Business Taxes, Family Taxes, General Information, General Tax Topics, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Are you a homeowner marrying a homeowner?

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In our Chicago South Loop Tax Preparation office, we frequently meet with engaged couples for tax planning purposes. An issue that comes up often is the one of homeowners marrying each other. Engaged couples that each own a home have to decide which home to move into, & which home to rent out, or sell. Keep reading to see how you can sell your home and pay ZERO TAXES on up to $500,000!

1.) Don’t sell until AFTER THE WEDDING. If you sell your personal residence for a profit, you may be able to exclude up to $250,000 as a single person, and up to $500,000 if you’re married. In order to get the entire $500,000 both spouses must have used the home as their primary residence for at least 2 years out of the last 5 years. If only 1 spouse used the home as a residence, the maximum exclusion will be $250,000. 
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2.) File your taxes married filing jointly. Check with your tax professional to see if this is the best filing status for your situation. Tax debt, student loans, and child support obligations need to be taken into consideration before choosing this status.

3.) Sell the home that at least 1 of you have lived in for 24 months out of the last 5 years. In order to qualify for the personal residence capital gain exclusion you must meet the ownership and residency test. Per IRS.gov “If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

HOWEVER, for the residence test, the IRS says: unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion. If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn’t have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period.

4.) If you’re going to rent the home, remember to account for any property improvements when figuring your basis for depreciation. For example, if you purchased the home for $100,000 & you’ve added a $10,000 porch, and a $20,000 roof, your basis (amount of money in the property) is now $130,000. There are other rules that need to be considered when figuring tax basis, so consult a tax professional.
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5.) If you rent to family, family includes only your spouse, brothers and sisters, half brothers and half sisters, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). MAKE SURE TO CHARGE THEM FAIR MARKET VALUE FOR RENT so that you don’t lose out on valuable tax deductions!

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Taxes, Family Taxes, General Information, retirement planning, Self Employed, Small Business, Uncategorized

Is the Money on My Prepaid Card FDIC-Insured?

FDIC INSURED
To protect your funds, make sure your card is insurable and registered Banks insured by the FDIC offer a wide variety of financial products beyond traditional checking and savings accounts, including prepaid cards.

A prepaid card allows you to use a card to make purchases at stores, withdraw cash from ATMs, or to pay bills online without accessing a bank account or line of credit. Since these cards usually are not linked to a checking or savings account, consumers often ask, “Does the FDIC also insure the funds on my prepaid card?” The answer could be, “Yes,” but there are some important initial issues to understand.

If the FDIC-insured bank that issued the card was to fail, the funds available on your prepaid card may be insurable as long as:

  • your prepaid card is eligible for FDIC deposit insurance coverage,
  • you properly register the card, and
  • specific deposit insurance requirements are met (listed below).

The first step is to determine whether the prepaid card is eligible for FDIC deposit insurance coverage. The Consumer Financial Protection Bureau enacted new rules effective April 1, 2019 (to learn more visit New Protections for Prepaid Accounts), which require financial institutions to provide a disclosure as to whether or not your prepaid card is insurable for those cards linked to an FDIC-insured bank.

While the new disclosure rules make it easier to find information about FDIC insurance coverage for a specific prepaid card, you must also register your card with the card issuer if your card is designed to be insurable, so that the FDIC can identify you as the cardholder in the event the bank fails.

Sometimes a card is issued directly by an FDIC-insured bank and sometimes by a third-party that will simply use a bank to hold prepaid card funds. If the third-party is managing the record-keeping for the prepaid card, the third-party will have the responsibility to provide the FDIC with the information about the owners of the cards and the balance on each prepaid card at the time the bank fails.

The bank’s records for FDIC insurable prepaid cards must meet the following requirements:

The account must be appropriately titled (names the owner or owners of the account) in the bank’s records and indicate that the prepaid account provider is going to be acting as the cardholder’s agent, which could include duties such as transferring funds on your behalf when you make a purchase and keeping track of the balance on your prepaid card as you add or withdraw funds.

If the bank fails, the card issuer as your agent will need to provide the FDIC a list identifying each cardholder and the balance on each card at the time the bank fails.

The contractual agreement among the financial institution, the prepaid card issuer and the cardholders must indicate that the individual cardholders are the owners of the funds.

Assuming you properly register your prepaid card, if the FDIC-insured bank that issued the card was to fail, you as the consumer would be insurable for up to $250,000, subject to aggregation with other similarly owned deposits you may have in the failed bank (for more information visit FDIC deposit insurance).

In addition, having FDIC deposit insurance coverage does not cover certain events, such as if your prepaid card is lost or if someone gains access to your prepaid card and steals the funds. In these situations, there could be other legal options available for you to try to recover your funds, such as those that may be described in your account agreement or provided under state or federal law.

