By topic: Filing tips
The tax law can jump up and bite you in unexpected places. One example of that is the nanny tax.
The self-employed normally get the short end of the stick when it comes to government aid in times of economic disruption. But the COVID-19 pandemic is different. Congress has provided the self-employed with aid never seen before, including forgivable PPP loans, tax credits for sick leave and family leave, increased Affordable Care Act subsidies, and even unemployment benefits. But the benefits are temporary, so take advantage of them now.
Does creation of a single-member limited liability company move rental losses to Form 1040, Schedule C? Answer: no. Changing the type of entity does not move the rental to Schedule C, but changing the attributes of the rental can qualify the rental for Schedule C.
This is likely it—your last chance to obtain first- and second-draw Paycheck Protection Program (PPP) monies. A new law, the PPP Extension Act of 2021, extends the expiration date to the later of May 31 or when the money runs out. Note the phrase “when the money runs out,” and be forewarned that this can happen within weeks. So, don’t procrastinate—not even for one day.
When Congress passed the CARES Act, it gave small-business owners like you two choices: get tax-free Paycheck Protection Program (PPP) monies or take the employee retention credit (ERC). Fast-forward to the new law enacted on December, 27, 2020, and you will find that you can now benefit from both programs, retroactive to March 13, 2020, as you see in 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.
The American Rescue Plan Act of 2021 provided billions of dollars in new expanded tax credits for individuals like you for tax years 2021 and/or 2022. The three main tax credits Congress increased are the child tax credit, the dependent care credit, and the premium tax credit for health insurance. Learn how you can get thousands more in your pocket for tax year 2021 due to these changes.
If personal non-business property such as your home, personal belongings, or personal car is damaged or destroyed in a disaster, you may qualify for a tax deduction for casualty losses. But during 2018-2025, you may deduct only personal casualty losses caused by federal disasters. And your deduction is whittled down by insurance recoveries and particular casualty loss limitations.
Today, you can form an LLC or a corporation in most states without revealing your identity to any government agency. But this pro-secrecy era is coming to an end because Congress passed the Corporate Transparency Act. Starting in 2022, the names and addresses of many LLCs’ and corporations’ beneficial owners will have to be provided to the U.S. Department of the Treasury. The information won’t be made public, but law enforcement will use it. The law impacts both new and existing LLCs and corporations which will have a new federal filing requirement.
As part of the March 2020 CARES Act, Congress created a COVID-19 employee retention credit to provide financial support to businesses to maintain payroll. But this credit was not available if you took a PPP loan. Now, thanks to the new COVID-19 relief law enacted December 27, 2020, a business with a PPP loan can retroactively claim employee retention tax credits.
The CARES Act, as modified by the new December 27 law, requires the SBA to make anywhere from six to 14 months’ worth of payments for non-disaster loans, including 7(a) loans, 504 loans, and microloans. If the SBA made or is making these payments on your loans, do you have to pay tax on these payments?
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 deals with the annual tax extenders. Congress made some of them permanent, while others got short- or long-term extensions. We’ll go through each and tell you how it fared in the legislation.
A small business retirement plan can be a great way to defer income taxes and build net worth. But knowing the right plan for your small business and which plan will allow you to save the most requires some understanding of the tax laws. Choosing the wrong plan can cost you more than just taxes—it can cost you an opportunity to retire early.
Billions of dollars in grants have been doled out to individuals and businesses in the wake of the COVID-19 pandemic. COVID-19-related grants to individuals are ordinarily not taxable, but grants to business are taxed unless Congress makes an exception. Congress has made some exceptions for businesses, as you will see in this article.
If you become an executor of your loved one’s estate, you may have some important tax decisions to make, as we describe in this article. For example, on the decedent’s final Form 1040, should you elect to deduct medical expenses that are unpaid at the date of death? Should you file Form 706 when not required by law to do so?
Lawmakers and the IRS disagree on whether you are permitted to deduct the expenses you pay with your Paycheck Protection Program (PPP) loans. The problem started with poor drafting of the original forgiveness wording by the lawmakers. The IRS says it has to follow that bad drafting and disallow deductions for expenses paid with PPP loans. There’s much to this story, as you will learn in this article.
Would you like to have at your fingertips IRS key contact information and helpful links for information about amended returns, estate and gift taxes, tax transcripts, power of attorney, stimulus checks, tax help for businesses, and many other topics? If so, simply download the PDF linked in this article.
Over 11 million taxpayers owe back taxes to the IRS. Following a brief suspension of most collection efforts, the IRS is again starting to go after delinquent accounts. But the IRS has promulgated a Taxpayer Relief Initiative that gives taxpayers more time to pay what they owe, obtain and modify installment agreements, and avoid tax liens.
If a loved one passes away and you serve as the executor or inherit assets, you need to consider your duties and/or tax planning. This is Part 1 in a three-part series where we consider your duties should you be the executor, along with planning to avoid the exorbitant tax rates that could apply to a living trust, special filing rules for the widow or widower, required minimum distributions, and more.
If you are the victim of a Ponzi scheme, you absolutely, positively must read this article to learn how the law gives you favored victim status. This includes a safe harbor election that gives you an upfront deduction of up to 95 percent, possible net operating loss treatment, and more.
