some cases.

Some of you may have already applied for forgiveness but are concerned because you have not received a decision yet. It is important to note that the lender has up to 60 days to review your application, and once the lender makes a decision, it is forwarded to the Small Business Administration (SBA) for evaluation. The SBA review can take up to 90 additional days, so overall it could be a few months before you receive a final determination. If you do not agree with the lender’s decision you can ask SBA to review it again, and if you don’t agree with the SBA decision you can appeal it.

So, if you are feeling antsy because you have not been able to submit your forgiveness application yet, be aware that you still have time. With the number of applications being reviewed by lenders and the SBA, the process will take time, so do not worry if you have already applied and haven’t heard back. If you are confident that you meet the requirements for forgiveness and have provided the documentation to support it, it WILL happen – eventually!

***

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While some banks may be pressuring you to apply for PPP forgiveness right away, or you are feeling stressed because you have not applied or haven’t heard back yet, it’s important to know what the rules are and how much time you truly have. Learn more in our latest blog article: [link]

Business Tip: A PPP recipient can apply for forgiveness once all loan proceeds for which forgiveness is being requested have been used. However, you do not necessarily have to apply for forgiveness right after the funds have been spent. Learn more here: [link]

DID YOU KNOW… A borrower can technically submit a PPP forgiveness application any time before the maturity date of the loan (either two or five years from origination). Learn all about timing and deadlines for PPP in our latest blog article: [link]

If you are feeling antsy because you have not been able to submit your PPP forgiveness application yet, be aware that you still have time. Find out more about PPP timing and deadlines here: [link]

Have you applied for PPP forgiveness yet? If you are still considering submitting an application, you’ll want to make sure you understand all of the deadlines involved. Find out more in our latest blog article: [link]

The timing and deadlines surrounding PPP forgiveness can be very confusing. If you are looking for guidance concerning your PPP loan, sign up for our newsletter to learn more: [link]

Child Tax Credit Payouts – What to Expect

Tue, 27 Jul 2021 12:03:38 GMT

BizBoost News
Volume 11, Issue 2
For distribution 7/12/21; publication 7/15/21

Child Tax Credit Payouts – What to Expect

The Child Tax Credit (CTC) is not new, but it was expanded as part of the American Rescue Plan Act of 2021, and you may be wondering what that means and how it will impact your situation. The biggest takeaway is that instead of waiting until filing your 2021 tax return (in 2022) to take advantage of the credit, you can instead opt to receive part of the credit in advance, during 2021.

First, the overall amount of the credit was increased for taxpayers under a certain income level. For those individuals, the CTC is $3,600 for each child 5 and under, and $3,000 for each child between the ages of 6 and 17. This is an increase from $2,000 per child under the existing rules. To receive the full amount of the expanded credit, your Adjusted Gross Income (AGI) must fall within the following limits:

Single Filer - $75,000 or less
Head of Household Filer - $112,500 or less
Joint Filers - $150,000 or less

Beginning on July 15, 2021, IRS will begin sending monthly payments to parents with eligible dependent children. These payments represent an advance on the full CTC, and the rest can be claimed on the 2021 tax return. The full monthly payment will be $300 per child under 6 or $250 per child 6 to 17 years old, and will be paid each month from July to December 2021. Keep in mind that if you are over the above income thresholds but within the existing income thresholds for receiving the CTC, you can still receive up to $2,000 per child, just like in years past.

To automatically receive these payments if eligible, you need to have filed a tax return for 2020 by the extended May 17,2021 filing deadline, even if you are usually a non-filer. You are eligible for these payments even if you do not have any income to report or taxes due. If you were not able to file by then, you will still get the higher credit amount if eligible, but will need to wait until filing your 2021 tax return to take advantage of it.

If you would prefer to NOT receive the advance payments and instead take advantage of the full CTC when filing your 2021 tax return, you will be able to opt out using an online portal that IRS will be opening on July 1, 2021. There will also be another portal where you can update your information, such as changing the number of dependents you have.

***

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Beginning on July 15, 2021, IRS will begin sending monthly payments to parents with eligible dependent children. These payments represent an advance on the full Child Tax Credit, and the rest can be claimed on the 2021 tax return. Subscribe here to learn more: [link]

The Child Tax Credit (CTC) is not new, but it was expanded as part of the American Rescue Plan Act of 2021. Learn what to expect from the Child Tax Credit Payouts in our latest blog article: [link]

DID YOU KNOW: The Child Tax Credit will come early for eligible taxpayers, as early as this month. Learn more here: [link]

Are you wondering what the Child Tax Credit expansion means and how it will impact your situation? Learn what to expect from this expansion in our latest blog article: [link]

The biggest takeaway from the expansion of the Child Tax Credit is that instead of waiting until filing your 2021 tax return (in 2022) to take advantage of the credit, you can instead opt to receive part of the credit in advance, during 2021. Learn more here: [link]

With the expansion of the Child Tax Credit, the overall amount of the credit was increased for taxpayers under a certain income level. The CTC is now $3,600 for each child 5 and under, and $3,000 for each child between the ages of 6 and 17. Find out more here: [link]

To receive the full amount of the expanded Child Tax Credit, your Adjusted Gross Income (AGI) must fall within the following limits:

•Single Filer - $75,000 or less
•Head of Household Filer - $112,500 or less
•Joint Filers - $150,000 or less
Find out more here! [link]

The new expansion of the Child Tax Credit can be confusing. For example, if you prefer to NOT receive the advance payments and instead take advantage of the full CTC when filing your 2021 tax return, you will have to opt out using an online portal that IRS will be opening on July 1, 2021. Learn more in our latest blog article: [link]

Business Expenses – What is NOT Deductible?

Thu, 01 Jul 2021 12:47:02 GMT

BizBoost News
Volume 11, Issue 1
For distribution 6/28/21; publication 7/01/21

Business Expenses – What is NOT Deductible?

While it seems like a straightforward question, there can sometimes be confusion about what expenses can be deducted from your business for tax purposes and what expenses cannot be. Deductions are critical in helping to lower your tax bill, but knowing what expenses you can deduct is critical to keeping you out of trouble in the event of an IRS audit.

Let’s start with understanding how business expenses are defined according to the IRS. A business expense must be both “ordinary and necessary” to be tax deductible. An ordinary expense is one that is common and accepted in your industry, and a necessary expense must be helpful to your operations and appropriate for your business. An expense that is considered ordinary and necessary for a manufacturer might not be ordinary and necessary for a consultant, so it is important to focus on your specific industry and what is acceptable – there is not always a “one-size-fits-all” answer.

There are certain expenses that, in most cases, are tax deductible regardless of the industry. Some examples include advertising, accounting fees, bank charges, continuing education, legal fees, office supplies, rent expenses, payroll expenses/related, and so on. However, what are some expenses that are NOT deductible regardless of the industry or specific circumstances? The following expenses are generally off-limits for a business tax deduction:

Capital costs: fixed asset expenses for your business (including equipment, furniture/fixtures, machinery, etc.) for such assets that have a long-term useful life and individually exceed $2,500 in cost. These costs generally cannot be deducted in the year of purchase, but rather must be “capitalized” (added to your balance sheet as an asset) and depreciated (deducted) over several years. However, there is a really great workaround called Section 179 that you can explore with your tax professional to see if it’s a good fit for you.
Personal expenses: generally, you cannot deduct any personal, living, or family expenses (that’s right – no tax deduction for the dog’s braces!). However, if you have an expense that is used partly for business and partly for personal purposes, you can deduct the business portion.
Fines and penalties: you cannot deduct fines and penalties, including estimated tax or underpayment penalties.
Political contributions: contributions your business made to a political party or candidate, including lobbying or campaign event costs, are not deductible.
Hobby losses: expenses that create a loss in an activity that is not deemed a business activity (which would then make it a hobby) are not deductible. There are specific IRS guidelines on whether your activity can be considered a business or not.
Owner life insurance premiums: these costs generally are limited or completely non-deductible.
Commuting costs: the IRS says that costs of traveling from home to work are not tax-deductible expenses. However, if you have a home office that is your primary business location where you do most of your work, you can potentially deduct costs associated with traveling to meet clients and run business-related errands.
Business gifts over $25: you cannot deduct more than $25 for any business gift given to any one person during the tax year.
Business clothing: costs of clothing you wear for work are not deductible. The only exception is for uniforms you are required to wear.
Entertainment costs: these costs are completely non-deductible for Federal purposes after recent tax reform (previously they were 50 percent deductible). However, be aware that some states still allow a partial deduction.

Here’s the bottom line: as a business owner, imagine sitting in front of an IRS auditor, needing to explain how a deduction would be ordinary and necessary for your business. Would you be able to do it?

***

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Our latest blog: “Business Expenses – What is NOT Deductible” is available now! Subscribe here: [link]

Business Tip: When looking for deductible expenses, it is important to focus on your specific industry and what is acceptable – there is not always a “one-size-fits-all” answer. Learn more here: [link]

As a business owner, imagine sitting in front of an IRS auditor, needing to explain how a deduction would be ordinary and necessary for your business. Would you be able to do it? Learn what is not deductible in our latest blog article: [link]

A business expense must be both “ordinary and necessary” to be tax deductible. An ordinary expense is one that is common and accepted in your industry, and a necessary expense must be helpful to your operations and appropriate for your business. Learn what you can and cannot deduct here: [link]

Deductions are critical in helping to lower your tax bill, but knowing what expenses you can deduct is critical to keeping you out of trouble in the event of an IRS audit. Find out more here: [link]

Do you know whichexpenses are off-limits for a business tax deduction? Find out in our latest blog article here: [link]

There are certain expenses that are tax deductible regardless of the industry, including advertising, accounting fees, continuing education, office supplies, and so on. But, do you know the expenses that are NOT deductible regardless of the industry? Sign up for our newsletter to learn more: [link]

Requesting a Private Letter Ruling

Thu, 24 Jun 2021 14:08:43 GMT

BizBoost News
Volume 10, Issue 26
For distribution 6/14/21; publication 6/17/21

Requesting a Private Letter Ruling

You may someday find yourself in a unique tax situation and want to remove any uncertainty of the tax treatment of that situation. In that case, you can request a Private Letter Ruling (PLR) from the Internal Revenue Service.

A PLR is a written statement that interprets and applies tax law to your particular facts. As long as the taxpayer frames the question properly and provides accurate information, the ruling can be considered binding for that specific situation and taxpayer.

A private letter ruling request has no specific form; it is basically a letter explaining your particular facts. The following are required to be addressed in a PLR request:

Statement of Facts, including

o   The names, addresses, phone numbers, and taxpayer identiﬁcation numbers of all interested parties;
o   The annual accounting period and overall method of accounting;
o   A description of the taxpayer’s business operation (if applicable);
o   A complete statement of the reasons for the transaction; and
o   A detailed description of the transaction.

Copies of any contracts, deed, agreements, or other documents that are applicable.
An analysis of the facts surrounding your transaction.
If applicable, a statement regarding whether the same issue is on an earlier return.
Your conclusion, with an explanation of what your grounds are for the conclusion and any authority you relied on to support it.
Any authority contrary to your conclusion. If none exists, that should be mentioned.
A statement identifying pending legislation, if any.

Requesting a PLR is not free – a “user fee” is required to be submitted when making the request. The user fees start at $275 but can be in the thousands of dollars in certain situations, and they must be submitted with the request. The first Revenue Procedure issued each year outlines the rules surrounding PLR submissions and the fees.

Because of the cost involved and the complexity, assess whether the IRS is likely to rule in your favor before going this route. Consider working with an experienced tax professional or tax attorney first to determine if this is the best option for you!

***

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Our latest blog: “Requesting a Private Letter Ruling” is available now! Subscribe here: [link]

You may someday find yourself in a unique tax situation and want to remove any uncertainty of the tax treatment. In that case, you may want to request a Private Letter Ruling (PLR) from the Internal Revenue Service. Learn more in our latest blog article: [link]

Business Tip: Statement of facts, copies of contracts, and a statement regarding whether the same issue is on an earlier return are all required pieces of an IRS Private Letter Ruling request. Learn more here: [link]

DID YOU KNOW… An IRS private letter ruling request has no specific form; it is basically a letter explaining your particular facts. Learn more in our latest blog article: [link]

DID YOU KNOW…Requesting a PLR is not free – a “user fee” is required to be submitted when making the request. The user fees start at $275 but can be in the thousands of dollars in certain situations, and they must be submitted with the request. Learn all about them in our latest blog article: [link]

A PLR is a written statement that interprets and applies IRS tax law to your particular facts. As long as the taxpayer frames the question properly and provides accurate information, the IRS ruling can be considered binding for that specific situation and taxpayer. Find out more here: [link]

Because of the cost involved and the complexity of requesting a Private Letter Ruling, you should assess whether the IRS is likely to rule in your favor before going this route. Find out more about PLRs here: [link]

A Private Letter Ruling request needs to include:

Statement of Facts
Copies of any contracts, deed, agreements, etc
Analysis of the facts surrounding your transaction
Statement regarding whether the same issue is on an earlier return.
Your conclusion
Any authority contrary to your conclusion
A statement identifying pending legislation

How Business Owners Get Paid

Thu, 24 Jun 2021 14:07:24 GMT

BizBoost News
Volume 10, Issue 25
For distribution 5/31/21; publication 6/03/21

How Business Owners Get Paid

If you have recently or not so recently started a business, two things you need to understand is how you will be paid and how taxes will be paid. You may be taxed as a sole proprietorship, partnership, S corporation or C corporation. Understanding the differences is important.

A sole proprietorship is an individual engaged in a business without a formal tax structure. The net profit or loss from the business is reported on Form 1040 and is reported along with any other income. A net loss can offset other income reported on 1040. Self-employment tax is calculated on the net profit and is included on the 1040. Self-employment tax is basically Social Security and Medicare tax, both the employer and employee portion but is calculated using the net profit of the business from Schedule C.

A sole proprietor takes distributions from the business, which are not taxable, since tax is computed on the net profit from the business. A distribution is not a salary and has no federal or state withholding tax taken out. The owner will need to make estimated tax payments if the expected tax liability exceeds $1,000.

A partnership is a business with two or more members engaged in business. Partnerships file a Form 1065, which is an informational return, to determine how much income is allocated to each partner. The partners report the income or loss on their personal tax returns and, similar to the sole proprietor, must calculate self-employment tax.

Like the sole proprietor, partners can take distributions from the business. The distributions are not taxable since the partnership is taxed on its net profit. Partners may also loan money to the partnership and borrow money from the partnership.

Partners can also receive guaranteed payments which are not dependent on the net profit or loss of the partnership. Guaranteed payments are not subject to withholding.

An S corporation is a tax structure that can have one or more shareholders. It is often referred to as a “flow through” entity, which avoids double taxation. What this means is that the net profit or loss from an S corporation “flows through” and is reported on the shareholder’s tax return. The S corporation itself doesn’t pay income taxes and files a tax return that is purely informational. However, S corporations may be subject to filing state returns and paying other taxes such as franchise taxes.

Shareholders must receive “reasonable” compensation from the S corporation in the form of a salary. This is because net profit that exceeds the salary is not subject to Social Security and Medicare tax, which may incentivize shareholders to pay themselves lower wages or salaries. Reasonable compensation is very important to avoid having net profit re-characterized as salary if you are audited by the IRS.

Shareholders in the S corporation can also take distributions as long as there is enough tax basis to absorb the distribution. Tax basis is the amount of profit and capital contributions less losses and distributions. Distributions exceeding tax basis become taxable as capital gains on the shareholder’s personal tax return.

Loans to and from the S corporation are also permissible. Loans to the S corporation will increase tax basis, but need to be properly documented.

A C corporation is a tax structure in which the business is the actual taxpayer. This is different from the S corporation in the fact that there is no “flow through” from the C corporation to shareholders. Shareholders are compensated in the form of salary or wages. Any distributions taken from the C corporation are taxable as dividends to the shareholders. This entity creates double taxation: the corporation cannot take a deduction for dividends paid and therefore pays taxes on the profits used to pay those dividends, and shareholders are then taxed again on dividends received on their individual returns. However, this entity type might still be desirable for an individual who is in a higher tax bracket since a C corporation is taxed at a 21% flat tax rate.

Note that a Limited Liability Company (LLC) is a legal structure, not a tax structure. The default entity classification for an LLC is sole proprietorship if owned by one individual and partnership if owned by two or more individuals. There are elections available to treat an LLC as an S or C corporation for tax purposes – the owner(s) may need to file Form 8832 or Form 2553 to make the appropriate election, depending on the specific circumstances.

If you feel like your business could benefit from an entity evaluation or if you have questions about your taxes, please feel free to reach out any time.

***

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Our latest blog: “How Business Owners Get Paid” is available now! Subscribe here: [link]

If you have recently or not so recently started a business, two things you need to understand is how you will be paid and how taxes will be paid. Learn more in our latest blog article: [link]

Business Tip: The owner of a sole proprietorship needs to make estimated tax payments if the expected tax liability exceeds $1,000. Learn more here: [link]

DID YOU KNOW… As a new business, you may be taxed as a sole proprietorship, partnership, S corporation or C corporation. Understanding the differences is important. Learn more in our latest blog article:[link]

Sole proprietorships, partnerships, S corporations and C corporations all have their own structure and way of paying the owners and paying taxes. Learn all about them in our latest blog article: [link]

DID YOU KNOW… A Limited Liability Company (LLC) is a legal structure, not a tax structure. The default entity classification for an LLC is sole proprietorship if owned by one individual and partnership if owned by two or more individuals. Find out more here: [link]

An S corporation is a tax structure that can have one or more shareholders. It is often referred to as a “flow through” entity, which avoids double taxation. Find out what business classification is best for you here: [link]

A C corporation is a tax structure in which the business is the actual taxpayer. This is different from an S corporation in the fact that there is no “flow through” from the C corporation to shareholders. Shareholders are compensated in the form of salary or wages. Sign up for our newsletter to learn more: [link]

Business Meal Deduction Changes from the Consolidated Appropriations Act

Tue, 25 May 2021 14:55:08 GMT

BizBoost News
Volume 10, Issue 24
For distribution 5/17/21; publication 5/20/21

Business Meal Deduction Changes from the Consolidated Appropriations Act

The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100 percent write-off for business meals from January 1, 2021 through December 31, 2022. The food and beverages must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. The deduction also includes any delivery fees, tips and sales tax. This is an increase from the 50 percent deduction that applied for 2020 and earlier years.

It is important to note that other than lifting the 50 percent limitation on deductions for meal expenses, this legislation doesn’t amend any of the other rules related to business meal deductions. Therefore, to be deductible:

Business meals should still have a business purpose and involve dining with current or prospective customers, clients, suppliers, employees, partners, or professional advisors.
The food and beverages should not be lavish or extravagant under the circumstances.
You or one of your employees must be present when the food or beverages are served.

Although meals are 100 percent deductible, entertainment expenses are still disallowed. So, while taking a client out for a dinner is tax deductible, the cost of the baseball game after dinner is not. Furthermore, if an entertainment event includes food and beverages, they must either be purchased separately from the entertainment or broken out on a separate invoice or receipt. Be sure to update your chart of accounts to make an account for meals and another for entertainment.

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Our latest blog: “Business Meal Deduction Changes from the Consolidated Appropriations Act” is available now! Subscribe here: [link]

The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100% write-off for business meals from January 1, 2021 through December 31, 2022. Learn more in our latest blog article: [link]

Business Tip: Although meals are 100% deductible under the CAA, entertainment expenses are still disallowed. So, while taking a client out for dinner is tax deductible, the cost of the baseball game after dinner is not. Learn more here: [link]

DID YOU KNOW… Business meals written off, under the CAA, must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. Learn more in our latest blog article: [link]

The Consolidated Appropriations Act includes a temporary provision allowing for 100% deduction of business meals. This is an increase from the 50% deduction that applied for 2020 and earlier years. Learn all about them in our latest blog article: [link]

To be deductible under the Consolidated Appropriations Act, business meals should not be lavish or extravagant under the circumstances. Find out more here: [link]

DID YOU KNOW… To deduct a business meal, you or one of your employees must be present when the food or beverages are served. Learn more here: [link]

It is important to note that other than lifting the 50% limitation on deductions for meal expenses, the new Consolidated Appropriations Act doesn’t amend any of the other rules related to business meal deductions. Sign up for our newsletter to learn more: [link]

IRS Penalty Abatement – How Does It Work?

Tue, 25 May 2021 14:51:15 GMT

BizBoost News
Volume 10, Issue 23
For distribution 5/03/21; publication 5/06/21

IRS Penalty Abatement – How Does It Work?

It is never fun to receive a letter from IRS, especially one that says you are being assessed penalties due to filing late, paying your taxes late, or understating income on your tax return! In many cases taxpayers are fearful of additional consequences so they just pay what is owed, but it is important to be aware that sometimes IRS is willing to waive certain penalties, depending on the circumstances. With that said, there are some important items to be aware of as far as how to qualify and what to do if you find yourself in such a situation.

How Do I Qualify?

Generally, to qualify for penalty abatement, you will need to demonstrate to IRS that you have “reasonable cause” for whatever triggered the penalty assessment. There are some standard reasons within the IRS guidelines that will, in most cases, qualify you for penalty abatement. These include:

Reliance on a tax professional
Inability to obtain records
Medical illness (personal or family member)
Natural disaster
Significant financial hardship
Death in the family
Other reason which establishes that you used all ordinary business care and prudence to meet your tax obligations but were still unable to do so

You will need to present the appropriate facts and circumstances to IRS in order to prove reasonable cause. This includes the following:

What happened and when?
What facts/circumstances prevented you from filing your return or paying your taxes on time?
How did the facts and circumstances affect your ability to perform your other day-to-day responsibilities?
Once the facts/circumstances changed, what steps did you take to try to get back in compliance/rectify the situation?

What is First-Time IRS Penalty Abatement?

For first-time noncompliant taxpayers, in some cases there may not be any need to provide reasonable cause, because IRS offers a one-time penalty abatement for taxpayers who have stayed compliant and have a clean filing and payment history with IRS. The idea is that everyone is entitled to one mistake! This generally applies to failure-to-file, failure-to-pay, or failure-to-deposit penalties, but not to other types like accuracy-related penalties.

Since this is a one-time waiver, if you are requesting penalty abatement for more than one tax year/period, the abatement will generally only apply to the earliest period you are requesting abatement for. If there is other administrative relief you can request from IRS to get penalties abated, you may want to explore that option instead of using up this one-time waiver, which could be more beneficial in a future situation.

How Do I Request Penalty Abatement?

In some cases, particularly with the First-Time Penalty Abatement, you may be able to request a penalty waiver simply by calling and speaking with an IRS representative. If the penalty is too high or there are other circumstances that prevent a representative from providing relief over the phone, however, you will need to write a letter explaining the facts/circumstances, and you will want to attach the appropriate documentation as proof. Be sure to include all relevant information in the request, including name, identification number, tax year/period, tax form, and penalty type/amount.

You will want to mail the letter to the address provided on the IRS notice (or, if no notice, the address where you would usually file your tax returns). You may also want to consider requesting assistance from a tax professional, to make sure you qualify and are able to communicate a convincing argument to IRS.

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: “IRS Penalty Abatement – How Does It Work” is available now! Subscribe here: [link]

It is never fun to receive a letter from the IRS, especially one that says you are being assessed penalties due to filing or paying your taxes late, or understating income on your tax return! Learn more about this process in our latest blog article: [link]

DID YOU KNOW… It is important to be aware that sometimes IRS is willing to waive certain penalties, depending on the circumstances. Learn more in our latest blog article:[link]

There are some standard reasons within the IRS guidelines that will, in most cases, qualify you for penalty abatement. Learn what these reasons are in our latest blog article: [link]

Generally, to qualify for penalty abatement, you will need to demonstrate to the IRS that you have “reasonable cause” for whatever triggered the penalty assessment. Find out more here: [link]

In some cases, particularly with the First-Time Penalty Abatement, you may be able to request a penalty waiver simply by calling and speaking with an IRS representative. Learn more about requesting a penalty abatement here: [link]

Standard reasons within IRS guidelines that may qualify you for penalty abatement include:

Reliance on a tax professional
Inability to obtain records
Medical illness (personal or family member)
Natural disaster
Significant financial hardship
Death in the family

Partner Capital Accounts Required to be Reported on Tax Basis for 2020

Wed, 21 Apr 2021 11:59:12 GMT

BizBoost News
Volume 10, Issue 22
For distribution 4/19/21; publication 4/22/21

Partner Capital Accounts Required to be Reported on Tax Basis for 2020

In response to the Tax Cuts and Jobs Acts of 2017, there were a number of changes to the disclosure requirements for partnerships and LLCs filing as partnerships – specifically, on the K-1s of Form 1065 returns, some of which became effective for the 2019 tax year.

For the current (2020) tax year, however, the most significant change relates to the reporting associated with partner capital accounts. Beginning with the 2020 year, partnerships are required to report capital accounts for partners using the tax basis method. The prior rules allowed the capital accounts to be reported in accordance with Generally Accepted Accounting Principles or Section 704(b). This will no longer be permitted.

According to IRS, most partnerships/LLCs taxed as partnerships have already been reporting capital accounts on a tax basis. For those taxpayers, no change is required.

For partnerships that were not using tax basis, the “transactional approach” must be used to switch to tax basis for capital reporting purposes. Under that approach, partnerships use partner contributions, the partner’s share of partnership net income or loss, withdrawals and distributions, and other increases or decreases using tax basis principles, instead of reporting using other methods such as GAAP.

For those partnerships that have never used tax basis, since many partnerships would have difficulty reconstructing tax basis, the IRS is allowing them to re-figure beginning basis using one of a number of options including the modified outside basis, modified previously taxed capital, or Section 704(b) methods. These options are all described on page 32 of the Form 1065 instructions.

The same basis method should be used for each partner. IRS is not assessing penalties as long as the calculation is done with “ordinary and prudent business care.”

“Small partnerships,” which are defined as having less than $250,000 in total receipts under $1 million in total assets, are exempt from reporting capital accounts on the tax basis.

The IRS is hoping this new disclosure will assist in assessing compliance risk and result in fewer audits for compliant taxpayers.

***

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Our latest blog: “Partner Capital Accounts Required to be Reported on Tax Basis for 2020” is available now! Subscribe here: [link]

In response to the Tax Cuts and Jobs Act of 2017, there were a number of changes to the disclosure requirements for partnerships and LLCs filing as partnerships. Learn more in our latest blog article: [link]

DID YOU KNOW…“Small partnerships,” which are defined as having less than $250,000 in total receipts under $1 million in total assets, are exempt from reporting capital accounts on the tax basis. Learn more here: [link]

DID YOU KNOW…In response to the Tax Cuts and Jobs Act of 2017, for the current (2020) tax year, the most significant change relates to the reporting associated with partner capital accounts. Learn more in our latest blog article: [link]

Beginning with the 2020 form year, partnerships are required to report capital accounts for partners using the tax basis method. The prior rules allowed the capital accounts to be reported in accordance with Generally Accepted Accounting Principles or Section 704(b). Learn all about this change in our latest blog article: [link]

For partnerships that were not using tax basis, the “transactional approach” must be used to switch to tax basis for capital reporting purposes. Find out more about these changes here: [link]

For partnerships that have never used tax basis, since many partnerships would have difficulty reconstructing tax basis, the IRS is allowing them to re-figure beginning basis using one of a number of options including the modified outside basis, modified previously taxed capital, or Section 704(b) methods. Learn more here: [link]

The IRS is hoping that by requiring partner capital accounts to be reported on tax basis, this will assist in assessing compliance risk and result in less audits for compliant taxpayers. Sign up for our newsletter to learn more about these new changes: [link]

Employee Retention Credit Expanded for 2021

Wed, 21 Apr 2021 11:58:02 GMT

BizBoost News
Volume 10, Issue 21
For distribution 4/05/21; publication 4/08/21

Employee Retention Credit Expanded for 2021

If your business was impacted by either a disaster or COVID-19, you may be eligible to receive the Employee Retention Credit (ERC). It is a refundable credit against payroll taxes that was originally introduced in the CARES Act, expanded by the Consolidated Appropriations Act (CAA) signed into law on December 27, 2020, and broadened even further with the March 2021 American Rescue Plan Act (ARPA).

In essence, the ERC is a tax credit on a percentage of qualifying wages paid to employees for a specified period of time. While we can’t cover every detail of this complex tax break, we hope to raise awareness of this topic so that businesses that qualify can benefit.

To qualify, your business operations must have been either fully or partially suspended by a COVID-19 governmental order or have experienced a drop in gross receipts.

From the CARES Act, qualified wages must have been paid between March 13, 2020 and December 31, 2020. The CAA provides for wages paid from January 1, 2021 through June 30, 2021 and covers gross wages plus the employer cost of health insurance. The ARPA extends the dates to include the third and fourth quarters of 2021 and adds Medicare.

If a business has received a PPP loan, the same wages used to apply for PPP loan forgiveness cannot be used to qualify for the ERC, but the business can get both tax breaks. This requires a great deal of strategy to maximize the payouts for each tax break.

To claim the credit, you may reduce your employment tax deposits and reflect the reduced deposits on Form 941, file an amended 941X to retroactively get the credit, or (for small employers with less than 500 employees) apply for an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

There is no double-dipping of credits allowed; employers who take this credit cannot also take a credit for Paid Family Medical Leave on the same qualified wages. Furthermore, if an employee is included for the Work Opportunity Tax Credit, he/she may not also be included for the Employee Retention Credit. It is important for employers to evaluate which credit is more financially beneficial to their businesses.

The Employer Retention Credit can be a windfall for some businesses. Some tax professionals may overlook this credit since it is connected with payroll taxes, an area they do not normally get into. Do not let them! Be sure to ask your tax professional to help you claim all of the credit you deserve by law.

***

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Our latest blog: “Employee Retention Credit Expanded for 2021” is available now! Subscribe here: [link]

The Employee Retention Credit is a refundable credit that was expanded with the Consolidated Appropriations Act signed into law on December 27, 2020. Learn more in our latest blog article: [link]

Business Tip: To claim the Employee Retention Credit, you may reduce your employment tax deposits and reflect the reduced deposits on Form 941, or (for small employers with less than 500 employees) apply for an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. Learn more here: [link]

DID YOU KNOW... If your business was impacted by COVID-19, you may be eligible to receive the Employee Retention Credit. Learn more in our latest blog article: [link]

To qualify for the Employee Retention Credit, your business operations must have been either fully or partially suspended by a COVID-19 governmental order or experienced a drop in gross receipts. Learn all about it in our latest blog article: [link]

Employers who take the Employee Retention Credit cannot also take a credit for Paid Family Medical Leave on the same qualified wages. Find out more here: [link]

To get the Employee Retention Credit, qualified wages must have been paid between March 13, 2020 and December 31, 2021. Find out whether your business qualifies here: [link]

It is important for employers to evaluate which tax credits available may be more financially beneficial to their businesses. Sign up for our newsletter to learn more: [link]

What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?

Thu, 25 Mar 2021 12:55:49 GMT

BizBoost News
Volume 10, Issue 20
For distribution 3/22/21; publication 3/25/21

What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?

Have you heard the phrases “marginal tax rate” (or tax bracket) and “effective tax rate” and wondered what the distinction is between them? In order to explain the difference, it is first important to note that in the United States, we do not pay a flat tax – we are on a graduated system and therefore pay taxes in tiers.

Let’s say that you are a Single filer, and you have taxable income of $60,000 for the 2020 tax year. According to the IRS tax tables, that puts you in the 22 percent tax bracket – in other words, that is your marginal tax rate. Twenty-two percent of $60,000 is $13,200, but luckily, you don’t have to pay that much. If you calculate the tax based on the 2020 IRS Tax Tables, the amount of tax is $8,990, which is less than the $13,200 based on the 22 percent marginal rate.

This scenario illustrates the difference between your marginal tax rate (tax bracket) and your actual effective tax rate. Even though you would be in the 22% bracket based on $60,000 of income, you do not pay 22 percent flat tax. You would pay less than that since there is one bracket below your tax bracket: the 12 precent bracket. (There are really two for you math geeks: 12 percent and 0 percent.)

The rate that you actually pay in taxes is your effective tax rate. This rate is unique to you individually and is simple to calculate. Just take your total tax liability and divide it by your taxable income. In our example, that would be $8,990 / $60,000 = just about 15 percent. Compare that to the 22 percent marginal rate and it sounds pretty good!

The effective rate is often more useful because it gives you an average rate you pay on all the money you make during the year. It is much more accurate in terms of gauging what you might owe based on your projected taxable income. In most cases, the effective tax rate is less than the marginal rate.

The marginal tax rate is still helpful to know for tax planning. For example, you can get a feel for how much potential benefit you could receive from an additional deduction. For example, how much would you benefit from making a $6,000 IRA contribution? Your taxes would be reduced by $1,320, or 22 percent of $6,000. Looking it up in the tax tables is another way to double-check the math and yields the same savings.

Understanding the difference between your effective and marginal tax rates makes you a smarter taxpayer!

***

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Our latest blog article: “What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?” is available now! Subscribe here: [link]

Have you heard the phrases “marginal tax rate” (or tax bracket) and “effective tax rate” and wondered what the distinction is between them? Find out in our latest blog article![link]

Business Tip: While the marginal tax rate is often what you hear about/reference when reviewing your tax situation for the year, the effective rate is really a much more useful indicator. Learn more about the difference here! [link]

Marginal and effective tax rates are both useful, but serve different purposes when trying to understand your tax situation. Find out how these two differ and which one is best to use in our latest blog article here.: [link]

DID YOU KNOW… While the marginal tax rate helps you to get a feel for where your tax situation might land (and how certain deductions might help your overall situation), the effective tax rate will be more accurate in terms of nailing down what your overall tax liability might look like for the year. Learn how these calculations differ here: [link]

DID YOU KNOW… The tax brackets used for marginal tax rates cover a range of income and you pay tax on a graduated system based on where your income falls within the range applicable to you. Therefore, the effective tax rate is much more useful in understanding your specific tax situation, as you can calculate based on your unique position. Learn how to calculate these tax rates here: [link]

You can determine your effective tax rate by taking your total tax liability and dividing it by your taxable income. Click here to learn why your effective tax rate is more useful than the more common marginal tax rate. [link]

Sign up for our newsletter to learn how the marginal tax rate and effective tax rate differ, and how you can gain a better understanding of your unique tax situation.: [link]

What is Nexus and How Does It Affect Your Business?

Thu, 25 Mar 2021 12:54:26 GMT

BizBoost News
Volume 10, Issue 19
For distribution 3/8/21; publication 3/11/21

What is Nexus and How Does It Affect Your Business?

The dictionary defines the word “nexus” as a connection between two or more things. In taxes, it’s a key word that has a potentially big impact and state and local taxes. It’s easier to think of nexus as meaning “presence.”

Nexus, or a business’s presence, in a state, is created by a variety of factors:

Owning or leasing property in a state: offices, warehouses, or stores
Generating income in a state from a store or from a substantial number of customers who live in the state
Hiring employees or contractors (including remote workers) that live or work in the state

A company can have nexus in many states at once. For example, a business operating in California that sells books that are stored in a warehouse in Indiana has nexus in both states. The warehouse generates physical nexus.

There is also economic nexus. This is when enough customers in a state purchase a company’s goods. A 2018 Supreme Court case, South Dakota vs. Wayfair, opened the floodgates for states to impose economic nexus on businesses. As of this writing, 43 states have enacted laws to create economic nexus for certain businesses. It is usually required after a business has reached a threshold of sales in dollars or number of customers. Economic nexus requires businesses to collect and remit state sales tax on sales of taxable items, which helps the states to raise revenue.

