By topic: Corporations
IRS Notice 2021-49 disallowing the employee retention credit to more than 50 percent owners who have certain living relatives has to be a mistake. It’s too illogical to stand. In fact, you have to question whether the notice is technically correct.
Can your corporation claim the employee retention credit on the W-2 wages it pays to a shareholder-employee who owns more than 50 percent of the corporation? There’s disagreement about this within the tax community. What should you do? Read this article.
Congress created the COVID-19 employee retention credit to help employers continue to pay employees while affected by the COVID-19 pandemic. The Consolidated Appropriations Act, 2021, and the American Rescue Plan Act expanded access to this tax credit in both tax years 2020 and 2021. In this article, you see how a small-business owner calculates and claims this most beneficial tax credit.
Do you operate your business as an S corporation? It’s a popular choice due to the tax savings you benefit from. But if you don’t avoid the pitfalls, you risk losing those valuable tax benefits. Download this guide to maximize your S corporation tax savings and avoid common missteps.
Are you starting or buying a new business? If so, you have a decision to make regarding the best operating entity for this business. Choose wisely, and you will benefit in many ways, including possible huge tax savings. Choose the wrong entity, and you’ll feel the pain for years to come.
Have you set your S corporation salary so you can save on payroll taxes? If so, are you using one of the three approaches to establishing that salary that are contained in the “Reasonable Compensation Job Aid for IRS Valuation Professionals”? You should be.
Do you operate your business as a corporation but use a vehicle that you own in your personal name for the corporate business? If so, be aware that the TCJA changed the rules of the road for tax years 2018-2025. To avoid losing your rightful deductions, you need to have the corporation reimburse you for business use, as we describe here.
The Payroll Protection Program (PPP) rules—they keep a-changin’. In this article, you find new rules that likely increase PPP loan forgiveness for S and C corporation owner-employees with compensation of $100,000 or more.
Do you operate your business as a corporation but own your business vehicle personally? If yes, what happens when you trade your existing personal vehicle for a replacement personal vehicle and then have the corporation reimburse you for the newly purchased personal vehicle? There are nuances that you need to know, as we explain in this article.
Tax law definitions do not apply to much of the Payroll Protection Program, making it new ground for owners of S corporations. Here are answers to four questions of concern to many S corporation owners.
When you choose the LLC as an operating entity, you encounter special rules. Let’s start with the fact that the LLC does not exist as a taxable entity but instead falls into one of the traditional categories such as a proprietorship, a partnership, an S corporation, or a C corporation depending on what you elect or don’t elect.
Thanks to new government guidance, we have clarity on how the self-employed and owner-employees treat their PPP loan forgiveness applications. The new PPP rules explain how you identify qualifying PPP compensation for partnerships, corporations, and the self-employed. The new rules also explain when you can apply for forgiveness. Let’s get started.
Congress passed many tax benefits for small-business owners due to the COVID-19 pandemic. But if you are an S corporation owner, you likely know that the tax law sometimes treats you, as a more-than-2-percent shareholder, differently from other employees. In this article, we explain how the most common COVID-19 tax provisions impact the S corporation owner specifically.
When you operate a husband-wife partnership, you likely are paying far more than you need to pay in self-employment taxes. This article gives you three strategies you can use to save some serious money on the payment of self-employment taxes.
Download this two-page guide so that you have a handy desktop reference with the 2020 corporate and individual tax rates, estate tax rates, self-employed tax rates, Social Security and Medicare tax rates, capital gain rates, standard mileage rates, standard deductions, luxury auto depreciation limits, and select retirement and IRA limits.
As you likely know, the Tax Cuts and Jobs Act made a big change in how C corporations are taxed—one flat, 21 percent rate. The new, lower rate makes the C corporation far more appealing than in prior years. But you also need to look at the dark side of this possible opportunity.
The Tax Cuts and Jobs Act’s $10,000 cap on your state and local tax deductions probably took cash out of your wallet—especially if you have a profitable S corporation. A C corporation can make your state income taxes on your net business income 100 percent deductible. When should you make the move to a C corporation?
Giving to your church, school, or other 501(c)(3) charity is a noble act no matter how you choose to give. But for the purposes of tax savings, some forms of giving are much more beneficial to you than others. As a business owner, you can use some business strategies to get the money to these institutions as business expenses. While this does not change anything from the institution’s perspective, it hugely increases your tax savings.
With incentive stock options (ISOs), you could be on your way to a very nice payout. But you must consider both the regular federal income tax results and the alternative minimum tax results. In addition, you must pay attention to special rules that apply to so-called disqualifying dispositions of shares acquired by exercising ISOs. This sounds complicated, and it is a little, but we help you find clarity in this article.
If you’re a business owner, should you take advantage of per diems when you travel? The short answer is yes and no—and perhaps surprisingly, keeping track of your actual expenses is often a better plan anyway. Here’s why.
Download your PDF copy of the retirement plans desktop reference for one-person businesses.
The Tax Cuts and Jobs Act altered the rules of the road in divorce planning. The significant change is that alimony is no longer tax-deductible; therefore, you want to avoid paying alimony. You may be able to sidestep alimony by transferring assets to your ex—and also have your ex carry the tax burden associated with those assets.
When planning your Section 199A tax deduction, avoid difficult calculations and save time by using the new . Inside this article, you find the rules you need to know to find your QBI, Section 199A wages, and Section 199A property that can figure into your Section 199A deduction possibilities.
You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home office less likely to ever appear in an audit.
There’s no excuse for it, but how to treat the payroll taxes (Social Security, Medicare, and federal unemployment taxes (FUTA) when the S corporation pays for or reimburses health insurance for the more-than-2-percent shareholder-employee sits in muddy waters—but perhaps only until you read this article.
Section 1202 allows you to sell a qualified small business corporation on a tax-free basis. Now, add to this no-tax-on-sale benefit from the 21 percent corporate tax rate from the Tax Cuts and Jobs Act, and you have a significant tax planning opportunity.
What rules apply for purposes of the new 20 percent deduction under Section 199A when you rent an office or other building to your personally owned C corporation?
To operate successfully as a corporation, you need to be good at paperwork. Also, you may not treat the advance account on the corporate books as your personal slush fund.
If you own more than 2 percent of an S corporation, you have to follow special rules to deduct your health insurance premiums. The health insurance rules can also apply to family members who work in the business and don’t own a single share of stock. Don’t let the zero stock be a surprise and cost your family money.
On April 11, likely after you filed your tax return, the IRS updated its Section 199A frequently asked questions (FAQs) by increasing the number of questions and answers from 12 to 33. We noted three of the FAQs that will cause problems for many taxpayers. In fact, there will be taxpayers who will need to file amended tax returns because of the FAQs.
Your 199A deduction requires W-2 wages and/or property when your taxable income is greater than $415,000 married, filing jointly, or $207,500, filing as single or head of household. When you are above these amounts and want to calculate your 20 percent deduction, make sure to enter separate businesses separately in the if you do not formally elect aggregation of your Section 199A businesses.
Tax reform may have you thinking of changing your S corporation to a C corporation, partnership, or sole proprietorship. To do this, you’ll have to terminate your S corporation election and possibly make other tax elections. We’ll explain how you do this and the tax consequences of doing so.
When you are in business for yourself, you have options when it comes to creating tax deductions for your health insurance. The tax rules treat Medicare as health insurance, and that means you have options for how to create your tax deductions for Medicare.
