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Should I have more kids?

Posted by Admin Posted on Nov 05 2018

This is generally not a question that you would associate with taxes.  In the past there had been a tax benefit that you received per child.  For 2017 for children under 17, you got a $1,000 credit and a $4,050 tax exemption.  The credit unfortunately started phasing out after adjusted gross income (AGI) of $110,000 for married filing joint, $75,000 for head of household, and $55,000 for single filers. 

 

With the new tax law change starting in 2018, the credit has been doubled to $2,000 and the phase out has been raised to $400,000 (AGI) for married filing joint and to $200,000 for head of household and single filers.  The $4,050 deduction was removed, but most tax rates were lowered, and tax brackets extended.

 

This means more money for many low income filers, and a long unexperienced benefit for higher income filers under $400,000 joint (or $200,000) AGI. 

 

Does this mean that you should have more kids?  You decide.  I imagine that there are other things to consider….

$10,000 deduction limit!?!

Posted by Admin Posted on Oct 05 2018

What do you mean I can't deduct all of my state and local tax? Does that mean property, income and sales tax? What!!! That's right. The new tax changes are making it so that individuals can only deduct up to $10,000 of state and local taxes per year as an itemized deduction. That includes income/sales tax and property tax.

Luckily, this does not include tax paid on a rental or in a business. Does this mean that you should start renting out your basement in order to deduct part of the property tax that you won't be able to deduct? Does this mean starting up a home office to do the same? You tell me. If you don't do something, you can kiss the excess goodbye.

 

Is the government encouraging divorce?

Posted by Admin Posted on Sept 21 2018

Is the government incentivizing me to get divorced before the end of 2018?  If you expect to pay alimony and want those payments to be tax deductible, then the answer is yes.  Starting in 2019 alimony payments made will not be tax-deductible to the payer, and will not be shown as income on the payee’s tax return.  This is the opposite of how things work right now.  Currently, if you pay alimony to your ex-spouse and meet the tax requirements, it is tax-deductible to you and must then be reported on your ex-spouse’s tax return as income.

 

It is important to also remember that payments considered to be child support will be taxed to the payor and tax-free to the payee either way. 

 

I expect that in the future, alimony will become less popular in general, but for this year at least, it’s still works in favor of the payer.

 

*Let it be known that I am personally in favor of strong marriages and I sorrow at the high incidence of divorce in today’s society. 

 

Does my business rely on my reputation for 199A?

Posted by Admin Posted on Sept 14 2018

New IRS 199A Regulations Benefit Out-of-Favor Service Businesses

If you operate an out-of-favor business (known in the law as a “specified service trade or business”) and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your Section 199A deduction is easy to compute. It’s zero.

 

This out-of-favor specified service trade or business group includes any trade or business

 

·         involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or

·         where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or

·         that involves the performance of services that consist of investing and investment management trading or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities [Internal Revenue Code Sections 475(c)(2) and 475(e)(2), respectively].

 

If you were not in one of the named groups above, you likely worried about being in a reputation or skill out-of-favor specified service business. If you were worried, you joined a large group of worried businesses, because many businesses depend on reputation and/or skill for success.

 

For example, the National Association of Realtors believed real estate agents fell into this out-of-favor category.

 

But don’t worry, be happy. The IRS has come to the rescue by regulating the draconian reputation and/or skill provision down to almost nothing. The reputation and/or skill out-of-favor specified service business includes you if you

 

·         receive fees, compensation, or other income for endorsing products or services;

·         license or receive fees, compensation, or other income for the use of your image, likeness, name, signature, voice, trademark, or any other symbols associated with your identity; or

·         receive fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

 

Example. Harry is a well-known chef and the sole owner of multiple restaurants, each of which is a single-member LLC—disregarded tax entities that are taxed as proprietorships. Due to Harry’s skill and reputation as a chef, he receives an endorsement fee of $500,000 for the use of his name on a line of cooking utensils and cookware.

 

Results. Harry’s restaurant business is not an out-of-favor business, but his endorsement fee is an out-of-favor specified service business.

 

If you have questions about how the law will treat your business income for the new Section 199A 20 percent tax deduction, please give us a call, and we’ll examine your situation.

 

How can I deduct more of my rental now?

Posted by Admin Posted on Sept 07 2018

How Cost Segregation Can Turn Your Rental into a Cash Cow

Cost segregation breaks your real property into its components, some of which you can depreciate much faster than the typical 27.5 years for a residential rental or 39 years for nonresidential real estate.

 

When you buy real property, you typically break it into two assets for depreciation purposes:

 

·         land, which is non-depreciable; and

·         building (residential is 27.5-year property; nonresidential is 39-year property).

 

With a cost segregation study, you make your property much more than a building on land. Here’s what’s possible with a cost segregation study:

 

·         Land, which is non-depreciable

·         5-year property

·         7-year property

·         15-year property

·         For the remainder, 27.5-year property or 39-year property, depending on building use

 

With a cost segregation study, you front-load your depreciation deductions and take them sooner, but you’ll take the same total depreciation amount over the lifetime of the property.

 

Tax reform under the Tax Cuts and Jobs Act boosted bonus depreciation from 50 percent to 100 percent, and this new law also allows bonus depreciation on qualifying used property. Cost segregation is made to take advantage of these new law changes.

 

And you can apply cost segregation to rentals and offices you have had for 10 years or that you are buying tomorrow. But if the passive activity loss rules affect your ability to take immediate rental losses, we need to run your numbers to see if you can benefit and also identify what you could do to benefit even more.

 

Tax reform in one of its “not beneficial to you” new law sections took away your ability to do a like-kind exchange for non-real property. Therefore, if you do a cost segregation and then later use a like-kind exchange on that property, you’ll have taxable gain attributable to everything that’s not land or 27.5-year or 39-year property.

 

Why is my retirement rollover being taxed!

Posted by Admin Posted on Aug 31 2018

Retirement Plan and IRA Rollover Advice

When moving your retirement money to an IRA, you should follow this one rule of thumb. If you fail to follow the rule we’re about to reveal, you can face two big problems:

 

·         First, your check will be shorted by 20 percent (federal withholding).

·         Second, you will be on the search for replacement money.

 

Here is this very important rule of thumb that you need to follow: Move the money using a trustee-to-trustee transfer. Nothing else. There are two types of transfers that can be used to move qualified plan distributions into IRAs in a tax-free manner: (1) direct (trustee-to-trustee) rollovers and (2) what we will call traditional rollovers.

 

If you want to do a totally tax-free rollover, do nothing other than the direct (trustee-to-trustee) rollover of your qualified retirement plan distribution into the rollover IRA. This is easy to do.

 

Simply instruct the qualified plan trustee or administrator to (1) make a wire transfer into your rollover IRA or (2) cut a check payable to the trustee of your rollover IRA (this option is less preferable than a wire transfer). Your employee benefits department should have all the forms necessary to arrange for a direct rollover.

Retirement Plan and IRA Rollover Advice

When moving your retirement money to an IRA, you should follow this one rule of thumb. If you fail to follow the rule we’re about to reveal, you can face two big problems:

 

·         First, your check will be shorted by 20 percent (federal withholding).

·         Second, you will be on the search for replacement money.

 

Here is this very important rule of thumb that you need to follow: Move the money using a trustee-to-trustee transfer. Nothing else. There are two types of transfers that can be used to move qualified plan distributions into IRAs in a tax-free manner: (1) direct (trustee-to-trustee) rollovers and (2) what we will call traditional rollovers.

 

If you want to do a totally tax-free rollover, do nothing other than the direct (trustee-to-trustee) rollover of your qualified retirement plan distribution into the rollover IRA. This is easy to do.