The locations of a business’s employees and contractors could also trigger nexus. Not only is a business impacted with this type of nexus, the employee’s tax liabilities may be affected as well. With so many working remotely due to the pandemic, these workers are probably not aware of how state tax laws could potentially impact them.

For example, an employee working from home in Michigan for an employer based in Pennsylvania could potentially be subject to Pennsylvania income tax as well as Michigan. The laws for permanent and temporary relocations are different and complex; it’s best to check with a tax professional to help you determine which states you might have nexus in.

If you operate a business with employees, property, or sales in more than one state and are not sure about your responsibilities with regard to nexus, please feel free to reach out so we can help.

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Our latest blog article: “What is Nexus and How Might It Impact You?” is available now! Subscribe here: [link]

Nexus is defined as a connection between two or more things. As it relates to state income taxation, nexus is created when an entity derives income from sources within a state, owns or leases property or has employees that are engaged in activities that exceed mere solicitation.

Learn more about nexus and how it may impact you in our latest blog article: [link]

A 2018 Supreme Court case, South Dakota vs. Wayfair, opened the floodgates for states to impose economic nexus on businesses. Find out more: [link]

DID YOU KNOW… As of this writing, 43 states have enacted laws to create economic nexus for certain businesses. Find out about nexus here: [link]

With so many working remotely due to the pandemic, workers and employees alike may not be aware of how state tax laws could potentially impact them. Learn more in our latest blog article here: [link]

When you operate a business or work in multiple states, be aware that there may be multi-state income tax ramifications. Find out more in our latest blog article here: [link]

DID YOU KNOW… If your residence is in one state and you choose to ride out the pandemic in another location, you could owe state income tax to both the home state and the temporary state. Learn more here: [link]

Nexus, as it relates to state income taxes, can cause unpleasant tax surprises for both employees and employers. Sign up for our newsletter to learn more about nexus and how it may impact you!: [link]

Do Nonprofits Ever Pay Taxes?

Fri, 19 Feb 2021 20:11:53 GMT

BizBoost News
Volume 10, Issue 18
For distribution 2/22/21; publication 2/25/21

Do Nonprofits Ever Pay Taxes?

When you think about a nonprofit, the first thing that often comes to mind is that it is tax-exempt. Most nonprofits are not subject to federal, state, and local income tax.

Does that mean nonprofits are completely free of ANY tax liability? The answer to this is likely no – there are still some taxes that a nonprofit might be liable for. If you are considering starting a nonprofit organization, you won’t want to be surprised, so we’ll break it down for you.

Taxes That Do NOT Apply to Nonprofits

Generally a nonprofit is not subject to income tax at the federal, state, or local level on funds raised in direct association with the organization’s mission. The reasoning behind this exemption is that it allows more resources to be put toward its cause(s).

A nonprofit that qualifies for federal tax-exempt status is also exempt from paying property tax in all 50 states, by law. Sales tax is also often waived for certain transactions related to the organization’s mission, but not always. It depends on the nature and amount of sales activities of the nonprofit.

Taxes That Do Apply to Nonprofits

If a nonprofit organization hires employees, it will be subject to payroll taxes. Just like employees of for-profit entities, these individuals are required to pay tax on their earnings, and the organization is liable for the employer’s share of the payroll taxes.

Sales and use tax may also need to be paid. With sales tax, there is a distinction between paying sales tax on purchases, and collecting and remitting sales tax on sales. A nonprofit may need to pay sales tax on purchases from a vendor depending on the rules of its state and other considerations.

On the flip side, if a nonprofit is engaged in a business activity unrelated to its charitable mission and/or involved in sales of taxable items or services to customers, it may be obligated to collect and remit sales tax.

It is important to distinguish between these two areas and keep in mind that even if a nonprofit is exempted from paying sales tax on purchases, that exemption does not necessarily extend to collecting and remitting sales tax on outside sales.

Another area where a nonprofit might be liable to pay tax would be on what is called Unrelated Business Taxable Income (UBTI). This is income that is unrelated to the nonprofit’s core mission. As an example, a fundraising event to sell merchandise to raise money for equipment that will directly help carry out the entity’s cause would NOT be considered an unrelated activity, despite the sale of items to customers, because the money is going directly towards helping to advance the charitable mission.

On the other hand, if that merchandise is sold as part of a trade or business that is regularly carried on by the nonprofit and the proceeds are used to fund general operating costs like payroll or office expenses and not specific program expenses, that income could be considered UBTI because it is not substantially related to the organization’s charitable purpose.

If a nonprofit has over $1,000 of UBTI it must file Form 990-T and pay tax on that income. If the nonprofit is structured as a corporation, it will pay the flat 21 percent rate on that income, like the 21 percent tax paid by for-profit corporations. If it’s set up as a trust it will be taxed at trust rates, the highest of which is 37 percent. Because this is a gray area of the law and subject to some interpretation, it is highly recommended that a nonprofit seeks the advice of a tax professional in navigating the rules and determining if it is subject to UBTI reporting and taxation.

So, as you can see, taxes are not completely off the table just because an organization is exempt from federal income tax. Several different types of tax could come into play for a nonprofit, depending on whether it has employees, the nature of its activities, and other considerations.

If you need help with taxes in your nonprofit, please contact us.

***

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Our latest blog article: “Do Nonprofits Ever Pay Taxes?” is available now! Subscribe here: [link]

When you think about a nonprofit, the first thing that often comes to mind is that it is tax-exempt – most nonprofits are not subject to federal and state/local income tax. However, does that mean nonprofits are completely free of ANY tax liability? Find out in our latest blog article here! [link]

A nonprofit that qualifies for Federal tax-exempt status is also exempt from paying property tax in all 50 states, by law. However, there may still be other taxes that do apply to nonprofits! Find out more here: [link]

Do you know what taxes do apply and do not apply to nonprofits? Find out in our latest blog article, “Do Nonprofits Ever Pay Taxes?” Available now! [link]

When it comes to nonprofits, be aware that there is a distinction between paying sales tax on purchases and collecting/remitting sales tax on sales. A nonprofit may need to pay sales tax on purchases from a vendor depending on the rules of its state and other considerations. Learn more here: [link]

Taxes are not completely off the table just because an organization is exempt from federal income tax. Several different types of tax could come into play for a nonprofit, depending on whether it has employees, the nature of its activities, and other considerations. Find out more in our latest blog article here: [link]

DID YOU KNOW… an area where a nonprofit might be liable to pay tax would be on what is called Unrelated Business Taxable Income (UBTI). Click here to learn more! [link]

Many believe that nonprofits are completely tax-exempt, but that’s not always the case! Sign up for our newsletter to learn about what taxes nonprofits may actually have to pay: [link]

Tax Filing Requirements for Closing a Business

Fri, 19 Feb 2021 20:10:23 GMT

BizBoost News
Volume 10, Issue 17
For distribution 2/8/21; publication 2/11/21

Tax Filing Requirements for Closing a Business

You’re not alone if you have considered shuttering your business recently, The pandemic has placed a huge strain on businesses in certain industries, and many business owners who were just holding on before the crisis are having to face life-changing decisions.

If you do decide to close your business, there are many considerations. Here are a few steps for you to consider from a tax standpoint.

If you have employees, the first step is to pay them any final wages and compensation. You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941. Any forms you file (i.e., Form 940, 941) should be marked as final.

If you paid any contract workers over $600 you will also need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service.

A tax return for the year the business closed must also be filed. For businesses taxed as a partnership (Form 1065), S corporation (Form 1120S) or corporation (Form 1120), a tax return marked final will need to be completed. The corresponding state versions of these returns should also be filed and marked final. There is no box to mark Schedule C final for a sole proprietorship, but a return must still be filed for the year of closure. Additional forms may be necessary depending on whether or not the business was sold.

After filing the final tax returns, the next step is to cancel your employer identification number (EIN) and business account with the IRS. Send the IRS a letter with the complete legal name of the business, employer identification number and reason the account is being closed to the address below:

Internal Revenue Service
Cincinnati, OH 45999

This will prevent Internal Revenue Service from requesting returns that are no longer required.

Don’t forget the state(s) you are registered to do business in. You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured. For example, if you have a California LLC you’ll want to make sure it is properly dissolved with the state since you will be responsible for the $800 fee until this is completed.

The Internal Revenue Service has recently released Publication 5447 summarizing the steps to take in closing a business. Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future.

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If you have decided it is time to close your business, it entails more than shutting off the lights and closing your bank account. Learn more in our latest blog article: [link]

Business Tip: When closing a business, don’t forget the state(s) you are registered to do business in. You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured. Learn more here! [link]

DID YOU KNOW…. When closing a business, if you paid any contract workers over $600 you will need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service. Learn more here: [link]

The Internal Revenue Service has recently released Publication 5447 addressing the steps to take in closing a business. Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future. Learn more in our latest blog article: [link]

Do you know the tax filing requirements to close a business and avoid penalties? Learn what steps to take to close a business in our latest blog article, available now: [link]

The first step to closing a business, if you have employees, is to pay them any final wages and compensation. You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941. Find out more here: [link]

Tax filing requirements for closing a business require many steps. Make sure to check out our latest blog article so that you can avoid any unpleasant tax surprises! Sign up for our newsletter here: [link]

Deductibility of PPP-Related Expenses

Tue, 26 Jan 2021 14:29:42 GMT

Deductibility of PPP-Related Expenses

One of the biggest tax issues of 2020 has been clarified with the signing of the Consolidated Appropriations Act, 2021, (CAA 2021), and that was whether expenses that are normally deductible and that were paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven are truly deductible.

The CARES Act, which became law on March 27, 2020, was drafted so quickly that the question of deductibility was left out, but several members of Congress made it clear that deductibility was the intent all along. The IRS went the other way, publishing a notice (2020-32), a revenue ruling (2020-27), and a revenue procedure (2020-51), that took the opposite stance: PPP-related expenses that were forgiven were not deductible, therefore potentially causing business’s taxes to become much higher.

Congress has now reversed the IRS’s position with CAA 2021 in Section 276 (PPP) and 278 (EIDL). Gross income does not include forgiveness of PPP loans and emergency EIDL grants. Deductions are allowed for normally deductible expenses paid with PPP loan proceeds that were forgiven. It also provides deductibility for Second Draw PPP loans. This is all good news for taxpayers with PPP loans.

However, there could be timing issues that could reduce the deductibility of the full amount of the PPP expenses. There could also be amounts “at risk,” which is a tax term that limits your deductions in certain cases.

All of these issues need to be carefully considered on a case-by-case basis. Your tax professional is your best source to help you review all of these factors so that both your PPP loan forgiveness and allowable deductions are timed to reduce your tax bill.

A New Round of Stimulus Checks

Tue, 26 Jan 2021 14:28:03 GMT

Tax Tips Bonus

A New Round of Stimulus Checks

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.

Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check. To qualify:

For individuals making up to $75,000 per year, or if a couple, making up to $150,000 per year, the check will be $600.
For individuals making between $75,000 and $86,900 (couples: $150,000 to $173,900), the check will be between $595 and $5. In this phaseout, the amount of the check decreases by $5 for every $100 of income above $75,000/$150,000, phasing out completely at $87,000/$174,000.
The amount sent will be based on the amount you earned (adjusted grow income, to be exact) on your 2019 tax return.
Includes children. The definition for child will be the same as the one used to calculate the child tax credit.
Excludes dependent adults over 17 at the end of the tax year.
Excludes persons who died on or before January 1, 2020.
Includes individuals who file jointly with an ITIN, but excludes the person with the ITIN.
Includes 2019 non-filers who receive benefits from Social Security Administration, Railroad Retirement Board, and the Department of Veterans Affairs.

Here are some examples: A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400. A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 - $250 = $350). A woman with 2 small children earning $87,000 will not get anything.

Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return. If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).

The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.

If you never got the first stimulus check, you can claim it on your 2020 tax return. Details are here on the IRS site. https://www.irs.gov/newsroom/recovery-rebate-credit

How to Make Estimated Tax Payments

Tue, 26 Jan 2021 14:27:00 GMT

BizBoost News
Volume 10, Issue 16
For distribution 1/25/21; publication 1/27/21

How to Make Estimated Tax Payments

If you are paid a salary and receive a W-2 from your employer, part of your paycheck goes to Uncle Sam as federal withholding. These are payments toward your taxes. If you earn additional income beyond your salaried income, if you are under-withheld, or if you have your own business, you may need to make estimated tax payments through the tax year. These estimated tax payments can be made on a quarterly basis.

The general rule is that as you earn income, you should also be paying a portion in taxes. If you don’t pay in enough, you may be subject to penalties. To avoid penalties, the amount you pay as a minimum should be the lesser of 100% (or 110% depending on your income level) of your prior year tax or 90% of your current year tax during the year.

Whether the payments are made via withholdings or estimated tax payments, the IRS expects those payments to be made evenly and consistently throughout the year. If you don’t make any payments at all throughout the year and then pay a large amount late in December, you might get an estimated tax penalty because you didn’t remit payments as you earned the income.

Exceptions are allowed if your earnings substantially fluctuate throughout the year, quarter-by-quarter. You can complete Form 2210 to help minimize any penalty if you have fluctuating income and tax payments.

Generally, estimated tax payments become applicable when you have either Schedule C or flow-through business income or significant investment income (interest, dividends, and capital gains), because there is usually no withholding on that type of income.

To make a payment or get directions on how to make a payment, go to https://www.irs.gov/payments. Payments can be made by check (include estimated tax vouchers provided by IRS when you send them - 1040-ES forms) or online using a credit card or bank draft.

The due dates for remitting these payments are generally on the 15th of April, June, September, and January, unless one of those days is on a holiday or weekend (in which case payment would be due on the next business day). For 2021 estimated tax payments, these dates are as follows:

April 15th, 2021 (1st quarter payment)
June 15th, 2021 (2nd quarter payment)
September 15th, 2021 (3rd quarter payment)
January 18th, 2022 (4th quarter payment)

If you have big payments due or big refunds due in April each year, then you are either paying too little or too much. Doing a good job at estimating your taxes will smooth out your payments throughout the year. If you’d like to get a projection for Tax Year 2021, feel free to reach out any time.

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Taxes must be paid throughout the year as you earn income, and in some cases, if you do not have sufficient (or any) tax withholdings from some/all of your income, you must make estimated tax payments in order to minimize or avoid estimated tax penalties. Learn more in our latest blog article: [link]

Business Tip: Generally, estimated tax payments become applicable when you have either Schedule C or flow-through business income or significant investment income (interest, dividends, and capital gains), because there is usually no withholding on that type of income. Learn all about how to make estimated tax payments here: [link]

Learn all about how to make estimated tax payments in our latest blog article, and be sure to review your expected income/situation for 2021 with us to determine whether estimated tax payments will be necessary: [link]

DID YOU KNOW…The general rule for estimated tax payments is that you will want to have paid in the lesser of 100% (or 110% depending on your income level) of your prior year tax or 90% of your current year tax during the year. Learn more in our latest blog article: [link]

The due dates for remitting estimated tax payments are generally on the 15th of April, June, September, and January, unless one of those days is on a holiday or weekend (in which case payment would be due on the next business day). Find out more here! [link]

Remember, the IRS expects estimated tax payments to be made evenly/consistently throughout the year. Therefore, if you don’t make any payments at all throughout the year and then pay a large amount late in December, you are very unlikely to avoid an estimated tax penalty because you didn’t remit payments as you earned the income. Sign up for our newsletter to learn more: [link]

Do you know how to make estimated tax payments throughout the year in order to avoid penalties? Learn all about estimated tax payments in our latest blog article here: [link]

Form 1099-NEC – What Is It?

Tue, 26 Jan 2021 14:26:23 GMT

BizBoost News
Volume 10, Issue 15
For distribution 1/11/21; publication 1/14/21

Form 1099-NEC – What Is It?

If you have a business with independent contractors, it is important to be aware of a recent reporting change that the IRS has implemented. Starting with the 2020 tax year, businesses must report nonemployee compensation (NEC) on Form 1099-NEC instead of Form 1099-MISC.

You may be surprised to learn that this is not a new form, but it hasn’t been used by IRS since 1982. It was brought back for the 2020 tax year with the goal of minimizing deadline confusion. The 1099-MISC is used to report other payments, and in some cases, there is a different filing deadline for reporting these payments. The 1099-NEC has one single filing deadline of January 31st.

If you pay a nonemployee $600 or more for services provided in your business during the year, you must report that on Form 1099-NEC and provide a copy to the recipient so it can be reported on his or her individual tax return. The tax treatment for recipients is the same as if they received a 1099-MISC.

What does this all mean for the 1099-MISC? The form has not gone away, but it will no longer be used to report nonemployee compensation. It is still applicable for reporting various other types of payments, including royalties, rents, prizes and awards, medical and health care payments, gross proceeds to attorneys from lawsuits, and other items.

A penalty can be assessed if you fail to provide a 1099-NEC to a qualifying recipient. There is also a penalty if you use the wrong form, e.g., 1099-MISC when a 1099-NEC should have been filed. If the wrong form is filed, you can void it as soon as possible by filing an amended statement showing $0 for nonemployee compensation on the 1099-MISC, and then filing the 1099-NEC. The longer it takes to correct it, the higher the IRS penalty could be.

Another possible impact of this change is that businesses may need to file the 1099-NEC separately with the state as well as IRS, where in the past they might not have needed to. This is because 1099-MISC forms were provided to certain states automatically as part of the IRS Combined Federal/State Filing Program, so businesses in those states did not need to file anything else once they filed with IRS. The 1099-NEC is not part of this combined program, so if a state requires a copy it must be filed separately. Several states have released specific guidance about this, so it is important for businesses to double check with their state tax or revenue authority where the business is established, where the contractor resides, and/or where the services are being performed.

If you need help complying with the new 1099-NEC guidelines, feel free to reach out to us any time.

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Our latest blog article: “Form 1099-NEC – What Is It?” is available now! Subscribe here: [link]

If you have a business with independent contractors, it is important to be aware of a recent reporting change that the IRS has implemented. Get full details in our latest blog article here: [link]

Starting with the 2020 tax year, businesses must report nonemployee compensation (NEC) on Form 1099-NEC instead of Form 1099-MISC. You may be surprised to learn that this is not a new form, but it hasn’t been used by the IRS since 1982! Find out more here: [link]

DID YOU KNOW… The threshold that triggers the 1099-NEC filing requirement is no different than what it was for the 1099-MISC – if you pay a nonemployee $600 or more for services provided in your business during the year, you must report that on Form 1099-NEC. Get full details here: [link]

The IRS just brought back Form 1099-NEC for the 2020 tax year with the goal of minimizing confusion and differentiating between types of payments that would normally all be reported on Form 1099-MISC. Learn all about this reporting change in our new blog article: [link]

Have you heard of Form 1099-NEC? You’ll want to learn everything about this new reporting change the IRS has implemented before the end of January. Learn more here: [link]

DID YOU KNOW… With the new reporting change to Form 1099-NEC, you may have to file with the IRS and the State, as it may not be covered in your state’s IRS Combined Federal/State Filing Program. Find out more here: [link]

Learn all about the switch to Form 1099-NEC that the IRS is implementing for the 2020 tax year in our latest blog article! Sign up for our newsletter here: [link]

ABLE Accounts – Final Regulations

Mon, 28 Dec 2020 13:20:32 GMT

BizBoost News
Volume 10, Issue 14
For distribution 12/28/20; publication 12/31/20

ABLE Accounts – Final Regulations

ABLE (Achieving a Better Life Experience) accounts are for eligible individuals with a disability – they are tax-favored savings accounts to which contributions can be made to help pay for qualified disability expenses. The IRS recently released final regulations providing guidance related to various issues surrounding the requirements for 529A ABLE accounts.

ABLE accounts were established under the ABLE Act of 2014, in an effort to address the financial hardships for families with children having disabilities, as well as the anticipated increasing financial needs throughout those disabled individuals’ lifetimes. Proposed regulations were released in 2015, and then again in 2019 to address modifications under the Tax Cuts and Jobs Act (TCJA). The regulations provide a transition period of two years for ABLE programs to implement applicable provisions, and it is expected that IRS may issue additional guidance during that time as uncertainties and concerns arise.

Here are a few of the key areas of ABLE accounts.

Multi-State Programs: The final regulations clarify that an ABLE program may be maintained by two or more states if each of the states in the program sets all the terms of the program and is actively involved in its administration.

Persons Eligible to Set Up ABLE Account: A beneficiary can designate any person to establish an ABLE account, and if a beneficiary is incapable of setting up his/her own account, it can be set up by a power of attorney, conservator or legal guardian, spouse, parent, sibling, grandparent, or representative payee (in that order). A certification by an individual (under penalties of perjury) that he/she is authorized to set up the ABLE account on behalf of the beneficiary may also be accepted by ABLE programs, per the final regulations.

Persons with Signature Authority: The final regulations offer several options as far as who (and how many) may have signature authority on an ABLE account. The person who established the account generally does, although the beneficiary can replace that person’s signature authority with his/her own, or a specified designee. An ABLE program may allow co-signatories and may also permit the person with signature authority to establish sub-accounts within the ABLE account with different signatories for each.

One Account Rule: An ABLE account may not be set up for a beneficiary who already has an existing ABLE account open. If it is found that a previous ABLE account exists after a subsequent ABLE account has been set up, the subsequent account will maintain ABLE status if, by the due date of the tax return for the year in which the second account was established, all of the contributions to the new account (and any income earned) are returned to the contributor(s) or transferred to the beneficiary’s pre-existing ABLE account.

Disability Certification/Eligibility Recertifications: The final regulations permit an ABLE program to rely upon a certification signed by the beneficiary or an individual setting up the account on his/her behalf. The certification must state that the individual either has a medically determinable physical or mental impairment that can be expected to result in death or last for a period of not less than 12 months, or that he/she is blind and that such disability occurred before the age of 26. The regulations require ABLE programs to obtain annual recertifications unless an alternative method is established (giving ABLE programs broad discretion to create their own recertification methods).

Loss of Eligibility: The final regulations state that even if a beneficiary who was eligible when an ABLE account was established later loses eligibility due to an improvement in his/her condition, the ABLE account continues to be an ABLE account. The program must stop accepting contributions to the account on the first day of the first year a beneficiary is no longer considered an eligible individual. Withdrawals made from the account on any date after the date that the beneficiary is no longer considered disabled are not qualified disability expenses.

Annual Contribution Limit/Additional Contributions: The annual limit for contributions to an ABLE account is the same as the annual gift tax exclusion amount ($15,000 for 2020). However, certain employed or self-employed beneficiaries may qualify to make additional contributions. An ABLE program may rely on certification from the beneficiary (or a person acting on his/her behalf) that the employee is an “employed designated beneficiary” and therefore eligible to make the additional annual contributions.

Other Issues Addressed:

Payment of administrative and investment fees out of ABLE accounts do not constitute distributions for tax purposes.

The beneficiary may treat expenditures made in the first 60 days of a calendar year as having been made in the prior year (for purposes of matching qualified disability expenses with distributions in a given tax year).

Upon death of a beneficiary, after the expiration of any statute of limitations for filing Medicaid claims against a beneficiary’s estate, an ABLE program may distribute the balance of the account to a successor beneficiary or, if none, to the deceased beneficiary’s estate.

Gift tax and generation-skipping transfer tax do not apply to transfers of an ABLE account by rollover, program to program transfer, or change in beneficiary. Any other transfer is considered a taxable gift or transfer of the entire account by the beneficiary.

If you’d like to discuss how ABLE accounts could impact your taxes, please feel free to contact us.

***

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The IRS recently released final regulations for 529A ABLE accounts (Achieving a Better Life Experience) – tax-favored savings accounts to which contributions can be made to help pay for qualified disability expenses. Get full details here: [link]

The final regulations offer several options as far as who (and how many) may have signature authority on an ABLE (Achieving a Better Life Experience) account. Learn everything you need to know here: [link]

New regulations require ABLE (Achieving a Better Life Experience) programs to obtain annual recertifications unless an alternative method is established. Get full details here: [link]

ABLE accounts are tax-favored savings accounts to which contributions can be made to help pay for qualified disability expenses. Learn more here: [link]

ABLE (Achieving a Better Life Experience) accounts were established under the ABLE Act of 2014, in an effort to address the financial hardships for families with children having disabilities, as well as the anticipated increasing financial needs throughout those disabled individuals’ lifetimes. Learn more here: [link]

The annual limit for contributions to an ABLE (Achieving a Better Life Experience) account is $15,000 for 2020. However, certain employed or self-employed beneficiaries may qualify to make additional contributions. Find out more here: [link]

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Meals and Entertainment Expenses – Final Regulations

Mon, 28 Dec 2020 13:17:59 GMT

BizBoost News
Volume 10, Issue 13
For distribution 12/14/20; publication 12/17/20

Meals and Entertainment Expenses – Final Regulations

On September 30, 2020, IRS released final regulations providing guidance related to the deductibility of meals and entertainment expenses under Section 274 of the Internal Revenue Code. These final regulations clarify several areas of Section 274 that were impacted by changes under the 2017 Tax Cuts and Jobs Act (TCJA). Except for a few small modifications, the final regulations substantially adopted the guidance in the proposed regulations (released in February 2020).

TCJA Background

As part of the tax reform under TCJA, deductions of any expenses related to activities considered entertainment, recreation or amusement were eliminated. Furthermore, the deductibility of food and beverage (meal) costs became much more restrictive, with many costs that were previously deductible at 100% now being limited to the 50% deduction like other types of meal costs. However, there was some lack of clarity regarding how to determine what costs are considered entertainment, and how food and beverage costs related to entertainment activities should be handled.

The final regulations provide clarification on these areas, and they provide additional guidance on criteria that should be met for any food and beverage costs to be deducted at 50%.

Highlights

The final regulations confirm that there are nine exceptions to expenses that otherwise might be considered entertainment and be completely nondeductible, and they are as follows:

1)     Food/beverages for employees served on the business premises
2)     Expenses for services, goods and facilities treated as wages (however, if recipient is a certain individual such as an officer, director, or 10% shareholder (or related person), the employer’s deduction is limited to the amount of compensation reported)
3)     Reimbursed expenses
4)     Recreational expenses primarily for non-highly compensated employees
5)     Expenses of business meetings for employees, stockholders, agents, or directors
6)     Expenses necessary for attending a business meeting of a tax-exempt business league (like a chamber of commerce or a board of trade)
7)     Expenses for goods, services, and facilities available to the public
8)     Expenses for entertainment sold to customers for appropriate consideration
9)     Expenses incurred in providing entertainment to a non-employee, if included in the recipient’s income

The final regulations clarify and confirm that the only food and beverage expenses excluded from the 50% deduction limitation are recreational employee meals (like those served at a holiday party or employee picnic) or meals provided to the public to generate business (like an open house). Meals provided to an employee at work continue to qualify for only 50% deduction (was 100% pre-TCJA).
The final regulations confirm that to be able to deduct 50% of food and beverage costs, the following criteria must be met:

1)     The expense must be ordinary and necessary to the business
2)     The expense should not be lavish or extravagant, and must be provided when an employee/taxpayer is present
3)     The food or beverage must be provided to a current or potential business client, customer, consultant, or similar
4)     Food and beverages provided as part of an entertainment activity must be purchased separately, or the costs must be separately-stated from the entertainment activity itself on the receipt or bill (if not, those costs are also considered entertainment costs and therefore are not deductible at all)

The final regulations also clarify that food or beverage expenses at an eating facility for employer-provided meals do not include expenses related to the operation of the facility (salaries of those preparing/serving the meals, and other overhead costs)

If you have questions about deductibility of meals and entertainment in your business, feel free to reach out to us any time.

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As part of the tax reform under TCJA, deductions of any expenses related to activities considered entertainment, recreation or amusement were eliminated. Get full details here: [link]

On September 30, 2020, the IRS released final regulations providing guidance related to the deductibility of meals and entertainment expenses under Section 274 of the Internal Revenue Code. Learn everything you need to know here: [link]

Confused about what entertainment and meal expense deductions you can claim? Get full details here: [link]

There are nine exceptions to expenses that otherwise might be considered entertainment/be completely nondeductible. Click here to learn what those nine exceptions are: [link]

DID YOU KNOW: Under the TCJA, the deductibility of food and beverage (meal) costs became much more restrictive, with many costs that were previously deductible at 100% now being limited to the 50% deduction like other types of meal costs. Learn more here: [link]

There are four main criteria one has to meet to be able to deduct 50% of food and beverage costs under the TCJA. Find out more here: [link]

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9 Things to Do Before Year-End to Reduce Your Tax Bill

Mon, 28 Dec 2020 13:15:50 GMT

BizBoost News
Volume 10, Issue 12
For distribution 11/30/20; publication 12/3/20

9 Things to Do Before Year-End to Reduce Your Tax Bill

Who doesn’t want to pay less taxes, as long as it’s legally permitted? Here are nine tips to consider taking action on before 2020 comes to a close.

1. Maximize Retirement Contributions Through Your Employer’s 401(k) Plan

This type of plan allows you to contribute pre-tax dollars to retirement, and contributions directly reduce taxable wage income. While contributions to IRAs and other types of retirement accounts can be done after year-end/up through the due date of your tax return, deferrals through an employer 401(k) plan must be completed by year-end, so make sure you will be able to contribute the desired amount for the year by December 31, 2020.

For tax year 2020, you can contribute up to $19,500 if under age 50, and $26,000 if 50 or older by year-end.

2. Harvest Investment Losses to Offset Capital Gains

If you have sold stock or other property that has generated capital gains, consider whether you have investment losses you can generate before year-end to reduce to overall capital gain you report and pay tax on. For example, if you have stock that you’ve held for some time that has consistently been in a loss position, selling by year-end will allow you to offset those other capital gains – and also possibly find a better use for those funds that were invested.

3. Bunch Deductions So You Can Itemize

Because the Tax Cuts and Jobs Act (TCJA) both increased the standard deduction and capped the deduction for state and local income taxes paid when itemizing at $10,000, many taxpayers are finding that they benefit more from taking the standard deduction. However, this prevents them from receiving any direct benefit or deduction for certain expenses, like charitable donations and health care costs over a certain level.

One way around this is to strategically time the payment of these costs so you can bunch them together and take advantage of itemizing deductions every other year. For example, if you already made donations earlier in the year and know that you plan to for 2021, consider paying your 2021 donations early - by year-end 2020 - in order to exceed the standard threshold and take advantage of itemizing for the 2020 tax year.

4. Defer Income

If you are self-employed or an independent contractor, consider delaying invoicing clients for work to time it so you receive the income in January 2021 instead of December 2020. This will allow you to keep that income off of your 2020 return, and therefore hold off on paying tax on that income for another year.

5. Donate Appreciated Stock to Charity

The benefits of doing this are two-fold: you avoid capital gains tax and also receive a charitable deduction for the appreciated value of the stock. Just be sure that you are actually going to itemize and that you won’t be taking the standard deduction, because the charitable deduction benefit is only available to you if you itemize deductions.

6. Purchase Business Equipment

If you are a business owner and have been thinking about purchasing equipment for your business (machinery, computers, software, a vehicle, etc.), now is the time to do it!

With the expanded accelerated depreciation options that came out of the TCJA (which will be reduced in future years), many of these items qualify for significantly higher deductions – possibly even 100 percent. Whereas in prior years you may have had to deduct the cost of these items over a number of years, you will now likely be able to deduct them fully in the year purchased, or at least take a much higher first-year deduction. This will reduce the taxable profit of your business, which directly reduces your taxable income and tax liability.

7. Install Solar Panels

Consider installing solar panels on your home prior to year-end to take advantage of a Federal tax credit that is set to expire in 2022. When you install a solar system, 26 percent of your total project costs can be claimed as a credit on your IRS tax return (this will decrease to 22 percent for 2021). So, if you spend $10,000 on the system, you will directly reduce your tax bill by $2,600.

8. Invest in a Qualified Opportunity Zone

As part of TCJA, taxpayers can now defer payment of capital gains tax to 2026 by investing the proceeds of a sale in a qualified opportunity zone. These zones are located all over the country and were designated as areas that would benefit from economic development. Tax can be deferred on the portion of the gain that was used to benefit the distressed zone.

The investment must be made within 180 days of the sale that generated the capital gains, so if you’ve already had a property sale in 2020 and would like to explore this, you’ll want to pay attention to the timeframe and act accordingly (also note that due to the COVID-19 pandemic, the 180-day rule was relaxed for those who would have hit the 180-day mark on or after April 1, 2020 and before December 31, 2020 – all now have until December 31, 2020 to invest the gain in a Qualified Opportunity Zone).

9. Meet with Your Tax Professional to Review Your Projected Tax Bill and Discuss Strategies

It can be extremely beneficial to meet with your tax professional before year-end and review a projection of your tax situation for the year, discussing possible strategies for reducing your tax bill. You may be able to strategize to get yourself in a lower tax bracket and allow for taking advantage of more deductions and credits, which might not be available to you at a higher income level.

In order for your tax professional to project your tax situation/liability for the year, you’ll need to provide information regarding your income for the year – pay stubs, Profit & Loss reports if you have a business, information regarding investment income, details regarding any other types of income, and any changes to your situation from the prior year.

Schedule a time with us in November or early December if you can, to give yourself time to take any necessary actions to reduce your tax bill for the year!

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If you are self-employed or an independent contractor, consider delaying invoicing clients for work to time it so you receive the income in January 2021 instead of December 2020. [link]

It can be extremely beneficial to meet with your tax professional before year-end and review a projection of your tax situation for the year. [link]

If you are a business owner and have been thinking about purchasing equipment for your business, now is the time to do it! [link]

As part of TCJA, taxpayers can now defer payment of capital gains tax to 2026 by investing the proceeds of a sale in a qualified opportunity zone. [link]

Consider installing solar panels on your home prior to year-end to take advantage of a Federal tax credit that is set to expire in 2022. [link]

In order for your tax professional to project your tax situation/liability for the year, you’ll need to provide information regarding your income for the year. [link]

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Deduction Limitations on Business Interest Expense: Final Regulations Are Released

Mon, 23 Nov 2020 14:36:18 GMT

BizBoost News
Volume 10, Issue 11
For distribution 11/16/20; publication 11/19/20

Deduction Limitations on Business Interest Expense: Final Regulations Are Released

Treasury and the IRS recently released final regulations under Section 163(j) of the Tax Code, which relates to limitations on the deduction of business interest expense. This section was revised as part of the 2017 Tax Cuts and Jobs Act (TCJA) and was further modified as part of the CARES Act provisions.

Background

As part of the TCJA changes, Section 163(j) limits the amount allowed as a deduction for business interest to the sum of:

the taxpayer’s business interest income for the year;
30 percent of the taxpayer’s adjusted taxable income (ATI); and, if applicable,
the taxpayer’s floor plan financing interest expense.

A CARES Act provision increased the ATI percentage from 30 percent to 50 percent for 2019 and 2020 (with exceptions for partnerships).

The deduction limitation does NOT apply to the following:

Small businesses with average annual gross receipts of $25 million or less
Electing real property trades or businesses
Electing farming businesses
Certain regulated public utilities

Key Highlights of the Final Regulations

One highlight of the final regulations involves the expanded definition of the word “interest.” Interest now excludes expenditures for commitment fees, debt issuance costs, partnership guaranteed payments, and hedging gains or losses.