If you operate your business as a corporation but own the business car personally, you have no vehicle deduction possibility without corporate reimbursement, because the Tax Cuts and Jobs Act does not allow employee business expenses for years 2018 through 2025.
Making loans to your corporation became more hazardous 33 years ago with the Tax Reform Act of 1986. That was pretty awful. But the new Tax Cuts and Jobs Act tax reform made things worse for tax years 2018 through 2025. If you operate your business as a corporation, you need to know how the rules apply when you loan money to your corporation.
The answer in this article explains how the S corporation can pay the solo owner-employee’s individually purchased health insurance without worrying about the $100-a-day penalty.
Your Section 199A tax deduction disregards W-2 wages when your Form 1040 taxable income is equal to or less than $315,000 (married, filing jointly) or $157,500 (filing as single or head of household). Also, you don’t have to think about wages for your out-of-favor business if you have taxable income above $415,000 (married, filing jointly) or $207,500 (filing as single or head of household). But if you are in a group that needs to consider the wages your business paid you and your employees, you have to follow the rules set out by the IRS, as we explain in this article.
What do you need to know about the new 20 percent tax deduction that’s available to you if you have ownership in a pass-through business such as a proprietorship, a partnership, an S corporation, a trust, an estate, and certain rental properties? Find the information you are looking for with this downloadable PDF.
The Tax Cuts and Jobs Act (TCJA) tax reform crushed a big chunk of business entertainment tax deductions. Fortunately, your business entertainment facility escaped the mayhem and continues as a 100 percent tax-deductible facility. If you want such a business facility, make sure to review the rules in this article.
For most business owners, the home office not only produces business deductions for a percentage of personal home expenses but also can create a substantial increase in business vehicle deductions.
The Tax Cuts and Jobs Act tax reform added new tax code Section 199A that gives owners of pass-through businesses a possible 20 percent tax deduction on business income. Inside the rules for qualification, you find some complications that give rise to many questions. In this article, we answer seven of those questions.
Here’s an easy question: Do you need more 2018 tax deductions? If yes, continue on. Next easy question: Do you need a replacement business vehicle? If yes, you can simultaneously solve or mitigate both the first problem of needing more deductions and the second problem of needing a replacement vehicle, but you need to get your deduction in place on or before December 31, 2018. This article helps you find the right vehicle for the deduction you desire.
When you get busy with your business, it’s easy to forget about your retirement accounts and medical coverages and plans. But year-end is approaching, and now’s the time to take action. This article gives you six action steps for 2018 that can help you reduce your taxes and pocket extra money.
You’ve closed your S corporation and then paid expenses for it afterward. Can either you or the corporation deduct those expenses? We’ll explain what the law says, along with one thing to consider for taking deductions for your leftover expenses.
Your S corporation has to pay you reasonable compensation for the services you provide to the corporation. If your corporation pays your health insurance premiums, does that change the salary amount you need to pay yourself? We’ll tell you the answer and how doing it wrong would cost you money.
You closed your S corporation and then paid expenses for it afterward. Can either you or the corporation deduct those expenses? We’ll explain what the law says, along with that one thing you need to consider for taking deductions for your leftover expenses.
Tax reform made a lot of changes that impact your choice of entity for your business. And if your business is in the cannabis industry, this is especially true. We’ll explain how Section 199A and other Tax Cuts and Jobs Act provisions impact your entity choice for a cannabis business.
Are you confused by the tax deductions you can claim for your small-business health care? We can help you with our bird’s-eye view. It takes less than two minutes.
Say you operate your business as an S corporation and the S corporation reimburses you for your business use of your personal vehicle. If you have a loan on the personal vehicle, can your S corporation reimburse the business portion of the interest tax-free to you as it can with other reimbursed employee expenses? Find the answer in this article.
Here’s a link to a resource that gives you 10 proven strategies to lower S corporation taxes.
In early August, the IRS released its proposed regulations on new tax code Section 199A—the tax code section that created the 20 percent tax deduction that applies to S corporations and other pass-through entities. The good news in the new IRS regulations for S corporation owners is increased clarity on how to treat reasonable compensation for the Section 199A tax deduction.
As you likely know, you now have two methods for finding the home-office deduction: the actual expense method and the IRS optional safe-harbor method. To make the deduction work at the corporate level, your corporation must reimburse you, the employee, for the deduction. Can the corporation use the IRS method?
The Tax Cuts and Jobs Act (TCJA) has changed the way you can look at the S corporation as a tax planning entity. With the new Section199A deduction in play, the S corporation can help increase or decrease that deduction. To make this easier for you, simply download our new guide and get up to speed on how the S corporation works with the TCJA.
Because of the Tax Cuts and Jobs Act, more businesses are looking at the S corporation election. But you have to make a timely election to get the tax benefits. This article helps you with both a “timely” and a “late” election.
Tax reform gave you a new 20 percent deduction on pass-through income. For S corporation owners, your reasonable compensation plays a key role in determining your Section 199A deduction. Here, we’ll explain what the law says on reasonable compensation and how you can come out ahead.
The tax law has always treated your hobby activities unfairly. Tax reform under the Tax Cuts and Jobs Act made that unfair treatment even worse by preventing you from deducting any business expenses against hobby income. In this article, you see a strategy that can save your bacon on your hobby activity.
More than 2 percent shareholder-employees of S corporations don’t catch a lot of breaks when it comes to the taxation of fringe benefits. But arming yourself with the correct information will help you maximize your deductions and avoid costly penalties.
Whether you operate your business as a corporation or as a proprietorship, you need to record your tax-deductible travel expenses in an IRS-approved manner. This means you need to know technically what a receipt is—and when you do or do not need one. By the way, the credit card statement is not a receipt.
If you or you and your spouse own your business and you have children, you need to consider the financial benefits of hiring those children to work in your business. Some businesses benefit more than others, but almost all businesses likely come out ahead with this strategy. And every business needs to thank tax reform for the new increased standard deduction that a business owner’s child can use to pay zero in taxes.
The new 20 percent tax deduction under new tax code Section 199A has many nuances based on your type of business, taxable income, qualified business income, wages, and depreciable property. Here you have an easy-to-use Section 199A calculator that takes away the pains of manually computing your possible benefits.
Has tax reform created a need for you to switch your S corporation to a C corporation? You will find the answer here. Also, you will find it interesting to see how we make the comparison easy with the chart in this article.
The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.
The new Section 199A deduction is a very nice tax break for business owners, except for owners with high income who also fall into the out-of-favor group. In general, the out-of-favor group includes lawyers, doctors, accountants, tax professionals, consultants, athletes, authors, security traders, actors, singers, musicians, entertainers, and others.
Will your business operation create the 20 percent tax deduction for you? If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of business entity may produce the tax savings you are looking for.
What can appear logical when planning for the S corporation owner’s business expenses can prove costly to the owner and, as in this article, cost every penny of the business deductions.
In IRS Notice 2015-17, the IRS allowed S corporation owners in 2014 and 2015 to avoid the $100-a-day penalties on S corporation reimbursements of individually purchased health insurance and on providing insurance for the owners only. But 2016, 2017, and 2018 are new years, so what is that status now?
You may not think of yourself as a manufacturer, but you might nevertheless qualify as one under tax law. There is a deduction for manufacturing that applies to a much broader array of activities than most people realize. There’s no catch and no recapture associated with this deduction—it’s just extra cash for your wallet. Find out if you qualify.