Business owners who have established 105-HRAs, Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), and Individual Coverage Health Reimbursement Accounts (ICHRAs) to reimburse their employees for medical expenses need to pay an annual fee to help support the Patient-Centered Outcomes Research Institute (PCORI).
Following a presidential executive order, the IRS says employers can stop withholding and paying employee Social Security taxes for the rest of 2020. But employers who do so face potential risks. Do employers have to accept the offer?
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.
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 Tax Cuts and Jobs Act (TCJA) tax reform gives you bonus depreciation as a method for deducting 100 percent of the cost of certain business assets. You also have the de minimis safe harbor for certain assets costing $2,500 or less ($5,000 or less with the applicable financial statement). And finally, the TCJA tax reform enhanced the Section 179 deduction. Which is the best choice for you?
With the COVID-19 experience, you and your partners may be doing a lot of work from home or even working from home primarily. Is the home-office deduction in the mix? If so, because you are a partner, your options for getting a tax benefit for your home-office deductions are tricky. But no worries, we’ll tell you about the two options to use and two options to avoid.
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.
New IRS guidance expands the possibilities for what is an adverse COVID-19 impact on you for purposes of taking money out of your retirement accounts and repaying it without penalties. We’ll explain whether you qualify, what your repayment options are, and how you can structure it for the best tax outcome.
COVID-19 has changed our nation’s economics. One big hit has been to the federal deficit. What does this mean to the future of taxes? Will the estate and gift taxes increase? If so, what can you do today? You will find a strong idea in this article.
he IRS delayed most tax payments this year until July 15, 2020. Since many payments are now due on one date, you may face writing a daunting check. We’ll tell you what you need to pay, how to pay it, and how much to pay—and you might be paying too much if you don’t read this article.
The CARES Act provided tax payment relief for employers and self-employed taxpayers. You can defer payment of a portion of your self-employment tax—but do you have to, or can you pay if you have the cash? We’ll give you the answer plus some things to consider when making your decision.
If you live in a foreign country, you may have had to come back to the U.S. due to COVID-19. If you are a non-resident alien, you might not have been able to leave the U.S. due to COVID-19. In either situation, you could have big tax costs—but the IRS has provided you possible relief in either situation.
The IRS issued guidance that business expenses used to create PPP loan forgiveness are non-deductible. If you received an EIDL emergency advance, you might wonder if that advance is taxable to you or reduces your deductible business expenses. The IRS hasn’t given specific guidance, but we’ll give you our opinion on how this money will be treated.
The Tax Cuts and Jobs Act took away your ability to get an immediate cash benefit from your net operating loss (NOL). Now, due to the COVID-19 pandemic, Congress temporarily brought back the favorable tax treatment for 2018, 2019, and 2020 NOLs. We’ll tell you how you can cash in on this change right now.
Congress made an error in the Tax Cuts and Jobs Act that limited your ability to fully expense your qualified improvement property. The CARES Act fixed the issue retroactively to tax year 2018. If you have such property in your prior filed 2018 or 2019 tax returns, you likely have no choice but to correct those returns. But the bright side is that the corrected law gives you options that enable you to pick the best tax result.
The IRS postponed to July 15, 2020, most of the tax-related actions you need to take care of during the COVID-19 pandemic. This relief affects tax return filing deadlines, tax payment deadlines, and deadlines for hundreds of time-sensitive acts. We’ll let you know what you need to do and when you have to meet your federal tax obligations.
The federal government has given you many ways to find relief from the effect of COVID-19 on your business. You have to like the rescue. But it does require you to make choices as to which assistance to accept, because the selection of one type may preclude benefiting from a second type.
Due to the COVID-19 pandemic, the IRS postponed certain federal tax returns and payments due on April 15, 2020. The scope of the original relief was narrow, but IRS Notice 2020-23 significantly expanded the postponement. So you need to ask yourself: “Do I qualify?” And if you do, do you still want to file and pay now, or wait?
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.
COVID-19 has created many tax breaks for you and your business to mitigate the financial difficulties caused by the coronavirus. In this article, we explain how you may be able to take money from your IRA and other retirement accounts, avoid early withdrawal penalties, and have generous options on repayment (or not). We also explain when you don’t have to take the required minimum distribution from your IRA.
If you are in business for yourself—say, as a corporation or self-employed—payroll taxes and self-employment taxes are likely two of your biggest tax burdens. Here’s some possible good news: Congress decided to give you significant relief from these taxes due to the COVID-19 pandemic. We’ll tell you what relief options are available and whether or not you qualify.
Most favorable tax elections require you to elect the beneficial treatment. But 100 percent bonus depreciation works in reverse. Here, you have to elect out of 100 percent bonus depreciation in the manner the IRS specifies; otherwise, you claimed it, whether or not it shows on your tax return. In this article, we give you not only the strategies for dealing with bonus depreciation but also the formal election you must make to elect out.
If you and your spouse work together in a business that you do not operate as a corporation, you can run into the partnership rules—and they are not usually friendly to a spouse partnership. In Part 1 of this article, you will see how the partnership rules work. You will also see how spouses can elect joint venture tax return treatment.
When you receive restricted stock awards, you need to decide whether you want to make a Section 83(b) tax election. In this article, we explain the nuances to the Section 83(b) election.