 

Simply instruct the qualified plan trustee or administrator to (1) make a wire transfer into your rollover IRA or (2) cut a check payable to the trustee of your rollover IRA (this option is less preferable than a wire transfer). Your employee benefits department should have all the forms necessary to arrange for a direct rollover.

 

Is my car deductible? Can be.

Posted by Admin Posted on Aug 24 2018

Convert Your Personal Vehicle to Business and Deduct up to 100 Percent

You probably like your personal vehicle just as it is. But wouldn’t you like it far better if it were producing tax deductions? Perhaps big deductions, immediately. And the Tax Cuts and Jobs Act gives you the tax reform road map on how to do this.

 

Of course, to make this happen, you need to strip your personal vehicle of its personal status and re-dress it as a business vehicle. This is not difficult. In its new business dress, your former personal vehicle can qualify for up to 100 percent bonus depreciation.

 

Example. Sam has a personal vehicle with a tax basis for depreciation of $31,000. With 70 percent business use on this 100 percent bonus depreciation–qualifying vehicle, Sam has a new $21,700 tax deduction for this year ($31,000 x 70 percent).

 

Did you see the PA?

Posted by Admin Posted on Aug 14 2018

Let it be known that as of June 4, 2018, Joey Larsen is a Certified Public Accountant in Utah.  That's C.P.A.

How will tax reform affect my partnership or LLC? Come see!

Posted by Admin Posted on Aug 10 2018

Tax Reform Changes Affecting Partnerships and LLCs and Their Owners

The Tax Cuts and Jobs Act (TCJA) includes several changes that affect partnerships and their partners, and LLCs that are treated as partnerships for tax purposes and their members. Most of the changes are good news. Here are some highlights:

 

Technical Termination Rule Repealed (Good)

 

Under prior law, a partnership or an LLC treated as a partnership for tax purposes was considered terminated for federal income tax purposes if, within a 12-month period, there was a sale or exchange of 50 percent or more of the partnership’s or LLC’s capital and profits interests. Fortunately, the TCJA repealed the technical termination rule, effective for partnership or LLC tax years beginning in 2018 and beyond. This is a permanent change.

 

Lower Tax Rates for Individual Partners and LLC Members (Good)

 

For 2018 through 2025, the TCJA retains seven tax rate brackets for ordinary income and net short-term capital gains recognized by individual taxpayers, including income and gains passed through to individual partners and LLC members. Six of the rates are lower than before. In 2026, the rates and brackets that were in place for 2017 are scheduled to return, but skeptics doubt that will happen.

 

Unchanged Rates for Long-Term Gains and Qualified Dividends (Not Good)

 

The TCJA retains the 0, 15, and 20 percent tax rates on long-term capital gains and qualified dividends recognized by individual taxpayers, including gains and dividends passed through to individual partners and LLC members. After 2018, these brackets will be indexed for inflation.

 

New Pass-Through Business Deduction (Good)

 

For tax years beginning in 2018-2025, the TCJA establishes a new deduction based on your share of qualified business income (QBI) passed through from a partnership or LLC. The deduction generally equals 20 percent of QBI, subject to restrictions that can apply at higher income levels.

 

New Limits on Deducting Business Losses (Not Good)

 

For 2018-2025, the TCJA made two changes to the rules for deducting an individual taxpayer’s business losses. Unfortunately, the changes are not in your favor.

 

For tax years beginning in 2018-2025, you cannot deduct an excess business loss in the current year. An excess business loss means the amount of a loss in excess of $250,000, or $500,000 if you are a married joint-filer. The excess business loss is carried over to the following tax year, and you can then deduct it under new rules for deducting net operating loss (NOL) carryforwards, explained below.

 

Key Point: This new loss disallowance rule applies after applying the passive activity loss (PAL) rules. So if the PAL rules disallow your business loss, you don’t get to use the new loss disallowance rule.

 

For NOLs arising in tax years beginning in 2018 and beyond, the TCJA stipulates that you generally cannot use an NOL carryover to shelter more than 80 percent of taxable income in the carryover year. Under prior law, you could generally use an NOL carryover to shelter up to 100 percent of your taxable income in the carryover year.

 

Another TCJA change stipulates that NOLs arising in tax years ending after 2017 generally cannot be carried back to an earlier tax year. You can carry such losses forward only. But you can carry them forward indefinitely. Under prior law, you could carry an NOL forward for no more than 20 years.

 

Does renting spell lights out for the $250,000 exclusion on my home?

Posted by Admin Posted on July 27 2018

Will Renting Your Home Destroy Your $250,000 Exclusion?

The days when you could convert your rental property or vacation home to a principal residence and then use the full $250,000/$500,000 home-sale exclusion to avoid taxes are gone.

 

Here’s how the $250,000/$500,000 exclusion works today. You must divide your period of home ownership into two categories—qualified and nonqualified use:

 

·         Qualified use means the time you or your spouse uses the home as your principal residence.

·         Nonqualified use means any time on January 1, 2009, or later in which neither you nor your spouse (or your former spouse) uses the property as a primary residence.

 

You allocate gain on the sale of your home between the periods of qualified and nonqualified use, and the gain allocated to nonqualified use doesn’t qualify for the $250,000/$500,000 home-sale exclusion. You have one important exception to the nonqualified use definition: nonqualified use does not include rental use during the five-year period that’s after the last date you or your spouse used the property as your principal residence.

 

In other words, if you live in your principal residence for two years or more and then rent it out for three years or less, the rental period is not a “period of nonqualified use,” and you qualify for the $250,000/$500,000 home-sale exclusion.

 

Are French Fries deductible or not!

Posted by Admin Posted on June 12 2018

Tax Reform Update on Business Meals with Clients and Prospects

Here’s the updated strategy: deduct your client and business meals as if tax reform never took place.

 

Wow. Is this aggressive? Not if

 

·         the IRS comes out with regulations that follow a model set by the American Institute of CPAs, or

·         the Joint Committee on Taxation in its explanation of the Tax Cuts and Jobs Act states that client and business meals continue as deductions, or

·         lawmakers enact a new tax code section that authorizes client and business meal deductions.

 

How big is the “if” in the if? We have some insights that say business meals will be deductible for all of 2018. Of course, nothing is certain except the current uncertainty.

 

Let’s put it this way: If you do what you need to do to deduct the meals, then you are in a position to claim the business meals deduction when one of the above happens. So, make sure you have your 2018 business meals documented as follows:

 

·         The name of the person you had the meal with.

·         The name of the restaurant where you had the meal.

·         A short description of the business discussed.

·         If the meal costs $75 or more, keep the receipt that shows the name of the restaurant, number of people at the table, and itemized list of food and drink consumed.

 

With new biz tax law, less can be more

Posted by Admin Posted on June 01 2018

Tax Reform: Planning for Your New 20 Percent Deduction

As you likely know by now, the Tax Cuts and Jobs Act created a 20 percent tax deduction under new tax code Section 199A.

 

The question for you: Will you reap any benefits from this new deduction? And the second question: If your chance of qualifying for the 20 percent tax deduction looks bleak, what can you do now to create some hope that you’ll get the deduction?

 

If your defined taxable income is $315,000 or less (joint return) or $157,500 or less (single), you can relax. You don’t need any strategies to realize your Section 199A deduction. It is simply the lesser of 20 percent of your taxable income (less net capital gains) or 20 percent of your qualified business income.

 

Example. John is single, a lawyer, with $125,000 in qualified business income and $150,000 in taxable income (excluding net capital gains). John’s Section 199A tax deduction is $25,000 (20 percent x $125,000).