If you want to convert your home to a rental property, don’t. Instead, sell your home to your S corporation and then have the S corporation make the property a rental property. We have written about this previously, and we received some questions that we address in this article.
You can pay your child to work in your business and get paid for paying your child. Yeah, we know. You think this sounds too good to be true, but it’s true. For how the government pays you and why this works, read this article.
A business owner accumulates earnings in an S corporation and takes no distributions or salary. The business owner then retires and wants to draw the funds out tax-free over multiple years. Are there any issues with this strategy?
If you operate your business as an S corporation and you take advantage of the benefits you receive by having an office in your home, you probably want an easy and audit-proof way to make the reimbursement request. You find that in this article.
The related-party matching rule places your business on the cash method for deducting payments to related cash-method payees. You need to know this rule to avoid unexpected tax results. Also, you need to know how the different ownership thresholds apply because one share of stock could make you a related party. Indirect relationships expand the reach of the rule and can create additional surprises.
You need to know how the related-party rules work if you don’t want to destroy your tax-loss deductions. You are reading this right: you can lose your tax losses when you sell to a related party.
If you are buying a business that will include more than one co-owner, you need a buy-sell agreement—period. You have multiple reasons to put the buy-sell agreement in place and not one reason not to have a buy-sell agreement. But when you start to put the agreement in place, you need to consider the planning strategies in this article.
One of our tax professional subscribers disagrees with the S corporation being able to reimburse the owner-employee for depreciation of the home office. She asked whether we can back up our claim that depreciation is reimbursable.
You generally buy an existing business because you believe that the existing business represents less of a risk than starting a new business from scratch. That may be true. And you help make that true when you do your due diligence.
This article answers six questions about the big tax benefits to the sole owner of the C or S corporation who rents a personal residence to his or her solely owned C or S corporation for 14 days or less. The answers deal with (1) the need for a 1099, (2) how to report the 1099 on the 1040, (3) multiple corporations, (4) events for independent contractors, (5) events for employees, and (6) proof of fair rent.
When you buy a business, you probably don’t want the former owners competing with you—at least not for a while. To prevent the competition, you generally enter into a noncompete with the former owners. This has tax implications that you need to consider.
Do you operate your business as a corporation, a partnership, or a proprietorship, or as an LLC taxed as one of these three entities? Your choice of entity impacts whether you can create a no-hassle, tax-free fringe benefit for your and/or your employees’ smartphones. In this article, you learn the rules that apply and which ones give you the best benefits.
If you qualify to use IRS mileage rates to deduct your vehicle, you need to know if you are cheating yourself with the method you select. The good news is, this article includes a tool that will give the one best method for your deduction and also tell you how much after-tax cash you pocket with that method.
Last month we explained how an S corporation could rent the sole shareholder’s personal residence for 14 days or less, obtain a tax deduction for rent, and create tax-free income for the shareholder. An enrolled agent raises six issues that he thinks could negate this free-rent strategy. Learn what the issues are and why the strategy really does work.
If you have employees who have worked for your business for years and years, you might be thinking of buying them something as a way of showing your appreciation. If you follow a few rules, you can make those presents “employee achievement awards”—and thus tax-deductible for the business and tax-free for the employees. (Depending on how you operate your business, you might even qualify as an employee eligible for the tax-free award.)
When you are looking to buy a business and then operate that business as a C corporation, you should consider the tax benefits you can realize by creating debt as part of the corporate capital structure. If you do this, you need to put the debt in place so that the IRS will respect the debt as debt and not treat it as equity.
Do you operate your business as an S or C corporation? If so, have you considered renting your home to your corporation for corporate meetings and perhaps the annual holiday party for employees? You should. Why? If you do the rental right, the corporation deducts the rent, and you receive the rental income tax-free.
Do you operate your business as a corporation but own the vehicle you use for the corporate business in your personal name? If so, to avoid losing your rightful deductions, you need to have the corporation reimburse you for business use. The corporation can use one of two methods for the reimbursement.
The home-office tax deduction provides tax savings to business owners. It turns otherwise nondeductible personal expenses into valuable business deductions. When tax law taxes your business as a proprietorship, you simply deduct home-office expenses on Schedule C. But when you operate your business as a corporation, you face special rules to achieve the same benefits.
When you can buy the target’s stock and treat the deal as an asset purchase, you have a real possibility of bringing tax-benefit smiles to both you and the seller. So if you are buying a business, make sure you know when the tax rules allow you to buy the stock of the target and treat that stock purchase as the purchase of the target’s assets.
Do you pay yourself on a 1099 for the work you do in your S corporation? Why wouldn’t you, right? It makes life so simple. No payroll taxes to deal with, no withholding deposits, and no payroll services to pay for. Stop right there! Your simple life is about to get very complicated unless you make a change right now.
Business owners continue to get caught in the complex rules of the self-rental trap. A recent case taken from the Tax Court to the Fifth Circuit shows how business owners can get into tax trouble with self-rentals. But with proper tax planning and possible use of special rules called “grouping,” you can minimize and even eliminate the tax cost of the self-rental trap.
When you buy a business, you have much to consider. As you learned in prior articles, you need to consider the type of entity that owns the business and the type of entity you will use to operate the business. On top of that, every asset of the business you are going to buy impacts your tax results. In this article, you see how this all comes together and what you need to do to get the best results.
You’ve decided to incorporate a new or existing business. Good news: incorporating a business is usually tax-free. But to make this work when traveling this road, you must meet the requirements for a tax-free incorporation and avoid the situations that cause taxes.
Sending a child to a special needs school can be an onerous financial burden, with some tuitions reaching even $100,000 per year. Tax law lets you deduct tuition and other related costs as medical expenses, but you need to know which expenses qualify and how you should deduct them. This article shows you not only how to qualify but also a possible best way to maximize those deductions.
When setting up your new or acquired business, you and your co-owners should consider the multi-member LLC, another form of LLC, or the straight-up partnership. This is the last article in our three-part series on the “choices of entity” for a newly acquired business. Make sure to consider the options in this article if you are acquiring or starting a business with more than one owner.
Tax law requires your S corporation to pay you, the owner-employee, reasonable compensation for the work you do. But what about in a year when your corporation has a loss? Does a lack of net profits absolve you from the obligation to pay yourself a salary?
When you are buying a business, you want to buy not only at the right price, but also in a manner that keeps your taxes as low as possible. If you structure your deal as an asset purchase, you can use tax-smart price allocations that give the best tax result. And you likely want to include a stipulation in the purchase agreement that can reduce your chances of an IRS audit.
When you get busy with your business, it’s easy to forget about your retirement accounts and medical coverages and plans. But year-end is approaching, and now’s the time to take action to cut your 2016 taxes. This article gives you six action steps for 2016 that can help you reduce your taxes and pocket extra money.
When buying a business, you face many decisions. One such decision is whether you should buy the assets of the business or the ownership interest. Here, you have both legal and tax issues to consider. Also, depending on the entity you are looking at buying, the ownership purchase option may not be available.
In this part 2 article on choosing the right entity for your newly acquired business, you learn how the three possible corporations work and the advantages and disadvantages of each. In part 1, published last month, you learned about proprietorships and single-member LLCs taxed as proprietorships.
Lawmakers make business owners report to the IRS certain payments made to workers such as payments of $600 or more to independent contractors. The rules and deadlines for reporting independent contractor payments on Form 1099-MISC can be tricky. But when you know the rules, you can employ strategies that minimize the impact of these reporting requirements on your business.