The SECURE Act changed many tax law provisions related to retirement and savings. We wrote about the new law last month and have since received many questions. In this article, we give you the answers to eight questions.
Home-office deductions aren’t just for Schedule C businesses. You can have a rental property home office and deduct those expenses on a Schedule E. Besides the usual tax benefits of a home-office deduction, you will gain time that can qualify you as having tax code–defined real estate professional status, and thus unlock 100 percent of your current-year rental losses for immediate deduction against all income.
Every year, we wonder whether Congress will renew various expiring tax breaks, many of which are known as “extenders.” Many extenders died on December 31, 2017, and Congress let them remain dead for all of 2018. Now Congress has brought them back from the dead—and retroactively to January 1, 2018, meaning an amended return may be in your future.
Download your PDF copy of the retirement plans desktop reference for one-person businesses.
In December 2017, Congress enacted the TCJA and changed how your children calculate their tax on their investment-type income. The TCJA changes led to much higher tax bills for many children. On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire.
When looking at your taxable entity choices, consider the partnership, especially the multi-member LLC taxed as a partnership. Often the LLC taxed as a partnership gives you the same liability protection as a corporation as it produces superior tax results. Your situation will determine the best entity, but here in this article you find what you need to help with your decision.
The Tax Cuts and Jobs Act (TCJA) likely requires that you rethink the tax strategies you were using on your vacant land investments. And the TCJA changes may be such that you have to rethink vacant land as an investment, at least for the years impacted by the TCJA.
Many workers across the U.S. are going to suffer improper reclassifications because of the California Supreme Court’s decision in Dynamex and the resulting new California law. As you will see in this article, the Tax Cuts and Jobs Act (TCJA) compounds the tax problems for the workers who are reclassified.
You didn’t issue Form 1099s to your contractors. Now, the IRS is auditing your tax return, and the auditor claims you lose your deductions because you didn’t issue the Form 1099s. Is this correct?
If you plan to buy a building that you are going to rent to your business, you need to know the tax rules to obtain the best benefits. Here, you will learn about an income tax election that you can make on your IRS Form 1040 to avoid the passive loss rules that deny current-year rental losses.
The tax code has a carve-out that creates statutory employees out of certain independent contractors. These contractors receive a W-2 with the “statutory employee” box checked, which means that the contractor reports the W-2 income and associated business expenses (including a Section 105 plan) on his or her Schedule C.
This taxpayer’s checking account shows a negative cash balance. He writes checks on December 31 when he has a negative balance. Can he deduct the expenses on his tax return?
Congress changed the IRS procedures for auditing partnerships, and they apply beginning with your 2018 partnership tax return. Under the new rules, an audit can lead to a partnership-level tax at a 37 percent rate. We’ll explain the new rules and how your partnership can potentially avoid paying this new audit tax.
Many people just like you are self-employed and living and working abroad. Does your business income still qualify for the Section 199A deduction? This article tells you the answer to that question and describes other big-dollar tax breaks you might be entitled to receive.
Once you turn age 70 1/2, the tax code mandates that you withdraw a tax code–defined required minimum distribution (RMD) from your traditional IRA. But by using the RMD or other IRA distribution with a qualified charitable distribution (QCD), you can eliminate the RMD tax bite, possibly reduce your Medicare premiums and income taxes on your Social Security benefits, and more.
You find much beauty and little beast in using a single-member LLC for your real estate ownership. Of course, the big beauty is corporate-style liability protection without tax complexity, as you see in this article.
An auto dealer sent its customer a bogus 1099 because the customer refused to return to the dealership and redo the “no interest” loan to an interest-bearing loan. The dealer made a mistake originally and then wanted the customer to help fix the problem—at the customer’s expense. The customer said no. Later, when the bogus 1099 showing interest income from the no-interest loan showed up in this customer’s mailbox, the customer took this dealership problem to the IRS.
If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes. For example, it’s not a rental property under the tax law, but it does produce either taxable income or a tax-deductible loss.
Is your last payment of payroll taxes in the hands of the IRS or in the hands of an embezzler? How would you know? There’s one easy way to know: simply use the IRS’s online service to check. But that’s a bit of trouble, so why bother? Because if the money has been stolen, you (1) are out the original money and (2) now have to pay a duplicate amount to the IRS. If you have to pay twice, you are going to be furious. Don’t let this happen.
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.
Applying the Section 199A deduction to your rental activity isn’t easy. If you’ve got multiple rental activities, it’s more complex with additional complications. Don’t worry, though—we’ll go step by step through the considerations so that you know you’ve got all your bases covered.
Tax reform gave you hundreds of new tax law provisions and, in some cases, only basic guidance. What if you see a provision where you can benefit, but you are not certain you fit the profile for the deduction? You don’t want to claim the deduction, lose it to the IRS, and then pay big penalties. As we explain in this article, you have two options for handling the situation.
In this precedent-setting case, the Tax Court had to decide for the first time whether a tax preparer’s fraud extends the statute of limitations for the IRS audit of the client’s return even when there is no charge of fraud against the client. Because this court ruled against the taxpaying client, according to precedent, a tax preparer’s fraud now extends a client’s allowable audit period from three years to forever.