 

Once you exceed $315,000 (married) or $157,500 (single), we should spend at least a few minutes reviewing your deduction.

 

Here’s an example of why this is important. We just reviewed a return that would have had $315,001 in taxable income and $350,000 in qualified business income. With that income, the 199A deduction was zero for this individual, but with $1 less in taxable income, this individual’s deduction is $63,000. We are helping this individual avoid that highly troubling $1 so he can realize his $63,000 deduction.

 

If you expect to exceed the thresholds, we should talk, because some planning ideas require that you have time on your side. Also, once the year is over, you have very few, if any, Section 199A planning opportunities.

 

Pay Your Kids, Not the Government!

Posted by Admin Posted on May 14 2018

The recent tax reform eliminated personal exemptions for taxable years after December 31, 2017, and before January 1, 2026. This makes your child worthless to you on your Form 1040. But there is a way to get even or, perhaps, much more than even.

 

Let’s set the stage first. For taxable years after December 31, 2017, and before January 1, 2026, the standard deduction for a single taxpayer begins at $12,000 in 2018 and increases every year for inflation. The new standard deduction means that a single taxpayer such as your child can earn up to $12,000 in W-2 wages and pay not a penny in federal taxes.

 

As the owner of a business, you have the advantage of being able to hire your child to work in your business, and that creates tax-saving opportunities for both you and your child. The big dollar benefits of hiring your child go to the Form 1040, Schedule C taxpayer and the husband-and-wife partnership because such businesses are exempt from FICA when they employ their children who are under age 18.

 

S and C corporations and non-spouse partnerships do not qualify for this benefit. They have to pay the payroll taxes on all employees—period. There is no parental benefit.

 

What do you mean I can't deduct my home's interest!

Posted by Admin Posted on Mar 29 2018

Tax Reform Attacks Home Mortgage Interest Deductions 

The recent tax reform contains two big changes to how much you can deduct in mortgage interest for tax years 2018 through 2025:

 

1.      During this seven-year period, you may not deduct any interest on prior or current home equity debt, with certain exceptions.

2.      Also during this seven-year period, the maximum amount you may treat as acquisition debt for homes purchased after December 15, 2017, is $750,000.

 

Exception alert. Your home equity loan may include acquisition or home-improvement debt, and that debt continues as deductible under the recent tax reform rules.

 

Example. Billy took out a $90,000 home equity loan in 2015. He used $50,000 to remodel portions of his home and used the remaining $40,000 for his daughter’s college tuition. Billy’s total home mortgages never exceeded $1.1 million. Under the new law, Billy may deduct five-ninths of his home equity loan interest in 2018.

 

Acquisition debt. When you buy your main home or a second home and take out mortgages secured by those homes, your mortgages are called acquisition debt. You can add acquisition debt when you improve your main or second home, and that new debt is secured by the home you improved.

 

Refinancing alert. Your acquisition debt does not increase when you refinance unless you use the new monies to improve the home.

 

Example. Tom bought a home in 2010 and took out a $500,000 mortgage that he secured with the home. In 2018, Tom has paid down his mortgage to $430,000, and his home has increased in value to $800,000. Tom refinances the home and takes out a new mortgage in the amount of $600,000, secured by the home.

 

If Tom uses none of the new money to improve his home, his mortgage interest deduction in 2018 is based on the $430,000 of mortgage principal that remained as of the date of his refinancing. To put this in perspective, your original acquisition debt never increases on that original home. To increase your debt eligible for the home mortgage interest deduction, you need to use the new debt to improve the home.

 

Ceilings. Because of tax reform, you now have two possible 2018 ceilings on your home mortgages that are eligible for the mortgage interest deductions.

 

$1.1 million. For indebtedness incurred before December 15, 2017, you may not deduct interest on more than $1.1 million in mortgages ($1 million in acquisition debt and $100,000 in home equity debt used for acquisition or improvements). The original $1.1 million ceiling is grandfathered for acquisition and improvement loans in existence before December 15, 2017.

 

Example. Sam took out his mortgages during 2013. Sam faces the $1.1 million ceiling in 2018.

 

$750,000. For home mortgage indebtedness incurred on or after December 15, 2017, you may deduct interest on no more than $750,000 of home mortgages.

 

Example. Jim took out his mortgage in 2018. He faces the $750,000 ceiling.

 

Exception. If you entered into a written, binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and you complete the purchase before April 1, 2018, you fall into the $1.1 million ceiling category.

 

Bigger Vehicle Deductions!

Posted by Admin Posted on Feb 28 2018

Tax Reform Allows Bigger Vehicle Deductions 

Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars. The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than $15,800. The new limits don’t create parity in all respects, but they are a big improvement.

 

If you bought a car in 2017 and paid more than $15,800, you were driving a luxury car that lawmakers punished you for by putting a lid on your depreciation. For example, say in 2017 you bought a $40,000 car and drove it 100 percent for business. Your maximum depreciation deductions for the first five years would total only $15,060. To fully depreciate this car under the old rules would have taken 19 years.

 

It was ridiculous to take 19 years to depreciate that $40,000 car. And now, finally, lawmakers have fixed a big part of what the tax code calls “luxury automobile limits.” Under the new law, this $40,000 vehicle is fully depreciated in six years. Think about that: old law, 19 years. New law, six years. Essentially, the new law sets the so-called luxury automobile limit at $50,000. This means any vehicle that costs $50,000 or less is not penalized by the luxury vehicle limits when you’re using MACRS depreciation.

 

Under the new law, the annual limits are

 

·         Year 1: $10,000

·         Year 2: $16,000

·         Year 3: $9,600

·         Year 4 and each succeeding year: $5,760

 

What do the new limits mean? Before 2018, many business taxpayers were buying vehicles with gross vehicle weight ratings (GVWRs) greater than 6,000 pounds to escape the draconian luxury limit of roughly $15,000. Even today, SUVs, crossover vehicles, and pickup trucks can avoid the automobile luxury limits and even qualify for immediate write-offs of the full business cost using bonus depreciation or Section 179 expensing. Cars don’t qualify for unlimited bonus depreciation or any added benefits from Section 179 expensing.

 

But the big deal is that because of the higher, more realistic luxury auto limits, there’s far less need to buy the bigger, heavier SUV or crossover vehicle. With a car costing $50,000 or less, you realize 71.2 percent of your total vehicle depreciation deductions in the first three years.

 

No more deductible fun?

Posted by Admin Posted on Jan 30 2018

Tax Reform Destroys Entertainment Deductions for Businesses

First, lawmakers reduced the directly related and associated entertainment deductions to 80 percent with the 1986 Tax Reform Act. Later, in 1993, they reduced that 80 percent to 50 percent.

 

And now, with the newest tax reform, lawmakers simply killed business deductions for directly related and associated entertainment effective January 1, 2018.

 

For example, during 2017, you could take a prospect or client to a business dinner followed by the theater or a ballgame and deduct 50 percent of all the monies spent, providing you passed some tax law tests on business discussion and associated entertainment.

 

Now, in what you and I thought was a business-friendly tax reform package, you find that lawmakers exterminated a big chunk of business entertainment. You can no longer deduct entertainment that has as its mission the generation of business income or other specific business benefit.

 

The 2018 tax reform prohibition against deductible entertainment is true regardless of your business discussion, negotiation, business meeting, or other bona fide transaction.

 

Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:

 

·         Golf

·         Skiing

·         Tickets to sports games—football, baseball, basketball, soccer, etc.

·         Disneyland

 

Entertainment That Survived Tax Reform

As just discussed above, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.

 

Common forms of directly related and associated entertainment that are no longer deductible include business meals with clients or prospects, golf, football games, and similar business-building activities.