Small start-up businesses have an unprecedented new way to save money, and it does not involve income taxes. The new way to save money is on your payroll taxes. How? By applying research and development credits to your payroll tax bill.
When it comes time to sell your business, it’s likely that you need to consider the intangible asset of goodwill. You have several things to consider, depending on the business entity you used to operate your business. For example, if you operated as a C corporation, how do you avoid double taxation on the goodwill? This article shows you how. Regardless of entity, how do you avoid the net investment income tax (NIIT)? This article shows you how.
Whether you sell the assets of the business or your ownership interest, you can expect the buyer to check things out before signing off on the deal. This is called due diligence. And there are various aspects of due diligence, depending on the type of sale you are making and the buyer’s needs.
You have special tax-planning considerations when you sell a business that has zero-basis receivables and/or self-created goodwill. If you operate as a C corporation, you need additional planning because of double taxation. And the good news is that planning helps reduce the tax burden.
Personal service corporations pay taxes at a hefty flat tax rate of 35 percent. As a result, many personal service corporations pay their shareholder-employees year-end bonuses to zero out the taxable income. A recent court case put the kibosh on this for a law firm and should put you on notice.
Take advantage of the government’s tax-free $250,000 home-sale-profit exclusion ($500,000 if married) by selling your home to an S corporation that you establish. This gives you two things: (1) tax-free income and (2) a step-up in basis for the rental house.
Renting equipment to your corporation requires knowledge of the tax laws. If you as a non-corporate lessor want Section 179 expensing, you need to comply with three special rules. If you can’t comply, you may obtain the benefits of Section 179 in other ways as we explain or simply stay with the rental without using Section 179.
When you sell a business, you and the buyer may structure a contingency that can vary the selling price. The tax code gives you three basic reporting possibilities for contingent prices, and, of course, the three possibilities give you planning opportunities.
Your claim to Section 179 expensing comes with strings. You make a deal with the government to keep your business use above 50 percent during the depreciation periods for the assets that you expensed. Should you violate your agreement, and depending on when you did that, the government can show up and recapture a big chunk of your Section 179 expensing.
The IRS is pursuing taxpayers with foreign accounts and activities. You are likely aware of the FBAR and Form 8939 filing requirements, but the tax code has many other lesser-known required filings that carry large penalties for non-filing. Get onboard now. Learn the tax code’s requirements and how you might fix noncompliance and avoid huge penalties.
Using an S corporation to avoid self-employment taxes is a terrific strategy. But things can go very wrong if you use it the wrong way. When you earn income as an individual and then assign that income to your corporation, the IRS will make you regret the day you implemented that strategy.
If you are selling your S or C corporation, you have plenty to think about. And of course, the buyer has much to think about too. By using an election in the tax code, you and the buyer can get on the same page so you can sell with one level of taxation and also give the buyer what the buyer wants most—a step-up in basis of the assets acquired.
What happens if you die? Or, in particular, what happens if you own an S corporation with others and one owner dies? Will you want to deal with the heirs? If not, how will you pay off the heirs? You might find the answer in an employer-owned life insurance policy, as discussed in this article.
In IRS Notice 2015-17, the IRS allowed S corporation owners in 2014 and 2015 to avoid the $100-a-day penalties on S corporation reimbursements of individually purchased health insurance and on providing insurance for the owners only. But 2016 is a new year, so what is that status now?
When you sell your business, you face two types of federal income taxes: (a) regular and (b) capital gains. Capital gains are better—much better. If you sell the assets rather than the business interest, your sale of self-created intangibles likely produces capital gains. Of course, the best bet is to sell the business interests rather than the assets, assuming you operate as other than a proprietorship, which can sell assets only.
When you get busy with your business, it’s easy to forget about your retirement accounts and medical coverages and plans. But year-end is approaching, and now’s the time to take action to cut your 2015 taxes. This article gives you six action steps for 2015 that can help you reduce your taxes and pocket extra money.
You can make your tax life easier with a business credit card—but only if you use that business credit card correctly for tax purposes. For example, charging an expense to a credit card does not make it tax deductible. You need more proof. And you could create a type of double jeopardy if you operate your business as a corporation.
If you are selling your business, you likely want minimum taxes and no exposure to business-related liabilities once the sale is completed. That’s what this article is about. In an asset sale, you see types of taxes and opportunities that make the asset sale work to your advantage. In a stock sale, you likely get tax-favored capital gains, but you may have to give up something to the buyer.
If you want to convert your C corporation to an S corporation, you need a plan. No plan, BIG tax. The BIG tax means the tax on built-in gains at 35 percent. But it’s worse than that, and bigger than that, because after the 35 percent tax payment, you continue to pay at your regular tax rates on the remaining 65 percent that flows from your S corporation to you. This is torturous double taxation. So make a plan to avoid as much torture as possible, perhaps all of it. This article helps you with that plan by showing you four strategies that you can use.
Selling Your Business: It Might Be Worth More Than You Think, and the Tax Implications Are Probably Crucial
You need to know a number of tax rules when it comes to selling your business. For example, you likely want tax-favored capital gains, but your buyer may not like that idea, as it cuts into the buyer’s tax deductions. This article is the first in a series of articles on selling your business, and it will help you understand how this process is going to work.
Business owners who operate their businesses as corporations and also deduct an office in the home commonly use one of three tax-deduction methods in an effort to achieve tax benefits. One method provides no tax benefit; it’s just smoke and mirrors. The second method might create a small deduction or none at all. The third method is the correct choice, as it ensures the full tax deduction and even reduces your chances of an IRS audit.
Don’t Put Your S Corporation Vehicle Title in the Wrong Name! It Could Cost You Thousands in Tax Deductions
If you are an S corporation owner, you can get a full deduction for your health insurance premiums—despite Obamacare and even if your S corporation provides zero health benefits to non-owner employees. You have to follow a few steps to qualify for this deduction, but that’s a piece of cake once you know the rules.
Four Steps to Turn a Husband-and-Wife-Only Board Meeting into a Money-Saving, Tax-Deductible Resort Stay
Where can you hold your tax-deductible board meetings if you operate your business as a corporation? Could you go to a nice resort? What if you and your spouse are the only board members? This article answers these common questions. It’s sure to make you smile.
If you own a corporation, you need to plan in advance for the eventual sale or liquidation of your corporation—even if you do not expect either to happen anytime soon. In particular, the planning you do regarding your business goodwill could mean hundreds of thousands of dollars in tax savings.
A November 2014 FAQ from the Department of Labor created quite a scare for S corporation owners, raising the possibility of huge Affordable Care Act (ACA) penalties simply for deducting your health insurance premiums according to IRS guidelines. However, a recent IRS notice explains how you can now safely avoid these penalties and claim your rightful deductions.
Hire Your Kids to Work in Your LLC or Sole Proprietorship and Put a Huge Chunk of Their Pay Back in Your Pocket
If you put your kids to work in your business, you can use their compensation to create nice tax savings for yourself. This strategy lets you spend time with your children during the workday and teach them valuable lessons about working life—as well as valuable lessons about money and tax planning.
How C-Corporation Owners Can Pay Zero Taxes on Gains: Tax Law Allows a Windfall “Wait to Sell” Strategy
2015 is the first year that stockowners can sell their C corporation stock completely tax free under Section 1202 of the tax code. If you started a C corporation or purchased stock recently and you qualify for this rule, you need to determine the date you acquired the stock and wait five years before you sell. This waiting period could save you thousands and even potentially millions of dollars in taxes.