It’s important to note that this information does not apply to gift cards. For information on gift cards, visit Giving or receiving gift cards? Know the terms and avoid surprises.

For more information about prepaid cards and similar products, see the FDIC’s webpage on prepaid accounts at Prepaid Cards and Deposit Insurance Coverage.

For more help or information, go to FDIC.gov or call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342). Please send your story ideas or comments to consumeraffairs3@fdic.gov

Family Taxes, General Information, retirement planning, Self Employed, Uncategorized

12 Things you need to know about your parent.

senior

While I am focused on helping small businesses grow by reducing their taxes, and organizing their books, I firmly believe that health of body and mind leads to wealth. To help you be better prepared in the event of an emergency involving your parents/loved ones, below (in order of importance) is a list of 12 things you need to know about your aging parents’ health.  If you have any questions, comments, or concerns, please don’t hesitate to call us!

WHAT ARE THE NAMES OF THEIR DOCTOR’S & SPECIALIST? If you don’t know anything else, this is probably the most important piece of information. Why? Chances are good that your parents’ doctors can provide much of the rest of the information needed as well as more details about your parents’ specific health histories.

Do they have any major medical problems? This includes such conditions as high blood pressure, diabetes, heart disease, etc.

What Medications are they on? Have a list of medications and supplements. It’s especially important that a doctor know if your parent uses blood thinners. It’s also important for your doctor to know if your parents take any vitamin or herbal supplements (as these might interact with medications given in an emergency situation.

What is their previous medical history? Have they had any surgeries and major medical procedures? List past medical procedures including implanted medical devices such as pacemakers.

What is their insurance information? Know the name of your parents’ health insurance provider and their policy numbers.

What Are their End-of-Life Wishes? For instance: Would you want a ventilator and feeding tube used to keep you alive even in an irreversible coma? Do you want CPR initiated if your heart stops, even if you are terminally ill? Make sure the health care proxy is aware of your parent’s decisions.

Do they have any ADVANCE DIRECTIVES? An advance directive (living will, Do Not Resuscitate aka DNR, etc) is a legal document that outlines a person’s decisions about his or her health care, such as whether or not resuscitation efforts should be made and the use of life-support machines.

Have they named a durable power of attorney to manage their finances, or healthcare?
The first step is to find out if they have named a Durable Power of Attorney (POA). Without a POA in place, you’ll have to go to court to get guardianship of your parent in order to access accounts on their behalf.

Where do they keep their financial records and important documents?
Whether they keep their money and documents in a bank, a safe, or under the mattress, you need to know where to find records when you need them. What is the location of keys or codes to lock boxes or safes?

What are their bank account numbers and names of their financial institutions?
In addition to knowing where they keep their money, you need specifics on all account numbers. What banks do they use? Who is their mortgage company? Do they have an investment firm?

What are your parent’s monthly expenses?
Gather information on their mortgage, car payment, credit card debt, electric bill and other expenses.

How do they pay their bills currently, ESPECIALLY THEIR LIFE INSURANCE!!
If there are automatic deductions being taken out of a checking account, you need to know about it. Do they use online banking, or are they mailing in paper checks? DO NOT ASSUME!

This list was provided to us by our partner nonprofit agency  Senior Resource Group Inc. The mission of Senior Resource Group Inc.

is to remove access barriers to service, empower seniors through education, lower prescription drug cost, consolidate resources, and mobilize assistance.

Senior Resource Group Inc. services range from locating no cost insulin for diabetics; applying clients for prescription drug grants; locating local/state/federal and private assistance programs; explaining Medicare; and identifying the lowest cost Medicare supplements, health plans, & insurance solutions. Each of our clients are given an extensive individual interview so that our advocates can uncover every transportation, tax, food, and medical discounts he/she may qualify for.

Business Taxes, Family Taxes, General Information, General Tax Topics, notary, retirement planning, Self Employed, signing agent, Small Business, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

HUGE WIN FOR NOTARY SIGNING AGENTS

women s in gray turtleneck sweater pointing white contract paper

Author Trudy M. Howard

In our South Loop Chicago Tax Preparation office, Howard Tax Prep LLC works with entrepreneurs from various industries; however, there are 2 industries that give entrepreneurs a built in self-employment tax deduction. To take advantage of built in self employment tax reductions, one must be employed as a minister, or a notary. While this article will deal with notary signing agents, the same concept can also be applied to ministers.

Per IRS publication 17: “Notary public. Report payments for these services on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). These payments aren’t subject to self-employment tax.” ees received for services performed as a notary public. Also, the instructions for IRS schedule SE reads: “if you had no other income subject to SE tax, enter “Exempt—Notary” on Schedule 4 (Form 1040), line 57. Don’t file Schedule SE.”