 

That’s the bad news. The good news is that tax code Section 274(e) pretty much survived the entertainment bloodletting. Under this section, you continue to deduct

 

·         entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes;

·         expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are highly compensated employees);

·         expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent);

·         expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law also limits expenses for food and beverages to 50 percent);

·         expenses for goods, services, and facilities you or your business makes available to the general public;

·         expenses for entertainment goods, services, and facilities that you sell to customers; and

·         expenses paid on behalf of nonemployees that are includable in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award.

 

When you are considering using the above survivors of tax reform’s entertainment cuts, you will find good strategies in the following:

 

1.      Renting your home to your corporation.

2.      Taking your employees on an employee party trip.

3.      Partying with your employees.

4.      Making your vacation home a deductible entertainment facility.

5.      Creating an employee entertainment facility.

6.      Deducting the entertainment facility, because facility use creates compensation to users.

 

If you would like our help implementing any of the strategies above, please don’t hesitate to contact us.

 

20% Business Deduction. How it works.

Posted by Admin Posted on Jan 22 2018

Tax Reform Provides New 20% Deduction

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.

 

Rejoice if you operate your business as a sole proprietorship, partnership, or S corporation, because your 2018 income from these businesses can qualify for some or all of the new 20 percent deduction.

 

You also can qualify for the new 20 percent 2018 tax deduction on the income you receive from your real estate investments, publicly traded partnerships, real estate investment trusts (REITs), and qualified cooperatives.

 

When can you as a business owner qualify for this new 20 percent tax deduction with almost no complications?

 

To qualify for the 20 percent with almost no complications, you need two things: First, you need qualified business income from one of the sources above to which you can apply the 20 percent. Second, to avoid complications, you need “defined taxable income” of

 

·         $315,000 or less if married filing a joint return, or

·         $157,500 or less if filing as a single taxpayer.

 

Example. You are single and operate your business as a proprietorship. It produces $150,000 of qualified business income. Your other income and deductions result in defined taxable income of $153,000. You qualify for a deduction of $30,000 ($150,000 x 20 percent).

 

If you operate your business as a partnership or S corporation and you have the qualified business income and defined taxable income numbers above, you qualify for the same $30,000 deduction. The same is true if your income comes from a rental property, real estate investment trust, or limited partnership.

 

Some unfriendly rules apply to what Section 199A calls a specified service trade or business, such as operating as a law or accounting firm. But if the doctor, lawyer, actor, or accountant has defined taxable income less than the thresholds above, he or she qualifies for the full 20 percent deduction on his or her qualified business income.

 

In other words, if you are a lawyer with the same facts as in the example above, you would qualify for the $30,000 deduction.

 

Once you are above the thresholds and phaseouts ($50,000 single, $100,000 married filing jointly), you can qualify for the Section 199A deduction only when

 

·         you are not in the out-of-favor group (accountant, doctor, lawyer, etc.), and

·         your qualified business pays W-2 wages and/or has property.

 

Phaseout for New 20% Deduction

If your pass-through business is an in-favor business and it qualifies for tax reform’s new 20 percent tax deduction on qualified business income, you benefit at all times, including being above, below, or in the expanded wage and property phase-in range.

 

On the other hand, if your business is a specified service trade or business (doctors, lawyers, accountants, actors, athletes, traders, etc.), it is in the out-of-favor group and you benefit only when you are in or below the phaseout range.

 

Once your taxable income exceeds the threshold amounts above, you arrive in one of the four possible categories below:

 

1.      Phase-in range for a non-specified service trade or business

2.      Phaseout range for a specified service trade or business

3.      Above the phase-in range for an in-favor non-specified service trade or business

4.      Above the phaseout range for an out-of-favor specified service trade or business

 

If your taxable income is going to be above the threshold amounts that trigger the phase-in or phaseout issues, contact us so we can spend some time on your tax planning.

 

How the 20% Deduction Works for a Specified Service Provider

As discussed above, the 20 percent tax deduction under new 2018 tax code Section 199A 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, securities traders, actors, singers, musicians, entertainers, and others.

 

Getting just a little more technical, the out-of-favor “specified service trade or business” group includes any trade or business

 

·         involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or

·         where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or

·         that involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities (Sections 475(c)(2) and 475(e)(2), respectively).

 

Notably, engineers and architects who had previously been in the out-of-favor professionals group somehow escaped the group with passage of this new law.

 

When you are a member of the out-of-favor group, your Section 199A deduction on your out-of-favor business is zero when you have taxable income of more than

 

·         $415,000 if married filing a joint return, or

·         $207,500 filing as a single taxpayer.

 

Preserve the Deduction with an S Corporation 

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.

 

As mentioned above, to qualify for the full 20 percent deduction on your qualified business income under new tax code Section 199A, you need defined taxable income of less than $157,500 (single) or $315,000 (married).

 

If your taxable income is greater than $207,500 (single) or $415,000 (married), you don’t qualify for the Section 199A deduction unless you pay W-2 wages or have property.

 

Example. Sam is single, not in the out-of-favor specified service trade or business group (doctors, lawyers, consultants, etc.), operates a sole proprietorship that generates $400,000 of proprietorship net income, and has taxable income of $370,000. In this condition, Sam’s 20 percent Section 199A tax deduction is zero.

 

Here’s how the S corporation helps Sam. The S corporation pays Sam a reasonable salary, let’s say that’s $100,000. With this salary, Sam pockets

 

1.      $10,871 on his self-employment taxes, and

2.      $17,500 on his newfound 20 percent deduction under new tax code Section 199A.

 

Tax Reform. Was it good or bad? Yes.

Posted by Admin Posted on Jan 08 2018

 

New Tax Reform Law

 

These changes are effective for tax years beginning after December 31, 2017 (except where noted).  This is a brief overview.  Please call us if you have any questions.

 

Individuals

 

Good news:

·         Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025

·         Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025

  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
  • Elimination of the AGI-based reduction of certain itemized deductions — through 2025
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025

Bad News:

  • Elimination of personal exemptions — through 2025
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property, income taxes, and sales taxes; $5,000 for separate filers) — through 2025
  • Elimination of the deduction for interest on home equity debt — through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025

Businesses

 

Good News:

  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Mostly lower C-corporation flat tax rate of 21%. (replaces C-corporation tax rates of 15%-35%) 

Bad News:

  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

 

Be Careful About Prepaying Your Property Tax

Posted by Admin Posted on Dec 28 2017

2018 Real Estate Taxes May Not Be Deductible as a 2017 Schedule A Itemized Deduction

 

The IRS issued a statement on 12/27/17 that said that 2018 real estate taxes that have not been assessed (you haven’t received a bill for them) are not deductible in 2017 (even if paid in 2017).  If you have received a bill for 2018 taxes then you should be able to deduct them in 2017 if you pay them in 2017.

 

The new $10,000 limit starting in 2018 on deducting state and local taxes applies to Schedule A itemized deductions only.  You can continue to deduct “business or rental” real estate taxes on Schedule C, E, F, etc.).

 

Year-end Tax Planning

Posted by Admin Posted on Dec 22 2017

2017 is coming to a close with sweeping new tax legislation passed. While the changes don’t take effect until 2018 (with one minor exception), we want to alert you to some steps you might take before year-end to preserve the best possible tax results.

As you explore these ideas, mostly you will find they contain a common and time-tested theme: where possible, defer income and accelerate the payment of deductible expenses. The reason for relying on this oldest of strategies is because ordinary income tax rates should be lower next year and many expenses will either no longer be deductible or will be less valuable in light of higher standard deductions in 2018.