The regulations also enhanced the existing Anti-Avoidance rule, which generally requires that any expense or loss is treated as interest for 163(j) purposes if 1) the expense or loss is economically equivalent to interest and 2) the main goal of the structuring of the transaction is to reduce the taxpayer’s interest expense.

A couple of things need to be kept in mind when calculating ATI (taxable income +/- certain specified adjustments, including adding back depreciation and amortization).

Any depreciation, amortization, or depletion capitalized to inventory and included in Cost of Goods Sold (COGS) may be added back to taxable income in the year capitalized.
ATI must be reduced by the full amount of basis adjustment on disposed assets with respect to amortization, depreciation, or depletion taken on those assets, whether or not the taxpayer recognized a gain on the disposition (to avoid an adjustment duplication).

The rules state that a certain order must be followed for these components:

The 163(j) limitation should be computed after other provisions of the Code that capitalize, defer, disallow, or otherwise limit the deductibility of the expense are applied
The interaction between 163(j) and the discharge of indebtedness income was not addressed and is subject to further consideration and guidance in the future

Here are a few other items of note in the new regulations for business interest expense:

The final regulations clarified that 163(j) is not a method of accounting
Business interest expense that is disallowed under 163(j) is carried forward indefinitely, and these carryforwards are deducted in the order in which they arose (and the current year expense should be deducted prior to any carryforwards from a prior year)
All interest expense and interest income of a C corporation should be treated as business interest expense and business interest income for purposes of 163(j), except to the extent that such amounts are allocable to an excepted trade or business (this includes a corporate partner’s allocable share of the partnership’s investment income and expenses which are reclassified as trade or business activity of the corporate partner)
The “Single-entity” approach for consolidated groups for purposes of 163(j) means that intercompany transactions are disregarded when calculating ATI, and the limitation is calculated at the consolidated group level and allocated to each member pro rata based on its contribution to consolidated business interest expense
For partnerships, deductible business interest expense is allocated to partners in the same manner as non-separately stated taxable income or loss of the partnership. The final regulations bypassed an 11-step computation that was being proposed to determine allocable business interest expense for each partner, and rather just allows for allocation in the same proportion as each partner’s share of the partnership’s allocable ATI

If you’d like to know more about how these final regulations impact your tax return, please feel free to reach out any time.

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Tax Considerations of a Chapter 11 Bankruptcy Filing

Mon, 23 Nov 2020 14:34:36 GMT

BizBoost News
Volume 10, Issue 10
For distribution 11/2/20; publication 11/5/20

Tax Considerations of a Chapter 11 Bankruptcy Filing

Chapter 11 bankruptcy is a form of bankruptcy that can be filed by businesses or individuals. Its goal is to give the filer time to reorganize and reduce their debt rather than discharge it. Under this type of bankruptcy, businesses can continue to operate, and individuals can keep certain assets that might otherwise be sold under a different type of bankruptcy.

Going through a Chapter 11 bankruptcy process doesn’t necessarily guarantee that any tax debts will be reduced or discharged, and it doesn’t get the debtor out of current and future tax obligations and filing requirements.

Tax Filing and Payment Requirements When Chapter 11 Bankruptcy Has Been Filed

Regardless of the type of bankruptcy filed, a debtor is still subject to Federal income tax laws and must continue to file tax returns in a timely fashion. Failing to file returns can result in conversion of the bankruptcy to a different type, or even dismissal of the proceedings.

In general, debtors under Chapter 11 bankruptcy should not incur additional debt during the process. They must also make sure they are capable of meeting financial obligations moving forward, including paying taxes due in a timely fashion.

Under bankruptcy law, when an individual debtor files a bankruptcy petition under Chapter 11, a separately taxable bankruptcy estate is set up to take ownership of the debtor’s assets. A separate tax return is required to be filed for that estate, and any taxes due must be paid in a timely manner. This is in addition to the individual tax return and liability that the debtor is required to file and pay. The return must be filed by the trustee of the estate, who in some cases is the bankruptcy filer.

Can Tax Debt Be Forgiven in Chapter 11 Bankruptcy?

The rules surrounding the ability to reduce or discharge tax debt in Chapter 11 bankruptcy can be complicated, but in general, three elements must be satisfied for tax debt to be dischargeable:

1)     Taxes can’t be discharged until at least three years after they were due. Example: 2016 taxes were due in April 2017, so they would not be dischargeable until April 2020.
2)     A tax return for the taxes owed must have been filed at least two years before bankruptcy. Example: if the 2016 return was filed late or not filed until 2019, the tax wouldn’t be dischargeable until 2021.
3)     The taxes must have been assessed within 240 days (roughly eight months) before the bankruptcy filing. In the case of an audit where taxes were reassessed, you would need to wait until 240 days after the audit for the taxes to be dischargeable.

Note that any taxes a debtor attempted to evade willfully as well as penalties for tax fraud are never dischargeable. Also, even if taxes are discharged, a tax lien will remain on the debtor’s property if the IRS recorded it prior to the bankruptcy filing.

Other Considerations

In some situations, the IRS considers canceled debt taxable income, but NOT in the case of Chapter 11 bankruptcy. So, if taxes that were owed are discharged as part of the bankruptcy process, the forgiven amount will not need to be reported as taxable income on your tax return.

If a taxpayer is considering Chapter 11 bankruptcy due to unpaid tax debt, it may be worth exploring other options first, like entering into an installment agreement or offer-in-compromise with IRS. There are fees associated with an installment agreement and penalties and interest continue to accrue, and IRS won’t always accept an offer in compromise, but these are other possible alternatives.

As always, due to the complicated rules surrounding bankruptcy and taxes, it’s important to get legal advice from a bankruptcy lawyer when deciding whether filing for Chapter 11 bankruptcy is the right choice or not.

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Section 139: Qualified Disaster Payments

Fri, 23 Oct 2020 15:33:25 GMT

Tax Tips
Volume 10 Issue 9
For distribution 10/19/20; publication 10/22/20

Section 139: Qualified Disaster Payments

At this point, most people have heard about relief measures the government has enacted in the wake of Covid-19, but there remains one opportunity to harvest that has had little discussion surrounding it—Section 139 Qualified Disaster Payments.

Background

Section 139 of the Internal Revenue Code was established as a response to the terrorist attacks on 9/11, giving employers the ability to offer non-taxable reimbursement to their employees for certain expenses incurred during a federally declared disaster.

On March 13, 2020, in accordance with the Stafford Act, President Trump declared the Coronavirus pandemic to be a federal disaster. Since the national emergency order extends to all 50 states, the relief that employers can offer to employees under Section 139 applies country-wide. Section 139 will be available to be utilized until the President officially declares an end to the pandemic.

What Is Covered and How Can It Benefit Both Employers and Employees?

Employers can pay for or reimburse employees with tax-free payments for certain expenses not covered by insurance, such as:

Medical -- over the counter medications, hand sanitizers, home disinfectant supplies, increased costs from unreimbursed health-related expenses

Childcare — employers can subsidize an employee’s child care expenses or tutoring due to school closures

Work from home expenses — reimbursable items can include expenses for setting up a home office, increased utility expenses, increased internet costs, etc.

Transportation — instead of using mass public transit, employers can pay for their employees to use car services, such as Uber or a taxi, for increased transportation costs

Food/Shelter Assistance — while there is a lack of guidance from the IRS as to exactly what qualifies, assistance for basic necessities, such as food and housing, could be covered

Section 139 states that employers are allowed to “reimburse or pay reasonable and necessary personal, family, living, and funeral expenses incurred as a result of a qualified disaster” – while there is a lack of guidance from IRS on exactly what qualifies in the midst of a global pandemic such as this, basic necessities (as listed out above, and even also possibly including food/shelter assistance) should qualify. Note that amounts designated as wage replacement or reimbursed by insurance or other means, as well as payments for non-essential items, do not qualify under Section 139.

Practical Application—Who Can Benefit the Most?

While many employers will utilize this reimbursement as a way to reduce taxable income, the big winners of Section 139 are the small business owners, who are frequently both the employer and the employee of their business.

Meet Steve, the sole employee of his S-Corporation. Steve has underlying health concerns and typically incurs significant annual medical expenses, but those expenses aren’t large enough to exceed the standard deduction on his individual income tax return. Under Section 139, Steve’s S-Corporation can reimburse Steve, the employee, for some of the costs of his unreimbursed health-related expenses. As a greater-than-2%-shareholder, Steve’s medical expenses would ordinarily not be deductible by the S-Corporation, so this could be a significant opportunity. This benefits the S-Corporation by being able to treat this reimbursement as an expense, thereby reducing the corporation’s pass-through taxable income. This benefits Steve (the owner-employee) by not only reducing the pass-through S-Corporation profit that he is paying tax on, but also by allowing him to pay for his medical expenses with tax-free income and still take the standard deduction on his individual income tax return, which is the most favorable for his situation.

Another example: meet Lynn, an employee at an architecture firm, who used to work in her company’s office prior to the Coronavirus pandemic. Following shelter-in-place rules, her employer closed the office and encouraged employees to work remotely from home. Lynn’s home office set-up was less than ideal—she only had her laptop to work from, no desk, and her internet connection was poor. Lynn’s employer offered to purchase desk equipment and an additional computer monitor for her as well as cover the monthly difference in price for better internet coverage. None of this is taxable to Lynn, and her employer benefits by being able to write off these less-traditional expenses, thereby reducing the employer’s taxable profit.

Documentation

The recipient of the non-taxable funds does not need to provide documentation of the expense(s) to the employer! Provided that the amount of the payment is reasonable for the type of expense(s) incurred, the IRS will not require individuals to account for disaster-related expenses. For employers, this lack of documentation eases the compliance burden that would normally be associated with a deductible business expense.

Employers do not have to provide the same assistance amount for each employee; they can opt to offer this benefit to only certain employees. They also have flexibility with how the assistance is offered, whether it be reimbursing actual expenses, or offering a flat amount to every eligible staff member. Even with the lack of documentation requirements, it is still a best practice to draft a company policy regarding qualifying Section 139 expenses and maintain adequate documentation if possible.

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Our latest blog: Section 139: Qualified Disaster Payments. Subscribe here: [link]

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Tax Tip: Section 139 of the Internal Revenue Code gives employers the ability to offer non-taxable reimbursement to their employees for certain expenses incurred during a federally declared disaster.[link]

Under Section 139 of the Internal Revenue Code, employers can pay for or reimburse employees with tax-free payments for certain expenses that are not usually covered by insurance. Learn more: [link]

Section 139 can be an incredibly important for small business owners, who are usually both the employer and an employee of their business. [link]

The IRS will not require individuals to account for disaster-related expenses under Section 139 as long as they are reasonable in proportion for the type of expense incurred. Find out more here: [link]

Want to learn about what’s covered under Section 139 and who benefits? Find out more in our latest blog post: [link]

Are You Withholding Taxes on Your State Unemployment Compensation?

Fri, 23 Oct 2020 15:31:49 GMT

Tax Tips
Volume 10 Issue 8
For distribution 10/5/20; publication 10/8/20

Are You Withholding Taxes on Your State Unemployment Compensation?

Many people erroneously believe that state unemployment compensation is not considered taxable income, resulting in quite an unpleasant surprise at tax time when they realize their mistake. With a record number of Americans filing for unemployment benefits due to the Covid-19 pandemic and struggling to make ends meet, it’s important to plan ahead in order to not have a shortfall.

Unemployment Compensation is Taxable Income

While taxpayers don’t pay Medicare or Social Security taxes on unemployment compensation, they are still required to pay federal taxes on the income. Additionally, most states count unemployment compensation as taxable income, too. Currently, only California, Montana, New Jersey, Oregon, Pennsylvania, and Virginia do not require income tax to be paid on unemployment compensation. This also applies to states that don’t have state income taxes, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Establishing Withholding

If your state allows you to specify withholding, take advantage of it! However, it doesn’t necessarily mean that the amount withheld will satisfy your tax burden. Some states only calculate withholding on the state unemployment portion of the income, not on the additional $600/week federal pandemic unemployment compensation component.

To illustrate, say your weekly state unemployment compensation benefit is $300 and you qualify for the additional $600 federal pandemic unemployment assistance, giving you a combined weekly benefit of $900. You select 10% withholding, thinking that you will have $90 withheld, but notice that the actual withholding is only $30. Consequently, this lack of withholding could result in a balance owed at tax time.

How to Fix Under-Withholding of Taxes

If you are having little or no income taxes withheld from your unemployment compensation, the first step in making a course correction is to determine what your effective tax rate (not tax bracket—effective rate is the actual percentage of taxes you pay to the IRS) was for the prior year. While current year income may have trended up or down this year, knowing your prior year effective tax rate provides a good starting point. Compare that number to the percentage of tax that is being withheld from your unemployment compensation—if it is less, there’s a good chance you’re not having enough tax withheld and will owe when you file your tax return. Consider taking one or more of the following steps:

1.     If your state allows it, increase your withholding percentage on your unemployment compensation. If you are at the maximum amount of withholding and don’t believe that it will be sufficient, look to step 2 below.

2.     Make quarterly estimated tax payments. In order to avoid both a large balance owed at tax time and possibly neutralize an underpayment penalty, initiate quarterly estimated tax payments for the amount you believe you may be under-withholding. Using the example in the paragraph above where there is a difference of $60 not being withheld each week, a taxpayer could earmark those funds for taxes and remit an estimated tax payment to the IRS on a quarterly basis.

3.     Adjust withholdings on a secondary W-2. In a situation where you have a spouse who continues to receive W-2 income, consider increasing the amount of tax withholding on that activity in order to offset the lack of withholding on the unemployment compensation.

***

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Tax Tip: If your state allows you to specify withholding, be sure to take advantage of it. [link]

While taxpayers don’t pay Medicare or Social Security taxes on unemployment compensation, they are still required to pay federal taxes on the income. [link]

Are you having little to no income taxes withheld from your unemployment compensation? The first step in making a course correction is to determine what your effective tax rate is. Learn more here: [link]

If you’re not having enough tax withheld from your unemployment compensation and will owe when you file your tax return, there are a few steps you may want to take to fix the issue. Learn more: [link]

Worried about under-withheld taxes on your state unemployment compensation? Check out our latest blog post on how you can plan ahead and avoid an unpleasant surprise at tax time: [link]

Real Estate Enterprise: How to Qualify for a Section 199a Deduction

Thu, 17 Sep 2020 17:37:22 GMT

Tax Tips
Volume 10 Issue 7
For distribution 9/21/20; publication 9/24/20

Real Estate Enterprise: How to Qualify for a Section 199a Deduction

At the end of 2019, the IRS issued updated guidance on a new rental real estate safe harbor rule which allows certain rental real estate to be considered an “enterprise” eligible for a Section 199a deduction.

What is Section 199a deduction?

Section 199a gives owners of pass-through business entities an extra deduction of up to 20 percent of their qualified business income. A pass-through entity can be a sole proprietor, a partner in a partnership, a real estate investor, or an S-corporation shareholder. Qualified business income is generally defined as a business’s net profit.

How does that benefit a taxpayer with rental income?

If you have a rental property that generates positive cash flow, that amount is added to your taxable income and is taxed at your ordinary income tax bracket rate. Under the new safe harbor rules, provided that you meet specific criteria, you can take a deduction of up to 20 percent of the rental profits for the purpose of offsetting taxable income.

How many properties do I need to own to be treated as a real estate enterprise?

You can own any number of properties—even if it’s only a single property—to potentially qualify as a real estate enterprise. However, the properties must be the same type, meaning that residential real estate and commercial real estate cannot be mingled. In the case of a taxpayer who owns both commercial and residential real estate, each type could potentially be classified as its own real estate enterprise.

What are the safe harbor requirements?

In order to qualify for the Section 199a deduction, all four qualifications must be met for each real estate enterprise:

1.     Separate books and records must be maintained for each rental real estate enterprise. When a real estate enterprise contains more than one property, this requirement may be satisfied if income and expense information statements for each property are maintained and then consolidated.
2.     250 or more hours of rental services must be performed per year for each real estate enterprise.
3.     Contemporaneous records must be maintained that document hours, dates, and types of services performed as well as the person who performed the services.
4.     The taxpayer must attach an election statement to their return.

Safe harbor requirements must be met annually; it is possible to qualify as a real estate enterprise in one tax year and not in a subsequent year!

Clarifying the 250-hour requirement

Rental services that count toward satisfying the 250-hour requirement can be performed by owners, employees, agents, or independent contractors hired by the owner and include time spent on the following:

1.     Advertising to rent/lease the real estate
2.     Negotiating and executing leases
3.     Verifying information contained in prospective tenant applications
4.     Collection of rent
5.     Daily operation, payment of expenses, maintenance and repair of the property, including the purchase of materials and supplies
6.     Management of real estate
7.     Supervision of employees and independent contractors

The following activities do not count toward satisfying the 250-hour requirement:

1.     Arranging financing
2.     Procuring property
3.     Studying reports on operations
4.     Planning, managing, or construction of improvements
5.     Hours spent traveling to and from real estate

Real estate enterprises that have been in existence for less than four years must meet this requirement annually. If the real estate enterprise has operated for at least four years, the taxpayer must perform 250 or more hours of rental services in any three of the five consecutive tax years to fulfill the requirement.

Consult your tax professional

Because there are many nuances that could potentially apply to your individual situation, be sure to contact us for advice tailored specifically to you.

***

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Tax Tip: The rental real estate safe harbor requirements must be met annually; it is possible to qualify as a real estate enterprise in one tax year and not in a subsequent year! [link]

In order to qualify for the Section 199a deduction under the rental real estate safe harbor rule, there are four qualifications that must be met for each real estate enterprise. Read more about the four qualifications here: [link]

Whether you own ten properties or a single property, you can still potentially qualify as a real estate enterprise. However, residential real estate and commercial real estate cannot be mingled. [link]

To qualify for the Section 199a deduction, one of the requirements is that 250 hours of rental services must be performed per real estate enterprise. Time spent procuring property does not count. Find out more here: [link]

Wondering if your rental property qualifies you as a real estate enterprise eligible for a Section 199a deduction? Find out more in our latest blog post: [link]

Business Owners—Taking Money Out of a Business

Thu, 17 Sep 2020 17:35:56 GMT

Tax Tips
Volume 10 Issue 6
For distribution 9/7/20; publication 9/10/20

Business Owners—Taking Money Out of a Business

When taking money out of a business, transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. If the loan and repayments are not set up and processed properly, the IRS can reclassify the funding as nondeductible capital contributions and classify the repayments as taxable dividends, resulting in unexpected taxation. A weak loan structure can also create a danger zone where a court can “pierce the corporate veil,” resulting in personal liability for the business owner.

Intermingling Funds

One of the most dangerous financial mistakes a business owner can make is to intermingle funds, such as paying personal expenses from the business checking account, or paying business expenses from the owner’s personal account. This behavior can leave openings for the IRS or courts to question the integrity of the business entity. Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses.

Sole Proprietorships

A sole proprietor is taxed on self-employment income without regard for activity in the business bank account. A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications.

Taking Money Out - Wages

One way for a business owner to take money out of a corporation is through wages for services performed. Wages are appropriate only for C corporations and S corporations, not for sole proprietorships or partnerships.

Reasonable Wages

Both C corporations and S corporations are required by law to pay “reasonable wages,” which approximate wages that would be paid for similar levels of services in unrelated companies. In a C corporation, wages are deductible by the corporation but dividends are not, creating incentive for a C corporation shareholder to inflate the wages for higher deductions. In an S corporation, wages are subject to payroll taxes but flow-through income is not, creating an incentive for artificially low wages.

Guaranteed Payments

Guaranteed payments to partners are the partnership counterpart to corporate wages. With guaranteed payments, there is no withholding for payroll taxes or income tax. These amounts are computed and paid on the partner’s individual Form 1040.

Dividends

Dividends are generally the means by which a C corporation distributes profits to shareholders. Amounts up to the C corporation’s “earnings and profits” are taxable to the shareholder.

Flow-Through Income—S Corporations and Partnerships

Income from S corporations and partnerships flow through to the shareholder or partner’s individual tax return. Distributions of cash to an S corporation shareholder or partner are not taxable to the individual until the person’s cost basis reaches zero.

Loans

A corporation or partnership can receive loans from shareholders or partners, and can give loans to shareholders or partners. There is generally no taxable event when a corporation or partnership repays a loan from a business owner, and no taxable event when a corporation or partnership makes a bona-fide loan to a shareholder or partner.

Limited Liability Companies (LLCs)

A single-member LLC owned by an individual is considered a “disregarded entity” and is taxed as a sole proprietorship by default. If the LLC makes an election to be taxed as a corporation, either C corporation or the S corporation rules apply. An LLC owned by more than one individual is taxed as a partnership by default. As with a single-owner LLC, a multiple-owner LLC may make an election to be taxed as a corporation.

***

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Need to take money out of your business? Be careful! Transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. Find out more: [link]

Tax Tip: One of the most dangerous financial mistakes a business owner can make is to intermingle funds. Keep your personal and business funds separate! [link]

Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses. [link]

A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications. [link]

If you are a business owner, you can take money out of your corporation (applicable to S corporations or C corporations only) through wages for services performed. Find out more here: [link]

Wondering how you can take money out of a business as a business owner without triggering tax consequences or damage to your business entity? Find out in our latest blog post: [link]

Installment Agreements: What Should You Do If You Can’t Pay Your Taxes

Mon, 10 Aug 2020 13:40:22 GMT

Tax Tips
Volume 10 Issue 5
For distribution 8/24/20; publication 8/27/20

Installment Agreements: What Should You Do If You Can’t Pay Your Taxes

If you can’t pay your taxes, don’t panic.

Here’s what to do first:Make sure to file your tax return on time—failure to file is a much higher penalty than failure to pay. Pay as much as possible when you file your tax return, as every dollar you pay at tax time reduces the late payment penalty and reduces the interest charges associated with the outstanding balance.

If paying in full is not realistic, consider applying for an Installment Agreement through the IRS.

Applying for an installment agreement can be done by your tax preparer in conjunction with the filing of your tax return, or it can be initiated online by the taxpayer through the IRS website: https://www.irs.gov/payments/online-payment-agreement-application

Short-Term Payment Plans

If you are able to pay the balance you owe the IRS in 120 days or less, there is no setup fee for an installment agreement. Penalties and interest will continue to accrue until the balance is paid in full.

Payment options include automatic debit from bank account, paying online through the IRS website, initiating a payment over the telephone via the Electronic Federal Tax Payment System, or mailing a check or money order to the IRS.

Long Term Payment Plans

If you can’t pay your IRS debt, that fast, here are your log-term options.

1.     $10,000 or less owed: The IRS generally approves all installment agreement requests for balances in this range. The repayment period must be completed within three years, but there is no specific minimum monthly payment required.
2.     $10,000 to $25,000 owed:   No additional financial information is required to approve this agreement, but acceptance isn’t guaranteed. Repayment must be completed within 72 months. Minimum payments are required and are equal to your balance owed divided by the 72-month repayment period.
3.     $25,001 to $50,000 owed: In addition to completing the Installment Agreement request, you will need to provide supplemental income and expense information on Form 9465-FS. Repayment must be completed within 72 months. Minimum payments are required and are equal to your balance owed divided by the 72-month repayment period.
4.     Greater than $50,000 owed: Form 433-A must be completed, which is a comprehensive accounting of your investments, assets, income, and bank accounts. Repayment length and monthly payment will be determined based on your specific circumstances.

Installment Agreement Fees for Long Term Payment Plans

Direct Debit: If set up online, the fee is $31. If set up by phone, mail, or at an IRS office, the fee increases to $107
All other payment methods: If set up online, the fee is $149. If set up by phone, mail, or at an IRS office, the fee increases to $225.
Low income taxpayers may qualify for a reduction or elimination of these fees

Offer in Compromise

After you have considered the above payment options, you may find that you cannot pay your tax debt or that doing so will create financial hardship. An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe.

Generally, the IRS will not accept an offer if you can pay your tax debt in full via an installment agreement or a lump sum payment. In order for the IRS to consider your Offer in Compromise, you must be current with all tax filing and payment requirements and may not be in any open bankruptcy proceedings.

***

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Can’t pay your taxes? Don’t panic! Find out what an installment agreement is and how you can apply for one in our latest blog post: [link]

Tax Tip: If you are able to pay your balance owed in 120 days or less, there is no setup fee for an installment agreement. [link]

Taxpayers who owe more than $50,000 in taxes and want to apply for a long-term payment plan will need to complete Form 433-A, which is a comprehensive accounting of your investments, assets, income, and bank accounts. [link]

Setting up your payment method online for long-term payment plans will save you a lot on setup fees. [link]

Depending on the amount of taxes owed, the repayment period and minimum monthly payment for long-term payment plans via installment agreements varies. Find out more here: [link]

Are you panicking because you can’t pay your taxes? Stay calm! You may be able to apply for an installment agreement. Find out more: [link]

CARES Act: Charitable Giving Changes Due to COVID-19

Mon, 10 Aug 2020 13:38:55 GMT

Tax Tips
Volume 10 Issue 4
For distribution 8/10/20; publication 8/13/20

CARES Act: Charitable Giving Changes Due to COVID-19

COVID-19 has presented unique opportunities for charitable giving for the 2020 tax year, which has been addressed in the new Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Under the new guidelines, which apply to the 2020 tax year only, taxpayers can donate 100 percent of their adjusted gross income to charity and have it fully offset their taxable income. Previously, this deduction was capped at 60 percent of adjusted gross income.

For example, a taxpayer has $100,000 of taxable income and wants to make a $100,000 donation to a qualified charity in 2020. The taxpayer will have reduced their taxable income to zero and won’t owe any taxes on their income. In prior years under the 60 percent rule, using the same income and charitable contribution amount, a taxpayer would have only been able to reduce their taxable income by $60,000.

What happens if you donate more than 100 percent of your adjusted gross income?

If a taxpayer wants to donate more than 100 percent of their adjusted gross income, they can do so without the fear of losing out on the deduction. Any charitable contribution that exceeds their adjusted gross income can be carried forward for the next five years, but will be subject to the 60 percent AGI limit in subsequent years.

Consider this: a taxpayer has $100,000 of taxable income and wants to make a $300,000 donation to a qualified charity in 2020. Not only will their taxable income for the current tax year have been reduced to zero, but they will have a $200,000 charitable contribution carryforward available, subject to the 60 percent AGI limit, to offset their income for the next five years.

What happens if I don’t itemize my deductions?

To incentivize taxpayers to make contributions to qualified charitable organizations, Congress included a notable provision in the CARES Act that applies to taxpayers who claim the standard deduction, rather than itemizing their deductions, on their tax return. For the 2020 tax year, donors can take a deduction for up to $300 in charitable contributions even if they claim the standard deduction.

Other ways to harness the CARES Act charitable giving provision

If a taxpayer is in the position to make a sizeable charitable contribution, with the goal of fully offsetting their taxable income, this could be the perfect opportunity to consider other ways of increasing their adjusted gross income. This can be accomplished by selling an asset that has significantly increased in value and will be subject to either ordinary income taxes or capital gains taxes, or they could initiate a Roth IRA conversion. This can be an effective tax planning strategy for someone who is actively trying to reduce their tax burden through philanthropic means.

***

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Tax Tip: For the 2020 tax year, donors can take a deduction of up to $300 in charitable contributions even if they claim the standard deduction. [link]

Under the new CARES Act guidelines, taxpayers can donate 100 percent of their adjusted gross income to charity and have it fully offset their taxable income. This only applies to the 2020 tax year. [link]

Any charitable contribution made in the 2020 tax year that exceeds the taxpayer’s adjusted gross income can be carried forward for the next five years. However, it will be subject to the 60 percent AGI limit in subsequent years. [link]

There are other ways to harness the CARES Act charitable giving provision and utilize them to create effective tax planning strategies. Find out more here: [link]

Looking to make a donation to a qualified charity during these uncertain times? Be sure to familiarize yourself with the CARES Act charitable giving provision and the unique opportunities it presents: [link]

Reporting Requirements for Virtual Currency

Mon, 10 Aug 2020 12:25:01 GMT

Tax Tips
Volume 10 Issue 3
For distribution 7/27/20; publication 7/30/20

Reporting Requirements for Virtual Currency

As cryptocurrency continues to evolve as a valuable commodity, the IRS has issued guidance on the reporting requirements associated with the acquisition and sale of it.

What is cryptocurrency?

Cryptocurrency, also known as digital or virtual currency, is a digital asset that is secured by encryption techniques and is able to be distributed across a large number of computers. Because cryptocurrency is not generally issued by a central authority, it has been able to exist outside the control of the government.

How does the IRS treat cryptocurrency?

Virtual currency is treated as property that has tax consequences that may result in a tax liability. When selling virtual currency for real currency, a taxpayer must recognize any capital gain or loss on the sale.

How is a gain or loss determined?

Traditional capital gains tax treatment applies; if the virtual currency was owned for less than one year, any gain or loss would be short term. If the virtual currency was owned for greater than one year, any gain or loss would be recognized as long term. The holding period begins on the day after the virtual currency is received. Short term gains are subject to taxation at the taxpayer’s ordinary income tax rate, whereas long term gains are subject to the more favorable capital gains tax rate. The amount of capital gains tax assessed is dependent upon the taxpayer’s tax bracket; currently, the capital gains tax rates are either 0, 15, or 20 percent.

How do I determine my basis in virtual currency?

If you purchased virtual currency with real currency, your basis is the amount you spent to acquire the virtual currency, including fees, commissions, and acquisition costs.
If you received virtual currency in the process of selling property, your basis in the virtual currency would be the fair market value of the virtual currency, in US dollars, on the date of receipt.
If you received virtual currency in exchange for services rendered or work performed, your basis is the fair market value of the virtual currency, in US dollars, on the date of receipt.
If you received virtual currency as a gift, your basis is equal to the donor’s basis or the fair market value of the cryptocurrency at the time you received the gift.

If someone pays me with virtual currency for services I’ve performed, is it taxable?

The answer is yes. Regardless of whether you are an employee or act as an independent contractor, any time you receive payment in the form of cryptocurrency for services rendered or work performed, you must recognize that as ordinary income (which is subject to taxation at your tax bracket) regardless of whether you convert the virtual currency to real currency or not.

Recordkeeping is key

Since virtual currency is still a relatively new type of asset with very little government oversight, it is critical to keep detailed, specific records associated with its receipt, sale, and exchange.

Familiarize yourself with IRS Notice 2014-21 in order to be aware of all of the situations that trigger a reporting requirement. And, if you have questions, feel free to reach out any time.

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Do you own or trade cryptocurrencies? Are you familiar with the reporting requirements for virtual currency? Find out more here: [link]

Tax Tip: Virtual currency is treated as property that has tax consequences that may result in a tax liability. [link]

Any time you receive payment in the form of cryptocurrency for services rendered or work performed, you must recognize that as ordinary income regardless of whether you convert the virtual currency to real currency or not. [link]

It’s critical to keep detailed, specific records associated with the receipt, sale, and exchange of any virtual currency. [link]

If you own or trade virtual currency, be sure to familiarize yourself with IRS Notice 2014-21 in order to be aware of all of the situations that trigger a reporting requirement. [link]

Have questions about virtual currency and reporting requirements? Our latest article may have the answers you’re looking for: [link]

Failure to File: COVID-19 Update

Mon, 10 Aug 2020 12:23:19 GMT

Tax Tips
Volume 10 Issue 2
For distribution 7/13/20; publication 7/16/20

Failure to File: COVID-19 Update

Due to COVID-19, the IRS extended the tax return filing and payment deadline to July 15, 2020. If you are unable to file your return by this date, you may request an extension which will give you until October 15, 2020 to submit your tax return. However, an extension only gives you extra time to file your tax return; your payment is still due no later than July 15, 2020.

When a taxpayer has not filed a tax return by the extension deadline of October 15th, the IRS will gather all of the tax documents that have been transmitted to them and create a substitute return. If their data shows that you are owed a refund, nothing further will be done. If the data shows that you owe money, the IRS will begin sending out collection letters.

Overpayment of Taxes

If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away because the statute of limitations will have expired. Don’t expect them to send you a reminder letter!

Penalties Assessed If You Owe

There is interest due on taxes you owe, but that’s not the biggest penalty. For every month that your tax return remains unfiled, a five percent failure-to=file penalty applies, up to 25 percent of the tax due.

For example, let’s say you owe $1000. It could cost you a penalty of $250 per month for not filing, but only a $5 penalty for not paying. Don’t forget that in addition to the penalties listed above, the IRS will continue to charge interest on any unpaid balance.

Increased Audit Risk

In addition to the penalties and interest you are charged when you don’t file a timely return, you also increase your chances of being audited. When you file on time, you have a three percent chance of an audit. If you don’t file on time, your chance of being audited increases to 50 percent.

The general rule is to file by the extension due date since the consequences are harsher for not filing than not paying the tax due. However, be proactive to pay any tax due by the deadline, not the extension deadline.

You Can No Longer Hide from the IRS

You might think that the IRS will never find you, but you would be mistaken. Advances in technology have made it easier than ever before for the IRS to find you.

If you have a driver’s license, passport, bank account, social media account, address, social security number, or any other database record, the IRS has access to it and will see that you have not filed.

Take Action Now

Don’t put yourself in a position of grief. Even if you are not ready to file, file something and you can amend the return later.

***

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Tax Tip: Be proactive about paying any taxes due by the regular deadline, not the extension deadline. [link]

If you don’t file your tax return on time, your chance of being audited increases to 50%. [link]

When a taxpayer has not filed a tax return by the extension deadline, the IRS will gather all of the tax documents that have been transmitted to them and create a substitute return. [link]

If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away because the statute of limitations will have expired. [link]

What are the consequences if you don’t file your tax return and make your tax payments on time? Find out in our latest article: [link]

Inherited IRAs and the SECURE Act of 2019

Tue, 21 Jul 2020 15:13:06 GMT

Tax Tips
Volume 10 Issue 1
For distribution 6/29/20; publication 7/2/20

Inherited IRAs and the SECURE Act of 2019

At the end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law, modifying required minimum distribution (RMD) rules for inherited IRAs and retirement accounts.

Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death.

Prior to the SECURE Act, inherited IRAs were frequently referred to as “stretch” IRAs, as they allowed non-spouse beneficiaries to take relatively small distributions over the course of the beneficiary’s life. The benefit to this was the ability to keep the bulk of the investment in a tax deferred or tax free (Roth IRA) environment.

By capping the lifespan of the inherited IRA at 10 years, the IRA beneficiary’s ability to grow the account over decades in either a tax-free or tax-deferred environment has been significantly impacted. Additionally, the new rules put a burden on beneficiaries in the form of tax acceleration by greatly increasing a beneficiary’s taxable income--especially in situations where the beneficiary has income of their own—resulting in a higher tax rate.