The IRS safe harbor that you find in Notice 2019-7 may well represent a red herring for you because your rental properties likely already qualify as a business for the Section 199A deduction. If so, you can avoid the complexities of the safe harbor.
If you have no taxable income, should you claim the office-in-the-home tax deduction? Answer: yes. Even with no taxable income, you have two for-sure tax benefits from the home office, and you likely have a third benefit, as we explain.
Tax reform’s Section 199A deduction often confuses small-business owners and tax professionals alike. It’s quite possible you’ll get a Schedule K-1 from a business that omits the information you need to calculate your deduction. What do you do?
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.
Congress wanted qualified improvement property to have tax-favored status under tax reform. But Congress made an error in writing the Tax Cuts and Jobs Act and made improvement property treatment worse than before. Did Congress fix its goof?
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.
You don’t want a 1099 that reports an amount that differs from what you report on your tax return, because the IRS computers will pick that up and start an inquiry. When you prepay rent, your accounting method for preparing your 1099 likely creates a mismatch between you and your landlord. Here’s the technical correction when you have a mismatch and how to implement it, and a bigger tip on how to avoid mismatched reporting to begin with.
Qualified opportunity funds are a new tax-planning strategy created by the Tax Cuts and Jobs Act tax reform. The new funds have the ability to defer current-year capital gains, eliminate some of them later, and then on the new investment make capital gains tax-free. To put the benefits in place, you need to navigate some new rules and time frames.
Your new (enhanced on May 16, 2019) 2019 desktop reference containing the 2019 capital gains and federal income tax rates for individuals, corporations, and estates and trusts, plus other desirable quick references you want at your fingertips, is now available with the download link in this article.
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.
The Tax Cuts and Jobs Act makes claiming a tax deduction for a personal casualty loss more difficult. And when you do qualify to deduct a personal casualty loss, you face a number of rules that add to your misery by making the loss deduction difficult. In select circumstances, you can use a safe harbor, which makes things a little easier.
In many business environments, you compete for employee talent in a variety of ways, including perhaps by implementing a medical and family leave policy. The good news on this front is that your federal government may have given you a tax credit (yes, that lovely dollar-for-dollar offset to your taxes) for what you wanted to do anyway.
Passive foreign investment companies, or PFICs, are subject to some of the most complex provisions of the tax law. You may own one and not even know it. In this article, we give you the basic rules so that you know what PFICs are and the different ways you can pay tax on them (yes, you have options!).
Twenty years after the Tax Court approved a strategy that grants you extra deductions for your second home, the IRS would like you to forget it ever happened. Even though the case remains current law, you won’t find any mention of this strategy in IRS guidance to taxpayers. Unless you just happened to know old cases—or read this article—you might never have known how you could save thousands in taxes on your second home.
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.
As a small-business owner, you have good odds of someday facing a penalty for late filing and/or late payment of your or your corporation’s taxes. It’s likely you will think that you have to pay the penalties. But as you’ll learn here, when you know the rules of the road, you can travel the IRS mercy path and have those penalties forgiven.
TCJA Tax Reform Q&A: Does Moving W-2 Income and Employee Business Expenses to Schedule C Increase Taxes?
If you can qualify to move your W-2 income to Schedule C so as to enable those legitimate business expense deductions that you are losing to tax reform, should you do it? Maybe. You need to run the numbers to see if the new Schedule C taxes outweigh the monies you lost by not being able to deduct employee business expenses.
Tax reform killed the ability for you to deduct expenses for your hobby activity. But if you sell items in your hobby activity, the IRS allows you to deduct the cost of those items—if you do this the right way. Not knowing this rule can cost you thousands of dollars in extra taxes.
You hate IRS penalties; everyone does. The IRS’s first-time abatement procedure is a valuable tool to defeat IRS penalties. This article explains recent changes to this procedure and how they could affect your ability to qualify for this relief.
The recent tax reform created both winners and losers. One big loser is the W-2 employee who incurs out-of-pocket business expenses to earn his or her W-2 income. Tax reform simplified those W-2 employee business expense deductions by simply making them not tax deductible.
We had many compliments on our 2017 desktop reference and requests to create a 2018 desktop reference so that you can quickly look up the new (after tax reform) 2018 tax rates. You can download the new 2018 reference with the link that’s in this article.
Download your free resource guide titled Beating IRS Penalties, Your Guide to Reducing or Avoiding IRS Penalties.
Here’s a troubling thought. Did lawmakers put you in the out-of-favor tax group that denies you the 20 percent Section 199A deduction (a) because your business makes too much money and (b) it does so because of the reputation or skill of one or more of the business’ owners or employees?
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.
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.
You could (and can) deduct your costs for reimbursing employees for their qualified bicycle transportation costs. But tax reform now makes this bicycle transportation benefit a taxable event for your employees. As you will see in this article, even though the reimbursements are now taxable to the employees, you likely should continue the benefits.
Even if you are not required to file a tax return, you need to file a return within the statute of limitations if you are due a refund and you want the cash. If you fail to file a return within the statute of limitations, you forfeit your refund and make a contribution of that refund to the government.
The 1099-K gives the IRS another audit weapon. In this article, you see how an IRS revenue agent uses the 1099-K to catch taxpayers who underreported their gross income. You also learn why you are likely to receive a letter from the IRS auditing or asking about your 1099-K amounts.