1.      Delay year-end bonuses or other compensation. Many employees cannot control the timing of compensation, but it never hurts to ask. Where shifting income from 2017 to 2018 is possible, lower marginal tax rates should apply in 2018.

2.      Maximize retirement deferrals. Be sure to fully fund your 401(k) and/or IRA to further reduce gross income for 2017. We’ll discuss during tax season fully funding 2017 SEPs and other retirement accounts that can be funded up to April 15.

3.      Business owners and consultants should delay billing. It isn’t proper to simply delay depositing checks received before year-end, but you generally won’t be paid for amounts you haven’t billed. Shift that mid- to late-December billing out until January 1.

4.      Prepay state income tax. The deduction for all taxes will be limited to $10,000 beginning in 2018, so pay the fourth quarter estimate that is dated January 2018 by December 31, 2017. This strategy, however, requires that you know your status regarding alternative minimum tax (AMT). If you will be subject to AMT in 2017, it is likely that prepaying your state taxes will not reduce your 2017 taxes. In that case, with no benefit in either year, it makes better financial sense to make the payment later.

5.      Prepay property taxes. The deduction for all taxes is limited to $10,000 beginning in 2018. To the extent that you already have an assessment that isn’t due until after the first of next year, pay it by December 31. For taxpayers with high property tax bills and other large deductions such as mortgage interest and contributions, accelerating the 2018 property tax payment into 2017 may save a deduction due to disappear next year. Mid-range taxpayers may need a projection to see if this makes sense. And here again, the strategy won’t work for those in AMT in 2017.

Example. Sharon and Vern owe $12,000 in property taxes annually in two installments. They also pay $15,000 mortgage interest and donate $3,000 to charity. If they prepay in 2017 $6,000 property tax due in 2018, their itemized deductions will be $36,000 ($12,000 + $6,000 + $15,000 + $3,000). If they do this for 2018, they will only have $24,000 of deductions, ($6,000 + $15,000 + $3,000) the amount of the new 2018 standard deduction. If they don’t prepay, they will lose the benefit of $2,000 because they can only deduct a maximum of $10,000 property tax in 2018. With prepay, total two-year deductions are $60,000. Without prepay, total two-year deductions are $58,000.

6.      Bunching strategies. With the standard deductions doubling in 2018, lower itemizers will need to begin to incorporate strategies to bunch deductible expenses every other year to “pop up” over the standard deduction and preserve tax benefits. In this case, you might warn your favorite charities as you contribute this year-end that your next contribution might not occur until January 2019. In that way, you can make double contributions at the beginning and end of 2019 to achieve deductions above the standard deduction that year.

7.      Make donations directly from IRA. If you are 70½ or older but your donations do not bring you over the new higher standard deduction, make those donations directly from your IRA as a custodial transfer.

8.      Complete trade-ins of business equipment, machinery, and autos before year-end. Section 1031 like-kind exchanges will only be available on real property beginning in 2018. If you have other business assets with low or no basis that you were considering trading in on the purchase of new, complete the transaction and place the new assets in service before year-end if possible.

9.      Complete large capital gains sales and prepay the state tax. You may want to accelerate this type of income into 2017 as long as it is accompanied by the payment of state tax. With capital gains rates remaining virtually the same under the new law, the net after-tax result can be better this year.

Example. Karen is holding a significant amount of highly appreciated stock with very low cost basis. She can sell for $500,000 long-term capital gains. When she sells, she will owe $50,000 in state income tax. She also has $100,000 other ordinary income and $20,000 itemized deductions. If Karen sells and pays the state tax in 2017 instead of 2018, she will save approximately $2,000 in federal taxes.

Individual situations are unique, and there are no one-size-fits-all tax planning strategies. If you would like to discuss these or other ideas that apply to your particular circumstances, please feel free to contact us.

  1.  

 

Did Tax Reform Pass?

Posted by Admin Posted on Dec 08 2017

Sort of.  The tax reform bill passed the House of Representatives.  Then a different tax reform bill passed the Senate.  Now it will go to committee to see if they can combine the two bills into one that both can agree with.  So have we seen sweeping tax reform?  Not yet, but it’s getting closer all the time.

 

Can I deduct my commute?

Posted by Admin Posted on Nov 13 2017

Lock Down Vehicle Deductions with a Home Office

The IRS gives you two possible strategies for turning otherwise personal mileage into business mileage:

 

1.       Going to a temporary work location

2.       Establishing an office in the home as a principal office

 

The temporary work location strategy contains some real unknowns, such as what is technically considered a temporary work location and whether the work performed at that location is for one year or less.

 

These unknowns make it difficult or impossible to use your facts and circumstances to produce your desired business-mileage results. The easy solution is the office in the home as a principal office.

 

The first reason this type of home office is an easy solution is that the rules are crystal clear, making compliance easy. The second reason is that with this office you know that all trips from home for this trade or business are business trips, including the trip from your home to your regular office outside the home.

 

Health Savings? Sounds good to me!

Posted by Admin Posted on Nov 03 2017

Update on Health Savings Accounts (HSAs)

Health savings accounts (HSAs) are now more popular than ever. According to a recent survey, the number of HSAs has surpassed 21 million, and the accounts now hold about $42.7 billion in assets.

 

Here’s a very tight summary of how the HSA works for you:

 

  • Deduct the health insurance cost. To enable the HSA, your health insurance must be a high-deductible health insurance policy. Sole proprietors, partners, and S corporation owners can qualify to deduct this high-deductible insurance on page 1 of Form 1040. (The page 1 Form 1040 deduction does not suffer the 10 percent haircut that applies to itemized medical deductions.)
  • Deduct the HSA contribution. For 2017, you can make a deductible HSA contribution of up to $3,400 if you have qualifying self-only coverage, or up to $6,750 if you have qualifying family coverage (anything other than self-only coverage). The deduction for the contribution is above the line, so it does not suffer from phaseouts and it’s deductible whether you itemize or not.
  • Tax-deferred earnings. The monies accumulated in your HSA grow and compound tax deferred (or even tax-free if you withdraw correctly).
  • Tax-free withdrawals. Withdrawals from your HSA are tax-free when you use the monies to pay for qualified medical expenses. You can’t pay your high-deductible premiums with HSA funds. But once you reach Medicare age, you can use the withdrawals for Medicare premiums in addition to other qualified medical expenses.
  • Retirement withdrawals. You can make your HSA work like a traditional IRA after reaching Medicare age. To make this happen, you just withdraw funds from the HSA and don’t use them for medical expenses. This triggers the federal income tax but no penalties.

 

IRS Audits and Your Plan of Attack

Posted by Admin Posted on Sept 25 2017

As you grow your business and make more money, your chances of an IRS audit increase. For example, on an individual tax return, here are your chances of audit:

 

·         One in 38 with $200,000 or more in income

·         One in 10 with over $1 million in income

·         One in three with over $10 million in income

 

So, what do you do if the IRS sends you an audit notice? First, you call us.

 

What will we do? This depends on whom you will face in the audit: a tax auditor or a revenue agent.

 

If the IRS wants information by mail then we can respond to them.  If the IRS wants you to come to its office, you likely will meet with a tax auditor.  We can represent you with or without your presence.

 

On the other hand, if the IRS wants to come to your office, expect a revenue agent. In this type of examination, you generally want us with you. We speak the same technical language as the revenue agent, and this helps ensure that you don’t lose your rightful deductions.