Exceptions to the SECURE Act

Luckily, there are some exceptions to the SECURE Act’s requirements:

The 10-year period does not apply to surviving spouses—they can treat the inherited IRA as if it were their own
Disabled beneficiaries are exempt from the 10-year period
Non-spouse heirs (example: unmarried partner, sibling) who are less than 10 years younger than the original IRA owner can treat the inherited IRA as if it were their own
Minor children, while still a minor, are exempt from the 10-year timespan. However, as soon as they become adults (age of adulthood is determined by the state in which they live) the 10-year period begins and they must fully distribute the IRA within that timeframe

Positive Changes

There are some positive aspects to the new law:

The SECURE Act increases the age at which a taxpayer must begin taking required minimum distributions (RMDs) from age 70 ½ to 72. This allows taxpayers to continue their retirement savings for a longer period of time
Under old tax law, a taxpayer could make IRA contributions until they reached age 70 ½. This has been modified by SECURE Act; now, workers of any age can contribute to a retirement account. This change will make it easier for seniors to make contributions and back-door Roth IRA contributions

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Inherited IRAs and the SECURE Act of 2019. Subscribe here: [link]

Do you know about how the SECURE Act modified the RMD rules for inherited IRAs and retirement accounts? [link]

Tax Tip: Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death. [link]

There are some exceptions to the SECURE Act’s new rules. For example, the 10-year period for inherited IRAs and retirement accounts does not apply to surviving spouses—they can treat the inherited IRA as if it were their own. [link]

The SECURE Act allows workers of any age to contribute to a retirement account. [link]

Disabled beneficiaries are exempt from the 10-year RMD limit for inherited IRAs and retirement accounts. [link]

What are some positive changes that the SECURE Act has made to inherited IRAs and retirement accounts? Find out in our latest article: [link]

Paycheck Protection Loan Forgiveness

Mon, 22 Jun 2020 13:54:42 GMT

Tax Tips
Volume 9, Issue 26
For distribution 6/15/20; publication 6/18/20

Paycheck Protection Loan Forgiveness

When the CARES Act was signed into law, it created the Paycheck Protection Program (PPP), which is a new loan designed to help small businesses pay employee wages and other critical expenses. Proceeds from this loan can be forgiven if certain criteria are met.

Once the PPP proceeds are deposited to your account, the original guidance stated that businesses must spend those funds within an eight-week period in order to be assured maximum loan forgiveness.

Loan proceeds must be used on payroll costs, mortgage interest incurred before February 15th, 2020, rent (lease agreement must be in force before February 15, 2020), and utilities (for which service began before February 15, 2020.)

Payroll costs are defined as:

Salary, wages, commissions, or tips (max of $100,000 per employee)
Employee benefits, including vacation, parental, family, medical, or sick leave
State and local taxes

Examples of Situations That Would Reduce Loan Forgiveness

Loan forgiveness will be reduced if an employer decreases their number of full-time employees

Salaries/wages must not be decreased by more than 25% for any employee earning less than $100,000 in 2019

Full-time employment and salary levels must be restored no later than June 30, 2020

Requesting Loan Forgiveness

Comprehensive recordkeeping is imperative! To request loan forgiveness, the borrower must contact the lender that is servicing the loan and submit the completed SBA Form 3508. The lender has 60 days to make a determination on whether or not the borrower qualifies for loan forgiveness.

Changing Rules and Lots of Gray Areas

Congress, the Treasury Department, the Small Business Administration, banks, and the IRS are all involved in this program, which has led to conflicting guidance and many unanswered questions. The penalties are stiff for impropriety or fraud.

What Happens If My Loan Is Not Forgiven?

For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%. Payments are deferred for 6 months and full repayment of the loan is due in 2 years.

If you need help with calculations or interpretations, feel free to contact us so we can provide advisory services for this process.

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Paycheck Protection Loan Forgiveness. Subscribe here: [link]

What criteria need to be met for forgiveness of the proceeds from the Paycheck Protection Program loan? Find out here: [link]

Tax Tip: Once the Paycheck Protection Program proceeds are deposited to your account, the business has to spend those funds within an eight-week period in order to be assured maximum loan forgiveness. [link]

For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%. [link]

Want to request loan forgiveness for the loan you obtained from the Paycheck Protection Program? Make sure your recordkeeping is comprehensive![link]

Decreasing the number of full-time employees will reduce Paycheck Protection Loan Forgiveness. [link]

What situations might cause your Paycheck Protection loan forgiveness to be reduced? Find out here: [link]

Advance Payments of Employer Credits Due to COVID-19

Mon, 22 Jun 2020 13:52:40 GMT

Tax Tips
Volume 9 Issue 25
For distribution 6/1/20; publication 6/4/20

Advance Payments of Employer Credits Due to COVID-19

In conjunction with the CARES Act, the IRS has released form 7200, Advance Payment of Employer Credits Due to COVID-19, which allows eligible businesses to claim an advance of refundable tax credits used to help cover the cost of keeping employees on payroll, even if they’ve been furloughed or are working reduced hours.

Who is a Qualified Employer?

Two types of employers will qualify—those who fall within the Families First Coronavirus Response Act (FFCRA) guidelines and those who fall within the CARES Act guidelines.

Under the FFCRA, eligible employers are businesses and tax –exempt organizations that have fewer than 500 employees and are required to pay sick and family leave wages. Under the CARES Act, employers are eligible if their operations were fully or partially suspended due to COVID-19 or if gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019.

Important:an employer is not eligible to receive the tax credit if they’ve already taken out an SBA Loan!

How Much Is the Credit Worth and How Long is it Available?

An employer would receive a 50% credit for the first $10,000 of wages/benefits paid per employee. This would be a maximum credit of $5,000 per employee.

For businesses that have fully or partially closed, the credit is available until the business reopens. If a business qualifies because their revenues have dropped by more than 50%, the credit is available until the first calendar quarter after revenues have recovered to at least 80% of the prior year amounts.

How is the Credit Claimed?

Using the information contained on the quarterly payroll tax return (941, 943, 944), the employer (or their designated representative) will complete IRS Form 7200. Employers are allowed to hold onto payroll taxes that they would normally have to deposit with the IRS, in anticipation of the credit. That way, a business owner doesn’t have to make deposits if they expect the credit will cover all of the taxes they would normally pay.

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Advance Payments of Employer Credits Due to COVID-19. Subscribe here: [link]

Do you know about the IRS’s new form 7200, Advance Payment of Employer Credits Due to COVID-19?[link]

Tax Tip: An employer is not eligible to receive the advance of refundable tax credits from form 7200 if they’ve already taken out an SBA Loan. [link]

An employer can claim a maximum credit of $5,000 per employee under form 7200, “Advance Payment of Employer Credits Due to COVID-19”. [link]

For businesses that have fully or partially closed, the credit from form 7200 is available until the business reopens. [link]

Employers who fall within the Families First Coronavirus Response Act (FFCRA) guidelines or within the CARES Act guidelines are qualified to claim the advance credits from the IRS’s new form, “Advance Payment of Employer Credits Due to COVID-19.”[link]

Need help covering the cost of keeping employees on payroll? Find out more about Form 7200, and this tax credit might be able to help you: [link]

How the New Tax Law, CARES, Impacts Individuals

Wed, 27 May 2020 11:51:23 GMT

Tax Tips
Volume 9, Issue 24
For distribution 5/18/20; publication 5/21/20

How the New Tax Law, CARES, Impacts Individuals

IRS and Congress have given individuals a number of ways to build up their cash reserves and/or pay less in taxes. Here are a few opportunities for taxpayers.

Stimulus checks from the IRS

Many of you received stimulus checks in the last month as a result of new laws designed to help you weather the economic downturn. These Economic Impact Payments are not treated as income and you will not owe taxes on your payment.

If you were eligible for a larger payment than what was received, the IRS will provide an opportunity on your 2020 return (filed in 2021) to make an adjustment to get any additional money you were due. Conversely, if the IRS finds that someone received a larger payment than what they should have, the taxpayer will not be required to pay it back.

Dipping into retirement

Taxpayers have the ability to withdraw up to $100,000 from retirement accounts without paying the 10 percent penalty if the distribution is COVID-19 related (you need it to care for spouse and dependents or you experience adverse effects of quarantine/not allowed to work) from January 1, 2020 through December 31, 2020. Income is included over a three-year period, unless the taxpayer elects otherwise. If the amount is repaid, it is treated as a trustee-to-trustee rollover.

Not dipping into retirement

Required Minimum Distributions (RMDs) for retirement accounts have been suspended. If you are normally required to take a minimum distribution from your retirement account, you can skip it during the 2020 year.

IRS payments for back taxes

If you are on a payment plan with the IRS for back taxes, you can suspend payments between April 1st and July 15th. Interest on the amount due will continue to accrue.

Tax payments for 2020 taxes

Payment due dates for Q1 (normally due on 4/15) and Q2 (normally due on 6/15) estimated tax payments have been adjusted to July 15, 2020.

Deadlines

Since retirement contributions are tied to the tax return due date, the deadline for making a contribution to your IRA for 2019 has also been extended to July 15, 2020.

HSA and Archer MSA contributions for 2019 must be made no later than July 15, 2020.

Student loans

Federal student loan payments are suspended through September 30, 2020 and will not accrue interest during this time period.

Employers can offer to pay an employee’s student loans and other educational assistance up to $5250 without the benefit being taxable to the employee.

Charitable contributions

Charitable contribution deductions will be reported differently on the 2020 tax return. In the past, a taxpayer would have to itemize their deductions in order to get a tax break from making a charitable contribution. For 2020, you can deduct up to $300 in cash donations without having to itemize your deductions. Additionally, the maximum limit of how much a taxpayer can deduct has been eliminated.

***

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Our latest blog: How the New Tax Law, CARES, Impacts Individuals. Subscribe here: [link]

Do you have questions about the new CARES Act? Check out our FAQ: [link]

Tax Tip: Economic Impact Payments are not treated as income and you will not owe taxes on your payment. [link]

Taxpayers have the ability to withdraw up to $100,000 from retirement accounts without paying the 10% penalty if the distribution is COVID-19 related from January 1, 2020 to December 31, 2020. [link]

If you are on a payment plan with the IRS for back taxes, you can suspend payments between April 1st and July 15th. However, interest will continue to accrue on the amount due. [link]

Federal student loan payments are suspended through September 30, 2020 and will not accrue interest during this time period. [link]

Is your head spinning in circles just thinking about the CARES Act? Don’t worry! Our blog, How the New Tax Law, CARES, Impacts Individuals, will help you sort things out: [link]

Options for the Business Owner During COVID-19 Pandemic

Wed, 27 May 2020 11:49:24 GMT

Tax Tips
Volume 9, Issue 23
For distribution 5/4/20; publication 5/7/20

Options for the Business Owner During COVID-19 Pandemic

Many businesses are expected to see significant revenue losses due to COVID-19 and many individuals and business owners are overwhelmed with the choices of what they should do. In addition to considering Disaster Loan Assistance (EIDL) through the SBA and the Paycheck Protection Program through your bank, here are some options to consider related to payroll and staffing:

Employee Layoffs

Layoffs may be unavoidable for small businesses that are also employers. This is where an employee’s job is terminated from the company they have been working for. For the final paycheck to the employee, the employer needs to include their vacation pay and any severance package that they provide.

A layoff is permanent. An employer could rehire a laid off worker, but there is no obligation to do so. The employer will have to hire new employees once their business picks up again.

Furloughs

Furloughs might be a good alternative to laying off team members. In a furlough, this is a temporary, unpaid leave for employees. This option might give the employer time to weather the storm by reducing payroll costs, but also allows employers to bring back the furloughed worker where they left off. At the time of furlough notification, the team member can file for unemployment.

Reduce Hours or Pay Cuts

Before any hasty decision is made, an employer may want to consider reducing staff hours or cutting pay, if needed. Employers are allowed to cut employee pay during a business or economic shut down up to 25%. One option could be to reduce hours for hourly employees and have the team member file for unemployment to make up for the hours not worked. For example, if you are an hourly employee working 40 hours a week, you can work 25 hours at your current job, but file for unemployment for the remainder of the 15 hours not worked.

Unemployment

If you lay off, or reduce hours for any team members, please encourage them to file for unemployment immediately following the notification. Unemployment is now also available for the 1099 worker, where it was not available to independent contractors before now. Unemployment can also be filed by the one-person S-Corp owner. The best news about unemployment is that employees will receive what they normally qualify for PLUS an additional $600/week. Unemployment is for 26 weeks, and an additional 13 weeks of pandemic emergency unemployment compensation through December 31, 2020 is available.

Refundable Payroll Tax Credit

Employers that did not receive a Paycheck Protection Program loan can get a payroll tax credit of 50% of wages paid to employees if their operations were partially or fully suspended or their gross sales declined by more than 50% when compared to the same quarter in the prior year. Credit is provided up to $10,000 per employee.

There are also many more ways to boost cash and reduce taxes in your small business. Give us a call or email us to find out more about the full list of options available to your business.

***

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Our latest blog: Options for the Business Owner During COVID-19 Pandemic. Subscribe here: [link]

Overwhelmed about what to do about your business’s significant revenue losses during the COVID-19 pandemic? Here are some options: [link]

Tax Tip: Employers are allowed to cut employee pay during a business or economic shut down up to 25%. [link]

Layoffs may be unavoidable during uncertain times. When a layoff is communicated to the employee, the employer needs to pay out their vacation pay. [link]

You can get a payroll tax credit of 50% of wages paid to employees if your operations were partially or fully suspended or your gross sales declined by more than 50% when compared to the same quarter in the prior year. [link]

If you lay off workers, or reduce hours for any team members, please encourage them to file for unemployment immediately following the notification! [link]

Not sure what the options are for employers are during this COVID-19 pandemic? Here are some options you may want to consider: [link]

Bonus Issue - New Tax Deadline

Thu, 23 Apr 2020 14:19:28 GMT

New Tax Deadline Is Official -- July 15, 2020

Both the IRS and Treasury have announced that the deadline to file AND pay your individual federal income tax for the tax year of 2019 has been extended to July 15, 2020.

Many states have extended their deadlines as well; please check with us to determine the deadline applicable to you if you live in a state that requires state income tax filing and payment.

If you cannot file your return by July 15, 2020, we can help you file an extension until October 15, 2020. The payment is still due by July 15, however.

If you are due a refund, we encourage you to file as soon as possible so you can get that cash influx as early as possible.

For a while last week, we relied on a tweet from Treasury to document this news. But news releases were posted over the weekend to both the IRS site: https://www.irs.gov/newsroom/tax-day-now-july-15-treasury-irs-extend-filing-deadline-and-federal-tax-payments-regardless-of-amount-owed and Treasury: https://home.treasury.gov/news/press-releases/sm953 documenting the changes in deadlines.

There’s a lot to worry about right now. If one of the things you’re worried about is your taxes, let us take that worry off your plate so you can focus on other things. We’re here for you when you’re ready.

Inherited IRAs and the SECURE Act of 2019

Thu, 23 Apr 2020 14:06:48 GMT

Tax Tips
Volume 9, Issue 22
For distribution 4/20/20; publication 4/23/20

Inherited IRAs and the SECURE Act of 2019

At the end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law, modifying RMD (required minimum distribution) rules for inherited IRAs and retirement accounts.

Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death. Prior to the SECURE Act, inherited IRAs were frequently referred to as “stretch” IRAs, as they allowed non-spouse beneficiaries to take relatively small distributions over the course of the beneficiary’s life. The benefit to this was the ability to keep the bulk of the investment in a tax deferred or tax free (Roth IRA) environment.

Exceptions to the SECURE Act

The 10-year period does not apply to surviving spouses—they can treat the inherited IRA as if it were their own
Disabled beneficiaries are exempt from the 10-year period
Non-spouse heirs (example: unmarried partner, sibling) who are less than 10 years younger than the original IRA owner can treat the inherited IRA as if it were their own
Minor children, while still a minor, are exempt from the 10-year timespan. However, as soon as they become adults (age of adulthood is determined by the state in which they live) the 10-year period begins and they must fully distribute the IRA within that timeframe

Positive Changes

The SECURE Act increases the age at which a taxpayer must begin taking required minimum distributions from age 70 ½ to 72. This allows taxpayers to continue their retirement savings for a longer period of time

Under old tax law, a taxpayer could make IRA contributions until they reached age 70 ½. This has been modified by SECURE Act; now, workers of any age can contribute to a retirement account. This change will make it easier for seniors to make contributions and back-door Roth IRA contributions.

If you need help minimizing your taxes on your retirement income, it’s best to make a plan and create projections based on your desired distributions. Give us a call or email us any time to set up your tax planning session.

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Inherited IRAs and the SECURE Act of 2019. Subscribe here: [link]

Do you know about the SECURE Act that was signed into law at the end of 2019? Find out how inherited IRAs and retirement accounts are affected: [link]

Tax Tip: Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death. [link]

The 10-year cap on inherited IRAs does not affect surviving spouses. They can treat the inherited IRA as though if it were their own. Read more: [link]

Minor children, while still a minor, are exempt from the SECURE Act’s 10-year lifespan cap. [link]

The SECURE Act increases the age at which a taxpayer must begin taking required minimum distributions (RMDs) from age 70 ½ to 72. Find out why this is beneficial for taxpayers: [link]

Not sure how the newly signed SECURE Act might affect you? Read more about the SECURE Act here: [link]

The New W-4 Form

Thu, 23 Apr 2020 13:54:08 GMT

Tax Tips
Volume 9, Issue 21
For distribution 4/6/20; publication 4/9/20

The New W-4 Form

At the beginning of the 2020 year, the IRS debuted a revised version of the W-4 form, with the intent of determining an employee’s federal tax withholding with greater accuracy.

Tips for Completing the New Form

All new employees, as well as existing employees who want to adjust withholdings, must complete the new W-4 form. If an existing employee is pleased with their current withholdings, they are not obligated to complete a new W-4.
The only portion of the new W-4 that is mandatory to complete is Step 1 (name and filing status) and Step 5 (signature). If an employee only fills out Step 1, their withholding amount is based on the standard deduction for their filing status and tax rate. For taxpayers who typically itemize their deductions, only filling out the mandatory fields will most likely result in an overpayment to taxes.
If the taxpayer wishes to have no federal tax withheld from their pay, they must write “Exempt” on line 4C.
If the taxpayer has multiple jobs, or has a spouse who works, filling out the information in Step 2 will provide greater accuracy for withholding amounts. If a taxpayer has multiple jobs that have similar pay, or their spouse is paid a similar amount, checking the box in Section C under Step 2 is sufficient. Otherwise, if the jobs are dissimilar in pay amount, either use the online estimator or use the Multiple Jobs Worksheet to determine accurate withholding. Then, enter the information on Line 4 (c) under Step 4.
Adding dependent information will further increase withholding accuracy. If income is $200,000 or less for individual filers, or $400,000 or less if married filing jointly, a taxpayer may be eligible for a child or other dependent credit. For children under the age of 17, the maximum child tax credit is $2000. For other qualified dependents (which can include children 17 and older), the maximum credit is $500.
If a taxpayer itemizes their deductions, it is beneficial to complete the Deductions Worksheet located on page 3 of the W-4. Taking this information into account will further serve to improve withholding accuracy. After completing the Deductions Worksheet, the resulting info will be entered on line 4 (b) under Step 4.

Even though the new W-4 form may feel more complex to the average taxpayer, it is a relatively straightforward form with comprehensive directions written in an easy-to-understand format. Provided that the taxpayer has their most current tax return to refer to, completing the new W-4 should be a painless process that results in substantially improved withholding accuracy.

Income Tax Withholding Assistant for Employers

There is also a new tool available for employers that do not use an automated payroll system and calculate their own payroll by hand. It will ease the transition to the redesigned withholding system and help them determine the right amount to withhold from workers’ pay for employees that complete the W-4. You can find it here:

https://www.irs.gov/businesses/small-businesses-self-employed/income-tax-withholding-assistant-for-employers

***

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Our latest blog: The New W-4 Form. Subscribe here: [link]

Are you familiar with the new W-4 form? Get tips on how to complete the new W-4 form here: [link]

Tax Tip: The only portion of the new W-4 that is mandatory to complete is Step 1 (name and filing status) and Step 5 (signature). [link]

All new employees, as well as existing employees who want to adjust withholdings, must complete the new W-4 form. [link]

If you have your most current tax return to refer to, filling out the new W-4 should be a breeze. [link]

If a taxpayer itemizes their deductions, it is beneficial to complete the Deductions Worksheet located on page 3 of the W-4. Find out more here: [link]

Do you feel that the new W-4 form is more complex? Here are some tips that will make filing the new W-4 easier for you! Find out more: [link]

Why Getting a Tax Refund Is Not Necessarily Good

Tue, 24 Mar 2020 12:31:17 GMT

Tax Tips
Volume 9, Issue 20
For distribution 3/23/20; publication 3/26/20

Why Getting a Tax Refund Is Not Necessarily Good

Everyone loves getting a tax refund, right? Not us! We’ll explain why; but first let’s cover some basics about filing deadlines and refund timing.

Preparing, Filing and Acceptance of Returns

There are several steps your tax professional goes through with your return. Here is a very rough, general rundown:

1.     Client (you) signs engagement letter (legal agreement documenting the services to be performed) and authorization to efile electronically. This starts the relationship.
2.     Tax professional collects documents from the client after providing them with a list or what we call internally an “organizer.”
3.     Tax professional prepares the return from the data received. This is the step where the tax professional uses their skills to look for discrepancies and opportunities. There may also be some reconciliation, ticking, and tying that are done to validate the numbers.
4.     Tax professional asks any questions that arise from the preparation step. Client also has a chance to ask questions once a draft copy of the return is presented to them.
5.     Tax professional finalizes the return and prepares the deliverables. Depending on what service you’ve selected, this may include a copy of the return, a cover letter, an estimate for next year, and suggested planning activities you can do to save on next year’s tax bill.
6.     Tax professional collects payment from the client if they haven’t done that earlier.
7.     Tax professional e-files the return.
8.     IRS usually accepts the return within 2 days of the time it’s filed.

Filing Early

Filing early has its advantages, especially if you are expecting a refund. You remember how crowded it is at the malls before Christmas, right? Your tax preparer has exactly 11 weeks from the time the first return can be filed (this year it was February 27, 2020) to the deadline (April 15, 2020) to get either everyone’s return filed or to file an extension for more time.

There’s even less time for corporations: this deadline is March 16 this year, with an option to extend.

Filing early, just like shopping early for Christmas, means less wait time all around and more peace of mind. Please consider sending your tax preparer your documents as soon as you receive them, especially if you have a fairly simple situation. They will thank you for being early!

Checking Up on When You’ll Get Your Refund

The good news is you don’t have to call the IRS to find out when you might be getting your refund. Once your tax return is filed and accepted, it takes anywhere from 1 week to 2 months to get you refund. It’s fastest if you selected direct deposit and filed electronically, and slowest if you requested a check and filed by mail.

A couple of other things can slow a refund as well. If you claimed the Earned Income Tax Credit or the Additional Child Tax Credit, your refund may be slower.

To check on your refund status, you’ll need your social security number, your filing status (as in Single, Married Filling Joint, etc.) and the exact amount of your refund. Use this link provided by the IRS to check your refund status: https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

Why Aren’t Refunds Good News?

Refunds are good news when they are small. But we don’t feel big refunds are ever good news. When you’re owed a refund, it means you loaned the government your hard-earned money all of last year without charging them interest. The money that’s tied up in your tax refund could have been working for you all this time, through investments in stock, real estate, retirement accounts, business deals, or at the simplest, a savings account.

Better tax planning should allow you to manage your payments to the IRS, whether they are withheld from your paycheck or you make quarterly estimated payments. Refunds only occur when you overpay.

If you don’t want to get a refund in 2021, please ask us about our tax planning services. We can make sure you don’t give out any more big loans for free.

***

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Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Why Getting a Tax Refund Is Not Necessarily Good. Subscribe here: [link]

Do you love getting a tax refund? Find out why getting a big tax refund isn’t as great as you might think: [link]

Tax Tip: Filing early, just like shopping early for Christmas, means less wait time all around and more peace of mind. [link]

Tax refunds only occur when you overpay. [link]

When you’re owed a refund, it means you loaned the government your hard-earned money all of last year without charging them interest. [link]

Once your tax return is filed and accepted, it takes anywhere from 1 week to 2 months to get you refund. Find out more here: [link]

Expecting a big tax refund? Be sure to file your tax return early to get your refund earlier, but don’t jump for joy just yet. Find out why: [link]

Stock Compensation Plans

Tue, 24 Mar 2020 12:27:32 GMT

Tax Tips
Volume 9, Issue 19
For distribution 3/9/20; publication 3/12/20

Stock Compensation Plans

If you are one of the rising number of employees receiving some form of stock compensation through your job, you know how confusing it can be to understand how each type works and the varying tax considerations you need to be aware of. Here’s a quick description of the most common plans.

Stock Options

Having a stock option gives you the right to purchase a certain number of shares of company stock at a pre-set price, which is called the “exercise price.” How they are taxed depends on the type of stock option:

Nonqualified Stock Options: The difference between the value of the shares on the purchase date and the price you are paying is the “spread” and is included in your wages, with taxes withheld on it, in the year of exercise.

Incentive Stock Options: When you exercise the options/buy the stock, you do NOT have to include the “spread” in your ordinary income as with NSOs, although the ISO spread may in some cases trigger alternative minimum tax (AMT).

Employee Stock Purchase Plans (ESPPs)

Employee Stock Purchase Plans allow employees to purchase employer’s stock at a discount, usually through contributions made via payroll deductions. The employee contributes to a stock purchase fund and, at certain points during the year, the employer uses the funds to purchase stock for him/her at a discount.

Taxation occurs upon the sale of the stock. The calculation of the amount of ordinary income vs. capital gain depends on whether the ultimate sale of the stock constitutes a qualifying or disqualifying disposition.

Restricted Stock

Restricted Stocks are granted to an employee. They are nontransferable and can be forfeited under conditions such as employment termination or inability to meet certain performance benchmarks. The employee is granted shares over a period of time, according to a vesting schedule lasting several years, and also receives voting rights. How they are taxed depends on whether an 83(b) election has been made:

Without 83(b) election: The entire amount of the stock – the fair market value on the vesting date (the date that restrictions on your stock rights lapse) – is included in ordinary income/reported on W-2 in the year of vesting.

With 83(b) election: The value of the stock on the grant date, not the vesting date, is reported as ordinary income/taxed in the year granted.

Restricted Stock Units

A Restricted Stock Unit (RSU) is a promise by the company to grant a set number of shares of stock upon completion of a vesting schedule. The employee is granted shares of stock after vesting and forfeiture requirements have been met and does not have voting rights during the vesting period since no stock has been issued.

The fair market value of the stock on the vesting (or settlement) date is reported as ordinary income/on the W-2 in the year of vesting and, once sold, the difference between the sales price and the fair market value on the vesting date is reported as a capital gain or loss.

If you have questions about the tax treatment of your stock compensation plans, please feel free to reach out.

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Having a stock option gives you the right to purchase a certain number of shares of company stock at a pre-set price, which is called the “exercise price.” Find out more: [link]

Employee Stock Purchase Plans allow employees to purchase employer’s stock at a discount, usually through contributions made via payroll deductions. [link]

A Restricted Stock Unit (RSU) is a promise by the company to grant a set number of shares of stock upon completion of a vesting schedule. [link]

Restricted Stocks are granted to an employee. They are nontransferable and can be forfeited under conditions such as employment termination or inability to meet certain performance benchmarks. [link]

How your company shares are taxed depends on the type of stock option. Find out here: [link]

The Augusta Rule: How to Receive Tax-Free Income

Fri, 21 Feb 2020 14:17:25 GMT

Tax Tips
Volume 9, Issue 18
For distribution 2/124/20; publication 2/27/20
The Augusta Rule: How to Receive Tax-Free Income

What is the Augusta Rule?

The Augusta Rule, known to the IRS as Section 280A, allows homeowners to rent out their home for up to 14 days per year without needing to report the rental income on their individual tax return.

Originally created to protect residents of Augusta, Georgia who would rent out their homes to attendees of the annual Masters golf tournament, the Augusta Rule applies to any taxpayer who owns a home in the United States, provided that your home is not your primary place of business.

How Does it Work for the Homeowner?

So long as the home you own is not your primary place of business, you can rent it out for up to 14 days and not report that income on your individual tax return. The rent you charge must be reasonable and in-line with what the rental market supports; charging $1000 per night when comparable houses rent for $200 per night is not considered reasonable!

Homeowners can rent their house to individuals looking for vacation opportunities or they can rent their house to a business owner who intends to use it for business purposes.

Shifting Income from Your Business

If you are a business owner and do not use your home as your primary place of business, employing the Augusta Rule can be an effective strategy for moving income away from your business and shifting it to personal income, where there would be no tax consequence.

For example, as a business owner, you host a monthly meeting with your Board of Directors. Under the Augusta Rule, your business can pay you a reasonable amount to rent your house to conduct the once-per-month meetings. Provided that the total rental period doesn’t exceed 14 days and the rent charged is reasonable, your business is able to deduct the rent payment on the business tax return and you won’t have to report this as income on your personal taxes!

Having documentation to support your claiming this as a business deduction is critical—to prove the rent was reasonable, you could print rental quotes for similar meeting locations. To document that a meeting occurred, you could keep minutes or other records of business discussions.

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Our latest blog: The Augusta Rule: How to Receive Tax-Free Income. Subscribe here: [link]

The Augusta Rule, known to the IRS as Section 280A, allows homeowners to rent out their home for up to 14 days per year without needing to report the rental income on their individual tax return. Find out more: [link]

So long as the home you own is not your primary place of business, you can rent it out for up to 14 days and not report that income on your individual tax return. [link]

Can you benefit from tax savings using the Augusta Rule? [link]

Homeowners can rent their house to individuals looking for vacation opportunities or they can rent their house to a business owner who intends to use it for business purposes. Find out more here: [link]

The Augusta Rule applies to any taxpayer who owns a home in the United States, provided that your home is not your primary place of business. Find out here: [link]

Are You a Non-Filer? What to Do If You Haven’t Filed Tax Returns in Years

Fri, 21 Feb 2020 14:16:21 GMT

Tax Tips
Volume 9, Issue 17
For distribution 2/10/20; publication 2/13/20
Are You a Non-Filer? What to Do If You Haven’t Filed Tax Returns in Years

In addition to the personal stress it can cause, failing to file your taxes for many years can lead to serious consequences, not only with the IRS, but with other agencies that require you to show tax returns. This could lead to repercussions such as not being able to obtain a passport, apply for a mortgage, or even losing assets you own.

If you don’t file a tax return voluntarily, the IRS will create a substitute return on your behalf using information that was reported to them. You may not receive credit for deductions and exemptions that you would have ordinarily been entitled to receive.

Claiming a Refund

If the IRS creates a substitute return on your behalf and you had an overpayment of taxes, they will not process the refund. If you are due a refund, you must file a return within 3 years of the original due date, otherwise the IRS will keep your money!

What to Do If You’ve Received a Notice from the IRS

Often, you’ll receive a notice from the IRS when they’ve created a substitute return on your behalf and determined that you owe taxes. It’s imperative to take action before the IRS begins the collection process, otherwise they may levy your wages or bank account, or file a federal tax lien.

If you need wage and income information to help prepare a past due return, you can request a transcript from the IRS by filing Form 4506-T.

If you think you can hide from the IRS, think again. Technology has allowed the IRS to catch up with more than seven million non-filers, and they are cracking down on them in 2020.

What to Do If You Can’t Pay the Balance Owed

It’s important to file all tax returns that are due, even if you can’t afford to pay the balance owed in full. Filing past due returns can limit interest charges and late payment penalties.

If you need more time to pay, qualifying for an installment agreement can give you up to 72 months to repay your outstanding balance owed. In some instances, you may be able to settle your tax debt for less than you owe by filing an Offer in Compromise. Seek advice from a tax professional to see which option best suits your situation.

***

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Our latest blog: Are You a Non-Filer? Subscribe here: [link]

If you don’t file a tax return voluntarily, the IRS will create a substitute return on your behalf using information that was reported to them. Find out more: [link]

If the IRS creates a substitute return on your behalf and you had an overpayment of taxes, they will not process the refund. [link]

It’s imperative to take action before the IRS begins the collection process, otherwise they may levy your wages or bank account, or file a federal tax lien. [link]

It’s important to file all tax returns that are due, even if you can’t afford to pay the balance owed in full. [link]

If you need wage and income information to help prepare a past due return, you can request a transcript from the IRS by filing Form 4506-T. Find out here: [link]

Protect Yourself from Tax Scams

Wed, 22 Jan 2020 19:09:37 GMT

Tax Tips
Volume 9, Issue 16
For distribution 1/27/20; publication 1/30/20
Protect Yourself from Tax Scams

There are many tax scams out there with the purpose of stealing your identity, stealing your money, or filing fraudulent tax returns using your private information. Tax scammers work year-round, not just during tax season and target virtually everyone. Stay alert to the ways that criminals pose as the IRS to trick you out of your money or personal information.

IRS-Impersonation Telephone Scam
An aggressive and sophisticated telephone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. Callers claim to be employees of the IRS, but are not. These con artists can sound convincing when they call. They use fake names and bogus IRS identification badge numbers. They may know a lot about their targets from information gathered from online resources, and they usually alter the caller ID (caller ID spoofing) to make it look like the IRS is calling.

If the phone is not answered, the scammers often leave an urgent callback request. Victims are often told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation, or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting. Alternatively, victims may be told they have a refund due to try to trick them into sharing private financial information.

Phony IRS Emails — “Phishing”
Scammers copy official IRS letterhead to use in email they send to victims. Emails direct the consumer to a web link that requests personal and financial information, such as Social Security number, bank account, or credit card numbers. This practice of tricking victims into revealing private personal and financial information over the internet is known as “phishing” for information.

The IRS does not notify taxpayers of refunds or payments due via email. Additionally, taxpayers do not have to complete a special form or provide detailed financial information to obtain a refund. Refunds are based on information contained on the federal income tax return filed by the taxpayer.

The IRS never asks people for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts. If you receive an email from someone claiming to be from the IRS and asking for money, take the following steps:

Do not reply to the email message.
Do not give out your personal or financial information over email.
Do not open any attachments or click on any of the links. They may have a malicious code that will infect your computer.
Forward the email to the IRS at phishing@irs.gov.
Delete the email.

Ways to Protect Yourself from Scams

Here are eight ways to stay safe this tax season:

Personal information should not be provided over the phone, through the mail, or on the internet unless the taxpayer initiated the contact or is sure s/he knows who s/he is dealing with.
Social Security cards or any documents that include your Social Security number (SSN) or individual taxpayer identification number (ITIN) should not be carried around.
Do not give a business your SSN or ITIN just because they ask — provide it only if required.
Financial information should be protected. Do not give out any financial information over the phone or via email.
Credit reports should be checked yearly.
You should review your Social Security Administration earnings statements annually.
Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for internet accounts.
Report any instances of tax scams to the IRS.

If you have any questions about any situations that come up, please know we’re here for you; just ask!

***

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Insert a link to your newsletter, web site or blog before you post these:

Our latest blog: Protect Yourself from Tax Scams. Subscribe here: [link]

There are many tax scams out there with the purpose of stealing your identity, stealing your money, or filing fraudulent tax returns using your private information. Find out more: [link]

Scammers copy official IRS letterhead to use in email they send to victims. [link]

Tax scammers work year-round, not just during tax season and target virtually everyone. [link]

The IRS never asks people for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts. [link]

Stay alert to the ways criminals pose as the IRS to trick you out of your money or personal information. [link]

TCJA: Understanding Changes to Mortgage Interest Deductibility

Wed, 22 Jan 2020 19:04:30 GMT

Tax Tips
Volume 9, Issue 15
For distribution 1/13/19; publication 1/16/20
TCJA: Understanding Changes to Mortgage Interest Deductibility

The Tax Cuts and Jobs Act of 2018 changed both the type of mortgage interest that can be deducted as well as the amount of interest that can be deducted.

Acquisition Debt vs. Equity Debt

Acquisition Debt is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and must be secured by the taxpayer’s residence.