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.
Tax law does not like you if you are a casual gambler. If you are a casual gambler, you report your winnings above the line, where those winnings can increase your taxes, cause loss of deductions because of phaseouts, and increase your Medicare premiums. Your losses are itemized deductions that appear below the line, where you benefit only if you itemize. There’s no choice about where you report your winnings and losses, but there’s a way you can use the per-session rule to mitigate the damage this reporting causes.
Depreciation is a valuable tax deduction but is often missed or mistakenly computed. If you missed depreciation or did it incorrectly, you can fix it in the current year and get some possible major tax benefits for doing so. In fact, the need for a correction can create planning opportunities for you.
When the two-vehicle tax-deduction strategy works for you, you find new deductions without spending a penny or driving a mile farther. In this article, you find that both the IRS and the courts approve of your use of two or more vehicles for business.
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.
More businesses are accepting bitcoins as payment. To the IRS, bitcoin is not the same as cash. You should know the tax implications of accepting bitcoins in your business and the major pros and cons of doing so.
The IRS hit the Mescalero Apache Tribe with a bad result in an employee classification audit. The tribe took the IRS to the Tax Court and forced the IRS to turn over records on the tribe’s workers’ tax payments that will substantially reduce its tax bill. If you have a worker classification issue, you will want to know what the tribe did and why.
The IRS can give you monetary mercy regarding your unpaid tax debts by settling them for less than you owe via the offer in compromise program. Like anything with the IRS, this process is not easy, but the result could save you tens of thousands of dollars. We walk you through how to determine whether you qualify and what you could end up paying.
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.
How does tax law make your tax preparer part of the IRS tax compliance workforce, and what does that mean for your tax return? First, you should and can put yourself in a position to help your tax preparer avoid tax preparer penalties. For example, if your tax preparer is dubious about a deduction you want to claim, provide your preparer with the proof that the deduction is valid.
In many cases, the government hits your lawsuit award or settlement with the double whammy of (1) a tax bill on the gross dollar amount of the award or settlement and (2) a reduction to or even elimination of your legal fees tax deduction. But in some cases the legal fees you paid can become turbocharged tax deductions, saving you thousands of dollars in taxes. We’ll show you when you can qualify for the better deductions and how to claim them.
Mileage-rate addicts usually think that the mileage rate takes care of everything—then they cost themselves money by failing to deduct a loss on the sale of a business vehicle.
If you receive an award or settlement due to an injury claim, the law allows you to exclude some or all of the money you receive from taxation. You can use this exclusion along with other tax reduction strategies to minimize any tax you must pay on the amount you receive.
Some tax strategies claim to help you avoid all your federal income taxes—no math required—simply by making a few straightforward arguments on your tax return. The problem is, they have no basis in law, and in fact constitute tax fraud. The end result will almost certainly be penalties and even jail time. Protect yourself from these scams by knowing how to tell the difference between fairy-tale tax strategies and the real deal.
Home mortgage interest deductions make homes more affordable and save taxpayers thousands of tax dollars each year. Now, if you are single, a new IRS decision creates the possibility for added savings—perhaps double—if you co-own a home or vacation property.
When your business loses money, don’t miss out on valuable tax savings by not filing a tax return that would qualify for a net operating loss deduction. This is one of four traps in the tax law that can cost you tax refunds from prior years and tax shelter for future years.
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.
If you have investments that generate foreign income, including U.S. mutual funds, you likely pay foreign taxes on that income. You can use one of two methods to reduce your U.S. taxes for any foreign taxes paid, and one method generally leads to a greater tax savings than the other. Not maximizing this benefit can cost you thousands in extra taxes over the years.
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.
Because you are a small-business owner, you have a higher chance of an IRS audit. In an audit, the IRS will try to impose accuracy-related penalties on top of any unpaid taxes that it discovers. What you need to know is that the penalties are not automatic. You can beat them with one of the right arguments.
The IRS tax form for deducting the home office contains the gross-square-footage method and makes no mention of other permissible methods. But the instructions for that form and the IRS publication on the home-office deduction both mention other reasonable methods. This article shows you how one other reasonable method, the net-square-footage method, works—and why it is always superior to the gross-square-footage method found on the IRS form.
Self-employed individuals and employees who live and work abroad can potentially exclude most, if not all, of their earned income from United States taxation. But to make this happen, you need to get on top of a few tricky tax rules. And your best bet is to use the tax code safe-harbor 330-day rule not only for safety but also for some extra after-tax income.
When you turn age 70 1/2, the IRS wants a piece of those IRA accounts that you built up all those years. You’re required to make mandatory withdrawals each year just so the IRS can tax you on those amounts. But what if you can limit, perhaps even eliminate, these required withdrawals? Not only that, what if you could benefit a local charity in the process as well? Find out how donating to charity directly from your IRA accounts can make a huge impact on your bottom line.
You have tax decisions to make every year when you own a vacant lot and/or unproductive land. It starts with the interest and property taxes and what you can or cannot deduct as itemized deductions. If you can’t deduct some or all of the interest and property taxes, then you can capitalize them by making a formal election in your tax return. But if you incur other costs, you likely sit in a Catch-22 where you simply suffer the 2 percent floor on miscellaneous itemized deductions and the alternative minimum tax (AMT).