Three Rules for Contributing to Your Employees’ Health Savings Accounts and Beating the Dreaded 35 Percent Discrimination Tax
If you discriminate when you contribute to the health savings accounts (HSAs) of your employees, the IRS will make you pay a 35 percent tax on the total amount of your contributions. This tax can add up quickly, and if you have to pay it, you’ll kick yourself when you discover you can escape the tax entirely by following the three rules in this article.
Did You Miss Your S-Corporation Election Deadline—and Thousands in Employment Tax Savings? No Worries—Do It Now!
If you want to file your taxes for last year (2014) as an S corporation for the first time, you might be surprised to discover that the deadline to elect S corporation status has long passed. But if you didn’t file your election in time, don’t despair. By following the rules in this article, you can retroactively create your S corporation well after the deadline and get the full benefit of your tax savings.
The number one way for S corporation owners to pay fewer taxes is to set the right salary. To do this, you want to find the salary sweet spot—an amount that is low enough to save you taxes but high enough to satisfy the IRS and not create a risk of audit. This article summarizes the important cases and rules you need to know in order to determine the right salary for your business.
Are you an S corporation owner who takes advantage of the office-in-the-home deduction? If so, here’s good news. With the right tax planning, you can sell your home containing the office and defer or eliminate 100 percent of your tax, including recapture for any depreciation that you claimed. That news should put a smile on your face. Read this article to find out how you can use this strategy to pocket some extra tax dollars.
Would you like to avoid payroll taxes on your S corporation’s inclusion of the cost of your health insurance on your W-2? You can. First, you and your S corporation can take advantage of one of two safe harbors. If you don’t qualify for a safe harbor, you can go back to a law originally enacted in 1939 and claim that you are in a separate class of employee exempt from payroll taxes on the health insurance fringe benefit that your S corporation gave you. And then if all else fails, you can pull out the IRS’s own publication and its online assistance and insist that the IRS follow them, even though they’re legally incorrect.
Have lawmakers inserted any sleight of hand into your Form 1040 tax calculations? Yes, they have! And it’s really terrible. For example, the alternative minimum tax (AMT) rules make you pay taxes on your tax deductions. How’s that for true sleight-of-hand terribleness? The AMT even makes you pay taxes on the personal exemptions the regular tax law grants for your children. It’s outrageous. But, because you own a business, there are some things you can do to get even.
Corporate advances are a nice way to get around the double tax problem of C corporations. But there is a hidden danger. If you take a loan from your corporation without taking all the right steps, then you are asking the IRS to apply its double-tax system (plus penalties). Read this article to learn the right way to take your corporate advances.
You can create losses without selling assets when you liquidate your S corporation. But be warned: you first need to know exactly how the gains and losses are going to flow. In this article, you see the hurdles erected by lawmakers and the IRS. You learn what you need to know. With this knowledge, you can plan. That plan might include or exclude liquidation. It depends on where the liquidation chips fall.
When you operate your business as an S corporation or a C corporation, you first need to remember that the corporation is a separate legal entity. If you incur travel expenses on behalf of the corporation, those are corporate expenses. You either need an agreement saying you can deduct the expenses personally or that you will submit the expenses for reimbursement. One of these two choices is really bad.
Let’s say you operate your business as an S corporation but use a personal car for corporate business. To create the proper tax deductions, the right way to handle this situation is for the S corporation to reimburse you using one of two tax law-approved methods.
Find out how giving stock in your S corporation rather than the same dollar amount in cash can save you over $6,000. Until recently, this income-splitting strategy worked only when giving to adults, but because of the recent Obamacare tax, you now get a benefit when you shift money to your children.
When you incorporate your business, you have to decide which assets you want to contribute to your new corporation and which you want to keep in your own name. For some assets, you get better tax benefits and better liability protection when you don’t transfer them to your corporation.
When you buy a business, buy the assets—not the stock. The assets will significantly increase your tax savings in the early years of your new business. This article gives you the nuts and bolts of buying a business. It even explains how you can buy the stock of the target corporation and treat the stock purchase as an asset purchase.
In this article, you’ll learn how to create and/or ensure medical and retirement deductions before December 31. Of course, you need to get busy now. There’s not much time left. And if you are one of the targets who’s now subject to the new, higher tax rates that apply in 2013, you will find year-end planning more beneficial than ever.
Are you thinking of converting your C corporation to an S corporation? If so, you need to examine how the built-in gains tax can create trouble for you. Of course, once you know some of the trouble, you can find ways to mitigate it, and if you are patient, you can totally avoid it.
Tax rates are changing. You completed a side-by-side comparison of your S corporation with other entities, and you decided that it’s time to convert that S corporation to a C corporation or a sole proprietorship.
Are you thinking of converting your business to an S corporation? The IRS will be watching you closely. Learn to avoid the common mistakes that many business owners make.
If you are a sole business owner and also have 10 unrelated rental properties, what are the tax ramifications of the rental properties? How is the income from those properties reported to the IRS? What is the best way to structure ownership of those properties to limit your liability exposure? This article addresses these questions and more.
You might simply file a form to convert your business from a corporation to a sole proprietorship, but this simplicity can trigger unexpected taxes galore. Don’t let the taxes surprise you. Evaluate the tax costs. See if the conversion works to your best financial advantage. Also, make sure to examine tax law’s three special tax-benefit techniques available to small-business owners.
Taxpayers get into a self-directed IRA to achieve investment returns larger than they can achieve with conventional IRAs. Whether that works out or not is the investment side, but another big issue is the tax side. In this court case, the taxpayers learned that they destroyed their self-directed IRA on the first day. Thus, during the six years this self-directed IRA operated it did not exist under the law. This put the IRA owners on the hook for taxes and penalties.
The IRS created a new optional method that you can use to calculate the tax deduction for an office in your home. Obviously, this brings up a question: Does the IRS like you, or does the IRS hate you? The IRS reveals itself in this new optional method.
How would you like to buy a small business, sell it at a huge profit, and defer the taxes as if you had completed a tax-deferred exchange? You can. It’s not a Section 1031 exchange. But it can give you the same exact tax deferral that you can achieve with a Section 1031 exchange. You find this great benefit in Section 1045 of the Internal Revenue Code.
If you wreck your business vehicle, you will like the involuntary conversion rules that allow you to defer any taxable gain, providing you replace the vehicle within two years. This is true regardless of how you operate your business, corporation, or proprietorship.
Do you operate your business as a corporation? Does the corporation own the business car? Do you drive the corporate-owned car or other vehicle for personal purposes? If so, you need to know how the IRS treats your personal use and what that personal use does to the corporate tax deductions.
This article answers six questions about the big tax benefits to the sole owner of the S corporation who rents his personal residence to his solely owned S corporation for 14 days or less. The answers deal with (1) the need for a 1099, (2) how to report the 1099 on the 1040, (3) multiple corporations, (4) events for independent contractors, (5) events for employees, and (6) proof of fair rent.
Do you own your business? Do you pay parking for yourself? An employee? If so, you need to know how the tax-free fringe-benefit rules for parking work, as explained in this article.
Last month we explained how an S corporation could rent the sole shareholder’s personal residence for 14 days or less, obtain a tax-deduction for rent, and create tax-free income for the shareholder. An enrolled agent raises six issues that he thinks could negate this free-rent strategy. Learn what the issues are and why the strategy works.
Do you operate your business as an S or C corporation? If so, have you considered renting your home to your corporation for corporate meetings and perhaps the annual holiday party for employees? You should. Why? If the rental is done right, the corporation deducts the rent, and you receive the rental income tax-free.