 

Arguing with the IRS: You Need Tax Authority

Posted by Admin Posted on Sept 08 2017

When you have a dispute with the IRS, you’ll need to show that the law supports what you did if you want to win your argument. Support directly from the Internal Revenue Code is the best proof. You can also use Treasury Department or other IRS interpretations of the Internal Revenue Code to support your position, such as Treasury Regulations, Revenue Rulings or Revenue Procedures, and Announcements and Notices.

 

We strive to find your deductions in one of the sources above. A private letter ruling, while not authority unless you requested it for your situation, can prove useful to us because it shows the IRS reasoning on a specific situation.

 

What’s interesting is that you can’t rely on IRS form instructions, IRS publications, the IRS website, or the Internal Revenue Manual. These are not authority according to both the IRS and the courts. We use them to help us find that higher authority that we can then apply to your situation.

 

Selling to a Related Party Can Kill Your Tax Losses

Posted by Admin Posted on Aug 21 2017

If you sell property to a related party, you may not deduct your loss on the sale. And this gets worse. The loss you cannot deduct no longer belongs to you. It moves to the related party, and that can really complicate matters. This brings up two questions:

 

  1. Who are your related parties?
  2. What happens to the loss that the government took away from you?

 

Related Parties: The tax code says that your related parties include, among others, you and your spouse, brothers and sisters, parents, children, grandparents, or grandchildren. Additionally, it includes corporations and partnerships in which you own, directly or indirectly, more than 50 percent (e.g., stock, value, profits interest).

 

The constructive ownership rules expand your network of related parties because you are deemed to own what you and your family members own, and if you are a shareholder or partner, you own a proportionate share of the stock owned by the corporation or partnership.

 

Where the Loss Goes: Your tax-deductible loss is lost to you when you sell to a related party. But here’s a possible (although often unlikely) silver lining: the loss you lost travels to the buyer, and the buyer can use that loss to reduce any taxable gain on a later sale of the property.

 

For example, say you incur a loss when you sell your business vehicle to your brother. You can’t deduct the loss. If your brother later sells the vehicle for more than he paid you, then he can use your loss to offset his gain. If he sells it for less than he paid you, then he can’t deduct the loss.

 

 

 

You need to know that the related-party loss-disallowance rule exists, so you don’t mistakenly make your tax-loss deductions disappear. If possible, don’t sell to a related party. Instead, sell to a remotely related person, such as an in-law, aunt, niece, cousin, or employee of the business.

 

Do I have to track my mileage to get a tax deduction?

Posted by Admin Posted on July 07 2017

Mileage Log Required for Vehicle Tax Deductions

When it comes to your tax records, there’s one record that you really should keep, and it’s easily overlooked. It’s the mileage log. In an IRS audit, the mileage log often creates the first impression of your tax records. Whether you use the IRS mileage rate method or the actual expense method, you need a written record that proves your business percentage of use.

 

Various records can be used, but the IRS three-month sampling record is the preferred choice for those who know about it. With this method, you keep a mileage log for three months and then apply that three-month business percentage to either the miles you drove for the year (mileage method), or the expenses you incurred for the year (actual expense method).

 

The three months must be consecutive and must represent your driving pattern. Otherwise you must keep the mileage log for the entire year.

 

With respect to keeping your mileage log, technology has made your job a lot easier. You can find very affordable apps that work with your smartphone, such as Mileage Expense Log, Mile IQ, and Trip Log. These apps track where you go and where you stop, and that takes away a big part of the record-keeping hassle. Make sure you also add the business reason for the stops. This takes a few minutes, but it’s critical. Don’t skip this step.

 

If you would like an example of what a mileage log should look like, feel free to contact us.

How do I pay for my kid's college?

Posted by Admin Posted on June 20 2017

Using a 529 Plan to Pay for Your Child’s College

A Section 529 plan is a great way to fund your child’s college education. For income tax purposes, it works like this:

 

  • no tax deduction for the money you put into the plan,
  • tax-free growth inside the plan, and
  • tax-free distribution when the money or prepaid tuition is used for college.

 

For gift-tax purposes, the 529 plan works like this: contributions to 529 plans are taxable gifts eligible for the annual gift-tax exclusion of $14,000 per donee (2017 amount), which doubles to $28,000 if your spouse consents to gift splitting.

 

Do I pay the max tax or get the ax?

Posted by Admin Posted on May 16 2017

Have you ever looked at your company’s tax return at the end of the year and wondered if it was correct.  You certainly tried to pay as little tax as possible.  Did you take dangerous positions that will put the assets of your business at risk when the IRS comes a knocking?

 

This is a big dilemma in today’s world.  At Joseph M Larsen CPA we are studying and reading about the tax law and its implications for you and your business.  We take a conservative view of tax.  We hope that none of our clients find themselves in trouble with the IRS.  At the same time because we immerse ourselves in the rules, we know so many safe ways to save taxes.  Come to us to avoid paying the max tax and getting the ax. 

Beekeeping or Bookkeeping?

Posted by Admin Posted on Apr 21 2017

Is there a difference between a beekeeper and a bookkeeper?  Maybe.  A beekeeper makes sure that his bees thrive.  He keeps a watch out for outside dangers.  He notices failures inside the hive.  He tries to keep you from getting stung.  He makes sure that at the end of the year there is plenty of honey. 

 

Is that what a bookkeeper does too?  You decide.  Come to Joseph M Larsen CPA PC if you’re looking for some more honey. 

Am I dead on the line?

Posted by Admin Posted on Mar 10 2017

It is very important to know your filing deadlines for taxes.  If you are a partnership or an S Corporation, you need to file by March 15, 2017.  If you’re a C Corporation you need to file by April 18, 2017.  Extensions may be possible, but wouldn’t it be nice to know now what you owe and how much you made?  Yes, it would. 

Do my own taxes? Or not?

Posted by Admin Posted on Feb 02 2017

If you prepare your own tax return make sure you have answers to the following questions (if you don’t know the answers preparing your own return could be very costly):

 

  1. When should you take the sales tax deduction instead of the income tax deduction?
  2. Is one of the education credits or the tuition deduction better for me?
  3. Utah retirees—do you know how to avoid the triple whammy when you take a withdrawal from your IRA?
  4. Purchase of business or rental property equipment.  How should you treat equipment when you purchase it?  What are the options (there are several)?  When do you want to maximize the deduction?  When do you want to minimize the deduction?
  5. Should you contribute to a regular IRA?
  6. Should you contribute to a Roth IRA?
  7. When is your state tax refund taxable?
  8. How do you compute basis when you own a partnership, LLC, or S-corporation?
  9. What are the at-risk rules when you own a partnership, LLC, or S-corporation?
  10. When do the passive loss rules apply when you own a partnership, LLC, or S-corporation?
  11. When should you report your Pell Grant as income?

 

Even if you know the answers to the above questions ask yourself the following:  Do you understand the thousands of pages of tax code; thousands of pages of IRS regulations, rulings, procedures, notices, etc.; thousands of pages of court cases?  Would you do brain surgery on yourself?  Would you try to do dental surgery on yourself?