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.
You likely feel some pain when you lose a rental property to foreclosure. And if you have the mortgage structured wrong, tax law adds to whatever pain you experienced with the lender. But in the right circumstances, you can lose your rental property to foreclosure and save money, too.
You need to thank your lawmakers for the ability to claim your net operating loss (NOL) against income from other years. Think of it: tax deductions you incurred this year that exceeded your current-year taxable income turn into tax benefits, either immediately by carrying the NOL back or in the future by carrying the NOL forward. This article explains how this works, what you need to do, and how to see where you get the most dollars for your effort.
Few things can rock your world like the prospect of losing your home. In a foreclosure, the lender sends you one or two Form 1099s that will worry you too. The 1099s could show that you have cancellation of debt income (that’s taxable income). And then, just to pile on, the foreclosure that took away your home might trigger a taxable gain. That’s all bad news. But when you know the rules, you’ll see that you can make some or all of the bad-news tax problems go away.
If you want to claim retroactively enacted bonus depreciation on ALL the qualifying assets you purchased during the year, smile. But if you don’t want that extra 50 percent depreciation on some or all of the assets, you need to take action on your tax return to avoid phantom depreciation and its very ill effects.
Are you suffering from phantom depreciation? This is when the tax law is depreciating your vehicles and other assets without giving you any deductions. Pretty outrageous, right? You suffer this when you fail to elect out of bonus depreciation. In this article, we show you how to fix bonus depreciation problems and also recoup a missed Section 179 deduction.
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.
Even the most savvy business owners can, at times, have trouble paying their bills. If one of those bills is your tax bill, the possibility of having to deal with the IRS to arrange payment is daunting. But have no fear: as you’ll learn here, the IRS offers multiple payment options, depending on how much you owe and your financial situation.
As a small business owner, you have good odds of someday facing a penalty for late filing and/or late payment of your or your corporation’s taxes. It’s likely you will think that you have to pay the penalties. But as you’ll learn here, when you know the rules of the road, you can travel the IRS mercy path and have those penalties forgiven.
The IRS recently created a rule to make your life simpler and better. How is that for a change? It’s true. Now when you buy almost any tangible asset for $500 or less, you can immediately deduct the purchase if you follow the two easy steps laid out by the IRS. That means tax savings for you and fewer headaches for you and your tax preparer.
Whether or not you complied with Obamacare last year, we have some big news for you. It’s no problem, compliance or not, and either way the news is big for two reasons. First, if you failed Obamacare compliance in 2014, the IRS likely just released you from the monstrous $100-a-day penalty. Second, if you did it right, you may have overtaxed your employees and now, with the new IRS guidance, you can undo that overtaxation.
Trust, but verify. That’s the motto you should have when it comes to your payroll tax payments. You likely have a professional or business associate take care of your tax filing and payments. But you could save yourself a lot of trouble down the road by knowing how to verify that your trusted associate has done what he or she claimed to do.
In this precedent-setting case, the Tax Court had to decide for the first time whether a tax preparer’s fraud extends the statute of limitations for IRS audit of the client return when there is no charge of fraud against the client. If the court rules against the client, then by precedent a tax preparer’s fraud extends the client’s allowable audit period from three years to forever.
You never, ever want to borrow money from this one place. It’s poisonous. If you don’t suffer immediately, you might wish you had. This is a situation in which the money is readily available, you think it’s yours, and you think you are simply borrowing the money. But that’s not what’s happening. You are in truth stealing the money and violating your fiduciary responsibilities.
Do you know for what period of time you have to keep your tax records? You may have heard three years, four years, six years, and seven years. All of these can be correct, but also 17 years can be correct with a depreciable building that you sold in year 14. Because you need to keep the records for the required periods, you need to know what those required periods are.
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.
Do you gain or lose tax advantages when you marry? Lawmakers have tried to deal with the marriage issue for years, and they have made multiple changes in the laws. But there’s no perfect law, so winning and losing because of marriage still exists.
What one mistake can you make with your taxes that will cause you to pay penalties of up to 47.5 percent? And that’s not the worst part. What could be worse than a 47.5 percent tax penalty? How about both the penalty and a full-blown IRS audit? That’s far worse.
If you have workers who are paid on a 1099 as independent contractors, you need to avoid one fatal mistake. When you make this fatal mistake, you subject your worker employment classification to either the tax court’s common-law seven-factor test or the IRS’s 20-factor common-law test. Both of these tests are hard on the employer and often result in harsh reclassification of the 1099 independent contractors to W-2 employee status.
Is your last payment of payroll taxes in the hands of the IRS or in the hands of an embezzler? How would you know? There’s one easy way to know: simply use the IRS’s online service to check. But that’s a lot of trouble, so why bother? Because if the money has been stolen, you (1) are out the money and (2) have to pay that same amount to the IRS. If you have to pay twice, you are going to be furious. Don’t let this happen.
Are you treating your business entertainment correctly? For example, do you cut your deductions if the entertainment rubs against the lavish or extravagant rule? Are you cutting your entertainment expenses for the 50 percent rule? Learn why it’s easy to misunderstand the lavish or extravagant and 50 percent rules and how that could be hurting your business entertainment tax deductions.