The flow chart in this article helps you visualize what needs to happen at the S corporation for the owner-employee to get any tax benefit from health insurance. The tax rules are not what you would call logical, but the flow chart clarifies the rules and gives you the path to follow to ensure your tax deductions.
When you operate your business as an S corporation, you run into some weird tax-deduction rules, like those that apply to health insurance. For example, the S corporation may not deduct the cost of your health insurance as an employee-owner fringe benefit. Then, if you pay for the health insurance personally, you may not personally deduct the cost of the health insurance as a self-employed individual. Tax law has you in a classic catch-22. But there is a workaround that’s very straightforward and beneficial as described in this article.
Employees complicate your retirement plan design, but you have many design options. This article takes you through six plan designs that open your eyes to the many possibilities you have to ensure that you get from your retirement plan the maximum retirement benefits you want.
Are the S corporation dividends (technically distributions) taxable? If so, how does that work on my personal tax return, and how do I then get the money out of the S corporation?
Tax law picks on “entertainment facilities” and makes them difficult to deduct. This is where tax planning comes in. With good tax planning, you can create deductions for your entertainment facility.
If possible, you want to take money from your corporation in some form other than salaries and wages, on which you pay payroll taxes. One such tactic, the lease of Section 179 personal property to your corporation, can accomplish this, but it rubs against one big gotcha and two steep hurdles. This article shows you how to avoid the gotcha, avoid the hurdles, and get the result you want.
When you draw Social Security benefits before you reach full retirement age, you lose 50 cents on the dollar for each dollar that exceeds the earnings limit. With respect to the earnings limit, you find both good and bad news in 401(k) contributions.
Good news. As you may remember from our previous article, the 10th Circuit Court of Appeals sent the Shellito case that involved a Section 105 medical reimbursement plan back to the tax court. We report in this article good news: The tax court reversed its original decision and granted the Shellitos their deductions. Most importantly, this reversal adds clarity to making your Section 105 medical reimbursement plan work.
When it comes time to remove yourself from your business, what’s your plan? This article gives you one maneuver to consider if you operate your business as a corporation. It’s called the stock redemption, and this article shows how a father used the redemption to transfer ownership to his children in a tax-friendly manner. The principles in this article can also be used to transfer ownership to business associates, employees, and other shareholders
Do you own an airplane? If not you, how about your corporation? This month, we are writing about the new IRS regulations that govern your use of your C or S corporation’s aircraft. In this article, you will find more than a half dozen strategies that you can use to minimize the tax bite caused by personal use of your corporation’s aircraft.
Do you operate your business as an S corporation? If so, how does the home-office deduction work for the employee-owner? Here are six answers that the S corporation owner needs for the home-office deduction. One of the six answers gives you ideas on how you can comply with the “convenience-of-the-employer” test.
Buy the Building, Rent It to Your Business, Avoid the Self-Rental Trap, and Create Legal Protection with Tax-Deduction Shelter
As you know from last month’s article, the self-rental rules can catch you unaware and alter your rental property tax benefits. You can solve the self-rental problems by eliminating the rental and having your business own the building. That’s one solution. This article gives you a second solution that you might like better. Here, we show you how to qualify for a special election that allows you to treat your rental and your business as one activity for federal tax purposes. This can give you the best of both worlds: (1) legal protection and (2) tax shelter.
If you and your spouse work together in your business, you need to know the rules of the road for owning and operating your proprietorship, limited liability company, or corporation. In part 1 of this article we discussed how you can save both self-employment and income taxes with the right mix of income and employee status of your spouse. In this part 2, you learn what you need to do to ensure that your operating business entity allows you to achieve the benefits of part 1.
You might want your S corporation to own an S corporation of its own (QSub). Tax law treats the QSub as if it doesn’t exist for income tax purposes, but treats it as a separate entity for employment tax purposes. On the legal side of the equation, you have two separate corporations with two sets of legal protections.
You might justify a zero salary to the owner of an S corporation in the right circumstances. But there are some pitfalls, particularly if your purpose is to avoid payroll taxes. Further, and this is often overlooked, state law can come into play on the zero-salary game.
Rental property managers report gross rental income to the property owners on a 1099-MISC. We have seen confusion about this reporting because new laws were enacted in 2010 and then repealed in 2011. This article eliminates that confusion and explains what the property manager needs to report and what the property owner can expect to receive.
To know if the S corporation is the best choice of entity for your business, first you need to consider three advantages and nine disadvantages. Next, you need to take the S corporation advantages and disadvantages that apply to you and get a bottom-line number comparison with your second choice for an operating entity. In this way, you can make a logical choice, knowing that your best choice will stay with you for a number of years and let you pocket more after-tax cash while you sleep better at night.
Do you operate your business as a corporation, an LLC, or a proprietorship? Your choice of entity impacts a variety of tax deductions, and now the cell phone creates a win for the corporate owner and a loss for the proprietorship and the single-member LLC.
When you and/or your spouse own more than one business, you must look at all businesses as one business when applying the Section 105 medical reimbursement plan discrimination rules. If you are blocked by the discrimination rules, consider discriminating in health insurance coverage to your benefit.
This article has 16 tax-deduction targets that you can use to increase your business car, SUV, truck, and van deductions. You don’t need to buy any new vehicles to get the benefits. You simply need the knowledge as laid out here.
If you incorporate your personal service business, you face the personal service corporation tax rates, where tax brackets do not exist and the 35 percent flat-tax rate applies.
Tax law makes it hard for the owner of an S corporation to win deductions for his health insurance. First, the corporate-provided health insurance is not a tax-free fringe benefit for the owner. Second, the S corporation has to pay for the health insurance or the owner will suffer a loss of tax deductions. Third, the S corporation payment for the health insurance will produce wages either exempt or nonexempt from FICA and Medicare taxes. This article shows you how to make the three tax deduction rules work for you.
Is your business entity the best tax-deduction business entity for you? Do you need liability protection? How do the different entities produce different tax deductions? If you are looking for answers to these questions, this article is for you. Also, the article contains one sure way to select the best business entity for you.
If you want to operate your business as an S corporation, you need to recognize that the S corporation is a separate legal entity and that you are an employee agent of that corporation. You also need to ensure that the S corporation is the earner of the income. You may not assign your income to your corporation.
Your business ownership creates an opportunity for a tax plan that can give you tax deductions for hiring your children and can give your children tax-free income. But your tax plan does not stop there. Your children might start Roth IRAs where they can invest their tax-free income in a college fund. Done right, as described in this article, the government pays you for your help with this plan.
How does the owner of a corporation claim a tax deduction for an office in the home? Rental is not the best method. Deducting employee business expenses as miscellaneous itemized deductions is not the best method. The best method is to use an accountable plan, as you will learn in this article.
Tax-deductible business expansion beats both capitalization and start-up expense classification. Capitalization basically means no tax deduction until you get out of the business. Start up means you can deduct up to $5,000 and then must amortize the remaining start-up expenses over 15 years.
If you are looking to buy a business individually, this article explains the tax deductions you achieve when you begin to think about the business you want to buy. If your corporation is going to buy the business, this article explains how to apply the process of thinking about it to the corporation. The rules for buying an existing business are different from those explained last month for creating a business from scratch.
The Roth IRA is tax advantaged. The foreign sales corporation also is tax advantaged. Imagine putting the tax-advantaged foreign sales corporation inside a tax-advantaged Roth IRA. That’s what happens in this article.