Equity Debt is all other debt secured by the taxpayer’s residence, such as home equity proceeds that are used to pay off credit card debt, purchase a vehicle, take a vacation, etc.

Under the TCJA, all equity debt is non-deductible, even if incurred prior to December 15, 2017. However, if the proceeds from home equity debt are used to buy, build, or substantially improve the property that secures the debt, the debt can be considered acquisition debt. Acquisition debt is deductible, but different rules apply depending on the date it was incurred.

New Limits

For mortgages acquired after December 15, 2017, taxpayers can write off interest paid on indebtedness of $750,000 or less. If mortgage indebtedness exceeds $750,000, only a percentage of the interest can be deducted.

Example: A taxpayer purchases a house for $1 million and closes escrow on 12/31/17. He secures a mortgage of $800,000. He is entitled to deduct interest on only $750,000 of the mortgage because the debt was incurred after 12/15/17. He will receive no tax benefit for the interest paid on the other $50,000 portion of the loan.

Grandfathered Debt (Mortgages acquired on or before December 15, 2017)

A taxpayer can write off interest paid on mortgages that have an acquisition debt of up to $1 million dollars. Equity indebtedness is no longer allowed, even if incurred prior to December 15, 2017.

Example 1: In 2015, a taxpayer bought a house for $1.3 million dollars. Their mortgage was $1 million. In 2016, they took out a $100,000 equity line to pay off credit card debt. Under old tax law, the taxpayer could deduct the full interest paid on both the $1 million mortgage and the $100,000 equity line. Under the TCJA, even though the loans fall within the guidelines of grandfathered debt, the interest paid on the $100,000 equity line is not deductible because the proceeds of the loan weren’t used to buy, build, or substantially improve the property that the debt is secured by.

Example 2: Using the same scenario above, assume that the $100,00 equity line was used to improve the property that secures the debt (ex: kitchen remodel.) Even though it would fall within the guidelines of acquisition debt, it would still be non-deductible, since the total acquisition indebtedness would exceed $1 million.

Example 3: In 2014, a taxpayer bought a house for $900,000 and secured a first mortgage in the amount of $800,000. Later that year, the taxpayer took out a $100,000 equity line to fund an addition made to the house. The full mortgage interest paid would be deductible on both loans because it would be considered acquisition debt, the debt is grandfathered, and the indebtedness falls below $1 million.

Refinancing Grandfathered Debt

A taxpayer can retain the grandfathered $1 million interest limitation, even if they refinance after 12/15/17. However, the refinanced debt can’t exceed the mortgage balance at the time of refinancing, unless the additional amount can be considered acquisition debt and the total indebtedness falls below $1 million.

Example 1: a taxpayer secured a mortgage prior to 12/15/17 in the amount of $800,000. In 2018, the taxpayer refinances the debt and takes out an additional $150,000 from the home’s equity to pay off credit card debt and to purchase a new car. The taxpayer’s new 1st mortgage is $950,000. Even though the taxpayer’s mortgage has been grandfathered with the $1 million limitation, he can only deduct interest paid on $800,000 because the additional indebtedness is considered non-deductible equity debt.

Example 2: Using the same scenario above, assume that $100,000 of the equity was used to remodel the kitchen and bathrooms of the house, and the other $50,000 was used to purchase a new car. The new 1st mortgage is $950,000. Of that, the taxpayer is allowed to deduct interest paid on the $800,000 grandfathered loan balance plus $100,000 of the equity proceeds because they can be classified as acquisition debt and fall under the $1 million grandfathered limitation. The $50,000 used to purchase a car is non-deductible. As a result, the taxpayer can deduct interest paid on the mortgage of $900,000, even though his new first mortgage is now $950,000.

Taxpayer Education and Accurate Recordkeeping is Essential

With the complexity of the tax law changes, you can see how great communication between you and us can help us help you receive the greatest tax benefit allowable. Not only will we need to ask more detailed, in depth questions surrounding your mortgage indebtedness, but you will need to keep thorough records of refinances and equity debt that qualify as acquisition debt.

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Our latest blog: TCJA: Understanding Changes to Mortgage Interest Deductibility. Subscribe here: [link]

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Tax Tip: A taxpayer can write off interest paid on mortgages that have an acquisition debt of up to $1 million dollars for mortgages acquired on or before 12/15/2017. [link]

Under the TCJA, all equity debt is non-deductible, even if incurred prior to December 15, 2017. [link]

A taxpayer can retain the grandfathered $1 million interest limitation, even if they refinance after 12/15/2017. Find out more here: [link]

How did the Tax Cuts and Jobs Act of 2018 affect mortgage interest deductibility? Find out here: [link]

Tax Strategies for the Retired Taxpayer: Convert your IRA’s Required Minimum Distribution into a Qualified Charitable Distribution

Wed, 22 Jan 2020 19:01:33 GMT

Tax Tips
Volume 9, Issue 14
For distribution 12/30/19; publication 1/2/20
Tax Strategies for the Retired Taxpayer: Convert your IRA’s Required Minimum Distribution into a Qualified Charitable Distribution

After years of saving for retirement, it’s time to start using those savings—even if you don’t really need to. Once you reach 70 ½ years old, you must begin taking annual distributions from your qualified retirement plan. This is called a required minimum distribution (RMD.) If you don’t take your RMD, the IRS imposes a severe penalty—it’s a tax of 50% of the amount that was not withdrawn in time! Additionally, any RMD taken is considered ordinary income and will count toward your taxable income for the year.

What if you don’t need that money for current living expenses? An excellent alternative to consider is converting your IRA’s RMD into a qualified charitable distribution (QCD.)

A QCD is a direct transfer of your IRA funds to a qualified 501 (c)(3) charitable organization. QCDs can be counted toward satisfying your RMD for the year, as long as the amount is $100,000 or less per taxpayer. For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline, which is typically December 31st.

What is the benefit to making a QCD?

QCDs don’t count as taxable income! As long as basic requirements are met, most of which are mentioned above, your RMD will not be included in your ordinary income. QCDs don’t require you to itemize, which means that with the new tax law changes, you may take advantage of the higher standard deduction while still using a QCD for charitable giving.

Scenario:

Taxpayer John Smith is 71 years old and retired. His wife is 67 years old and still employed. They both collect Social Security and have comfortable investment income. Taxpayer Smith must take an RMD from his retirement plan. Most of their itemized deductions were a result of charitable giving, but due to the recent tax law changes, they expect to fall within the significantly increased standard deduction. Knowing that he won’t be itemizing his deductions any longer, Taxpayer Smith still wants to be charitable, but is looking for a way to offset his taxable income. In this situation, Taxpayer Smith should consider converting his RMD into a QCD—that way, he can take advantage of the more favorable standard deduction, have the RMD not included in his taxable income, and support his preferred charitable organizations!

How is a QCD treated for tax reporting purposes?

Whether the QCD is mailed to you or your eligible charitable organization, the check must be payable to the charity.
A QCD is not subject to income tax withholding
For a non-inherited IRA, the QCD will be reported as a normal distribution on form 1099-R. For an Inherited IRA, the QCD is reported as a death distribution.
The taxpayer must receive a donation acknowledgement from the charity.

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Tax Tip: If you don’t need the money from your required minimum distribution (RMD) to cover current living expenses, you could consider converting your IRA’s RMD into a qualified charitable distribution (QCD). [link]

Did you know that QCDs don’t count as taxable income? [link]

If you don’t take your required minimum distribution once you’re 70 and a half years old, the IRS imposes a severe penalty—a tax of 50 percent of the amount that was not withdrawn in time. Find out more here: [link]

Want to support your favorite charitable organization AND exclude required minimum distributions from your taxable income? Find out how here: [link]

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Setting Up a Business

Fri, 20 Dec 2019 14:06:31 GMT

Tax Tips
Volume 9, Issue 13
For distribution 12/16/19; publication 12/19/19
Setting Up a Business

As 2020 rolls in right around the corner, you may be thinking of things like New Year’s resolutions and dreams you’ve had year after year. One big dream that a lot of people have is starting a business.

Deciding to start your own business is a big step, one that requires special planning and thought. But where do you start? The first step is to decide the type of entity that is best for you.

Choices, Choices (of Entity, That Is)

Here are the five most common choices of entity structure for businesses for profit and a few of their characteristics.

1. Sole Proprietorship

a. There must be only one owner of an unincorporated business by himself or herself.
b. Business income or loss is reported on your personal income tax.
c. The owner is personally liable for all debts of the business.

2. Partnership

a. There must be two or more persons who join to carry on a trade or business and expect to share in the profits and losses of the business.
b. They must file an annual return (Form 1065) with the IRS although the partnership itself does not pay income tax. Income instead passes through to each partner via a form K-1 based on his or her share of the partnership’s income. The K-1 is then reported on their personal tax return.

3. Corporation

a. A C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.
b. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders and shareholders cannot deduct any loss of the corporation.

4. S Corporation

a. S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
b. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.
c. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

5. Limited Liability Company

a. A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and you should check with your state if you are interested in starting a Limited Liability Company.
b. Owners of an LLC are called members. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs.

Register Your Business

Your location and business structure determine how you’ll need to register your business. For most small businesses, registering your business is as simple as registering your business name with state and local governments.

In some cases, you don’t need to register at all. If you conduct business as yourself using your legal name, you won’t need to register anywhere. But remember, if you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits.

Federal and State Tax IDs

Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business and license permits.

It's free to apply for an EIN, and you should do it right after you register your business.

Apply for Licenses and Permits

Requirements and fees depend on your business activity and the agency issuing the license or permit. It's best to check with the issuing agency for details on the business license cost. You'll have to research your own state, county, and city regulations. Industry requirements often vary by state. Visit your state's website to find out which permits and licenses you need.

Open a Business Bank Account

As soon as you start accepting or spending money as your business, you should open a business bank account. Common business accounts include a checking account, savings account, credit card account, and a merchant services account.

Most business bank accounts offer perks that don't come with a standard personal bank account.

Staying organized while going through all of the above steps is key. Make sure to research each area carefully and how it applies to your business. Keep up with any fees or taxes associated with doing business, this includes excise and sales tax, employment taxes, income tax and estimated tax. And if we can help you navigate the maze of business startup requirements, please feel free to reach out any time.

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Tax Tip: It’s free to apply for an Employer Identification Number (EIN), so you should do it right after your register your business. You’ll need it to pay federal taxes, hire employees, open a bank account, and apply for business and license permits. [link]

Did you know that most business bank accounts offer perks that don't come with a standard personal bank account? [link]

If you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits. Find out more here: [link]

What are the steps you need to take in order to start your own business? Find out here: [link]

Uh-Oh; I Got an Audit Notice from the IRS. Now What?

Fri, 20 Dec 2019 14:00:49 GMT

Tax Tips
Volume 9, Issue 12
For distribution 12/2/19; publication 12/5/19
Uh-Oh; I Got an Audit Notice from the IRS. Now What?

If you receive an audit notice from the IRS, do not panic. Just breathe! Read the letter in its entirety to see what they are auditing. In many cases, it’s a great idea to hire a tax representation professional to deal with the audit, especially if it’s a field audit (described below).

Why You

An audit can be triggered in any number of ways. It could be that the IRS computer randomly pulled your number. Certain amounts on the return can trigger this: high mortgage interest, high charitable contributions, high business expenses, business losses for many years, no W-2s for Officers, high travel expenses, etc. If you have the proof, then there will not be a problem.

Feel free to ask the auditor why your return was selected for an audit. Although the majority of returns that are audited are due to odd industry standards, other criteria for selection may include informants, your relationship to another taxpayer who is being audited, being part of a special group that has been singled out for auditing or being part of an IRS project such as the auditing of all employers who use contract labor. It will be good to know how your return got selected.

Types of Audits

There are many different types of audits, and each will have different requirements and goals.

1. Correspondence Audits are when you get a letter to confirm a specific deduction, like charitable contributions. The IRS will request that you mail in copies of your cancelled checks and/or receipts in order to verify certain deductions on the return. This type of audit is reserved for small/simple tax returns.

2. Some audits will require you to go to the nearest IRS office to show proof of your deductions rather than mail in the proof.

3. In a field audit, the IRS agent will want to meet with you at your home or office to look at the records. It is crucial that during a field audit, you have representation. The IRS agent is instructed to interview you and go to your business so that he/she can ask detailed questions about business operations and see the business facility first hand. This can look like a "fishing expedition." Your representative will attempt to buffer you from this type of questioning and probing. More than likely, your representative may attempt to have the audit conducted in his/her office rather than your business.

Dos and Don’ts:

Be organized.
Give them only the documents needed to support the deduction being questioned.
Never give the IRS agent more information than is requested. For example, if the agent wants one year of records, do NOT give them your entire QuickBooks file that goes back seven years!
Answer questions honestly, but briefly.
Do not leave your original records with the IRS.
Don't chatter or exchange casual conversation. Each comment only gives them more information.
Stay calm! Don't be argumentative or belligerent.
Insist on getting copies of information in their files or copies of anything that you sign. Better yet, wait until your representative has time to review the document before you sign it.

The Audit Timeline

Here’s how your audit should progress:

Beginning: Consult with a tax advisor up front. You can learn what to expect from the IRS, what questions that you will be asked, and what documents they will require. Be prepared!
Middle: The auditor can say things that may not be upheld in tax court. You will need to know the law and communicate it in a non-emotional and non-defensive manner. You’ll need to speak the same language as the auditor.
End: Don't sign anything until you fully understand the document and agree with what it says. Consult someone, if needed.

Is the Decision Final?

When the IRS agent/auditor presents you with a bill, you have the option to agree and sign the document or disagree and request a hearing with an appeals officer. The IRS is supposed to inform you of your appeal rights, and your representative is well-versed in these matters. A part of the up-front planning of an audit is the discussion of the appeals process and how best to make it work for you.

Bottom Line

Whether you prepared your return yourself or paid someone to do so, you are responsible for its contents. You need to review your tax returns closely before signing them and sending them to the IRS. Less than four percent of returns are audited and if your return is, the auditor is looking for:

A cooperative attitude – not hostile or defensive
Timeliness – makes you look like you have nothing to hide. The shorter time it takes to resolve the issues, the less likely the auditor will find additional “mistakes.”
Excellent records – are most records available or have some been lost, stolen or destroyed?

If you hire a tax professional, yes, it will cost you money. However, that cost may be well worth the stress and time it takes to resolve the audit. Remember, the tax representative will handle the audit in such a manner that your "exposure" is decreased which means that the representative knows the areas where the auditor will probe and where your return is vulnerable. Therefore, seek counsel so you know what to expect.

***

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Tax Tip: Less than 4% of returns are audited. If your return gets audited, be cooperative, be timely, and make sure your records are in excellent order. [link]

Feel free to ask the auditor why your return was selected for an audit. [link]

Some audits will require you to go to the nearest IRS office to show proof of your deductions rather than mail in the proof. Others may require a home or office visit to conduct the audit. Find out more here: [link]

What are the do’s and don’ts when it comes to dealing with IRS audits? Find out here: [link]

Complying with FBAR: Foreign Bank and Financial Accounts

Mon, 18 Nov 2019 22:03:57 GMT

Tax Tips
Volume 9, Issue 11
For distribution 11/18/19; publication 11/21/19
Complying with FBAR: Foreign Bank and Financial Accounts

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

Who Must File

United States persons are required to file an FBAR if:

1) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and

2) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States persons includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Reporting and Filing Information

The FBAR is a calendar year report and is due April 15 of the year following the calendar year being reported, with a 6-month extension available. FinCEN will grant filers failing to meet the FBAR due date of April 15 an automatic extension to October 15 each year. A specific extension request is not required. The FBAR must be filed electronically through Fin-CEN’s BSA E-Filing System. The FBAR is not filed with a federal income tax return.

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. Form 8938 must be filed by certain U.S. taxpayers living in the U.S. and holding foreign financial assets with an aggregate value exceeding $50,000 ($100,000 married filing jointly) on the last day of the tax year, or more than $75,000 ($150,000 married filing jointly) at any time during the year.

If you need help with FBAR compliance, please reach out to us; we’re happy to help.

***

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Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, in addition to filing their income tax return. [link]

If you are required to file Form 8938, don’t forget you still have to file the FBAR. [link]

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. Find out more here: [link]

Do you have foreign financial accounts? Are you familiar with FBAR requirements? Find out here: [link]

Due Diligence Requirements

Mon, 04 Nov 2019 17:30:00 GMT

Tax Tips
Volume 9, Issue 10
For distribution 11/4/19; publication 11/7/19
Due Diligence Requirements

As your tax professional, we may be asking you additional questions next year that are required by the Tax Cuts and Jobs Act. Tax preparers must collect new information from clients who qualify for any of the following tax credits:

Earned Income Tax Credit (EIC)
Child Tax Credit (CTC)
American Opportunity Tax Credit (AOTC)
Head of Household filing status (HOH)

In addition to interviewing you and gathering the required information needed to answer all of the due diligence questions on Form 8867, Paid Preparer’s Due Diligence Checklist, we are now required to ask additional questions if the information you provide seems incorrect, incomplete, or inconsistent. So please don’t think we got extra nosy! It’s the IRS’s way of cracking down on fraud.

As tax preparers, we must keep copies for three years (either paper or electronic) of any documents provided by you that were relied on to determine whether any child is a qualifying child. We must also keep all worksheets showing how the credit was computed.

Penalty for Failure to Perform Due Diligence

For returns filed in 2019, the penalty is $520 per failure to meet the due diligence requirements. This penalty applies to each credit that is subject to the due diligence requirements. As a result, a single return could contain more than one $520 penalty!

IRS Letter 5025

The IRS is sending letters to tax professionals who have submitted returns with questionable claims for refundable credits and head of household status errors. Letter 5025 is generated as an educational effort to notify preparers who submit a high number of returns containing these credits that they may not have met the due diligence requirements. While the letter is informational only, it serves to notify the tax professional that the IRS is monitoring returns prepared by them. The letter advises tax preparers to educate themselves on the due diligence requirements by taking an online training module.

Form 8867

If you’re curious about the list of question that we may have to ask you, you can view them on the due diligence checklist at this link: https://www.irs.gov/pub/irs-pdf/f8867.pdf

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Tax Tip: Taxpayers who qualify for the Earned Income Tax Credit, Child Tax Credit, American Opportunity Tax Credit, and Head of House filing will be required to provide additional information to their tax preparer. [link]

For returns filed in 2019, the penalty is $520 per failure to meet the due diligence requirements. [link]

If you are a tax professional and have received Letter 5025 from the IRS, you should know that it is just an informational letter that serves to notify the tax professional that the IRS is monitoring returns prepared by them. [link]

Tax preparers must keep copies (either paper or electronic) of any documents provided by the taxpayer that were relied on to determine whether any child is a qualifying child for three years. Find out more here: [link]

For which credits must tax preparers receive additional information from qualifying taxpayers? Do you know the answer? Find out here: [link]

Tax Reform: What is the new “Other Dependent” Credit?

Mon, 21 Oct 2019 14:38:04 GMT

Tax Tips
Volume 9, Issue 9
For distribution 10/21/19; publication 10/24/19

Tax Reform: What is the new “Other Dependent” Credit?

Under the 2018 Tax Cuts and Jobs Act guidelines, a taxpayer may be able to claim a $500 credit for household dependents that don’t meet the definition of a qualifying child or qualifying relative. Provided that the individual has income of less than $4,150 and meets the criteria listed below, you may be entitled to receive the non-refundable credit.

You may be able to take the new Other Dependent Credit if:

1. You are providing support for a dependent such as a family member, domestic partner, or friend. You can also claim this credit for your children who are 17 years of age or older, as they are not eligible for the Child Tax Credit once they turn 17.

2. A non-relative is a member of your household for the entire year. Relatives don’t need to live with you to qualify for the “other dependent” credit.

3. The relationship between you and the person you are seeking to receive a tax credit for does not violate the law. For example, you can’t be married to another person and receive the “other dependent” credit!

4. You provide more than half of their support.

5. The dependent must have a Social Security number—an ITIN or an ATIN is not acceptable.

Provided that a taxpayer’s adjusted gross income (AGI) doesn’t exceed $200,000 (or $400,000 if filing jointly), the full $500 credit will be granted. If income exceeds the limit, the credit will decrease by $50 for every $1,000 that the AGI exceeds the limit.

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Tax Tip: A taxpayer may be able to claim a $500 credit for household dependents that don’t meet the definition of a qualifying child or qualifying relative. [link]

Children who are over the age of 17 are not eligible for the Child Tax Credit, but may be eligible for the Other Dependent Credit. [link]

If your adjusted gross income doesn’t exceed $200,000 ($400,00 if filing jointly) and fulfill all the requirements to claim the Other Dependent Credit, you should be granted the full $500. [link]

The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien in order for a taxpayer to be able to claim the Other Dependent Credit. Find out more here: [link]

Do you know what the new Other Dependent Credit is and if you’re qualified to receive it? [link]

1099-NEC: A New Way to Report Non-Employee Compensation

Mon, 07 Oct 2019 14:36:51 GMT

Tax Tips
Volume 9, Issue 8
For distribution 10/7/19; publication 10/10/19

1099-NEC: A New Way to Report Non-Employee Compensation

In July 2019, the IRS released a draft of form 1099-NEC, which is designed to report non-employee compensation. While this may seem like a new form to many, it’s actually a revival of a form used until the early 1980’s, which was eventually replaced by form 1099-MISC.

What will be reported on the new 1099-NEC?

The 1099-NEC will only report non-employee compensation…nothing else. Instead of issuing a 1099-MISC with Box 7 completed, payers will report non-employee compensation using form 1099-NEC.

Why is this necessary?

The PATH Act of 2015 made changes to the due dates for form 1099-MISC. Certain types of compensation reported on the 1099-MISC were due by January 31st, whereas other types of compensation weren’t required to be reported until February 15th. The different due dates for the same form were confusing for employers, taxpayers, IRS computer systems, and IRS employees. By bringing back form 1099-NEC, payers will have a dedicated form to use for reporting non-employee compensation.

When will this take effect?

Even though the IRS has released the draft in 2019, notice that the form is marked 2020. That means it’s likely we won’t see the forms issued until the 2020 tax year. Visit the IRS website to view the draft form along with the current filing instructions here

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Biz Tip: Visit the IRS website to view the 1099-NEC draft form along with the current filing instructions. [link]

In July 2019, the IRS released a draft of form 1099-NEC, which is designed to report non-employee compensation. [link]

By bringing back form 1099-NEC, payers will have a dedicated form to use for reporting non-employee compensation. [link]

The 1099-NEC will only report non-employee compensation…nothing else. Find out more here: [link]

What is the new 1099-NEC? Why is this necessary? [link]

Tax Treatment of Legal Settlements and Judgements for Individuals

Mon, 23 Sep 2019 14:35:50 GMT

Tax Tips
Volume 9, Issue 7
For distribution 9/23/19; publication 9/26/19

Tax Treatment of Legal Settlements and Judgements for Individuals

If you’re involved in a lawsuit or a court case (except as a juror), you may want to get up to speed on how court settlements and judgements are taxed.

Settlements and judgements are taxed the same—if you win a judgement or settle a case, the same tax rules apply. In most cases, the IRS will consider the settlement/judgement as taxable income, unless it falls within certain guidelines.

1. If you successfully win or settle a claim for loss of business profits/income/wages, the amount will be taxed as ordinary income. If you were an employee, your former employer will most likely issue a paycheck with taxes withheld and generate a W-2 at the end of the year. If you were an independent contractor, you could expect to receive the full amount of the settlement up front with no taxes withheld, but be issued a 1099-MISC at the end of the year.

2. Physical injury damages are tax free, but personal damages (emotional distress, defamation, sexual harassment) are taxed. The IRS says that your injuries must be visible to be tax free!

3. Payments received for medical expenses are tax-free, even if your injuries were emotional.

4. Punitive damages and interest are always taxable. In situations such as an auto accident, part of your award may be punitive damages as well as compensatory damages for a physical injury. While the compensatory damages for the physical injury will be tax free, the punitive damages will be taxable as ordinary income.

5. If your recovery is taxable, there’s a good chance you’ll be paying taxes on the portion of your award that goes toward paying your attorney fees. For tax purposes, you will be treated as receiving 100 percent of the money recovered, even if the other party pays your attorney’s fees. Since the Tax Cuts and Jobs Act repealed the miscellaneous itemized deduction category, attorney’s fees are no longer deductible on a Schedule A.

Keep in mind that your settlement or judgement may involve multiple issues with different tax treatment. It’s best to have your disposition agreement clearly indicate what amount is allocated to each specific issue and, if possible, indicate how it should be treated at tax time.

If you’ve received a settlement or judgement, be sure to send us your agreement so we can help you classify it properly on your tax return.

***

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Tax Tip: Payments received for medical expenses are tax-free, even if your injuries were emotional. [link]

If you successfully win or settle a claim for loss of business profits/income/wages, the amount will be taxed as ordinary income. [link]

Settlements and judgements are taxed the same—if you win a judgement or settle a case, the same tax rules apply. [link]

Did you know that, according to the IRS, your injuries have to be visible to be tax free? Personal damages like defamation or sexual harassment are taxed. Find out more here: [link]

Do you know how your settlements and judgments should be treated at tax time? [link]

Tax Treatment of Legal Settlements and Judgements for Individuals. Sign up for our newsletter: [link]

Could You Save on Taxes with a QOZ Investment?

Mon, 09 Sep 2019 14:34:55 GMT

Tax Tips
Volume 9, Issue 6
For distribution 9/9/19; publication 9/12/19

Could You Save on Taxes with a QOZ Investment?

The Tax Cuts and Jobs Act created a new tax incentive to defer (and possibly even eliminate) capital gains taxes by investing in a Qualified Opportunity Zone (QOZ).

What is a Qualified Opportunity Zone?

A Qualified Opportunity Zone is an economically distressed community. For an area to be recognized as a Qualified Opportunity Zone, the state must nominate the area and the Secretary of the US Treasury must certify the nomination. An investment in a Qualified Opportunity Zone is expected to result in the creation of jobs and quality-of-life improvement for residents of low-income communities.

What is a Qualified Opportunity Zone Fund and Who Can Invest in One?

A Qualified Opportunity Zone fund invests in eligible property located within a Qualified Opportunity Zone. It is either a corporation or partnership for income tax purposes, must be in the United States, and must be at least 90% invested in Qualified Opportunity Zone businesses or property. Individual taxpayers, S and C corporations, partnerships, trusts, estates, RICs (regulated investment company), and REITs (real estate investment trust) are eligible to invest in a Qualified Opportunity Zone fund.

How Does the Program Work?

A taxpayer has 180 days from the date of sale of appreciated property (can be stocks, real estate, etc.) to invest the capital gain into a Qualified Opportunity Zone fund.

Example: John Smith sells stock for $100,000. His basis is $5,000, making his gain of $95,000 fully taxable. If he reinvests the sale proceeds into a Qualified Opportunity Zone fund within 180 days of the sale, he can elect to defer his $95,000 gain until he sells his interest in the Qualified Opportunity Zone fund or December 31, 2026 (IRC code 1400Z-2(b)(1)), whichever comes first.

What is the Benefit of Deferring Capital Gains?

After remaining in the fund for five years, the taxpayer receives a 10 percent reduction in the deferred gain that will be subject to tax. Then, he/she is eligible to receive an additional five percent deferred gain reduction after seven years of investment (for a total of 15 percent). To take advantage of the full 15 percent reduction, the taxpayer must invest in a Qualified Opportunity Zone fund by 12/31/2019. For example, a taxpayer who invests $100,000 of capital gains from a previous investment into a Qualified Opportunity Zone fund in 2019 would owe capital gains tax on only $90,000 if sold after five years and $85,000 if sold after seven years.

Although the gain can only be deferred until the earlier of the sale date of the interest in a Qualified Opportunity Zone fund and December 31, 2026, at which point tax must be paid on that original deferred gain regardless, there is another possible benefit. If a taxpayer remains in the Qualified Opportunity Zone fund for at least 10 years, 100 percent of any gain on his/her investment in the fund is tax-free. In other words, if the investment is held for at least 10 years, upon sale the taxpayer will pay NO tax on any capital gains produced through his or her investment in the Qualified Opportunity Zone fund! This is a great opportunity to achieve long-term, tax-free growth on your initial investment!

Does Your State Conform?

Not all states have incorporated the Opportunity Zone gain deferral provisions, and taxpayers may have to recognize the gain on their state tax return when the original investment is sold. If you would like to know more about Qualified Opportunity Zones, please reach out to us anytime.

***

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An investment in a Qualified Opportunity Zone is expected to result in the creation of jobs and quality-of-life improvement for residents of low-income communities. [link]

Individual taxpayers, S and C corporations, partnerships, trusts, estates, RICs (regulated investment company), and REITs (real estate investment trust) are all eligible to invest in a Qualified Opportunity Zone fund. [link]

A taxpayer has 180 days from the date of sale of appreciated property (can be stocks, real estate, etc.) to invest the capital gain into a Qualified Opportunity Zone fund. Find out more here: [link]

Did you know that there is a new tax incentive to defer (and possibly even eliminate) capital gains taxes by investing in a Qualified Opportunity Zone? Find out more: [link]

Qualified Opportunity Zone Investment. Sign up for our newsletter: [link]

Due Diligence Requirements: Questions Tax Preparers Must Ask Taxpayers

Mon, 26 Aug 2019 16:48:19 GMT

Tax Tips
Volume 9, Issue 5
For distribution 8/26/19; publication 8/29/19
Due Diligence Requirements: Questions Tax Preparers Must Ask Taxpayers

Under the Tax Cuts and Jobs Act, tax preparers must receive additional information from clients who qualify for any of the following tax credits:

Earned Income Tax Credit (EIC)
Child Tax Credit (CTC)
American Opportunity Tax Credit (AOTC)
Head of Household filing status (HOH)

In addition to interviewing the client and gathering the required information needed to answer all of the due diligence questions on Form 8867, Paid Preparer’s Due Diligence Checklist, tax professionals also must ask additional questions when the information their client provides seems incorrect, incomplete, or inconsistent. Tax preparers must keep copies for three years (either paper or electronic) of any documents provided by the taxpayer that were relied on to determine whether any child is a qualifying child. Tax preparers must also keep all worksheets showing how the credit was computed.

Penalty for Failure to Perform Due Diligence

IRS Letter 5025

Form 8867

As a taxpayer, you can view the form that tax professionals need to complete here:

https://www.irs.gov/pub/irs-pdf/f8867.pdf

So if you’re wondering why we might be asking for more information from you than in prior years, it’s because the IRS is requiring us to complete the due diligence checklist for taxpayers with these tax credits.

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Biz Tip: IRS Letter 5025 is generated to notify tax preparers that they may not have met the due diligence requirements. [link]

Under the Tax Cuts and Jobs Act, tax preparers must receive additional information from clients who qualify for tax credits. [link]

The IRS is sending letters to tax professionals who have submitted returns with questionable claims for refundable credits and head of household status errors. [link]

For returns filed in 2019, the penalty is $520 per failure to meet the due diligence requirements. Find out more here: [link]

What is the Penalty for Failure to Perform Due Diligence on Tax Returns? [link]

Sign up for our newsletter: Due Diligence Requirements: Potential Fines for Tax Pros and More Questions for Taxpayers. [link]

Is There Still a Marriage Tax Penalty?

Mon, 12 Aug 2019 16:45:41 GMT

Tax Tips
Volume 9, Issue 4
For distribution 8/12/19; publication 8/15/19
Is There Still a Marriage Tax Penalty?

The term “marriage penalty” in taxes refers to the situation that two people with the same income would pay more tax if they married and filed a joint return (MFJ) than if they stay single and file separately as single taxpayers.

In order to avoid a marriage penalty, the tax bracket income thresholds for married couples must be exactly double those for single taxpayers. With the tax bracket reorganization, taxpayers with a taxable income of $0 to $200,000 for filing single and $0 to $400,000 for MFJ pay the same percentage of tax at each level as you can see in the tables below.

Brackets* - Single TCJA (2018-2025)

$0 - 9,525                    10%
$9,525 - 38,700           12%
$38,700 - 82,500         22%
$82,500 - 157,500       24%
$157,500 - 200,000     32%
$200,000 - 500,000     35%
$500,000** and up     37%

Brackets* – Married Filing Separately TCJA (2018-2025)

$0 – 9,525                   10%
$9,525 – 38,700          12%
$38,700 – 82,500        22%
$82,500 – 157,500      24%
$157,500 - 200,000     32%
$200,000 - 300,000     35%
$300,000** and up     37%

Brackets* – Married Filing Jointly / SS TCJA (2018-2025)

$0 - 19,050                  10%
$19,050 - 77,400         12%
$77,400 - 165,000       22%
$165,000 - 315,000     24%
$315,000 - 400,000     32%
$400,000 - 600,000     35%
$600,000** and up     37%

Under the TCJA, if a couple is married filing jointly and has the following attributes there is a very low chance of any marriage penalty:

Neither partner can claim children as dependents.
Neither partner qualifies for the Earned Income Tax Credit.
Neither partner qualifies for food stamps or any other welfare program.
The combined income does not exceed $600,000.

Single filers receive an extra $200,000 each at the lower 35% rate while married couples filing jointly must pay tax at a 2% higher rate (37%) for the first combined $400,000 they make over $600,000 in taxable income. This is a maximum $8,000 marriage penalty, increasing income taxes for married couples by up to 2.59%.

The IRS published that the reason the marriage penalty was imposed at the top tax rate was to help raise more revenue and enable Congress to fund other tax reductions in the TCJA.

For married taxpayers, it makes sense every year to calculate tax liability both ways: MFS and MFJ to see what’s optimum for the couple.

***

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“Marriage penalty,” is the term is used to indicate that two people with the same income would pay more tax if they married. [link]

The IRS published that the reason the marriage penalty was imposed at the top tax rate was to help raise more revenue. [link]

Under the TCJA, if a couple is married filing jointly and has the following attributes there is a very low chance of any marriage penalty. Find out more: [link]

How does the new tax bracket reorganization affect you? [link]

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Do You Have Foreign Assets or Bank Accounts?

Thu, 01 Aug 2019 16:44:51 GMT

Tax Tips
Volume 9, Issue 3
For distribution 7/29/19; publication 8/1/19
Do You Have Foreign Assets or Bank Accounts?

Who Must File

United States persons are required to file an FBAR if:

1) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and

2) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

A United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Reporting and Filing Information

The FBAR is a calendar year report and is due April 15 of the year following the calendar year being reported with a 6-month extension available. FinCEN will grant filers failing to meet the FBAR due date of April 15 an automatic extension to October 15 each year. A specific extension request is not required. The FBAR must be filed electronically through Fin-CEN’s BSA E-Filing System. The FBAR is not filed with a federal income tax return.

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. Form 8938 must be filed by certain U.S. taxpayers living in the U.S. and holding foreign financial assets with an aggregate value exceeding $50,000 ($100,000 MFJ) on the last day of the tax year, or more than $75,000 ($150,000 MFJ) at any time during the year.

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If you have a financial interest in or signature authority over a foreign financial account, the Bank Secrecy Act may require you to report the account yearly. [link]

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. [link]

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938. Find out more here: [link]

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Tax Scams – Protect Yourself

Mon, 15 Jul 2019 20:22:48 GMT

Tax Tips
Volume 9, Issue 2
For distribution 7/15/19; publication 7/18/19
Tax Scams – Protect Yourself

There are many tax scams out there with the purpose of stealing your identity, stealing your money, or filing fraudulent tax returns using your private information. Tax scammers work year-round, not just during tax season, and target virtually everyone. Stay alert to the ways criminals pose as the IRS to trick you out of your money or personal information.