Year-End Tax Planning Tips

Posted by Admin Posted on Dec 19 2016
  1. Max Your IRA.  You can put in $5,500 ($6,500 if 50+) per year if you are not covered by a retirement plan and you have enough earned income.  If you are covered by a retirement plan limitations may apply depending on your income.
  2.  
  3. Consider Selling Stocks That Have Lost Value.  If you have capital gains this year you may want to sell stocks that have lost value to offset the gains.  Losses can offset the gains plus $3,000 with the remainder carried forward.
  4.  
  5. Take Advantage of the Standard Deduction.  If your deductions are close to the standard deduction then try to move them into one year to get above it and then take the standard deduction the next year.  You can prepay your charitable donations and your state income tax.  Prepaying your state income tax may not help if the alternative minimum tax (AMT) applies.  The goal is to have no deductions in the standard deduction year.
  6.  
  7. Take Minimum Retirement Distributions.  If you are over 70 1/2 years old make sure you take the required minimum distributions out of your IRA’s and retirement plans each year (if you don’t a 50% penalty applies).  You can take a minimum distribution out of one IRA for all IRA’s but retirement plans usually require that you take a minimum distribution out of each plan.  If you are still working you may not be required to take a minimum distribution out of the company plan that you work for (if you are not an owner or if you own less than 5% of the company).
  8.  
  9. Consider Buying Equipment for Your Business.  The tax law gives you lots of options about how fast you can depreciate equipment.  You will want to consider your current and future income when deciding what depreciation option to use.

Does Your Business Have a Nervous System?

Posted by Admin Posted on Dec 12 2016

What does a nervous system do?  It sends you pain when something bad is happening.  It certainly comes in handy in certain situations, like when your leg gets cut off for example.  It entices you to do something to remedy the situation.

 

Businesses unfortunately don’t have built-in nervous systems like our bodies.  Often part of a business can be flailing or failing for a long time without anyone becoming aware of it. 

 

In order to prevent premature business death or injury, we recommend installing a business nervous system.  An experienced bookkeeper.  A qualified bookkeeper from Joseph M Larsen CPA can keep a finger on the pulse of your business.  With quarterly financial statements being provided and explained you’ll be able to catch that business leg before it falls off. 

W-2 & 1099-Misc Due Dates Are Getting Compressed Starting January 31, 2017

Posted by Admin Posted on Nov 05 2016

 

The Social Security Administration and the Internal Revenue Service (IRS) have moved up the due date for W-2’s and 1099-Misc to January 31 each year.  In the past the forms were required to be distributed to employees and independent contractors by January 31 but the forms weren’t due to the government until February 28 (if paper) and March 31 (if e-file). 

Now the above forms are due to the government on January 31 (even if e-filed).  This change goes into effect on January 31, 2017.  Congress made the change to reduce ID theft. 

 

What Do You Mean My Medical Bills Aren’t Tax Deductible!

Posted by Admin Posted on Oct 10 2016

Sometimes when sitting around the dining room table after paying a hefty hospital bill, people will say, “At least it is tax deductible” and then have a good laugh. 

 

Unfortunately medical bills don’t always come with a tax benefit.  First of all for most people, the only medical bills that can be deducted is the amount that exceeds 10% of their adjusted gross income (AGI) (unless they are 65 or older and then the limit is 7.5% of AGI for 2016).  That would take a large amount of medical bills for most people (but you should add them up to see if they will help).  The second problem is that since they’re taken as itemized deductions, many people don’t benefit because the standard deduction exceeds all of their itemized deductions. 

 

My advice to you is to not get sick so that you don’t need to pay a doctor, because the tax benefits just might not be there.

401(kangaroo)?

Posted by Admin Posted on Aug 23 2016

What is a 401(k) plan?  What does the k stand for?  Is it kangaroo?  These are common questions.  We have at least some of the answers:

 

A 401k is a type of retirement plan that employers can offer their employees.  It allows employees to contribute pre-tax up to $18,000 per year ($24,000 if 50 or older).  It allows for employer contributions as well, though they are generally not required.  A 401(k) can allow employees to borrow from their own plans (repayment is usually required within five years).  Employers are required to file an annual report with the U.S. Department of Labor (Form 5500).  Use of an outside administrator is recommended. 

 

There you have it.  A 401(k) is a great way to help your employees save for retirement, and to our dismay, the ‘k’ doesn’t stand for kangaroo.  (the name ‘401(k)’ is really just a reference to a section of the Internal Revenue Code)

Honey, the IRS called and they said we're going to jail unless we pay now

Posted by Admin Posted on July 01 2016

There are so many tax scams going on right now, it's important to keep one important fact straight:  The IRS will not call or email as their first contact with you.  If you do get audited, the IRS’s first contact with you will be by mail.

The IRS is not well known for being a reasonable or easy to work with institution, but neither do they threaten widows by phone with jail-time. 

The real IRS will not ask for credit card information over the phone, threaten you with a lawsuit, threaten to arrest you or demand payment without appeal.  Don't fall for it, you already pay enough legitimate taxes, there is no need to pay a scammer too. 

How simple are Simple IRA’s?

Posted by Admin Posted on June 24 2016

Employers with 100 or fewer employees can have them (including the self-employed) if they don’t maintain another retirement plan.  It must be offered to all employees who have made $5,000 or more from the employer in any two previous years and are expected to do so again this year.

 

Employees can contribute up to $12,500 per year ($15,500 if 50 or older).  The employer match can be up to 3% of wages or the employer can contribute 2% of wages for all eligible employees (including nonparticipants). 

 

There are penalties of 10% (25% within first two years of participation) if funds are withdrawn early.  No loans from the funds are permitted.

 

There are certainly complexities to the Simple IRA, but it can definitely be termed as simple when compared to the other retirement plan options.  They require no annual 5500 report to the U.S. Department of Labor.  They can be one of the lowest cost retirement plans for an employer.

Is Your State Tax Refund Taxable?

Posted by Admin Posted on June 03 2016

General Rule:  Your state refund is taxable if you itemized deductions in the prior year and received a tax benefit from deducting your state income tax.

 

Exceptions:

 

  1. You took the standard deduction in the prior year.  If you took the standard deduction in the prior year your state refund is not taxable.
  2. You used the sales tax deduction in the prior year.  If you used the sales tax deduction in the prior year your state refund is not taxable.
  3. You were subject to the alternative minimum tax in the prior year.  If you were subject to the alternative minimum tax in the prior year and received no tax benefit from deducting your state tax then your state tax refund is not taxable.  If you received a partial benefit then some of your state refund is taxable.
  4. You paid the state tax and received the state tax refund in the same year.  In this case your state tax refund is not taxable but don’t deduct the tax you paid (to the extent of the refund excluded).

Can you deduct the miles it takes you to get to work?

Posted by Admin Posted on May 16 2016

If you can claim your home as a home office then it may be possible for you to claim the miles it takes you to get to your non-home office every day.  Come and talk to us today about what it takes to have a home office and how to claim the business miles!

Would you perform brain surgery on yourself?

Posted by Admin Posted on Mar 18 2016

CPA Prepared Tax Return vs. Self-Prepared Tax Return

 

If you prepare your own tax return make sure you have answers to the following questions (if you don’t know the answers preparing your own return could be very costly):

 

  1. When should you take the sales tax deduction instead of the income tax deduction?
  2. Is one of the education credits or the tuition deduction better for me?
  3. Utah retirees—do you know how to avoid the triple whammy when you take a withdrawal from your IRA?
  4. Purchase of business or rental property equipment.  How should you treat equipment when you purchase it?  What are the options (there are several)?  When do you want to maximize the deduction?  When do you want to minimize the deduction?
  5. Should you contribute to a regular IRA?
  6. Should you contribute to a Roth IRA?
  7. When is your state tax refund taxable?
  8. How do you compute basis when you own a partnership, LLC, or S-corporation?
  9. What are the at-risk rules when you own a partnership, LLC, or S-corporation?
  10. When do the passive loss rules apply when you own a partnership, LLC, or S-corporation?
  11. When should you report your Pell Grant as income?

 

Even if you know the answers to the above questions ask yourself the following:  Do you understand the thousands of pages of tax code; thousands of pages of IRS regulations, rulings, procedures, notices, etc.; thousands of pages of court cases?  Would you do brain surgery on yourself?  Would you try to do dental surgery on yourself?