Giving money to and taking it from your corporation needs an audit trail and paperwork to ensure proper treatment. If you operate without the formal paperwork and without the proper logging of entries, you can have unexpected and unwelcome experiences with the IRS and the courts.
The self-directed IRA is not a common sight, but it is even more uncommon, almost rare in fact, for the self-directed IRA to have an interest in a tax-advantaged domestic international sales corporation. This article gives insight into what’s possible with a self-directed IRA.
New law retroactively repeals, as if never enacted, the 2010 law that required three new types of 1099 reporting: (1) 1099 reporting by owners of rental real estate, (2) 1099s for payments to corporations, and (3) 1099s for purchases of property.
Setting the owner of an S corporation’s salary so that the owner saves money on self-employment taxes requires attention to some details. This article shows how a CPA with S corporation earnings of $246,000 had a reasonable salary of $91,000 according to the IRS. If you follow the principles used by the IRS to identify the $91,000 salary, you build audit-proof support for the salary.
When you operate your business as a corporation, you need to pay attention to the details if you want the corporation respected by the IRS. If you fail in the details, your corporation could lose its status as a corporation and cause you big trouble.
This is the first in a series of articles on retirement plans for small-business owners. In this first article, you learn the basics. Why should you have a retirement plan? When should you start contributing to your plan? What types of plans are available to you? Regardless of the type of business entity—proprietorship, LLC, S corporation, or C corporation—this article gives you the basics you need for a quality retirement plan.
Learn why it is important to get the independent contractor classification correct. If your supposed contractor status is in reality employee status, you suffer major penalties.
Tax law creates trouble for selected fringe benefits that the S corporation gives to a more than 2 percent shareholder. The loss of benefits and accompanying complications are factors to consider in the selection of the S corporation as your choice of business entity.
You might think that you are entitled to your Social Security benefits. In fact, that would be logical. Unfortunately, however, it’s not true. You need to plan your benefit collections, or you could lose a huge chunk to taxes.
Revenue Procedure 2010-13 requires disclosure of the business and rental groups you form to avoid the disallowance of losses under the passive-loss rules. At first glance, you might think, “Oh, no, not more disclosures.” But further examination shows an audit-proofing aspect to this disclosure that is most appealing.
Do you provide supper or other meal money when you require your employees to work overtime? If so, is the meal money a tax-free fringe benefit or is it additional W-2 compensation to the employees?
Under the right circumstances, you can provide tax-free lunches to your employees. That’s nice. But what about you? How do you, the business owner, qualify for this tax-free fringe benefit?
Follow the nine steps in this article to ensure that tax law treats your loan gone bad as a real loan rather than as a fake loan. Real loans give you tax-favored bad-debt deductions when uncollectible. Uncollectible fake loans give you undesirable capital contributions and nondeductible business gifts.
This issue contains 21 last-minute tax tips that you can use for 2010. We broke the tips into two articles: one for vehicles and one not related to vehicles. This article contains 12 last-minute tax tips that are not related to vehicles.
When the S corporation makes HSA contributions on behalf of its more than 2 percent shareholder-employee, the S corporation treats the contributions as compensation to the shareholder-employee. In turn, the shareholder-employee has a deductible HSA on his or her personal tax return.
Renting to your corporation can produce tax advantages. Even failing to collect the corporate rent, as the individual did in this court case, can produce tax advantages.
The IRS is in the midst of its largest hiring initiative in years. Therefore, the increase in IRS audits seen during the last few years is expected to continue at an even greater rate.
To operate successfully as a corporation, you need to be good at paperwork. Also, you may not treat the advance account on the corporate books as your personal slush fund.
Here are your only two tax-saving choices when you operate your business as a corporation but personally own the car you use for business.
The CPA in this court case operated as an S corporation with a low salary. The low salary got the IRS’s attention. To salvage bigger things, the CPA had to take the IRS to court
If you operate your business as a corporation but own the business car personally, your best result comes about when you have your corporation use an accountable plan to reimburse you for actual expenses, including depreciation and Section 179 expensing.
When your S corporation employs a relative, you need to be aware of the stock attribution rules that can wreak havoc on the health insurance fringe benefit.
Poor planning for the S corporation owner’s business expenses can cost the owner every penny of his deductions.
The new health care law grants a nice tax credit to business owners who cover their employees. How about the owners themselves? Lawmakers did them no favors, but one group of proprietors might catch a break.
Should you or your corporation be unlucky enough to face an IRS audit, there is one record that stands out as critical to your audit health. If you are missing this one record, the IRS audit can quickly expand to other areas of your tax return.
Learn how the government pays you to get educated. The basic rule: you may deduct education that maintains or improves the skills you need in your business, providing the education does not qualify you for a new business.
The zero salary strategy is getting hammered by the IRS and the courts. You need to take a reasonable salary. If your purpose in having the S corporation is to save self-employment taxes, you want that reasonable salary to be audit-proof low.
Good tax planning can avoid ordinary income treatment on the subdivision of land. The planning involves avoiding the partnership entity and using an S corp. for development.
Credit cards are valuable time-saving assets when used correctly by the business taxpayer. Incorrect use damages both your wallet and your time management.
The U.S. government taxes your profits and subsidizes your losses. That’s nice. Not all governments share in the losses.
Computers and programs like Quicken make it easier to track business and personal activities. Even so, there are rules of the road that you should follow to ensure the best results.
Show me the proof that I can have an office in my home when I have an office downtown! Have you ever wanted that proof? This article gives you the law, legislative history, and IRS authorization for the office in the home deduction.
If your corporation is not going to pass the “it earns the income” test, then it’s time to take the steps to dissolve this useless corporation. The secretary of state for the state of incorporation has guideposts for you to follow.
You may not claim a home office deduction when you rent your home office to your S corporation employer. Therefore, redo this arrangement by taking advantage of your employee status.
The Heineman case gives a roadmap to how a husband and wife might deduct the cost of attending a board of directors meeting where they are the only participants. Using the principles enunciated in Heineman, husband-and-wife corporate owners will find deducting the out-of-town board meeting easier than deducting board meetings that occur in town.
The most recent hot entity for real estate ownership is the LLC. The fact that it’s hot does not necessarily make it the best option for you. When considering your choice of entity, examine qualification for single-member LLC status, extra state income taxes, and how this compares with the S or C corporation possibilities.
The S corporation owner is an employee of his or her corporation. Thus, his or her personal payment of health insurance does not qualify for deduction on page 1 of the Form 1040. To get this page 1 deduction, the IRS says that the health insurance must be paid by the corporation and come to the owner on a W-2.
If you draw Social Security retirement benefits before full retirement age, you face the loss of $1 in benefits for each $2 of earnings over $14,160. Further, when the provisional income on your tax return exceeds $25,000 (single) or $32,000 (married), you must include at least 50 and not more than 85 percent of your Social Security benefits in taxable income. Thus, your receipt of Social Security benefits triggers the need for planning.
Use this Section 105 medical reimbursement plan template to make sure you provide maximum medical benefits to you and your family while legally discriminating under both tax law and ERISA rules.
The law gives you no choice but to keep the proper tax records on a timely basis. This is pretty easy when you know what to do. One easy rule to follow is to never commingle your activities in your bank accounts. Both the rule that requires a mileage log and the rule that requires a time log are more difficult, but absolutely essential to proving your deductions.