IRS-Impersonation Telephone Scam

An aggressive and sophisticated telephone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. Callers claim to be employees of the IRS, but are not. These con artists can sound convincing when they call. They use fake names and bogus IRS identification badge numbers. They may know a lot about their targets from information gathered from online resources, and they usually alter the caller ID (caller ID spoofing) to make it look like the IRS is calling. Also, if the phone is not answered, the scammers often leave an urgent callback request. Victims are often told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation, or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting. Alternatively, victims may be told they have a refund due to try to trick them into sharing private financial information.

Phony IRS Emails — “Phishing”

Scammers copy official IRS letterhead to use in email they send to victims. Emails direct the consumer to a web link that requests personal and financial information, such as Social Security number, bank account, or credit card numbers. The practice of tricking victims into revealing private personal and financial information over the internet is known as “phishing” for information. The IRS does not notify taxpayers of refunds or payments due via email. Additionally, taxpayers do not have to complete a special form or provide detailed financial information to obtain a refund. Refunds are based on information contained on the federal income tax return filed by the taxpayer. The IRS never asks people for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts. If you receive an email from someone claiming to be from the IRS and asking for money, take the following steps:

Do not reply to the email message.
Do not give out your personal or financial information over email.
Do not open any attachments or click on any of the links. They may have a malicious code that will infect your computer.
Forward the email to the IRS at phishing@irs.gov.
Delete the email.

Ways to Protect Yourself from Scams

Personal information should not be provided over the phone, through the mail, or on the internet unless the taxpayer initiated the contact or is sure he or she knows with whom he or she is dealing.
Social Security cards or any documents that include your Social Security number (SSN) or individual taxpayer identification number (ITIN) should not be carried around.
Do not give a business your SSN or ITIN just because they ask — provide it only if required.
Financial information should be protected. Do not give out any financial information over the phone or via email.
Credit reports should be checked yearly.
You should review your Social Security Administration earnings statements annually.
Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for internet accounts.
Report any instances of tax scams to the IRS.

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There are many tax scams out there with the purpose of stealing your identity, stealing your money, or filing fraudulent tax returns. [link]

Tax scammers work year-round and target virtually everyone. Find out more here: [link]

What should you do to protect yourself from tax scams? [link]

Depreciation Options Under the New Tax Law

Wed, 03 Jul 2019 20:20:58 GMT

Tax Tips
Volume 9, Issue 1
For distribution 7/1/19; publication 7/3/19
Depreciation Options Under the New Tax Law

When a business acquires an asset that will last longer than a year, the cost of the asset must be expensed over time to match the asset’s life instead of being deducted all at once. This treatment increases taxes in the short term, and the tax code has evolved to create many exceptions for the business owner to try to expense more of the asset’s cost sooner rather than later.

Depreciable Assets

An asset is technically defined as any qualifying property that a business acquires to help produce income. To be depreciable, the property must meet these requirements:

It must be property the business owns
It must have a “useful life” that can be calculated
It must be used in your business or income-producing activity
It must be expected to last more than one year

Common examples of depreciable assets are: tractors, computers, office equipment, cars, office furniture, and appliances.

New Options

There are different options as far as what type of depreciation business owners can take. In some cases, certain types of depreciation will speed up the process so the business can receive higher tax deductions faster.

Section 179 of the US Internal Revenue Code allows the taxpayer to elect to deduct the cost of certain assets in one year, rather than depreciating them over a longer period time. Note that in order to qualify for the Section 179 deduction, the equipment must have been purchased and placed into service in the year you are taking the deduction for.

The Tax Cuts and Jobs Act (TCJA) increased the Section 179 benefit for businesses. In previous years, the maximum deduction was $500,000 (adjusted for inflation) with a phase-out threshold of $2 million (also adjusted for inflation.) Under the new tax reform, the Section 179 deduction increased to $1 million and the phase-out threshold also increased to $2.5 million. The list of qualified Section 179 property expanded to include certain depreciable tangible personal property used primarily to furnish lodging (or in connection with furnishing lodging) and improvements made to nonresidential real property (e.g. roofs, heating, ventilation, fire protection and security systems.)

Another depreciation option to consider is bonus depreciation which was also affected by the TCJA. Like Section 179, bonus depreciation is another form of accelerated depreciation. Bonus depreciation allows the taxpayer to deduct 100% of the cost of qualifying property in addition to the regular depreciation allowance that is normally available. In previous years, the taxpayer could only deduct 50% of the cost of qualifying property. The definition of property eligible for 100% bonus depreciation was also expanded to include qualified property acquired and placed in service after Sept. 27, 2017, if all of the following characteristics apply:

The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
The taxpayer didn’t acquire the property from a related party.
The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion.)

Section 179 and first-year bonus depreciation are just some of the options business owners can evaluate to ensure they are taking full advantage of different tax provisions. There are also times when it’s best to defer tax deductions into future years and not take all the depreciation deductions you can.

Be sure to consult your tax professional to discuss how to leverage the different depreciation options to create the most beneficial tax outcome for your business.

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Our latest blog: Depreciation Options. Subscribe here: [link]

What are your business depreciation options? Find out more: [link]

Biz Tip: An asset is defined as any qualifying property that a business acquires to help produce income. [link]

Make sure to consult your tax professional on how to leverage the different depreciation options to create the most beneficial tax outcome for your business. [link]

Common examples of depreciable assets are: tractors, computers, office equipment, cars, office furniture, and appliances. [link]

Many businesses own assets that are able to be depreciated. Find out more here: [link]

Bonus depreciation? Section 179 depreciation? What’s the best choice? [link]

How to Avoid IRS “Red Flags”

Mon, 17 Jun 2019 12:21:15 GMT

Tax Tips
Volume 8, Issue 26
For distribution 6/17/19; publication 6/20/19
How to Avoid IRS “Red Flags”

Undergoing the scrutiny of an IRS audit is liable to put any taxpayer on edge. While it may seem like the IRS randomly hands out audit notices like candy to unlucky victims, there are some best practices you can put in place in order to avoid inadvertently putting up any red flags.

There are several myths you may have heard when it comes to triggering an audit, like you are more likely to be audited when you efile versus paper file. Or if you file an extension you are less likely to get audited and if you claim deductions, credits and expenses you are more likely to be audited. One of the most common worries is that IRS audits are everywhere and are always terrible and could destroy your life and finances.

IRS audit statistics show that audits are not as commonplace as they may seem. In March 2018, the IRS published its 2017 data book reporting that they received 149,919,416 individual tax returns for the 2017 tax year. Of those, only 933,785 were audited. That means that less than 1% of taxpayers who filed an individual return were audited – 0.6% to be exact. This is the lowest audit rate since 2003.

The IRS has ascribed this decrease in audits to its reduced budget and staff levels. With the limited number of audits, the IRS focuses on looking at certain inconsistencies. That is to say that the timing of when a taxpayer files, whether it be on extension or not, does not affect the likelihood of an audit so much as other hot topic items included on a return.

There are audit trends that manifest based on the feedback from tax professionals. One area that seems to be under more scrutiny is real estate professionals. There are two tests one must past in order to be deemed as a real estate professional. One must also materially participate in order to deduct any real estate losses against nonpassive income.

The IRS is also paying close attention to Schedule A medical expense deductions. Auditors will be looking for expenses that do not qualify as medically necessary such as cosmetic treatments or the installation of a swimming pool for someone whose doctor prescribed swimming as a form of exercise. It is predicted with the changes to Schedule A miscellaneous itemized deductions under the Tax Cuts and Jobs Act that this area could be another red flag to trigger an audit should the IRS suspect any incorrect deductions.

While an audit may seem overwhelming, make sure to communicate clearly with the IRS. Many times, an audit is to check if a taxpayer can substantiate their claims. Keep organized records and make sure to understand the numbers that are submitted to the IRS so you can explain your reasoning if needed.

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Here are some best practices you can put in place in order to avoid inadvertently triggering red flags with the IRS. [link]

Many times, an IRS audit is to check if a taxpayer can substantiate their claims. [link]

While an audit may seem overwhelming, make sure to communicate clearly with the IRS. Find out more here: [link]

What can you do in order to avoid putting up any IRS red flags? [link]

TCJA Mortgage Interest Limitations

Wed, 05 Jun 2019 12:18:35 GMT

Tax Tips
Volume 8, Issue 25
For distribution 6/3/19; publication 6/6/19
TCJA Mortgage Interest Limitations

The Tax Cuts and Jobs Act of 2018 changed both the type of mortgage interest that can be deducted as well as the amount of interest that can be deducted.

Acquisition Debt vs. Equity Debt

The first step to untangling these new limitations is to distinguish between acquisition debt and equity debt.

Acquisition Debt is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and must be secured by the taxpayer’s residence.

Equity Debt is all other debt secured by the taxpayer’s residence, such as home equity proceeds that are used to pay off credit card debt, purchase a vehicle, take a vacation, etc.

Under the TCJA, all equity debt is non-deductible, even if incurred prior to December 15, 2017. However, if the proceeds from home equity debt is used to buy, build, or substantially improve the property that secures the debt, the debt can be considered acquisition debt. Acquisition debt is deductible, but different rules apply depending on the date it was incurred.

New Limits

For mortgages acquired after December 15, 2017, taxpayers can write off interest paid on indebtedness of $750,000 or less. If mortgage indebtedness exceeds $750,000, only a percentage of the interest can be deducted.

Grandfathered Debt (Mortgages acquired on or before December 15, 2017)

A taxpayer can write off interest paid on mortgages that have an acquisition debt of up to $1 million dollars. Equity indebtedness is no longer allowed, even if incurred prior to December 15, 2017.

Refinancing Grandfathered Debt

A taxpayer can retain the grandfathered $1 million interest limitation, even if they refinance after 12/15/17. However, the refinanced debt can’t exceed the mortgage balance at the time of refinancing, unless the additional amount can be considered acquisition debt and the total indebtedness falls below $1 million.

Tax Planning Is Important

With these changes come new opportunities when it comes to property acquisition and securing a loan. We can help explain your options so that you can strive for the maximum deductibility when acquiring property or property-related debt. Feel free to give us a call if property or debt acquisition is in your future.

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The Tax Cuts and Jobs Act of 2018 changed the type of mortgage interest that can be deducted and the amount of interest that can be deducted. [link]

Taxpayers need to keep thorough records of refinances and equity debt that qualifies to be treated as acquisition debt. [link]

The complexity of the tax law changes brings new deduction opportunities in property and debt acquisition. Find out more here: [link]

What are the new TCJA Mortgage Interest Limitations? [link]

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Taxes and Retirement Income

Thu, 02 May 2019 19:00:58 GMT

Tax Tips
Volume 8, Issue 24
For distribution 5/20/19; publication 5/23/19

Taxes and Retirement Income

While many taxpayers plan for retirement by investing in retirement savings accounts, it is important for taxpayers to also plan on how to handle income during retirement as well.

The timing of different retirement distributions could drastically affect the amount of taxes paid throughout retirement. To start, the various retirement accounts available have different tax treatments.

Withdrawals from traditional IRA accounts are taxed as ordinary income. If any portion was contributed on an after-tax basis, then it is not subject to taxes. Traditional 401(k) accounts are also taxed as ordinary income when funds are withdrawn. Both Roth IRA and Roth 401(k) account withdrawals are tax free, although the account holder must be older than 59½ and the first contribution must have been made at least five years prior to the withdrawal.

To time withdrawals to minimize tax liability, taxpayers must evaluate when they will stop working and when they will apply for Social Security. Social Security benefits are available at age 62 but if a taxpayer is still working, receiving Social Security may push the taxpayer into a higher tax bracket. The taxpayer could end up paying taxes on their W-2 income, Social Security income, and any additional withdrawals from a retirement plan.

Many advisors recommend taxpayers withdraw first from taxable accounts, then from tax deferred accounts and lastly, Roth accounts when withdrawals are tax free. This way, the taxable accounts are paid first and the tax-deferred accounts can grow longer. While this method does allow for less in taxes paid later on in a taxpayer’s life, it may mean the taxpayer is paying an increased amount of taxes for a few years with little to no taxes in other years. By taking stock of where retirement income is coming from and creating a proportional withdrawal strategy, a taxpayer can spread out their taxable income evenly over retirement and potentially reduce taxes paid on Social Security benefits.

Each situation is different, so it is essential to take a thorough look at your projected income for retirement and plan ahead. Periodic adjustments during retirement are also important as different tax rates and laws change.

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The timing of different retirement distributions could drastically affect the amount of taxes paid throughout retirement. [link]

It is important for taxpayers to plan on how to handle income during retirement. [link]

It is essential to take a thorough look at your projected income for retirement and plan ahead. Find out more here: [link]

Periodic adjustments during retirement are also important as different tax rates and laws change. [link]

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Setting Up a Business

Thu, 02 May 2019 18:59:36 GMT

Tax Tips
Volume 8, Issue 23
For distribution 5/6/19; publication 5/9/19

Setting Up a Business

Deciding to start your own business is a big step, one that requires special planning and thought. But where do you start?

There are many logistical steps to setting up a legal, operating business and it can be a daunting mountain to climb when first starting. We’ll take a look at some of the essential tasks you need to check off before you even make your first sale or create your first product. For the sake of this article, we’ll assume that you’ve done some research on the area of business you want to go into and you’ve decided that were you to start your own business, you could be profitable and successful.

Entity Type

You’ll want to start with the legal side of operating a business to make sure you’re complying with all federal and state laws. Decide what type of business entity you would like to establish. This will determine which income tax return form you will have to file and how you, the owner, will be taxed as well as your liability. The most common entity types are:

Sole Proprietorship – an individual who owns and operates a business. All income/expense is reported on the individual’s tax return.

Partnership – two or more persons who join to carry on a trade or business, each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. Partnerships must file an annual return (Form 1065) with the IRS although the partnership itself does not pay income tax. Income instead passes through to each partner based on his or her share of the partnership’s income. Partners do not receive a W-2 from the partnership but rather, a K-1 which is then reported on their personal tax return.

Corporation - For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity that exists separately from its owners. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax.

S Corporation - S corporations are corporations that elect to pass corporate income/losses through to their shareholders. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.

Limited Liability Company - A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and you should check with your state if you are interested in starting a Limited Liability Company.

Owners of an LLC are called members. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.

Choose a Name

Choosing a name for your business is an important step. A good business name will reflect your brand identity as well as what types of goods and services you offer. Once you decide on a name, you’ll want to register it and protect it. There are multiple ways to register your business name and some may be legally required.

Check with your state for rules about how to register your business name.

Register Your Business

Federal and State Tax IDs

Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business and license permits.

It's free to apply for an EIN, and you should do it right after you register your business.

Apply for licenses and permits

Open a business bank account

Starting a business?

If you’re starting a business, we’re happy to help. Please feel free to reach out any time.

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Here are some of the essential tasks you need to check off before you start your own business. [link]

Your location and business structure determine how you’ll need to register your business. [link]

Starting your own business is a big step, one that requires special planning and thought. Find out more here: [link]

Deciding to start your own business is a big step but where do you start? [link]

Identity Theft and the IRS

Tue, 23 Apr 2019 01:38:58 GMT

Tax Tips
Vol 8, Issue 22
For distribution 4/22/19; publication 4/25/19

Identity Theft and the IRS

Identity theft happens when someone uses your personal information without your permission. While this can include credit cards, banking information, and passwords, it’s your Social Security number that’s the biggest IRS-related identity theft problem.

An estimated 4 to 5 million taxpayers are currently affected by identity theft with the IRS. When their Social Security numbers are stolen by an identity thief, the thief files for a tax refund early in the season. When you go to file your taxes, you receive a notice that you have already filed.

Here are some tips to prevent it from happening to you:

· Do not answer any emails from the IRS. The IRS does not send emails or text messages. If you receive suspicious IRS emails, report them to the IRS at phishing@irs.gov.

· Do not carry your Social Security number with you. Keep it in a secure location.

· Protect your computers with firewalls and anti-spam software.

· Change passwords for internet accounts.

· Do not give personal information on the phone or through email unless you are absolutely sure who you are giving it to.

· Shred all documents containing personal information.

· Check your credit report annually.

If you do happen to become a victim of this crime, here’s what you should do:

· If the IRS sends you a notice, respond immediately. Follow the instructions on the notice.

· File an Identity Theft Affidavit (IRS Form 14039).

· Call the IRS Identity Theft Specialized Unit at 1-800-908-4490.

Request an Identity Protection PIN from the IRS if you’ve received a letter inviting you to opt-in to the program. An IP PIN is a 6-digit number assigned to a taxpayer to help prevent the misuse of the Social Security number on fraudulent tax returns.

· If your purse or wallet containing personal information is stolen, contact all credit cards to cancel.

· Report the theft to the police department.

· Contact the credit bureaus about a fraud alert at the following numbers:

Equifax: 1-800-525-6285

Experian: 1-888-397-3742

Trans Union: 1-800-680-7289

· If your Social Security number has been stolen, notify the Social Security office of Inspector General at 1-800-269-0271.

· The Federal Trade Commission has a toll-free Identification Theft helpline at 1-877-438-4338 or visit their website: www.ftc.gov.

We certainly hope it doesn’t happen to any of our clients, but if it does, this handy checklist will help you through it.

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Our latest blog: Identity Theft and the IRS. Subscribe here: [link]

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Tax Tip: The IRS does not send emails or text messages. [link]

Identity thieves, in the most common scenario, steal Social Security numbers and file for tax

refunds early in the season. [link]

If you are a victim of identity theft and someone has filed a tax return using your personal

information, file an Identity Theft Affidavit (IRS Form 14039). [link]

An estimated 4 to 5 million taxpayers are affected by identity theft. Make sure you aren’t one of them. Find out more here: [link]

Do you know what steps to take if someone fraudulently files a tax return using your personal information? [link]

Identity Theft and the IRS. Sign up for our newsletter: [link]

Kiddie Tax Changes

Thu, 11 Apr 2019 01:36:57 GMT

TaxTips
Volume 8, Issue 21
For distribution 4/8/19; publication 4/11/19

Kiddie Tax Changes

The Tax Cuts and Jobs Act (TCJA) overhauls the Kiddie Tax rules to tax a portion of a qualified child or young adult’s unearned income at the same tax rates paid by trusts and estates, which can be as high as 37%.

Prior to the TCJA, the Kiddie Tax rate was equal to the parent’s marginal rate. TCJA only changes the Kiddie Tax rate structure, the rest of the Kiddie Tax rules are the same as previous years.

The Kiddie Tax is easier to calculate than before, but it can be more expensive for a child or young adult with significant unearned income. The child can subtract his or her standard deduction amount. The allowable standard deduction for 2018 is the greater of: (1) $1,050 or (2) earned income + $350, not to exceed $12,000. For children who are age 19-23 at year-end, the Kiddie Tax can only apply if he or she is a student.

These requirements must be filled for the Kiddie Tax to apply:

Requirement 1: The child does not file a joint return

Requirement 2: One or both of the child’s parents are alive at year-end

Requirement 3: The child’s net unearned income exceeds the threshold for that year, and the child has positive taxable income after subtracting any applicable deductions, such as the standard deduction. The unearned income threshold for 2018 is $2,100. If the unearned income threshold is not exceeded, the Kiddie Tax does not apply. If the threshold is exceeded, only unearned income in excess of the threshold is taxable under the Kiddie Tax.

Requirement 4: The child (or young adult) falls under one of three age-related rules due to his or her age at year-end and the other factors mentioned below:

17 or younger at year-end: Kiddie Tax applies if the other three requirements are also met.
18 at year-end: If the child does not have earned income that exceeds half of his or her support, the Kiddie Tax applies if the other three requirements are also met.
19–23 at year-end: If the child (1) is a student and (2) does not have earned income that exceeds half of his or her support, the Kiddie Tax applies if other three requirements are also met. The child is considered to be a student if he or she attends school full-time for at least five months during the year.

Here's an example: A child who is 16 at 2018 year-end and made $2,700 of earned income and $4,900 of unearned ordinary income from capital and gains and interest would have a standard deduction of $3,050 ($2,700 of earned income + $350).

The child’s taxable income would be $4,550 ($2,700 earned income + $4,900 unearned income - $3,050 standard deduction).

2018 Estate and Trust Income Tax Rates
If taxable income is:	The tax is:
Not over $2,550	10% of taxable income
Over $2,550 but not over $9,150	$255 plus 24% of the excess over $2,550
Over $9,150 but not over $12,500	$1,839 plus 35% of the excess over $9,150
Over $12,500	$3,011.50 plus 37% of the excess over $12,500

To calculate the amount of taxable income that is subject to the Kiddie tax, subtract the unearned income threshold from total income. In this case, $2,800 ($4,900 - $2,100) will be taxed at the trust and estate tax rates shown in the chart above.

The child’s Kiddie tax amount comes out to $255 + $250(.24)= $315. The remainder of taxable income ($4,550 - $2,800 = $1,750) is taxed at the 10% rate for a single taxpayer.

The total federal tax bill comes to $490 ($315 Kiddie Tax + $175 regular tax).

If you have questions about the kiddie tax or options related to passing your wealth to the next generation while reducing taxes as much as possible, please reach out any time.

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Tax Tip: To calculate the amount of taxable income that is subject to the Kiddie tax, subtract the unearned income threshold from total income. [link]

For children who are age 19-23 at year-end, the Kiddie Tax can only apply if he or she is a student. [link]

The Kiddie Tax is easier to calculate than before, but it can be much more expensive for a child or young adult with significant unearned income. Find outmore here: [link]

Thinking about investing for your child? Kiddie Tax is no longer affected by the income of parents or siblings, which may result in children being taxed at a higher rate than their parents. Find out more: [link]

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Disasters and Taxes

Mon, 25 Mar 2019 18:54:14 GMT

TaxTips
Volume 8, Issue 20
For distribution 3/25/19; publication 3/28/19

Disasters and Taxes

While some may say that tax season in and of itself should be classified as a “federally declared disaster,” the phrase holds more weight this upcoming year as thousands of families have been devastated by the California wildfires and East Coast hurricanes.

Beginning in 2018, the personal casualty and theft loss deduction is limited to casualty losses incurred in a federally declared disaster area. The casualty and theft deduction is only available to those who itemize their deductions, not to those who take the standard deduction.

In the instructions for the 2018 Form 4684 (Casualties and Theft Loss Deductions), the IRS defines a disaster loss as “a loss that occurred in an area determined by the President of the United States to warrant federal disaster assistance and that is attributable to a federally declared disaster. It includes a major disaster or emergency declaration.” A list of federally declared disasters can be found at https://www.fema.gov/Disasters.

There are two limitations to qualify for the deduction:

A loss must exceed $100 per casualty
Net total loss must exceed 10 percent of your AGI (adjusted gross income)

You can still elect to deduct the casualty loss in the tax year immediately preceding the tax year in which you incurred the disaster loss. IRS Publication 976 provides information about personal casualty losses resulting from disasters that occurred in 2016 and certain 2017 disasters, including Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires.

An exception to the rule above limiting the personal casualty and theft loss deduction to losses incurred in a federally declared disaster area applies if you have personal casualty gains for the tax year. In this case, you will reduce your personal casualty gains by any casualty losses not attributable to a federally declared disaster. Any federal disaster losses that remain are subject to the 10% AGI limitation.

In a recent publication clarifying some of the new tax reform laws (Publication 5307), the IRS touched on how some of the recent laws enacted in 2018 make it easier for retirement plan participants to access their retirement plan funds. This may allow affected taxpayers to:

waive the 10% additional tax on early distributions and
include a qualified hurricane distribution in income over a 3-year period
repay their distributions to the plan
have expanded loan availability
extend the loan repayment period

We certainly hope you weren’t affected by a disaster last year, but if you were, we have you covered tax-wise.

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Tax Tip: You can still elect to deduct the casualty loss in the tax year immediately preceding the tax year in which you incurred the disaster loss. [link]

Beginning in 2018, the personal casualty and theft loss deduction is limited to casualty losses incurred in a federally declared disaster area. [link]

To qualify for the personal casualty and theft loss deduction, a loss must exceed $100 per casualty and the net total loss must exceed 10% of your AGI.

The personal casualty and theft loss deduction is essentially eliminated for tax years 2018 through 2025, except for federally declared disasters. It is also only available to those who itemize their deductions, not to those who take the standard deductions. [link]

Unfortunately, if you suffered damage to your home or personal property last year, you won’t be able to deduct these losses unless they were due to a federally declared disaster. Find out more here: [link]

Were you affected by a federally declared disaster last year? Find out how you qualify for the personal casualty and theft loss deduction: [link]

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C Corp Taxes

Mon, 11 Mar 2019 18:53:43 GMT

TaxTips
Volume 8, Issue 19
For distribution 3/11/19; publication 3/14/19

C Corp Taxes

As a result of tax reform under the Tax Cuts and Jobs Act (TCJA), C corporations were also affected. This will directly impact C corporation shareholders.

Under previous law, the tax rate a corporation would pay on its profits could be anywhere from 15% to 35%, depending on the corporate taxable net income level. With tax reform, all C corporations pay a flat 21% on their profits, regardless of the taxable income amount.

For C corporations with profits in excess of $50K, this is obviously going to result in potentially significant tax savings - but what about corporations with profit typically lower than that? In that case, businesses may actually pay more with this change - jumping from a 15% to 21% corporate tax rate.

With that in mind, businesses will want to plan for the additional tax and may even want to reassess entity type to determine if another business structure would be right. With the (up to) 20% pass-through (Section 199A) deduction now available for other entity types, corporations could possibly realize tax savings by switching!

When a C corporation converts to an S corporation, a built-in gains tax is imposed. The recognized built-in gains were previously taxed at the highest rate of tax applicable to corporations, 35%. With the new the tax bracket reorganization, the rate drops to 21%. Transitioning from a C corporation to an S corporation is now much more affordable compared to previous years.

There are a few laws that did not change with the TCJA. The accumulated earnings tax (AET) imposed on C corporations with retained earnings deemed to be unreasonable and in excess of what is considered ordinary (accumulations beyond $250,000), remains at a 20% tax rate. The personal holding company tax also remains at a 20% tax rate. A corporation is recognized as a personal holding company if 60% of income is from investments.

The TCJA repeals C corporation alternative minimum tax (AMT) for tax years beginning after 2017. Under prior law, AMT applied if a C corp’s tentative minimum tax ((AMTI less $40,000 exemption) x 20%) exceeded its regular tax. Individuals, trusts and estates are still subject to AMT. The elimination of C corp AMT opens up the possibility that C corps may more freely enter redemption buy-sell agreements after 2017.

Be sure to contact your tax professional to determine which entity is the best option for your specific needs!

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Tax Tip: Transitioning from a C corporation to an S corporation is now much more affordable compared to previous years. [link]

Businesses may want to reassess entity type to determine if another business structure would be right, especially with the (up to) 20% pass-through deduction now available for other entity types. [link]

The TCJA repeals C corporation alternative minimum tax (AMT) for tax years beginning after 2017. [link]

C corporations with profits in excess of $50K will have significantly more tax savings compared to previous years. Find out more here: [link]

Is your current business structure right for you or should you reassess your entity type? Find out here: [link]

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How to Speak “Tax”

Mon, 25 Feb 2019 19:03:17 GMT

TaxTips
Volume 8, Issue 18
For distribution 2/25/19; publication 2/28/19

How to Speak “Tax”

This time of year and into April, we begin to hear a different vocabulary come to life: “Credit.” “Exemption.” “Adjusted Gross Income.” It can seem as if your accountant speaks a different language from you.

While we’ll do our best to explain the tax terms we use during your appointment, we’ve compiled a list of them for those of you who’d like to be more “in the know.” Not only will this better equip you to keep up at your next social gathering, but it will allow you to ask the right questions when you meet with your tax professional.

TY = Tax Year

If you file your taxes on time, the tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return.

FY = Fiscal Year

Fiscal year is a one-year period for accounting purposes. Most businesses make their fiscal year the same as the calendar year: January 1st through December 31st. Others run their business with start and stop dates different from the calendar year. A common fiscal year is July 1st to June 30th.

EIN = Employer Identification Number

This is a unique identification number assigned to a business by the IRS.

Form 8879 = IRS e-file Signature Authorization

This form must be signed for your return to be efiled, and it can be digitally signed.

Form 1040 = U.S. Individual Income Tax Return

This is the main form used when reporting individual income. It includes the taxpayer’s basic information, dependents, and tax calculations. If the taxpayer is a sole proprietor or a single-member LLC, their business activity is reported on their personal tax return.

Form 1120 = U.S. Corporation Income Tax Return

When reporting C corporation income, this form is used. S corporations are reported on Form 1120S.

AGI = Adjusted Gross Income

AGI is equal to your total income subject to income tax minus specific deductions you may be eligible to take. AGI is calculated before applying the standard or itemized deduction. Many credits are subject to AGI limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits.

MFJ = Married Filing Jointly

This is one of five possible filing status categories.

MFS = Married Filing Separate

This is another one of five possible filing status categories. You may see these acronyms frequently in tax articles explaining how new laws affect the different types of taxpayers.

TCJA = Tax Cuts and Jobs Act

The name bestowed upon the largest tax law changes approved by Congress, many of which went into effect for TY 2018.

SSTB = Specified Service Trade or Business

This term specifically relates to Section 199A, which is a new tax law that allows for up to a 20% deduction on “qualified business income” (“QBI”) for any “qualified trade or business” (“QTB”) other than a “specified trade or business” (“SSTB”). This deduction is available to sole proprietors and passthrough entities.

This list will get you started, and if you run across another tax term, feel free to reach out and ask us what it means.

***

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Our latest blog: How to Speak “Tax” Subscribe here: [link]

Does your accountant’s tax vocabulary have your head spinning? Check out our tax vocabulary list: [link]

Tax Tip: The tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return. [link]

Many credits are subject to adjusted gross income (AGI) limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits. [link]

Form 1040 is the main form used to report individual income. Form 1120 is used to report C corporation income and Form 1120S is used to report S corporation income. [link]

Brush up on some tax vocabulary so that you can ask your tax professional the right questions at your next appointment. Find out more here: [link]

Want to learn how to speak “tax” so you can be more “in the know” at your next tax meeting? Check out our list of important tax terms: [link]

How to Speak “Tax” Sign up for our newsletter: [link]

Tax Reform Changes Affecting the Child Tax Credit

Mon, 11 Feb 2019 19:04:42 GMT

TaxTips
Volume 8, Issue 17
For distribution 2/11/19; publication 2/14/19

Tax Reform Changes Affecting the Child Tax Credit

The Child Tax Credit (CTC) was one of many items touched by the sweeping tax reform coming into effect for the 2018 tax year. In addition to the amount of the credit increasing, the threshold for qualifying for the credit has improved, resulting in more taxpayers being able to benefit from it.

In order to receive the credit, you need to first determine if your kids will qualify. A child must be under age 17 at the end of the tax year and they must be your own child, stepchild or foster child place with you by a court or authorized agency (an adopted child is always treated as your own.)

You can claim your brother or sister, stepbrother, and/or stepsister as well as the descendants of any of these qualifying people if they meet all other requirements.

The child cannot have provided more than half of their own financial support during the tax year and must be claimed as a dependent on your tax return. The child must be a US citizen, a US national or a US resident alien.

The child must have lived with you for more than half of the tax year. Temporary absences either by you or the child for special circumstances like school, vacation, business, medical care, and military services are counted as time the child lived with you.

The child must have a Social Security Number issued by the Social Security Administration before the due date of your tax return (including extensions) to be claimed as a qualifying child. This is new for the 2018 tax year!

In 2017, the phase out threshold was $55,000 for married filing separate; $75,000 for single and head of household; and $110,000 for married filing jointly taxpayers. Under the new tax law, phaseout of the credit begins at $200,000 or $400,000 for married filing jointly tax payers. The credit has also doubled from $1,000 for each qualified child to $2,000 per child.

The CTC was previously nonrefundable, meaning that if your tax liability was zero, any remaining credit from the CTC was lost. For tax year 2018, there is a refundable amount of up to $1,400 per qualifying child.

Since the personal exemption is suspended in 2018, the changes to the Child Tax Credit (and the standard deduction) may help offset some of the deductions that were lost.

***

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Do you have children that qualify for the Child Tax Credit? Find out here: [link]

Tax Tip: For tax year 2018, the Child Tax Credit is worth up to $2,000 per qualifying child. [link]

For tax year 2018, the Child Tax Credit has a refundable amount of up to $1,400 per qualifying child. [link]

To qualify for the Child Tax Credit, a child must be under age 17 at the end of the tax year and they must be your own child, stepchild or foster child placed with you by a court or authorized agency. [link]

More taxpayers will be able to benefit from the Child Tax Credit for the 2018 tax year. Find out more here: [link]

Are you aware of the tax reform changes affecting the Child Tax Credit for the 2018 tax year? [link]

Tax Reform Changes Affecting the Child Tax Credit Sign up for our newsletter: [link]

Moonlighting in the Gig Economy and Taxes

Mon, 28 Jan 2019 19:06:58 GMT

TaxTips
Volume 8, Issue 16
For distribution 1/28/19; publication 1/31/19

Moonlighting in the Gig Economy and Taxes

Are you one of the thousands of people who are working gig-type jobs for Uber, Lyft, DoorDash, Grubhub, or companies like them? Whether you’re full time or just moonlighting a few hours a week, the paperwork for this part of your taxes will be a little different. Here’s what to expect.

What Documents Will You Receive?

Both Uber and Lyft provide two different tax forms:

1099-K, which reports the grand total of fares for rides that you provided
1099-MISC, which lists the amount you’ve earned from incentives and referrals. If you’ve earned less than $600 in incentives and referrals, a 1099-MISC will not be issued. Check your tax summary to see whether you have income to report in addition to the income listed on the 1099-K

To calculate the gross income amount, add the amount listed in box 1a on the 1099-K form and the amount listed in box 7 of the 1099-MISC form.

What Expenses Should You Keep Track Of?

You can deduct certain items you spend on your job as long as you keep good records and receipts. Here are a few items you might have been charged for:

Commissions and fees taken by the ridesharing service
Tolls and parking fees
Convenience items for passengers, such as water or gum
Bookkeeping fees and bank charges
Vehicle costs (lease payments, gas, maintenance and repairs, car registration, insurance)
Mileage (listed in your driver summary as “on trip mileage”)
Cell phone expenses (business use percentage)

How Your Income Is Calculated

We will use the information you provide to calculate your net profit—that’s why it’s crucial that you keep detailed records and accurately capture your expenses. We’ll enter your gross income and subtract expenses, leaving you with net profit. You pay two types of taxes on your net profit:

Your regular tax rate (based on your income level) and
Self-employment taxes. Since you are self-employed, you are responsible for paying the employer’s share of taxes, which is currently 15.3 percent of your income. This is over and above the amount of tax you pay based on your tax bracket.

Be prepared this tax season by keeping your expense receipts and records and being ready for your tax bill.