Utah Retirees—Beware of the Triple Whammy When Taking IRA Withdrawals

Posted by Admin Posted on Mar 03 2016

1. IRA is usually taxable.  An IRA withdrawal is usually taxable (assuming it was deductible when you put money in the IRA)

2. IRA withdrawal can cause Social Security to be taxable.  If none or part of your Social Security is taxable, the IRA withdrawal can cause more of your Social Security to be taxable.

3. Utah Retirement Credit can be reduced.  The additional income from the IRA and taxable Social Security can cause your Utah Retirement Credit to be reduced or eliminated.

There are ways to reduce or eliminate the effect of the triple whammy.  Please call us for more information.

Consider A Health Savings Account

Posted by Admin Posted on Feb 19 2016

Consider a health savings account.  You need to have an insurance plan that qualifies for a health savings account.  Then you can set up a health savings account.  For 2016 a single taxpayer can contribute up to $3,350 plus $1,000 if you are over 54 years old and a married filing joint taxpayer can contribute up to $6,750 plus $1,000 if you are over 54 years old (each spouse can put in an extra $1,000 if they are both over 54 years old). 

Health savings accounts give you a tax deduction when you put money in and you can withdraw money tax-free if the withdrawal is for qualified medical & dental expenses.

941 Penalties and Interest

Posted by Admin Posted on Feb 08 2016

Please be very aware of the hefty penalties that appear when 941 deposits are not made in a timely manner.  The penalties and interest can begin to rival the original tax.  Don't take your chances when it comes to the IRS, be prompt!

Executor Instructions At Death

Posted by Admin Posted on Jan 15 2016
  1. Notify social security administration (give them the social security number of the deceased and the date of death) and pensions of the death immediately.

  2. Meet with the CPA and decide whether to use a calendar year or fiscal year for the estate income tax return (Form 1041).  If you elect to use a fiscal year you will file an estate income tax return.  If you have a trust and elect to use a calendar year you will file a trust income tax return.  A calendar year return is due April 15 of the following year (unless extended).  A fiscal year return is due 3 ½ months after the fiscal year-end (unless extended).  A fiscal year can suspend estimated tax payments for the first two years and defer income.

  3. Consider prepaying state tax in year of death if AMT (alternative minimum tax) will apply in the next year.  Make sure estate pays its share of the state income tax.

  4. Consider reducing estimated tax payments in following year if some of the income will be taxed by the estate or if income will fall (do a tax estimate for the survivor for the next year).

  5. Meet with the attorney and decide if any legal notices need to be filed.  Decide if any estate assets are subject to probate.  For probate assets file informal probate papers with court and secure letters testamentary.

  6. Obtain a tax identification number from the IRS for the estate or trust.  Use this number in all future transactions until the estate or trust is distributed to the beneficiaries. Give this number to banks, mutual funds, and others immediately as the tax id# for the trust.

  7. Set up new bank and other accounts for the estate or trust using the new tax id# for the trust.  Close all old accounts immediately with the deceased social security number listed on them (even if in the trust name).  Keep a careful record of all deposits, withdrawals, and checks written.

  8. Value all assets in the estate.  Get appraisals for all real estate as of the date of death.  Get a detailed listing of highs and lows for each bond, stock, and mutual fund on the date of death.  Notify your broker to change the cost basis in their records.  Obtain an estate tax information organizer from the CPA.

  9. Meet with the CPA and decide if an estate tax return (Form 706) needs to be filed.  This return is due nine months after the date of death.  If your spouse was the first to die and you are the surviving spouse you may want to file Form 706 to preserve the unused spousal estate & gift tax exemption.  Please contact me about this.

  10. Inform all beneficiaries to not file their income tax returns for the next year until they receive a K-1 from you for their share of the estate’s income and expenses.

  11. Keep enough money in the estate bank account to cover expenses and taxes.  File a final income tax return (Form 1040) for the decedent (the person who died).  This return is due by April 15 of the following year (unless extended).

  12. I recommend that you not distribute the assets until all liabilities (bills) have been paid.  If you distribute noncash assets (investments, real estate, etc.) give an equal share to each beneficiary or make all noncash distributions at the same time.

  13. If there is a surviving spouse consider accelerating income on Form 1040 in the year of death to use up carryovers (capital losses, charitable contributions, net operating losses, etc.).  Most unused carryovers expire in the year of death.

 

Keep an eye out for tax documents

Posted by Admin Posted on Jan 11 2016

Now that the new year has begun, we will all begin receiving documents that we will need for taxes.  We have sent out a 'Things to Bring' list to all of our clients.  A good tip is to be sure to put each document in the same place.  As it comes in the mail or online, get or print them and put them all in a folder.  It is so easy to lose documentation that could save you tax money.  Don't miss out!

Entity Choice

Posted by Admin Posted on Jan 05 2016

If you are a business owner, you need to be aware of the great impact your choice of entity can have on your taxes and personal liability.  An entity that made sense when a company was started, may be restrictive or costly as time goes on.  Come and meet with Joseph M Larsen CPA to discuss the pros and cons of each option.

Tax Extenders Bill

Posted by Admin Posted on Dec 19 2015

 

Congress has passed the latest tax extenders bill (signed by President on December 18, 2015) with a new wrinkle-some items are now permanent, some items are extended for five years, and some for two years (2015-2016).  We will list some of the changes below:

 

Individual Permanent Changes:

 

Sales tax deduction.

 

American Opportunity Credit (for education).

 

$250 Teachers Deduction (expanded starting in 2016).

 

Donation of IRA to charity for those over 70 1/2 years old.

 

Business Permanent Changes:

 

$500,000 Section 179 deduction for equipment & certain real property.

 

Research Tax Credit.

 

15 year depreciation for qualified leasehold improvements, restaurant property, and retail improvements.

 

W-2's & 1099-MISC's will be due by January 31 (starting in 2017 for 2016 returns).

 

Five-Year Extensions for Businesses:

 

Bonus depreciation of new equipment (50% for 2015-17), 40%-2018, 30% 2019.

 

Work Opportunity Credit.

 

Two-Year Extensions for Individuals:

 

Tuition Deduction.

 

Residential Energy Tax Credit (up to $500 lifetime).

 

Mortgage Insurance Premium Deduction.

 

Mortgage Debt Exclusion (up to $2 million for married joint).

 

Expert Interview

Posted by Admin Posted on Dec 17 2015

https://www.youtube.com/watch?v=zRc4YjGltQw

Check out this new video.  We'd love to use our expertise to help your business!

Bookkeeping

Posted by Admin Posted on Dec 04 2015

Do you do the bookkeeping for your business?  How long does it take you?  Are you sure that you are doing it right?  Are you getting good actionable information out of it?  If you answered 'no' to any of these questions, then it is a good time to talk to us about keeping your books for you.  Our firm has decades of experience in accounting and tax.  We will also provide you with quarterly reports that can give you good information about your business' performance.  Give us a call so that you can do what you do best, and we can do what we do best.

Year End Tax Planning

Posted by Admin Posted on Nov 17 2015

As the end of the year draws to a close it is good time to consider a few tax savings strategies.  Here are just a few possible ways to try to lower you tax burden for 2015:

Maximize 401(k) and IRA contributions

Accelerate medical expenses if your current expenses are over 10% (7.5% if over 65) of your adjusted gross income.

Donate appreciated assets held over one year to charity to avoid capital gains taxes.

These are just a few ideas to consider in order to save on taxes.  Please give us a call and we can talk about more.

Welcome to Our Blog!

Posted by Admin Posted on Mar 24 2015
This is the home of our new blog. Check back often for updates!