Are you currently using IRS mileage rates to deduct your business vehicle? Is that the right choice for you? If not, you will be happy to know that you can switch to the actual expense method. The IRS gives you two different ways to do the switch, depending on when you want to make the switch.
The W-2 mortgage loan officer in this tax case beat the alternative minimum tax (AMT) by winning his claim that, in spite of his W-2, he was an independent contractor who should report his business expenses as a proprietorship on Schedule C of his Form 1040.
The IRS does not like offshore and foreign bank accounts that are not reported on the FBAR, IRS Form 8938, and Schedule B of IRS Form 1040. Millions of U.S. taxpayers have perfectly legal and properly reported offshore and foreign bank accounts. But legal or illegal, they must be reported on the two income tax forms and the FBAR.
New IRS Forgiveness Program for Improper 1099 Payments to W-2 Employees Is Not the Gift It Appears to Be
Is your worker an independent contractor or an employee? You want to get this right at the beginning. But if you improperly classified an employee as an independent contractor, the IRS has a tax penalty relief program for you. Should the IRS plan not have the best relief for you, consider the Section 530 employer protection plan.
Learn what is 1099 income and why that often causes an incorrect 1099, which in turn can lead to an IRS audit. Often, correcting an incorrect 1099 on Schedule C compounds the problem. In this article, you learn how to 1099 correctly and what is 1099 income. The definition of “what is 1099 income” may surprise you.
Learn how to avoid payroll tax problems when you hire a nanny or other household worker. Your best bet is likely a payroll service that specializes in “nanny tax” compliance.
If you are thinking about a new business, you need to know the rules on how to deduct start-up costs right now. Why? Your deductible costs could start accumulating simultaneously with your thinking about this new business.
You trigger business deductions once you start your business. Thus the question: Which triggers do you need to pull for the business to start?
Does the Proprietorship Exemption from Payroll Taxes Apply when the Owner of a Single-Member LLC Hires His 15-Year-Old Child?
The single-member LLC is a disregarded entity for federal income tax purposes, but a corporation for employment tax purposes.
When the bank forecloses on a home, tax law comes into play in some surprising and often beneficial ways, especially this year. Tax law treats recourse and nonrecourse mortgages in completely different ways, but with a personal residence, the end result can be pretty much the same.
If you are personally liable for a debt and that debt is canceled or forgiven, you include the canceled debt as taxable income on your income tax return. Your situation dictates whether you will pay taxes on this taxable income. You might qualify to exclude the canceled-debt income from taxation altogether or to pay little or no taxes on it this year and then pay taxes in later years.
Even if you are not required to file a tax return, you need to file a return within the statute of limitations if you are due a refund and you want the cash. If you fail to file a return within the statute of limitations, you forfeit your refund and make a contribution of that refund to the government.
The U.S. tax system is kind to proprietors and corporations that lose money in their businesses. The losses can be carried back and forward, but you must pay strict attention to the elections and due dates to ensure your benefits.
Do you own a business that withholds taxes from employees? If so, you need 100 percent certainty that the withheld payroll tax monies are going to the IRS. You can achieve 100 percent certainty with the IRS EFTPS registration..
The U.S. government taxes your profits and subsidizes your losses. That’s nice. Not all governments share in the losses.
If you are the victim of a Ponzi scheme, you absolutely, positively must read this article to learn how the law gives you favored victim status. This includes a safe harbor election, possible carryback of the losses to one of five years, net operating loss treatment, and more.
Make sure you know all of the ramifications of a premature IRA withdrawal before you make the withdrawal for medical expenses.
If you are looking for tax deduction trouble from the IRS, do this: Don’t file your tax return or at the very least, file it well after the filing deadline.
Your home equity loan can give you a full, partial, or no deduction for your interest. If you will get zero or a reduced benefit, make the necessary changes to protect your tax benefits.
This court case shows how an office in the home may have than one room that qualifies for deduction.
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.
Section 179 expensing is available against business income. For this purpose, business income is defined to include, among others, W-2 income.
You may deduct education that improves or maintains the skills you need in your current business, if this education does not qualify, or lead to qualifying, you for a new or different business.
With net business income less than $115,647, the sole proprietor with two qualifying children and a stay-at-home spouse can hire the spouse and pay a wage of $6,000 to create a $1,200 child care credit with no change in their joint income taxes—other than realization of the $1,200 credit.
In an ISP, the IRS asserted that the Section 105 medical reimbursement plan may not reimburse the employee-spouse for the cost of health insurance purchased in the employee-owner’s name. This court case held that this IRS position is wrong and that the owner may deduct the cost of medical insurance purchased in his name when that insurance is covered by the Section 105 medical reimbursement plan.
When you use an intermediary to complete a Section 1031 exchange, you sell one property and place the cash on deposit with the intermediary. If the intermediary goes bankrupt causing your exchange to fail the time test, you are on the hook for the taxes.
New tax rules have pretty much killed the once-common tool and car allowances as expense reimbursement methods.
Your son may not deduct the interest on the mortgage payments he makes on your behalf. You need to reconsider and restructure this arrangement.
The husband and wife who work together must consider the joint venture election if they want the business treated by the IRS the way they think it should be treated.