***

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Our latest blog: Moonlighting in the Gig Economy and Taxes Subscribe here: [link]

If you’re working a gig-type job for Uber, Lyft, DoorDash, Grubhub, or a similar company, how prepared are you this tax season? Here’s what you should expect this tax season: [link]

Tax Tip: If you’re working a gig-type job, you can deduct certain items you spend on your job as long as you keep good records and receipts. [link]

If you work for Uber or Lyft, you can get your gross income amount by adding the amount listed in box 1a on the 1099-K form and the amount listed in box 7 of the 1099-MISC form. [link]

When you work a gig-type job, you pay two types of taxes on your net profit: your regular tax rate based on your income and self-employment taxes, which is currently 15.3% of your income. [link]

If you work a gig-type job, you can deduct certain expenses that you spend on the job, like tolls, parking fees, car insurance, and convenience items. Find out more here: [link]

Do you work for Uber, Lyft or a similar company? How prepared are you this tax season? [link]

Moonlighting in the Gig Economy and Taxes Sign up for our newsletter: [link]

Getting Ready for Your Tax Meeting

Mon, 14 Jan 2019 19:08:31 GMT

TaxTips
Volume 8, Issue 15
For distribution 1/14/19; publication 1/17/19

Getting Ready for Your Tax Meeting

Here’s a rough checklist of items to pull together for your tax professional. Please don’t panic at this long list; most of it will not apply unless you have a complex situation. In some cases, your tax professional will send you a form to complete called an “organizer.”

Hopefully, this list will help you gather the items you need. The sooner you do, the sooner you can get any refund owed to you from the government.

Prior year tax returns – federal and state – usually two years
Full legal names, birth dates, and social security numbers or ITINs for you, a spouse, and family members
Government-issued ID
For dependents, relationship to you and whether they live with you
Home address
Whether you had full year health coverage for 2018
Form W-2(s)
Any estimated tax payments made not recorded on Form W-2
Bank account information if you’d like any refund directly deposited
Form 1099(s)
Interest and dividend statements including stock, bond, mutual funds and other instrument purchases and sales from your bank and brokerage companies
Social security, IRA and other retirement fund withdrawals and/or contributions
Alimony received and/or paid
Details of rental income and expenses if you are a landlord
Details of business income and expenses if you are a business owner or partner, including Schedule K-1(s)
Farm income and expenses if you are a farmer
Unemployment compensation
Any other income or losses not listed above, such as gambling or lottery winnings
Form 1098 - Mortgage interest and details about your home purchase and all home loans
Student loan interest paid
Real estate and personal property taxes paid
Possibly state taxes paid
Medical expenses paid and health savings account details
Charitable contribution details
Tuition and educational expenses paid
Purchase of energy efficient home improvement or electric car
Moving expenses and combat pay if you are in the Armed Forces
Records of household employees’ pay

If you’re a business owner, it will depend on the type of entity you have as to the records needed, but in most cases, financial statements including a balance sheet and income statement for the last two years will be needed.

Some new information that will be needed this year includes:

Home loans including the total amount, what they are for, and how they are secured.
For certain taxpayers earning over a threshold amount and with business income from pass-through entities, your preparer will need to ask you questions about the nature of your products and services to determine if you fall into a Specified Service or Trade Business category for purposes of a new business deduction.
For partnerships, all of the names of the partners will need to be collected in many cases and a partnership representative will need to be named.
For business assets acquired, both the purchase date and the placed-in-service date will need to be collected to determine depreciation options.

Many tax preparers will provide you with a client portal where you can upload these documents when you receive them. You can also collect them on paper and mail them in to be scanned.

If you need help or have questions about any of this, please feel free to reach out any time.

***

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Tax Tip: Make sure you bring your Form 1099(s) if you’ve made an appointment to meet your tax professional for tax time. [link]

If you’re a business owner, the information you’ll need to bring to your tax meeting will depend on the type of entity you have. In most cases, you’ll need financial statements, including a balance sheet and income statement for the last two years. [link]

The sooner you gather all the items your tax professional needs to prepare your taxes, the sooner you can get any refund owed to you from the government. [link]

Do you have all the documents your tax preparer needs to prepare your tax return? Use our handy checklist! Check it out here: [link]

Not sure what items your tax preparer needs to prepare your 2018 tax return? Make sure you’ve got everything you need with our checklist! [link]

Getting Ready for Your Tax Meeting Sign up for our newsletter: [link]

Sales Tax Checkup

Mon, 31 Dec 2018 19:10:08 GMT

TaxTips
Volume 8, Issue 14
For distribution 12/31/18; publication 1/3/19

Sales Tax Checkup

Collecting sales tax is one of those things that most businesses need to do on a regular basis. It’s also a chore that is somewhat done by machines and administrative personnel. If the rules change and the procedures go out of date, business owners who are not watching for these changes could be taking risks they don’t realize they have.

In 2018, the world of sales tax was turned upside down by one court case: South Dakota vs. Wayfair, Inc. Wayfair is a mid-sized furniture retailer based in Boston, MA that the State of South Dakota sued to collect sales tax from. Wayfair has no physical store or presence in South Dakota but was selling to residents in South Dakota. The Supreme Court held that Wayfair needed to collect tax from the South Dakota residents they were selling goods to.

From Physical Nexus to Economic Nexus

The court case, which was decided June 21, 2018, changed the rules of online interstate sales. Previously, most states required businesses to collect sales tax if they had a physical presence or nexus in the state, meaning they had an office, building, warehouse, or even employees in the state.

Now, many states are rewriting their rules to follow economic nexus, which is when a company has (enough) customers in a state. Alabama, Arkansas, Colorado, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, Nevada, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, Wisconsin, and Wyoming all have economic nexus laws that are effective now or will become effective on January 1, 2019. And this list is ever-changing.

Many of the states have a threshold of $100,000 of sales in one year in the state before a business needs to collect and file sales tax.

Changes in What’s Taxable

Businesses also need to review changes in items that have become taxable that were not previously taxable. Retail goods that are physical are pretty straightforward, but services are not. All states tax services differently, and states change what’s taxable over time.

This means you should periodically review all of the products and services you sell to determine if you are collecting tax on the proper sales. Better yet, have a professional do it so you don’t have to wade through legal laws.

Rate Changes

Periodically, sales tax rates will change. This is the easiest change to keep up with as your sales tax authority will usually notify you of these changes.

Deadlines for Paying and Reporting

The frequency with which you pay and report sales tax will vary based on the volume of sales and tax you collect. When a limit is reached, you may need to pay more often.

Sales Tax Apps to Make Your Job Easier

There are many great sales tax software add-ons that can help you collect and report the correct sales tax amounts. At the large firm level, there is Vertex and Avalara. At the small firm level, TaxJar is popular. We can help you integrate these apps with your accounting software.

Your 5-Item Checklist

The five items above are the things you should be monitoring with regard to sales tax liability, reporting, automation, and risk. States have strong penalties but also have amnesty programs on a regular basis.

If you plan to sell your business, the owner will most likely conduct a sales tax audit. If it’s determined that you owe sales tax, it will greatly reduce the value of your business.

If you need help from us to measure your exposure in this area, please feel free to reach out. We can either handle the engagement ourselves or refer you to a sales tax expert.

***

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Did you know the world of sales tax was turned upside down by one court case in 2018? Find out more: [link]

Tax Tip: Periodically review all of the products and services you sell to determine if you are collecting tax on the proper sales. [link]

The frequency with which you pay and report sales tax will vary based on the volume of sales and tax you collect. [link]

Many states have economic nexus laws that are effective now or will become effective on January 1, 2019. [link]

Sales tax laws have changed in many states, so business owners who conduct interstate sales and are not watching for these changes could be taking risks they don’t realize they have. Find out more here: [link]

Are you caught up with the rules and procedures regarding sales tax? [link]

Sales Tax Checkup Sign up for our newsletter: [link]

Is the New 1040 “Postcard” Tax Return Form as Easy as It Claims to Be?

Mon, 03 Dec 2018 19:11:34 GMT

TaxTips
Volume 8, Issue 12
For distribution 12/3/18; publication 12/6/18

Is the New 1040 “Postcard” Tax Return Form as Easy as It Claims to Be?

The IRS unveiled a draft of the new 2018 Form 1040 over the summer which consolidates Form 1040, 1040A, and 1040EZ into one supposedly simpler postcard-sized form. The only problem is there are now 2 pages of the postcard 1040 and six new schedules. Here’s a link to the draft 1040 form for 2018 and a run-through of how things were re-arranged.

The front page is informational—filing status, taxpayer name(s), address, SSN(s), and dependent information. Since health care coverage reporting is still required in 2018, a checkbox is present to indicate whether you had full year health care coverage or an exemption.

Page two – or postcard two -- is a condensed version of the “old” Form 1040 and moves many items that previously appeared on the front of the 1040 to newly created schedules:

a) Schedule 1, titled “Additional Income and Adjustments to Income,” reports amounts that had previously been listed on lines 10-37 of the prior 1040 version and incorporates total income/losses from Schedules C, D, E, and F, as well as adjustments to income such as educator expenses, self-employment tax deduction, and student loan interest paid.

b) Schedule 2, “Tax,” combines lines 44-47 (tax, alternative minimum tax, APTC -- Advance Premium Tax Credit -- repayment) of the old 1040 and condenses it to a single amount that is reported on line 11 of the new 1040.

c) Schedule 3, “Non-Refundable Credits,” combines lines 48-55 (foreign tax, dependent care, education, retirement savings, child tax credit, residential energy, other credits) of the old 1040 and condenses it to a single amount that is reported on line 12 of the new 1040.

d) Schedule 4, “Other Taxes,” combines lines 57-63 (SE tax, unreported Social Security/Medicare tax, additional tax on retirement plans, household employment taxes, homebuyer credit repayment, health care responsibility, additional Medicare tax, net investment income tax) of the old 1040 and condenses it to a single amount that is reported on line 14 of the new 1040.

e) Schedule 5, “Other Payments and Refundable Credits,” combines lines 65-74 (income tax withholding, estimated tax payments, EIC, additional child tax credit, AOC, net premium tax credit, amount paid with extension, excess Social Security) of the old 1040 and condenses it to a single amount that is reported on line 17 of the new 1040.

f) Schedule 6, “Foreign Address and Third Party Designee,” is a new informational form which allows taxpayers, who live in a foreign country, to list their country, province, and postal code. This form also gives taxpayers the ability to list a third person allowed to discuss with the IRS any issues the taxpayer may have.

While the 1040 form may have been simplified, it requires multiple new supporting schedules to be filed along with it. All prior schedules remain, with the possible exception of Schedule B (Interest and Ordinary Dividends), whose fate is uncertain in 2018.

There are more changes in the tax laws and procedures than there have been in more than 30 years. But don’t worry, we’re on top of it for you, and if you have questions, feel free to reach out any time.

***

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Our latest blog: Is the New 1040 “Postcard” Tax Return Form as Easy as It Claims to Be? Subscribe here: [link]

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Tax Tip: There is a new supporting schedule called the “Foreign Address and Third Party Designee” that allows taxpayers who live in a foreign country to designate a representative to discuss any issues the taxpayer may have. [link]

Page two of the new 1040 form moved many items from the front of the old 1040 form and combined them to create new schedules. [link]

All prior schedules from the old 1040 form remain, with the possible exception of Schedule B (Interest and Ordinary Dividends), whose fate is uncertain in 2018. [link]

Many of the reported items found on the front page of the old 1040 form have been consolidated into a single amount to be reported in the new 1040 form. Find out more here: [link]

What’s new about the new “postcard” 1040 form and how does it affect you? [link]

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Meals & Entertainment Changes Under Tax Reform

Mon, 19 Nov 2018 19:14:23 GMT

TaxTips
Volume 8, Issue 11
For distribution 11/19/18; publication 11/21/18

Meals & Entertainment Changes Under Tax Reform

A lot has changed in the deductibility of meals and entertainment expenses. This chart will help you easily see the changes.

Event	2017 Expenses (Old rules)	2018 Expenses (New rules)
Office Holiday Party or Picnic	100% deductible	100% deductible
Client Business Meals	50% deductible if taxpayer is present, and not lavish or extravagant	50% deductible if business is conducted, taxpayer is present, and not lavish or extravagant
Entertainment-Related Meals	50% deductible	No deduction (e.g. meals incurred when no business is conducted, potentially at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips)
Transportation To/From Restaurant for Client Business Meal	100% deductible	100% deductible
Sporting Event Tickets	100% deductible for charitable sports events Contributions for the right to purchase tickets to an educational institution’s athletic events 80% deductible 50% for transportation to/from and parking at sporting events	No deduction No deduction No deduction
Club Memberships	No deduction for club dues; however, 50% deduction for expenses incurred at a club organized for business, pleasure, recreation, or other social purposes if related to an active trade or business	No deduction
Meals Provided for The Convenience of Employer	100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §119(a); otherwise 50% deductible	50% deductible (nondeductible after 2025)
Meals Provided to Employees Occasionally and Overtime Employee Meals	100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §132(e)(1); otherwise 50% deductible	50% deductible (nondeductible after 2025)
Water, Coffee, And Snacks at The Office	100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §132(e)(1); otherwise 50% deductible	50% deductible (nondeductible after 2025)
Meals in Office During Meetings of Employees, Stockholders, Agents, Or Directors	50% deductible	50% deductible
Meals During Business Travels	50% deductible	50% deductible
Meals at A Seminar or Conference, Or at A Business League Event	50% deductible	50% deductible
Meals Included in Charitable Sports Package	100% deductible	50% deductible (the exception provided under former §274(n)(2)(C), referring to former §274(l)(1)(B), was repealed)
Meals Sold to A Client or Customer (Or Reimbursed)	100% deductible	100% deductible
Food Offered to The Public for Free (e.g., At A Seminar)	100% deductible	100% deductible

You might want to ask your bookkeeper to start breaking out these amounts so that the information will be available for tax season. We can help you determine how to categorize your expenses to line up with the tax requirements.

And if you have questions about any of this, feel free to reach out any time.

***

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Tax Tip: Under the new tax reform, all sporting event ticket expenses are nondeductible. [link]

Water, coffee and snacks at your office are only 50% deductible under the new tax reform, compared to 100% in 2017. [link]

Entertainment-related meal expenses are nondeductible under the new tax reform for 2018. [link]

The new tax reform provides stricter limitations on the deductibility of business meals and entertainment expenses. Find out more here: [link]

Want to know if your business entertainment expenses are still deductible? Find out here: [link]

Meals & Entertainment Changes Under Tax Reform Sign up for our newsletter: [link]

Tax Planning is Key This Year

Mon, 05 Nov 2018 19:16:52 GMT

TaxTips
Volume 8, Issue 10
For distribution 11/5/18; publication 11/8/18

Tax Planning is Key This Year

If there ever was a year for tax planning, now is the time! Some people and businesses will be in for a big surprise this year because of all of the changes in the tax law for the 2018 year. Many people will be underwithheld on their federal and state taxes, meaning they will owe big; others could be overwithheld, meaning the IRS is tying up money that’s theirs now!

Wouldn’t it be nice to know in advance how your situation will be impacted by the hundreds of changes in the tax laws this year? When you know your situation, you can make decisions before the year ends to change the outcome. You can take advantage of every strategy, deduction, and credit you are entitled to.

Planning gives you peace of mind, whether you get an affirmation that you will receive a refund from the IRS or if you owe money…if you know in advance, it will make a difference.

When working with your tax professional, they will:

Project your income (W-2 earnings or business earnings) through the end of December
Maximize your deductions
Make recommendations of things you can legitimately do to change the result before the year ends
Educate you on any changes in tax law or limitations

Here are a few things your tax pro may require:

Year to date paystub
Current income/expenses, if self employed
Current income/expenses of rental properties owned, if any
Stock sale data, including basis information
Information on any major changes from the prior year, such as a solar purchase, house sale/purchase, etc.

Tax planning can achieve the greatest benefit for your unique situation. Don’t rely on (mis)information from your neighbor or colleague for strategies to implement! Seek professional tax advice and get educated on the laws and consequences relating to your unique situation. Your tax professional can warn you of something you might not have known or give you different scenarios for you to consider. The key is knowing your options, so that you can make decisions that will provide the greatest benefit for you and your family!

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If you seek a tax professional to help you with your tax planning, they can project your income through the end of December and maximize your deductions. [link]

You can have more money to save, invest, or spend by tax planning. Find out more here: [link]

Want to know in advance how your situation will be impacted by the tax law changes? [link]

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2018 Tax Law Changes for Individuals: Understanding Standard vs. Itemized Deductions

Mon, 22 Oct 2018 18:18:35 GMT

TaxTips
Volume 8, Issue 9
For distribution 10/22/18; publication 10/25/18

2018 Tax Law Changes for Individuals: Understanding Standard vs. Itemized Deductions

Now that the Standard Deduction has nearly doubled, many taxpayers won’t need to itemize their deductions, which will streamline the tax return process.

New Standard Deduction Amounts

Single filers = $12,000 deduction (up from $6,350)
Head of Household filers = $18,000 (up from $9,350)
Married Filing Joint = $24,000 (up from $12,700)

Changes to Itemized Deductions

If you have a greater tax benefit by itemizing your deductions, understand how the 2018 tax reform has changed what you can deduct.

Medical deduction has been retained and improved—for 2018, the threshold for deductibility is now 7.5% of Adjusted Gross Income (used to be 10% of AGI.)
Itemized deduction phase out—the deduction limitation phase out for higher income taxpayers has been suspended.
SALT (State and Local Tax) deduction—the SALT deduction has been capped at $10,000. This is a combined total of your property taxes + state/local taxes + DMV fees. In the past, the deduction was not limited.
Mortgage interest deduction—full interest deduction allowed for up to $750,000 of indebtedness on primary/secondary home mortgage. For loans originated prior to 12/15/17, mortgage indebtedness can be as much as $1 million to qualify for full interest deduction. Home equity (includes second mortgages) mortgage interest can still be deducted so long as funds from the equity loan was used to buy, build, or substantially improve the home that secures the loan. The total of all loans must not exceed $750,000 ($1 million for loans originated prior to 12/15/17.)
Charitable contributions—the deduction amount has increased, but charitable contributions cannot exceed 60% of a taxpayer’s AGI (up from 50%.)
Miscellaneous deductions (subject to 2% of AGI)—miscellaneous deductions have been suspended through 2025. Some examples of these types of deductions are unreimbursed employee business expenses, union dues, tax prep fees, investment expenses, casualty losses

If you’re unable to itemize for the 2018 tax year but just missed the limits, you may be able to time your deductions to itemize every other year. Check with us on this common technique and other tax strategies so we can help you reduce your tax liability.

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Is Your Business an SSTB? (And Why Do You Care?)

Mon, 08 Oct 2018 18:20:03 GMT

TaxTips
Volume 8, Issue 8
For distribution 10/8/18; publication 10/11/18

Is Your Business an SSTB? (And Why Do You Care?)

QBI, 199A, SSTB—these are just a few of the new acronyms being tossed around as part of the recent business tax reform changes (like we don’t already have enough of them to remember!). Out of all the terminology, “SSTB” (Specified Service Trade or Business) seems to be the vaguest and most misunderstood. If you have virtually any type of business entity (except for a C corporation), you need to know what this is and whether or not it applies to you. It could have huge implications come tax time!

The term “SSTB” came about as part of the new Section 199A business deduction (a tax deduction of up to 20% of business profit). SSTBs and non-SSTBs are subject to different limitations/calculations in determining the deduction. Most importantly, if your business is an SSTB and you have taxable income of:

Under $157,500 ($315,000 for joint filers): Your profit FULLY qualifies for the 20% deduction – EASY!

Between $157,500-$207,500 ($315,000-$415,000 for joint filers): Your profit PARTIALLY qualifies for the 20% business deduction (reduced – more complex calculation).

Above $207,500 ($415,000 for joint filers): NONE of your profit qualifies for the 20% business deduction (fully phased out).

So now the big question is: how do you determine if you are an SSTB? The first part is easy: if your business performs services in any of the following areas, you automatically fall into SSTB classification:

Health (not spas or health clubs)
Law
Accounting
Actuarial Science
Performing Arts
Consulting
Athletics
Financial Services
Brokerage Services

After this, the law becomes less clear. The IRS also says that any business “where the principal asset… is the reputation or skill of one or more of its employees or owners” is considered an SSTB. Clearly, this is subject to a lot of varying interpretation – would a widget-maker automatically be an SSTB just because his or her widget-making skills are truly the backbone (“principal asset”) of the business?

Thankfully, IRS has limited the meaning of this “catch-all” clause in subsequent guidance, saying that it applies specifically to those engaged in the trade or business of:

Receiving income for endorsing products/services
Licensing or receiving income for using one’s image, likeness, name, signature, voice, trademark, or symbol associated with his/her identity
Receiving fees/income for appearances

For that widget-maker, the business would likely be a non-SSTB, unless the sale of the widgets is directly associated with use of his or her identity. One way to think about it: if the success of your business depends more on you and not what you are selling, it is most likely an SSTB.

Understanding this classification and how it applies to you is important; it’s the first step in determining how to calculate QBI (Qualified Business Income) for purposes of the 20% deduction, and also a critical stepping stone in tax planning. Be sure to consult with your tax preparer for more information!

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If your business performs services under certain categories (e.g. health or law), you automatically qualify as an SSTB. Find out more [link]

If your business is an SSTB and you have taxable income of less than $157,000, your profit qualifies for the full 20% business deduction. [link]

You may qualify as an SSTB if you use your identity to earn income. Find out more here: [link]

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High Income Wages: How & Why the Amount Will Affect Your Tax Return

Sun, 23 Sep 2018 18:21:53 GMT

Tax Tips
Volume 8, Issue 7
For distribution 9/23/18; publication 9/26/18

High Income Wages: How & Why the Amount Will Affect Your Tax Return

More and more taxpayers are having deductions and credits either limited or completely disallowed, or additional taxes assessed, because of the level of their adjusted gross income (AGI). AGI is your income minus qualified deductions, i.e. alimony, student loan interest. Check the list below to see if you might fall into any of these limitations/additional tax situations.

Child Tax Credit: Starting in 2018, this credit can be up to $2,000 per child 16 and younger. However, the amount of the credit decreases as your income rises. For single and head of household taxpayers, the credit begins to decrease at $200,000 AGI. It decreases at $400,000 AGI for married filers.

AMT: To prevent higher-income taxpayers from claiming too many deductions, Congress created the Alternative Minimum Tax (AMT) in 1969.

You may have to pay the AMT if your taxable income, plus any adjustments and special items that may apply to you, are more than the AMT exemption amount. Starting with the 2018 tax year, taxpayers get the following amounts as exemptions from AMT:

$109,400 for a married couple filing a joint return and qualifying widows and widowers
$70,300 for singles and heads of household
$54,700 for a married person filing separately

This AMT exemption will be indexed for inflation in the future.

IRA Contributions: The contribution limit to your traditional or Roth IRA has increased to the smaller of $5,500 or your taxable compensation for the year. If you were age 50 or older, the most that can be contributed to your traditional or Roth IRA is the smaller of $6,500 or your taxable compensation for the year.

Roth IRA contributions are reduced/phased out if your modified AGI is between $120,000 to $134,999 for singles and $189,000 to $198,999 for couples.

You may make your full traditional IRA contribution if you (and spouse) are not covered by an employer retirement plan. If you are covered by a retirement plan at work, your deduction to a traditional IRA is phased out if you modified AGI is between $63,000 to $73,000 for singles and $101,000 to $121,000 for couples. If only one spouse is covered by a plan at work, the phaseout zone for deducting a contribution for the uncovered spouse begins at $189,000 of AGI and finishes at $199,000. When your AGI goes above the upper limit of the phaseout range, your Roth IRA deduction is not allowed, and your traditional IRA deduction is not allowed.

Mortgage Interest: For any mortgages taken out after December 14, 2017, only interest on the first $750,000 of debt to purchase a house is deductible (note that mortgages taken out prior to that date are grandfathered in under the old rules/still subject to the $1.1 million threshold). Furthermore, interest on home equity loans where the proceeds are used for expenses other than home improvement/related will no longer be deductible after 2017. Note that interest on home equity loans where proceeds ARE used for home improvement are still deductible, subject to the aggregate $750,000 limitation referred to above.

Rental Losses: Owning a rental property is a great investment, but it might not have all the advantages you are hoping for if your AGI is more than $100,000. If your rental has a loss, the deduction is reduced as your AGI rises above $100,000. If your AGI is more than $150,000, your loss is totally suspended and you get no tax benefits that year. However, unused losses will be carried forward to future years and used when a profit or sale of property occurs.

Medical Deductions: For 2018, taxpayers cannot begin to deduct medical expenses until they exceed 7.5% of AGI. Prior to the Tax Cuts and Jobs Act, medical expenses needed to exceed 10% of AGI (7.5% if either you or your spouse is age 65 or older) to start being deducted, and after 2018 the floor will return to 10%. That means the higher your income, the less likely you will be to qualify to deduct any of these expenses unless you have very high medical costs. For example, for 2018, if you make $100,000 a year and paid $7,501 in medical expenses, you would be able to deduct only $1.

Education Credits: Education credits include the American Opportunity Credit, which covers up to $2,500 of undergraduate costs, and the Lifetime Learning Credit, which covers up to $2,000 of undergraduate and graduate school costs. Note, even if you qualify for both credits, you will only be allowed to claim one in the same taxable year.

For the American Opportunity Credit, the credit begins to phase out at $80,000 to $90,000 for single filers or $160,000 to $180,000 for married couples filing jointly.

For the Lifetime Learning Credit, the range at which the credit begins to decrease is $56,000 to $66,000 for single filers and $112,000 to $132,000 for married couples filing jointly. Taxpayers are not eligible for either credit if married filing separately. When parents have a high AGI, it’s sometimes better for children to claim themselves. Consult your tax preparer to crunch the numbers.

	AMERICAN OPPORTUNITY CREDIT	LIFETIME LEARNING CREDIT
SINGLE	$80,000 - $90,000	$56,000 - $66,000
MARRIED FILING JOINTLY	$160,000 - $180,000	$112,000 - $132,000

Net Investment Income Tax: Taxpayers who also have investment income (interest, dividends, certain annuities, royalties, and rents) and have modified AGI over certain thresholds are also subject to a 3.8% tax on that investment income. Single and head of household taxpayers with modified AGI over $200,000 ($250,000 for couples filing jointly) will owe this tax. The tax is 3.8% on the lesser of total net investment income and the excess of modified AGI over the above thresholds.

There’s never been a better year to do some tax planning. Feel free to reach out if you want some help.

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Check our list to see if you might fall into any of these limitations/additional tax situations. [link]

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Adjusted gross income is your income minus qualified deductions, i.e. alimony, student loan interest. Find out more [link]

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The New 20% Small Business Deduction

Sun, 09 Sep 2018 18:29:34 GMT

Tax Tips
Volume 8, Issue 6
For distribution 9/9/18; publication 9/13/18

The New 20% Small Business Deduction

There is a brand new 20% small business deduction that everyone is talking about. In the tax and legal professions, it’s fondly know at Section 199A. Here are some facts about this deduction:

The Basics

All pass-thru entities, such as Sole Proprietors, S-corporations and Partnerships that qualify may be able to take the 20% small business deduction. The deduction can be taken against qualified business income from sales/services, rental real estate (not W-2 income) and can help to reduce taxes. IRS has not published a final 2018 form, but the deduction will come after the itemized deduction amount and before the taxable income amount.

But it’s not easy or simple. The rules are complex as well as fuzzy, and some accountants are waiting on IRS guidance to clarify the fuzzy parts.

First, the deduction is calculated differently for certain “specified service businesses.” We’ll talk about what that means in a minute. If the business is NOT a specified service business, the deduction is limited and must go through this calculation:

If the personal return of the owner of the specified service business has taxable income of LESS than $315k (married filing joint) or $157,500 (single), they CAN deduct 20%.

For taxpayers who have taxable income of MORE than $415k (married filing joint) or $207,500 (single), the amount of the deduction is limited to the LESSER of the qualified business deduction of 20% OR the GREATER of:

A. 50% of the W-2 wages paid by the business OR

B. 25% of the W-2 wages paid by the business PLUS 2.5% of unadjusted basis on qualified property!

If the taxpayer has taxable income BETWEEN $315k and $415k (married filing joint) or between $157,500 and $207,500 (single), they will get a PARTIAL DEDUCTION.

Specified Service Business

In order to qualify for the small business deduction, one of the questions that needs to be determined is if the business is a “specified service business.” What is a specified service business? This is any trade or business involving:

Health
Law
Accounting
Performing Arts
Consulting
Athletics
Financial Services

…where the principal asset of the business is the reputation or skill of one or more of its owners or employees. This does NOT include architects nor engineers because they were specifically mentioned as excluded from this exclusion (confused yet?).

A specified service business small business deduction is calculated differently than all other businesses.

If the personal return of the owner of the specified service business has taxable income of LESS than $315k (married filing joint) or $157,500 (single), they CAN deduct 20%.
If the personal return owner of the specified service business has taxable income of MORE than $415k (married filing joint) or $207,500 (single), they get NO deduction!
If the personal return owner of the specified service business has taxable income BETWEEN $315k and $415k (married filing joint) or between $157,500 and $207,500 (single), they will get a PARTIAL DEDUCTION.

Entity Change Considerations

Now you can see why consulting your tax professional will be key so there will be NO surprises come tax filing time! Taxpayers will need to be PROACTIVE to seek counsel for their specific situation because the type of entity they file as will impact their eligibility for this deduction. In some cases, it may make sense to change entities, but there are far more than tax considerations for such a decision.

Do contact us if you’d like to discuss the 20% business deduction and how it applies to your business.

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Taxpayers will need to be PROACTIVE to seek counsel on the new 20% business deduction because what works for one S-corporation will not work for another S-corporation. [link]

In order to qualify for the small business deduction (199A), what that needs to be determined is if the business is a “specified service business”. [link]

A specified service business small business deduction per 199A is calculated differently than all other businesses. [link]

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Tax Changes Affecting Small Businesses

Mon, 27 Aug 2018 18:32:14 GMT

Tax Tips
Volume 8, Issue 5
For distribution 8/27/18; publication 8/30/18

Tax Changes Affecting Small Businesses

In 2018, the Tax Cuts and Jobs Act entered into effect. Though this act was primarily billed as helping large corporations, it also made changes relevant to small and mid-sized businesses. For small business owners, these tax law changes are best countered by planning ahead for the year to come -- and, in general, it's good news. Here are some basics that you need to know.

Corporations now have a flat tax rate of 21%.

By far, the most significant change in the TCJA was creating a flat tax rate of 21% for corporations. Before TCJA, corporations had graduated tax rates, with the top bracket at 35%. This is going to apply to corporations of all sizes, not just large enterprises. Most small business owners are going to find themselves paying less in taxes due to this, even if they no longer can expense some of the items they are used to expensing.

The bonus depreciation amount has been increased to 100%.

In prior years, a depreciation amount of up to 50% could be expensed at once when dealing with a long-term asset's costs. After 09-27-17, 100% of the cost of the asset can be depreciated at once. This covers assets that are used for over 50% business-related work (though computers that are used less than 50% of the time may still qualify). Bonus depreciation qualifies for both used and new equipment and is a valuable incentive for many businesses.

Automobile depreciation limits have increased.

Many references have been made to "small business owners in luxury cars," due to the new automobile depreciation limits. Automobile depreciation limits have increased overall, increasing the amount of money you can deduct related to vehicle expenses.

For the first year the vehicle is placed in service, the automobile depreciation limits are $10,000. It is $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and fifth years. Bonus depreciation is set at $8,000. Essentially, it has become more affordable to acquire a more expensive, more reliable vehicle.

Section 179 deductions have increased from $500,000 to $1 million.

Before 2018, businesses could deduct up to $500,000 of the cost of a qualified business property. This amount has been adjusted to compensate for inflation. The cap is now at $1 million, which should be considered by businesses looking to invest directly in business property.

Fewer corporations need to file tax returns on accrual basis.

Corporations with above $25 million in gross receipts over the next three years will need to file using accrual basis accounting, but now businesses can file a simpler, cash-based accounting system if they are under this $25 million amount. Previously the cutoff limit was $5 million.

In simple terms, cash-based accounting systems log expenses and income when money changes hands, whereas accrual-based accounting systems log expenses and income when they actually occur. Accrual systems are often more complex because they need to track vendor bills and client invoices.

Net operating losses can no longer be carried back two years.

Net operating losses can be carried forward indefinitely, with a limit of 80% of taxable income. Prior to this, net operating losses could only be carried forward for 20 years and carried back 2 years.

Pass-through entities have acquired a number of benefits.

Non-service businesses are able to take a deduction of 20% of their income.
Service businesses making less than $207,500 (single) or $415,000 (joint) may also be able to take a deduction of 20% of their income.

Some business-related expenses have been eliminated.

Some business tax deductions have been eliminated. Deductions for business entertainment expenses -- except for meals -- are no longer going to be allowed. Further, the deduction of meals that are provided to employees for the convenience of the employer will also not be allowed to be deducted from the tax return after 2025.

Deduction for the payment of employee transportation -- including rental vehicles, parking, and mass transit -- will no longer be allowed on the corporate side. However, employees are not going to be taxed on the value of these benefits; the benefits remain the same to the employees. Local lobbying expenses and domestic production activities will also be eliminated.

Overall corporate taxes have been streamlined, adjusted for rates, and decreased. Though there are some deductions that have been removed, most corporations are going to benefit quite a lot from the overall decrease in corporate tax rates. Small business owners are going to find that they can expense at higher limits though they may not be able to expense as many individual line items, and they will find themselves paying less in overall taxes.

Of course, any small business owner concerned about how their taxes are going to look in the coming year should consult with a tax professional. There are many adjustments being made to corporate taxes, and small business owners will want to plan ahead about the financial choices they're going to be making in the coming year.

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2018 Tax Law Changes for Businesses: Understanding the Tax Cuts and Jobs Act

Mon, 13 Aug 2018 18:34:02 GMT

Tax Tips
Volume 8, Issue 4
For distribution 8/13/18; publication 8/16/18

2018 Tax Law Changes for Businesses: Understanding the Tax Cuts and Jobs Act

With the largest tax law update in over 30 years, navigating the course with the new laws can be confusing. Businesses need to be aware of these changes and consult with their tax professional to get advice so they can be knowledgeable of their options and plan ahead!

For All Businesses

Here are some highlights of changes that affect all business entities:

100% bonus deduction for assets placed in service after September 27th, 2017. The old law only allowed 50% deduction.
Old law only allowed you to take bonus depreciation on new assets. The new law allows used property to qualify.
Deduction for energy efficient commercial buildings.
Credit for renewable diesel fuel.
Old law allowed businesses to carry back a loss 2 years and carry forward the loss 20 years. The new law eliminates the 2-year carryback, but allows you to carry the loss forward indefinitely!
If a business pays out money for sexual harassment and there is a non-disclosure agreement, there is no deduction for the payout. If no non-disclosure agreement exists, then the payout is deductible.
New credit for employers that provide family leave in 2018 and 2019. A company must pay more than 50% of the employee’s historical wages to receive the credit
Transportation fringe benefit expenses are revoked (parking/mass transit), but excluding it from the employee’s income is retained.
Luxury auto deductions tripled by allowing a deduction of $10k in the first year, $16k in the second year, $9600 in the third year and $5760 in the fourth and later years. Maximum bonus depreciation is $8000.
Old law required companies earning over $5 million to file on the accrual basis. New law says that companies under $25 million can file on a cash basis.

Meals & Entertainment

It was a surprise to many businesses that the new law does not allow entertainment expenses. This would include golf outings, ball games, movies, theatre, etc. The good news is that meals with clients are still 50% deductible, including meals while you travel. Be aware though, if you go to the ball game and have a meal, there is no deduction for the meal while participating in entertainment.