You may not deduct any home expenses when you rent office space to your employer. This is the law. However, you can avoid this law and get additional tax benefits by following our outline on how to deduct a home office for your corporation. Do it right and avoid a red flag.
Which is better: paying medical insurance out of your pocket, or forming a C corporation to deduct the insurance costs? The extra tax on the corporation might outweigh the insurance deduction. Or, it might not.
Traps set by a 1986 tax law still haunt taxpayers today. We can help you avoid some “reforms,” like huge taxes on personal-corporate loans. Instead, make an additional contribution to capital.
We answer one taxpayer’s question about S corporation medical benefits. We also help him decide which is better for his wife’s business: S corporation, C corporation, or single-member LLC.
Learn from one doctor’s situation. You can deduct passive losses of real estate every year, despite a high income. Forming a C corporation also might provide welcome relief.
The AMT taxes the deductions you claim on your regular tax return. No, you are not in the Twilight Zone, you are right here in the good ol’ U.S.A. Learn the details of this outrageous act.
Douglas Bynum lent his corporation money before it went bankrupt. He filed to deduct this bad debt, but did it incorrectly. Learn from his mistakes and know the details to do it right.
The major tax benefit to operating your business as an S corporation is the possible savings on self-employment taxes. As a single-owner or husband-and-wife-owned business, an S corporation might be right for you.
Taking a cruise ship to Mexico for a business meeting is an acceptable, and deductible, form of travel.
The IRS applies a recapture tax, even when no depreciation is claimed.
Take it from Richard Cotler: if you operate as a corporation, make sure to keep your personal and corporate expenses separate. Asking a court of law to separate your personal and business expenses is an expensive and time-consuming task. And you absolutely should keep the personal expenses clearly identified or, better yet, not on the corporate books at all.
Tax law contains specific rules on the recognition of S corporations. Make it easy on yourself: if you are thinking of operating as an S corporation, know the rules before you start.
As owners of an S corporation, you probably are allowed to forego the stockholders’ and directors’ meetings. However, you may not want to. By skipping these meetings and other “corporate” activities, you appear less like a corporation in the eyes of the law.
If you own your own S corporation, make sure you look like a corporation in the eyes of the law. The IRS is cracking down on S corporations using this status to save self-employment taxes.
The best strategy for this subscriber: do nothing. He is considering forming a corporation, but we think that will not help him with what he wants to do. Sometimes the best solutions are the easiest.
Section 280A(c)(6) forbids the home-office deduction when you rent home-office space to your corporation. Whenever you have transactions with or your owned corporations, partnerships, and other entities, you face rules in the tax . As Gary and Delores Beecher recently , of the related-party rules produce harsh results.
You have probably read that the home office increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home-office audit-proof.
If you operate your business as a corporation and claim the home-office deduction, you need to prove that you use the home office for the convenience of the employer, your corporation. You must pass the convenience-of-the-employer test whether or not you are having the corporation reimburse you for home-office expenses.
If you are an owner-employee of your corporation, be careful loaning money to your corporation. If it goes under, you might not be able to deduct your bad loans. One solution is to make an additional contribution to capital, but that still doesn’t fully solve the problem.
One subscriber asks about making a corporation for his rental houses, and then using a proprietorship to do the management. He would charge a fee to the rentals. We don’t think this is a good idea because it will increase his taxes.
Many people, through keen knowledge of the tax law, have been able to use the law to their advantage and buy personal aircraft. Unfortunately, lawmakers changed the rules for deducting personal aircraft. We summarized the new rules for you.
A personal-service corporation, like that of an accountant, is taxed at the maximum corporate tax of 35%. Instead, consider the S corporation strategy for saving on Social Security.
If you personally own the vehicle that your corporation uses, the IRS authorizes the reimbursement of the vehicle expenses. To make this work, you must submit an expense report and mileage log to your corporation.
You get no business benefit from the section 105 plan at the S corporation level. However, you do get a big personal benefit when you steer the medical insurance through the S corporation to give yourself the medical insurance as a guaranteed payment.
Many S corporation owners are improperly deducting their health insurance on page 1 of the 1040. The American Institute of CPAs submitted a proposed revenue ruling that it would like the IRS to issue concerning health insurance for the S corporation owner. The proposed revenue ruling does nothing to alleviate the problem in the headliner; instead, it would formalize the problem.
Tax court and the IRS establish that child care is not an ordinary and necessary expense and, thus, is not deductible. This ruling, though sloppy (we show you why), establishes a precedent. However, under section 129 in the tax law, the employer may provide child care benefits.
Hiring your children can be a really good move. If you have a sole proprietorship or a husband and wife partnership, you can save a lot of money in taxes. Be careful, though, with corporations, LLCs, estates, and partnerships.
Assigning your personal commissions to your corporation does not work. In this court case, this insurance agent had unfiled tax returns and unpaid taxes for the years he assigned his 1099 income to his corporation.
The more than 2 percent owner of an S corporation may not benefit from a fringe benefit like corporate paid health insurance. Further, this owner-employee is not “self employed” for purposes of deducting self-employed health insurance on page 1 of IRS Form 1040. This leaves the more than 2 percent owner with only one IRS approved method for gaining the maximum deduction from health insurance.
At a meeting of landlords, the guest lawyer stated that the S corporation terminates with too much passive income. Many attendees heard this comment incorrectly. The too much passive income termination problem applies to S corporations which were previously C corporations.
The IRS fulfilled its promise and audited twice as many Form 1040-Schedule C taxpayers and S corporation returns. Your odds of audit vary by both choice of entity and gross receipts in that entity.
When you operate your business as a corporation, you claim the office-in-the-home deduction as an employee. The law requires that this employee use be for the convenience of the employer. Generally, you want the convenience of the employer reason in writing.
When you have your corporation reimburse your home office as an employee business expense, you treat the home as if you had claimed the office-in-the-home deduction personally.
The corporate reimbursement of the owner-employee for office-in-the-home expenses includes condo fees and mortgage payments.
The one-person corporation is a separate legal entity from the owner. This means separate books for the corporation and expense reports from the owner-employee to prove business expenses. When you fail to document your golf or other expenses, two bad things happen.
The properly used business condo does not run up against the vacation-home, passive-loss, or entertainment-facility rules.
Making a lot of money is no excuse for keeping bad records. Top off the bad records with failing to give adequate documentation to your CPA and you add to your misery index with negligence penalties. The taxpayer in this court case had to shell out about $5 million in taxes and over $1 million in penalties.
When you take early retirement and your income is greater than the thresholds, your Social Security benefits are subject to (1) recapture by the Social Security Administration and (2) taxation by the IRS. Tax planning to avoid both benefit recapture and taxation of benefits involves the possible use of an S or C corporation.
In 1935, the self-employment tax topped out at $60. In 2006, the first part of the self-employment tax tops out at $14,413, but the 2.9 percent Medicare part continues after that without limits. Good tax planning for the self-employment tax is like an annuity. It gives you monetary returns—year after year—every year you are in business. So, plan now and consider everything from choice of entity to hiring your children.
To make sure that the IRS will treat the C corporation’s advances to the employee-owner as tax-favored loans rather than tax-penalized dividends, make sure you can answer “yes” to the seven questions.
The IRS audit manual states: “If you rent all or part of your residence to your employer and use the rented portion when performing services for the employer, you cannot deduct home-office expenses attributable to the rental.” Thus, forget the rental to the corporation and use the corporate-reimbursement-to-the-employee strategy for maximum benefits.