This proprietor paid his employee-wife $12,000 in wages. Now, she wants to contribute the entire $12,000 as an elective deferral to her 401(k) account but she no longer has $12,000 because of payroll taxes. With some mechanical adjustments, the employee-wife may contribute the full $12,000.
The IRS ruled that this real estate broker who gives commission rebates and commission reductions at closing does not have to give Form 1099s to his customers who receive the rebates and reductions.
Terry Gerber was sentenced to two years and six months in federal prison for tax evasion.
Under the “objective test,” entertainment does not mean only the entertainment of others. The objective test sanctions Dutch-treat entertainment.
The IRS applies a recapture tax, even when no depreciation is claimed.
At what point is a home destroyed so that it is eligible for the “involuntary conversion rules and the $250,000 ($500,000) exclusion of capital gains rules? In this chief counsel advice, the IRS gives some clarity.
As a person who buys and sells stocks, you will see a huge difference in how the law treats you if you’re a dealer, trader, or investor.
Dealer versus investor tax status is a heavily litigated issue. Choosing between dealer or investor status is often a tough call, as is in the case of this taxpayer. There can be a huge tax difference between classification as a dealer or classification as an investor.
Anthony Lee was sentenced to seven months in prison and three months of home detention for failure to file his tax returns. He owed $76,853 in taxes and an extra fine of $10,000. Know the law!
Even if you do not owe any money, you move right to the front of the line for an IRS audit if you do not file your taxes on time. Always file a tax return, even if you cannot pay the tax.
Answer this question: Could you prove that you filed last year’s tax return? Is your proof credible enough that it will stand the scrutiny of the IRS?
Getting the IRS to give you an advance ruling on a transaction or deduction can be very worthwhile. It now costs money, but it might be worth getting the opinion you seek. If your ruling does not fit into the three major categories they list, your fees may vary. The highest fee is $50,000 for a pre-filing agreement.
Schedule E allows wages, but it does not have a separate line item for them. So, when you are hiring your spouse to work on your rental properties, file the work as “ordinary and necessary expenses to save money on taxes.
It matters not that you used a paid tax preparer to help you, you commit tax fraud and face jail time when you take illegal tax protestor positions on your tax returns.
You may amend your tax return for missed Section 179 expensing on a unibody SUV. The truck chassis is not required for an SUV to qualify as a truck for purposes of the SUV deduction.
Winning a court case for physical or nonphysical injuries triggers tax laws that can dramatically impact the after-tax value of any cash you receive for injuries or damages.
Lawmakers enacted a special two-year sales tax deduction to benefit taxpayers who live in states with no income tax. According to the Treasury Inspector General, over 700,000 taxpayers failed to claim the deduction.
You do not want a hobby for tax purposes. The fact that hobby losses are not deductible is minor compared to the other problems caused by the hobby. For example, you report hobby income above-the-line and hobby expenses below-the-line as miscellaneous itemized deductions where they suffer the 2 percent of adjusted gross income floor, or, worse yet, the AMT.
Hobby gambling can trigger taxes when you have a zero income because the law makes your winnings reportable above-the-line and losses deductible below-the-line.
Tax law calls the wreckage and totaling of your vehicle both an involuntary conversion and a casualty. Special rules allow you to treat the involuntary conversion as either a sale or a trade-in. Thus, your first step in this process is to find your gain or loss and then decide how you want to claim your tax benefits.
Today’s computer and Internet technology give you a variety of new safeguards that you can use to protect your tax records. When thinking about your records, keep this one overriding rule in mind: no records, no deductions.
It is highly unusual for the IRS to revoke a private letter ruling. You can protect yourself from a revocation by making a proposed transaction the subject matter for the ruling.
Bad records can cost you just about every tax deduction. You can testify as to your deductions, but without the records that turns out worthless. When it comes to your taxes, paper talks.
If you don’t have the tax records or if you are just not cooperative, you could enable the IRS to use the bank deposits method to determine your taxable income. This is a bad thing. When the IRS uses the bank deposits method to determine your tax liability, you generally pay a whole lot more tax.
The AMT can trigger additional taxes on your capital gains despite the fact that the capital gains tax rate for both regular and AMT purposes is identical. Your status as single or married and the amount and nature of your income determine the extra AMT hit. In general, the middle income can suffer the worst AMT impact.
Not filing your tax returns on time because you lost or misplaced your tax records is going to make your tax life miserable. The trouble is so bad that you need to consider an “offer in compromise.”
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 corporate reimbursement to you, the employee, for the business use of your home office requires that you recognize the depreciation component of the reimbursement as if you had claimed the office in the home on your personal tax return.
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.
The couple in this court case did not keep the right records to prove the improvements they made to their home. This failure to keep the records probably saved them some personal time, but it cost them taxes on $101,907 of capital gains. What do you suppose the hourly cost of this failure—considering that the time spent to keep these records has to be very few hours? You really do need the right tax records and it takes very little time when you know what to keep.
This taxpayer embezzled money from his employer, got caught, and died in jail. Before he died, the embezzler sent the embezzled money to the IRS as an estimated tax payment.
The IRS told lawmakers that a number of people were cheating on vehicle donations and that some changes in the rules could put a quick stop to that. This court case explains why lawmakers went along with the IRS and enacted the changes that are in effect today.