The old law allowed a 100% deduction for meals provided to all employees when there was a company meeting during a meal break. This has changed to be 50% deductible.

Holiday parties, company picnics, and employee appreciation remain at 100% deductible.

C-corporations

The old law taxed corporations between 15% to 35%. In fact, personal service corporations, like accountants, attorneys, architects, were taxed at a flat rate of 35%. The new law says that all corporations will be taxed at a 21% rate. This is fantastic for those personal service corporations, but businesses that were taxed at 15% may want to look at the options of switching their entity to pay less in tax. Corporations that have less than $87,100 of income will end up paying more in taxes.

The good news is that the alternative minimum tax (AMT) for corporations is eliminated!

Partnerships

Prior to the new law, the rule was that if a partnership sold more than 50% of the ownership, the partnership was automatically terminated. The new rule eliminates this rule.

Consult your attorney because partnerships will want to make sure that it is documented on who the partnership representative is. If there is no written representative, the IRS may assign someone and you could lose rights and control.

That’s just a quick look at some of the changes affecting businesses. If there ever was a year to do some business tax planning, this year is it. Contact us to find out more.

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Earned Income Credit - IRS Gives Free Money to Certain Taxpayers

Mon, 30 Jul 2018 18:35:19 GMT

Tax Tips
Volume 8, Issue 3
For distribution 7/30/18; publication 8/2/18

Earned Income Credit - IRS Gives Free Money to Certain Taxpayers

I want free money!! How do I get it? Back in 1975, Congress approved this Earned Income Credit (EIC) to provide an incentive to working taxpayers. To qualify, you must meet certain requirements.

To receive earned income credit you must have earned income from employment (W-2), self-employment or another source of income. You don’t need to have children to qualify, but the more kids you have, the higher the credit. You can be single, head of household or married filing joint with your spouse to qualify.

EIC is an area that is highly audited with the IRS because it is abused often. There are fraudulent returns created every year and the IRS estimates between 21 to 26 percent of EIC credits are paid in error. It is such a big deal that that the IRS delayed refunds in 2017 in order to minimize the fraudulent returns filed. Thus, a good understanding of the rules is important because if a return is generated with EIC errors, the taxpayer would need to pay back the EIC with not only interest, but fraud penalties that could ban the person from EIC for the next 10 years. So what are the rules?

If you are married and have at least one child, there are 4 tests that you must meet to qualify:

The relationship of the child (son/daughter/adopted child/stepchild/foster child/grandchild/sibling/niece/nephew)
The age of the child (younger than you, younger than 19 or younger than 24 and a full-time student, or disabled)
Residency (child must live with you in the US for more than ½ the year)
Must file a joint return (child cannot file a joint return)

If you are married and have no children, you must meet 3 tests:

You and your spouse must have lived in the US more than ½ the year
You or your spouse must be between the ages of 25 and 64
You or your spouse cannot qualify as a dependent of another person

In order to qualify in 2018, your adjusted gross income (AGI) must be less than:

$49,194 for single or HOH filers ($54,884 married filing jointly) with 3 or more qualifying children
$45,802 for single or HOH filers ($51,492 married filing jointly) with 2 qualifying children
$40,320 for single or HOH filers ($46,010 married filing jointly) with 1 qualifying child
$15,270 for single or HOH filers ($20,950 married filing jointly) with no qualifying children

Tax Year 2018 maximum credit:

$6,431 with 3 or more qualifying children
$5,716 with 2 qualifying children
$3,461 with 1 qualifying child
$519 with no qualifying children

Note that you also must have investment income (interest, dividends, capital gains) of $3,500 or less for the year in order to qualify for the credit.

60% of the errors in filing this credit are due to 3 things:

Claiming a child who does not meet the age, relationship, residency or joint return test mentioned above
Filing as a single or head of household when legally married
Over or under reporting income or business expenses to maximize the credit

For more information, you can check out the IRS publication 596 here: http://www.irs.gov/pub/irs-pdf/p596.pdf

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2018 Tax Law Changes: Understanding the Tax Cuts and Jobs Act

Mon, 16 Jul 2018 18:40:17 GMT

Tax Tips
Volume 8, Issue 2
For distribution 7/16/18; publication 7/19/18

2018 Tax Law Changes: Understanding the Tax Cuts and Jobs Act

In this article, we’ll share some of the highlights of the tax changes for 2018 as they relate to individuals. Use this as a type of checklist, and feel free to contact us on any point so we can provide additional details as to how it might impact your situation.

Tax Bracket Reorganization

There will continue to be seven tax brackets, but the rates and thresholds have changed:

10% rate for individuals making up to $9,525 or married filing joint up to $19,050
12% rate for individuals making between $9,526 to $38,700 or married filing joint from $19,051 to $77,400
22% rate for individuals making between $38,701 to $82,500 or married filing joint from $77,401 to $165,000
24% rate for individuals making between $82,501 to $157,500 or married filing joint from $165,001 to $315,000
32% rate for individuals making between $157,501 to $200,000 or married filing joint from $315,001 to $400,000
35% rate for individuals making between $200,001 to $500,000 or married filing joint from $400,001 to $600,000
37% rate for individuals making over $500,000 or married filing joint over $600,000

Above the Line Deductions

Moving deductions and reimbursements—suspended through 2025 except for military service members who are changing duty stations. Employer reimbursements (other than military) will be included as taxable wages

Alimony—for agreements or modifications entered into after 12/31/18, alimony will no longer be deductible by the payer, nor will it count as income to the recipient. For a pre-2019 divorce, the old rules apply (payer can deduct payments and the recipient must pay taxes on them. The law does permit ex-spouses to modify an earlier divorce agreement to adopt the new rule after it goes into effect in 2019, but both spouses would need to agree to the change

Educator expenses—there is no change to the law where a teacher is allowed to deduct up to $250 paid out of pocket for classroom supplies and professional development courses

Dependent care—there is no change to the law. An employee can exclude up to $5000 per year from their gross income to provide for dependent care assistance.

Education Provisions

All education provisions remain the same for the following:

American Opportunity Credit
Lifetime Learning Credit
Coverdell Education accounts
Higher Education interest
Employer provided education assistance
Exclusion of qualified tuition reduction
Exclusion for interest on US savings bonds used for higher education expenses

The only exception is the 529 plan, which now allows for the tax-free withdraw of funds if used for qualifying expenses for K-12 private and religious schools.

Tax Credits and Exemptions

Exemptions--the $4050 exemption per person (taxpayer, spouse, dependents) has been suspended, but don’t panic because the standard deduction has increased to offset this change

The Child Tax Credit--expanded to $2000 per child under the age of 17. More taxpayers will qualify for this deduction, as the phase out now begins at $200,000 AGI for single filers or $400,000 for MFJ filers

Non-Child Dependent Credit--allows for a $500 credit per non-child dependent. The same income phase out as the Child Tax Credit applies

Electric Vehicle Credit—credit has been retained and continues to be a maximum credit of $7,500

Adoption Credit—credit has been retained and continues to apply to an adopted child under the age of 18, with a maximum credit of $13,570

Alternative Minimum Tax

While AMT was retained, the exemption phase out has increased substantially. Old tax laws were $160,900 for Married Filing Joint, $80,450 Married Filing Separate, $120,700 single or Head of Household filers. NEW laws are $1 Million for Married Filing Joint, and $500,000 for all others

Standard Deduction and Itemized Deductions

Standard deduction has nearly doubled:

Single filers = $12,000 deduction (up from $6,350)
Head of Household filers = $18,000 (up from $9,350)
Married Filing Joint = $24,000 (up from $12,700)

Itemized Deductions

Medical deduction has been retained and improved—for 2018, the threshold for deductibility is now 7.5% of Adjusted Gross Income (used to be 10% of AGI)

Itemized deduction phase out—the deduction limitation phase out for higher income taxpayers has been suspended

SALT (State and Local Tax) deduction—the SALT deduction has been capped at $10,000. This is a combined total of your property taxes + state/local taxes + DMV fees. In the past, the deduction was not limited

Mortgage interest deduction—full interest deduction allowed for up to $750,000 of indebtedness on primary/secondary home mortgage. For loans originated prior to 12/15/17, mortgage indebtedness can be as much as $1 million to qualify for full interest deduction. Home equity (includes second mortgages) mortgage interest can still be deducted so long as funds from the equity loan was used to buy, build, or substantially improve the home that secures the loan. The total of all loans must not exceed $750,000 ($1 million for loans originated prior to 12/15/17)

Charitable contributions—the deduction amount has increased, but charitable contributions cannot exceed 60% of a taxpayer’s AGI (up from 50%)

Miscellaneous deductions (subject to 2% of AGI)---miscellaneous deductions have been suspended through 2025. Some examples of these types of deductions are unreimbursed employee business expenses, union dues, tax prep fees, investment expenses, casualty losses

Affordable Care Act

The shared responsibility payment (penalty for not having health insurance) has been repealed and will go into effect in 2019

Do any of these impact you? If so, feel free to reach out so we can do some tax planning to avoid surprises in April 2019.

***

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Biz Tip: The charitable contributions deduction amount has increased, but charitable contributions cannot exceed 60% of a taxpayer’s AGI. [link]

There will continue to be seven tax brackets, but the rates and thresholds have changed. Find out more [link]

Learn more about the 2018 tax credits and exemptions. [link]

For 2018 the Alternative Minimum Tax was retained, the exemption phase-out has increased substantially. Find Out More [link]

How have the rates and thresholds changed for the 2018 tax bracket reorganization? [link]

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Is Your Business Considered a Hobby by the IRS?

Mon, 18 Jun 2018 17:54:31 GMT

Tax Tips
Volume 7, Issue 26
For distribution 6/18/18; publication 6/21/18

Is Your Business Considered a Hobby by the IRS?

Very frequently tax preparers are asked to provide clarification on IRS rules that they heard from a friend, neighbor or colleague. Usually some part of the statement is true; however, there is always more to the story or it may not apply to that person’s specific situation. If you’ve heard the statement, “You can’t deduct a loss from business if it occurs more than three out of five years,” this is not the entire truth.

A person that conducts an activity for profit is allowed to deduct the expenses that are ordinary and necessary in that industry. If the expenses exceed the income, the amount can offset other income such as wages, interest, or dividends. However, if your activity is a hobby, you cannot reduce your other income by the losses.

When your losses exceed the three-year rule, the burden of proof now shifts to the taxpayer to prove the activity is a for-profit business. Here are some factors to consider:

The manner that you carry on the activity
The expertise of the taxpayer in this industry
The time and effort spent in the activity
The taxpayer’s history and success in this industry
The elements of personal pleasure or recreation

Here are some ways to ensure your for-profit business is not considered as a hobby:

Keep thorough and professional books.
Use a separate business bank and credit card account(s).
Log any personal use on assets, such as a camera.
Research trends in similar businesses.
Obtain insurance, registrations, certifications, licenses needed for that type of industry.
Maintain a second phone listing for business.
Document evaluations of your operation to attempt to improve the business’s profitability.
Develop a written business plan and update it annually.
Keep a detailed calendar of your business activities.

Here’s an example: Joe had a business as a personal chef. This was not his primary way of earning income. He had a W-2 job with a local city. He did earn about $200 to 300 in income; however, his expenses were much more than that. Come to find out, he was hosting dinner parties at his home and wanting to write off the food, subscription to cooking magazines, and seeds for his home garden.

If you are in doubt, just imagine yourself in front of an auditor explaining your specific situation. If it “feels” like the story above, it may not fly with the auditor, but that does not mean it is not a true business. What you need to do is plan and strategize. What can you do today to prove that you are a for-profit business?

Know the rules and then step out in confidence. And, don’t get tax advice from a friend because it might not be the whole truth! Consult your tax preparer to confirm your specific situation qualifies.

***

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When your business losses exceed the 3-year rule, it’s up to the taxpayer to prove the activity is a for-profit business. [link]

Here are some ways to ensure your for-profit business is not considered a hobby. [link]

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What can you do today to prove to the IRS that you are a for-profit business? [link]

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New Tax Brackets in 2018

Mon, 23 Apr 2018 17:51:27 GMT

Tax Tips
Volume 7, Issue 22
For distribution 4/23/18; publication 4/26/18

New Tax Brackets in 2018

The 2017 Tax Cuts and Jobs Act revised some foundational deductions, exemptions, and tax brackets for the 2018 tax year. Here’s a rundown of what’s changed in that area for individuals:

Exemption

On your 2017 1040 tax return, you likely received an exemption of $4,050 per person. Check line 42 of your own return. In 2018, this exemption is discontinued, but you won’t really lose out because the standard deduction has increased to compensate for this elimination.

Standard Deduction

In 2017, your standard deduction was $6,350 per person in general and $9,350 for head of household. In 2018, the standard deduction will increase to $12,000 per person and $18,000 for head of household filers.

Quite a few itemized deductions have been eliminated or capped for 2018, so more taxpayers will be using the standard deduction going forward.

Tax Brackets

There are seven tax rates or brackets, just like there were before, but the threshholds and rates have changed. The rates now range from 10 percent to 37 percent:

10 percent
12 percent
22 percent
24 percent
32 percent
35 percent
37 percent

Here are the details depending on your filing status:

Rate or Bracket	Single	Married Filing Joint Returns	Head of Household
10 %	$0 to $9,525	$0 to $19,050	$0 to $13,600
12	$9,526 to $38,700	$19,051 to $77,400	$13,601 to $51,800
22	$38,701 to $82,500	$77,401 to $165,000	$51,801 to $82,500
24	$82,501 to $157,500	$165,001 to $315,000	$82,501 to $157,500
32	$157,501 to $200,000	$315,001 to $400,000	$157,501 to $200,000
35	$200,001 to $500,000	$400,001 to $600,000	$200,001 to $500,000
37	over $500,000	over $600,000	over $500,000

The new withholding tables are posted here:

https://www.irs.gov/pub/irs-pdf/n1036.pdf

If you have questions about this or anything about the new law, please feel free to reach out any time.

***

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The 2017 Tax Cuts and Jobs Act revised some foundational deductions, exemptions, and tax brackets for the 2018 tax year. [link]

Here’s a rundown of what’s changed in deductions, exemptions, and tax brackets for the 2018 tax year. [link]

A few itemized deductions have been eliminated or capped for 2018. Find out more here: [link]

What are the new tax brackets for 2018? [link]

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The Home Office Deduction: Regular Method

Mon, 26 Mar 2018 17:49:24 GMT

BizBoost News
Volume 7, Issue 20
For distribution 3/26/18; publication 3/29/18

The Home Office Deduction: Regular Method

Has your friend, neighbor or colleague told you that if you take the home office deduction, it will be a “red flag” to the IRS that will trigger an audit? Well, that is just not true! 2017 is the last tax year that you can take a home office deduction since the Tax Cuts and Jobs Act excludes it for tax years 2018-2025.

In order to claim the home office deduction, you MUST QUALIFY. To qualify, you are required to meet two tests: 1) regularly used and 2) exclusively used for business.

Regular Use: This test is clear – you use the area on a continuing basis. Occasional or incidental business use does not meet the test.

Exclusive Use: A specific part of a taxpayer’s home is used for business only. There is no requirement that the business portion of a room be physically separated by a wall or partition. But, any personal use of the space, no matter how small, means that it is not exclusive. There are two exceptions: storage space and daycare facility.

You can have several offices. The key issue is to determine your PRINCIPAL PLACE OF BUSINESS.

Your home can qualify as a principal place of business if:

The office is used regularly and exclusively for administrative or management activities (billing clients, keeping books, ordering supplies, setting appointments, writing reports)
There is no other fixed location where the taxpayer conducts these activities

A business use of the home deduction is allowed if the taxpayer meets clients in their home. For example, if an attorney works four days a week in his downtown office and 1 day at his home office, he can deduct the home office if he meets with his clients there too. It will qualify for the deduction even though it is not the principal place of business.

The best thing about qualifying your home as the principal place of business is that the miles that you drive from your home to the first business stop are now deductible. If your home is not the principal place of business, your first stop is considered commuting and not deductible.

The easiest way to determine the business percentage is to take the total square footage exclusively and regularly used for business and divide that by the total square footage of your home. Then, you can deduct the following categories on your return for the business percentage:

Mortgage interest
Rent
Property taxes
Utilities (gas, electricity, garbage)
House insurance
Security system
Home maintenance/repairs
Depreciation (straight line method over 39 years)

Note: Lawn care/landscaping expenses are not deductible according to the IRS regulations. However, the Tax Court allowed the deduction where the taxpayer’s clients regularly visited the taxpayer’s home office and where the taxpayer was a daycare provider and the children used the lawn as a play area.

If you painted the office area only, that cost would be 100 percent deductible. This is called direct expenses. However, if you paid for garbage for the home, only the business percentage used is deductible which is called indirect expenses.

If your total income is less than your total expenses, your home office deduction for certain expenses will be limited. However, these deductions can carry over the next year. Be aware of that carry over number if this happens in your situation.

If you take depreciation on your home office and you sell your home, you have to “recapture that amount.” What this means is that the amount you deducted for depreciation reduces your ordinary income – this is good. But when you sell your home, that amount will increase your capital gains. The capital gains rate is typically less than your personal income tax bracket.

Years ago, many tax preparers would never take the home office on an LLC, S-Corp or C-Corp return. If they did, it would be a Schedule A deduction as an employee, which is not a great deduction due to the two percent limitations. However, now some preparers are taking the home office for these entities. The only thing I recommend is not to take mortgage interest or real estate taxes. Only take the business portion of rent, utilities and insurance.

When you know the rules, there should be no fear around taking a deduction that you qualify for. So…do you qualify? If so, take the deduction, reduce your taxes, and don’t worry about that “red flag” because if you are audited, there will be no change on your return because you know the rules!

Feel free to reach out to us to determine if your specific situation qualifies for a deduction and/or to determine the impact of the new tax law changes for 2018.

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To qualify for the home office deduction, you are required to meet two tests. Find out more: [link]

Know the rules of home office deduction to reduce your taxes. [link]

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Record Retention…When to Keep, When to Shred

Mon, 26 Feb 2018 18:47:58 GMT

BizBoost News
Volume 7, Issue 18
For distribution 2/26/18; publication 3/1/18

Record Retention…When to Keep, When to Shred

Do you know how long you are supposed to keep documents? Do you know when it’s safe to shred? Having this knowledge is the first step to good recordkeeping. By following these guidelines, you can keep your documents and files organized and updated. Avoid keeping things you don’t need – or discarding something you should have kept permanently!

First—categorize your documents. Examples include past tax returns and supporting documentation, medical information, purchase contracts for large assets, legal matters, employment information, insurance records, property deeds, etc.

Second—determine how you will store your records. Do you want to archive everything digitally? Do you prefer to keep paper copies? When considering how to store your records, think about worst-case scenarios such as fire, burglary, natural disaster, or even something as simple as snooping family members. Regardless of how you store your records, they should always be easily accessible.

Third—label documents with a “keep until” date. Refer to the table below for suggested lengths of time to keep your important documents. Labeling files with a “destroy” date will help ensure that your records will remain organized and current.

Fourth—destroy records that are no longer needed. To minimize the risk of identity theft, it is very important that you permanently destroy documents. If the items are paper, shred or incinerate them. If you have a large amount of shredding, consider taking it to a shredding facility. Occasionally, community organizations will offer complimentary document shredding on specific dates. If your documents are stored on a computer, use specialized software to remove files or delete an entire hard drive’s data. Another option is physically destroying the hard drive if you plan to stop using the computer entirely.

Having a system in place for your record retention will not only make it easier to locate important documents quickly and keep unnecessary documents to a minimum, but it will also give you something priceless—peace of mind.

TYPE OF RECORD	SUGGESTED LENGTH OF RETENTION
Business Records
I. Accounting Records
Bank Statements & Deposit	3 yrs
Individual Payroll Records	8 yrs
Payroll Timecard/Sheets	3 yrs
Expense Reports	6 yrs
Accounts Payable and Receivable Reports	6 yrs
Trial Balance Reports	6 yrs
Payment Vouchers (all)	8 yrs
All Canceled Checks	8 yrs
Audit Reports	7 yrs
General Ledgers and Journals	7 yrs
II. Sales, Purchase, Shipping Records
Sales Contracts & Invoices	3 yrs
Requisition/Purchase Orders	3 yrs
Export Declaration & Manifests	4 yrs
Freights, Shipping, & Receiving Reports	4 yrs
Bills of Lading Records	4 yrs
III. Personnel Records
Daily Time Reports	6 yrs
Withholding Tax Statements	6 yrs
Disability & Sick Benefits Records	6 yrs
Expired Contracts	6 yrs
Files of Terminated Personnel	6 yrs
IV. Corporate Records
Expired Notes, Leases & Mortgages	6 yrs
All Cash Books	7 yrs
Contracts & Agreements	Indefinitely
Property Deed & Easements	Indefinitely
Registration of Copyrights and Trademarks	Indefinitely
Patents	Indefinitely
Corporate By-Laws and Minutes Books	Indefinitely
Capital Stock & Bond Records	Indefinitely
Stock Certificate & Transfer Lists	Indefinitely
Canceled Checks on Asset Purchases	Indefinitely
Canceled Checks for Taxes & Contracts	7 yrs
Proxies	Indefinitely
Labor Contracts	7 yrs
Retirement & Pension Records	7 yrs
Tax Returns & All Work Papers	7 yrs
V. Insurance Records
All Expired Policies	4 yrs
Accident Reports	6 yrs
Safety Reports	8 yrs
Settlement Claims	10 yrs
Group Disability Records	8 yrs
Fire Inspection Reports	6 yrs
VI. Correspondence
General - All	3 yrs
Tax & Legal Communications	7 yrs
License & Traffic	6 yrs
Sale & Purchase	6 yrs
Personal Records
Tax Returns and Related	7 yrs
IRA Contribution Records	Permanently
Retirement/Savings Plan Statements	From 1 yr to permanently
Bank Records	From 1 yr to permanently
Brokerage Statements	Until you sell the securities
Bills	From 1 yr to permanently
Credit Card Receipts & Statements	From 45 days to 7 yrs (7 yrs for tax-related expenses)
Paycheck Stubs	1 yr
House/Condominium Records	From 6 yrs to permanently

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By following these guidelines, you can keep your documents and files organized and updated. [link]

Having a system for your record retention will make it easier to locate important documents and keep unnecessary documents to a minimum [link]

Avoid keeping documents you don’t need or discarding something you should have kept permanently. Find out more here: [link]

Do you know how long you are supposed to keep documents? Find with our guide [link]

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Income Shifting: SAVE Thousands in Taxes

Mon, 29 Jan 2018 18:45:32 GMT

Tax Tips
Volume 7, Issue 16
For distribution 1/29/18; publication 2/1/18

Income Shifting: SAVE Thousands in Taxes

Want to save money in taxes WITHOUT working harder? One way is to shift income from a higher bracket taxpayer to a lower one or even a zero rate-bracket. Typically, splitting the income between family members by hiring them to work in the business will save thousands in taxes. An example is shifting income to your kids by hiring them. It is perfectly legal if done correctly, but if your children are unreasonably paid, the IRS will take notice. Let me give you an example of how this can work.

Jane owned a consulting business. She had two teenage sons that legitimately did work for the business. Some of the tasks they did included vacuuming the offices, emptying trash cans weekly, taking care of recycle and shredding documents, filing receipts, stuffing envelopes and doing yard work outside the office. Jane plans to pay her sons $5,000 each for the year. She was able to shift $10,000 from her higher tax rate to her son’s ZERO tax rate, which saved thousands. She plans to use this $10,000 to teach her kids about budgeting.

Also, this income shift helped with her personal cash flow because she has the kids help pay for groceries and set aside the money for college. Another thing she plans to do is to put money aside in a Roth IRA for the kids. While the company will need to pay some payroll taxes, the savings far outweigh the cost. Another benefit is that her sons will learn basic knowledge of how she runs her business. What a GREAT tax deduction for her business – and it was EASY!

Here are some facts and tips around income shifting:

Your kids can be any age
They need to keep a time card for work done – documentation is key
The work needs to be appropriate for the age and skill level
Depending on the situation, your child may not have to file a tax return
Consider helping parents or grandchildren who might be in lower income brackets

Depending on your business entity, you can also reduce self-employment taxes with this strategy. For corporations, it is a great way to reduce the taxable income. If you are a sole proprietor, there are some taxes the kids don’t have to pay in their paycheck. And, the IRS allows this, but they don’t volunteer the information to you.

Don’t get this strategy confused with gifting money to your child. When gifting, there is no work involved. Also, don’t get this shifting of income mixed up when parents move investment income (interest, dividends and capital gains) to their children. That is called the “kiddie tax.”

Income shifting works well under specific situations, and not everyone can meet the requirements. Depending on your situation, you may be able to take advantage of the income shifting opportunity, so feel free to reach out to us if you want to discuss your options.

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Entertainment Deductions: Half the Fun?

Mon, 01 Jan 2018 18:43:30 GMT

Tax Tips
Volume 7, Issue 14
For distribution 1/1/18; publication 1/4/18

Entertainment Deductions: Half the Fun?

Here are some basic rules you need to know to ensure that all your entertainment expenses are deductible:

1. Do you have an ordinary and necessary business reason for the entertainment?

2. Did you have a quiet business discussion before, during or after the event? No discussion, no deduction! You’ll need to explain why the entertainment would benefit your business in the future.

3. The discussion must be conducted in a business setting that allows an active business discussion. This could be a restaurant, for example. If the main entertainment is done in a non-business setting such as a bar with loud music or a cocktail party, you must speak about business before or after the event in a business setting.

4. Do you have proof? Keep documentation of who, what, where, why and how much. This documentation must be written within one week of the meeting.

Reasonable, Lavish, and Extravagant: So does the entertainment need to be reasonable? Can you get in trouble if the entertainment is lavish and extravagant? Actually, no. The only rule is that it is must be an ordinary and necessary expense. There are no parameters on how much you can or cannot spend. In fact, a self-employed business person spent over $60,000 on entertainment (rock concerts). His entertainment expense was disallowed – not because of the amount – but because he did not have documentation to support the deduction.

The IRS looks at how much business was generated as a result of the entertainment. There is no rule regarding the number of times you may entertain a potential client, but a wise business person would limit the frequency within reason. But then again, what is reasonable? Taking your spouse out on a date once a month would not qualify. However, you could consider taking your mother out if she is a potential client/customer who will buy services or products from you – nothing wrong with that!

50 percent vs. 100 percent Deductible: Almost all entertainment is deductible at 50 percent, meaning that if you spend $500, you receive only a $250 deduction. Here’s the good news – any entertainment that revolves around a sporting event is fully deductible; that includes any ticket or sports event, only if:

It is organized for the primary purpose of benefiting a 501(c)3 charity
It donates all the net proceeds to a 501(c)3 charity
It uses volunteers to put on the event

So a PGA tour event would be fully deductible because they donate the net proceeds to charity, but a ticket to a college or high school sports event does not qualify since that usually goes toward the coaches’ pay. Other events that may qualify for a 100 percent deduction are tennis, skeet shoots, ski tournaments and fishing tournaments, just to name a few.

Another thing to keep in mind is that generally, you will get a better deduction if you list an expense to a sporting event as a business deduction rather than a charitable donation. For the contribution to a charity, you can deduct only the amount that exceeds the benefit you received from the item (the value of the entertainment).

Additional fully deductible entertainment expenses are employee holiday parties, annual picnics or summer outings. For example, a service corporation rented a powerboat and was able to deduct 100 percent of the $41,000 expense since it did not discriminate between the owners and employees and it was deemed ordinary and necessary.

*Note: Create two accounts in your accounting system’s chart of accounts – one for 50 percent and the other for 100 percent deductible entertainment.

Be strategic: Plan a business meeting for a substantial amount of time (say two hours) and then go skiing. You cannot deduct your personal skiing with your family (unless your spouse is active in the business), but you can deduct the entertainment with people who you plan to do business with. After skiing, resume your meeting for another two hours and one minute.

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Here are some basic rules you need to know to maximize your entertainment expense tax deduction. [link]

What you need to know about business entertainment deductions. [link]

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1099s—The Ins and Outs

Mon, 04 Dec 2017 18:38:32 GMT

Tax Tips
Volume 7, Issue 12
For distribution 12/4/17; publication 12/7/17

1099s—The Ins and Outs

Processing 1099s can be confusing and frustrating. Here are some facts you need to know!

General Rule: If you pay someone more than $600 in a calendar year for services, not material/product, then you are required to provide a 1099 showing the amount you paid. One tip is to collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or corporation. If it is a corporation, then no 1099 is required. The 1099 is due January 31st. The 1096 form is not required if you E-File. If you file by paper, it is required.

Addressing the 1099: If the person you paid uses their Social Security number as a tax ID number, then the person’s full name must be on the first line of the 1099. If you list the business name by mistake, then you will receive a letter from the IRS saying that the name and ID do not match. Then the IRS may require you to withhold money from future checks.

Reimbursed Expenses: If you pay a subcontractor for expenses incurred, do NOT include that amount in box 7. If you receive a 1099 from someone with reimbursed expenses, like travel or postage, don’t worry. Show the full amount of income on your tax return and then show the full amount of expenses and it will net out the same. If you lower the 1099 amount on your return to “correct” it, that will trigger an audit.

Strict Classification Rules: If you hire a subcontractor, be sure that the state won’t deem the person as an employee. A few indications to strengthen your case are:

You have a contract agreement between parties.
The subcontractor invoices the business.
The subcontractor has a business license. The business does not tell the contractor WHEN to perform the work or HOW to do their job. The subcontractor uses their own equipment and materials.
The subcontractor is available to be hired by other companies.

Remember, there are fines, penalties, and back taxes at the federal and state levels to pay if a worker is misclassified. Here is a link to a 20-factor test to determine if the worker is an employee or a contractor: https://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf

Penalties: If you miss the deadline and file within 30 days, the penalty is $50. If you file after 30 days of the missed deadline, the penalty is $100. If you file after August 1, or do not deliver, or have an incorrect name and taxpayer identification number combination, the penalty is $260. Intentional disregard results in a penalty of $530.

Extensions: Extension on E-Filing –Form 8809: you will receive an automatic 30 day extension as long as you request prior to the deadline of January 31st. You can find the form on the IRS website and either fax or mail it in.

Fax: 1-877-477-0572
Mail: Internal Revenue Service, Attn: Extension of Time Coordinator, 240 Murall Drive, Mail Stop 4360, Kearneysville, WV 25430

Extension on Recipient Delivery: there is no specific form; you will need to send a letter to the IRS. It is not an automatic extension. If granted, you will be provided with an extra 30 days for delivery; however, if not granted, you will still receive a 10-15 day grace period.

1099-K Rules: There has been a lot of confusion regarding the new 1099-K rules. All merchant companies that process credit card payments are required to issue 1099-Ks to the seller. It can be for one transaction for any amount. The main reason for this law is to capture payments going through eBay, PayPal and Amazon. However, now the common business owner will get a 1099-K as well if their clients or customers pay them with a credit card. Here is the confusing part: businesses will provide a 1099-MISC for payments made with a check or cash and the merchant company will process 1099-K’s made with a credit card. Let’s give some examples to clarify:

Example 1 – You pay a subcontractor $700 for services. If you paid them with a check, you issue them a 1099-MISC.

Example 2 – You pay a subcontractor $700 with a check and $800 with a credit card. You will issue them a 1099-MISC for $700 and the subcontractor’s merchant company will give them a 1099-K for the $800.

Example 3 – You pay a subcontractor $300 with a check and $800 with a credit card. The safe answer is to still issue a 1099-MISC for $300 because the combine total payment to the subcontractor (check and credit card) was over the $600 amount.

Oddball Clarifications: If the contractor is NOT a US citizen and lives in another country, have them fill out a W-8BEN and keep this on file. Prepare a 1099, but there will be no tax ID number on the form. If questioned by the IRS, show them a copy of the W-8BEN. There are no withholding requirements for those that work outside the United States.

If a foreign contractor performs services in the U.S., there are 3 conditions that need to be met:

The nonresident alien performing labor services is present in the U.S. for less than 90 days during the tax year.
The total pay does not exceed $3,000.
The pay is for labor performed for an office or place of business maintained in a foreign country.

If any of the above conditions are not satisfied, a principal has to report and withhold income of a foreign independent contractor. However, the withholding can be avoided if the country of the contractors has a tax treaty with the U.S.

If the 1099 comes back to you undelivered, keep a copy for your records to show the attempt. If the contractor has already performed their services and you cannot get the contractor to fill out the W-9, keep a log of the attempts to contact them by phone, email or letter. The IRS has penalties for not sending the 1099 and if you show intent, hopefully there will be grace in the penalties.

If you find you made a mistake on the amount or tax ID number, you can always correct the form and re-send it by checking the “Corrected” box.

Corporations do NOT get 1099s, but some people are confused if they should send a 1099 to LLCs. Send a 1099 to single-member LLCs and multi-member LLCs (partnerships). 1099s are required to ALL attorneys regardless of their entity type or amount paid!

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The Tax Benefits of Health Savings Accounts

Mon, 06 Nov 2017 15:27:18 GMT

Tax Tips Volume 7, Issue 10
For distribution 11/6/17; publication 11/9/17
The Tax Benefits of Health Savings Accounts

If you have a high-deductible health insurance plan, you probably know how important it is to have a Health Savings Account (HSA) to save for those medical expenses that come out of your pocket.

HSAs offer great tax savings if you qualify. What’s so good about them? Well, unlike the well-known flexible spending accounts that operate on the “use it or lose it” principal, you can accumulate funds in HSAs over a period of years without losing your unspent balance. Of course, HSA’s are tax-deductible savings plans, and if you have an employer that offers one, you can deduct the funds from your check with pre-tax dollars. Your HSA can also earn interest and dividends, all of which are tax-exempt at the federal level. And finally, your withdrawals from your HSA are tax-free as long as you use the funds for qualified medical expenses.

Qualified expenses include such things as your health insurance deductible, certain medical equipment, vision care, dental care and prescriptions, among others. Keep in mind, though, that tax-free withdrawals are allowed only for prescription drugs. Over-the-counter drugs do not qualify.

You must be enrolled in a high-deductible insurance plan in order to be eligible for an HSA. You also cannot be covered by another health insurance plan (such as a PPO provided by your spouse’s employer). For 2017, the insurance plan must have a deductible of at least $1,300 for self-only coverage and $2,600 for the family. You can contribute up to $3,400 as an individual to your HSA in 2017. Family contributions max out at $6,750. If you are 55 or older at year end, you are entitled to make a catch-up contribution of an additional $1,000 into the HSA.

Taking money out of your HSA for anything other than qualified medical expenses means you will have to pay income tax on the funds. Additionally, you get hit with a 20% non-qualified withdrawal penalty…ouch!

So how do you set up an HSA if you don’t already have one?

Get your high deductible health insurance coverage. Start the new year off right with your health insurance coverage in place to qualify you for an HSA.
Set up your HSA as soon as you get your insurance coverage. You can’t take tax-free withdrawals for medical expenses incurred prior to the account being established so it’s important to get the HSA set up as soon as possible. Many financial institutions offer options for HSAs, so shop around to find the best return on your money. If you are an employee, check with your Human Resources department to find out how to enroll in the company plan.
Make your first contribution. You have until April 15th of the following calendar year to make a contribution for the previous year.
Contact your tax preparer to help you calculate your deductible HSA contributions for the year. This will be reported on Form 8889 of the 1040. For contributions, you will receive a Form 5498-SA from your insurance provider telling you how much you put in to HSA during the year.

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