So how do you know what part of your loan signing agent payments are for notary services only? It’s simple, you count the # of stamps that you made, and exclude your travel, printing, and shipping/faxing cost. For example, let’s say that you have a 30 page loan document, and you charge $80 for the the total signing, $30 of which is strictly for the notary stamps. Using the above example, if you properly DOCUMENT your job, you can exclude the $30 (the charge for each stamp) from self-employment taxes (the 15.3% Medicare & Social Security taxes aka FICA).

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Although I’m pretty sure that you probably don’t want to do anymore documentation, the IRS requires documentation for deductions, and this is a HUGE deduction! Don’t let the lack of documentation, or lack of tax preparers knowledge keep you from taking advantage of the self employment tax reduction for notaries/signing agents (& ministers). While most tax reduction strategies require the use entities, retirement vehicles, and state laws, this simple yet effective tax deduction only requires you to itemize your notary fees, & document your work. Below, please find a basic example of the potential savings.

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$60,000 in taxable for self-employment taxes.
Self-employment taxes on $60,00=$8,478
Income taxes assuming single person no children=$4,013  TOTAL TAX BILL=$12,491

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$30,000 taxable income for self-employment taxes
Self-employment taxes on $30,000=$4,239 EASY TAX SAVINGS OF $4,239.
Income taxes assuming single person no children=$4,013. TOTAL TAX BILL=$8,252

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Taxes, cannabis, Chicago cannabis, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Impact of Death, Retirement, & Disability on the 179 Tax Deduction

hospital work process

What tax effect would death, retirement, or disability have on you or your business?

Here’s an easy example to illustrate.

Let’s say that in 2017, you purchased (for business use) a pickup truck with a gross vehicle weight rating greater than 6,000 pounds. Asserting that you use the pickup 100 percent for business, you expensed the entire $55,000 cost.

What happens to that $55,000 expensed amount if you die, retire, or become disabled before the end of the vehicle’s five-year depreciation period?

Death

If your heirs are not going to pay estate taxes, your death is about as good as it gets. Here’s why:

  • You get to keep your Section 179 deduction. (It goes to the grave with you.)
  • Your pickup truck gets marked up to fair market value. (Remember, you expensed it to zero, but now at your death, the fair market value is the new basis to your heir or heirs.)

Example. Using Section 179, you expensed the entire cost of your $55,000 pickup truck. You die. Your daughter Amy inherits the pickup at its fair market value, which is now $31,000, and sells it immediately for $31,000. Here are the results:

  • You get to keep your Section 179 deduction—no recapture applies.
  • Amy pays zero tax on her sale of the pickup truck.
  • Your estate includes the $31,000 fair market value of the pickup, and if your estate is less than $11.4 million, your estate pays no estate taxes.

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Disability

This is ugly. If you become disabled and you allow your business use of the pickup to fall to 50 percent or below during its five-year depreciable life, you must recapture and pay taxes on the excess deductions generated by the Section 179 deduction.

To make matters worse, you must use straight-line depreciation in making the excess-deduction calculation.

Retirement

With retirement, you have exactly the same problem as you would have if you became disabled. In fact, with retirement, you disable your business involvement, and that makes your pickup truck fail the more-than-50-percent-business-use test, resulting in recapture of the excess benefit over straight-line depreciation.

Takeaways

You need to consider what happens should you become disabled, or retire, or die.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Taxes, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

IRS PUBLISHES SUMMERTIME TAX TIPS.

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Buying a home? Working a summer job? Volunteering? Activities that are common in the summer often qualify for tax credits or deductions. And, while summertime and part-time workers may not earn enough to owe federal income tax, they should remember to file a return to get a refund for taxes withheld early next year.

Here are some summertime tax tips from the IRS that can help taxpayers during tax season next year:

Marital tax bliss. Newlyweds should report any name change to the Social Security Administration before filing next year’s tax return. Then, report any address change to the United States Postal Service, employers and the IRS to ensure receipt of tax-related items.

Cash back for summer day camp. Unlike overnight camps, the cost of summer day camp may count as an expense towards the Child and Dependent Care Credit. See IRS Publication 503, Child and Dependent Care Expenses, for more information.
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Part-time and summer work. Employers usually must withhold Social Security and Medicare taxes from pay for part-time and season workers even if the employees don’t earn enough to meet the federal income tax filing threshold. Self-employed workers or independent contractors need to pay their own Social Security and Medicare taxes, even if they have no income tax liability.

Worker classification matters. Business owners must correctly determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. Workers can avoid higher tax bills and lost benefits if they know their proper status.

Though the higher standard deduction means fewer taxpayers are itemizing their deductions, those that still plan to itemize next year should keep these tips in mind:

Deducting state and local income, sales and property taxes. The total deduction that taxpayers can deduct for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 or $5,000 if married filing separately. Any state and local taxes paid above this amount cannot be deducted.

Refinancing a home. The deduction for mortgage interest is limited to interest paid on a loan secured by the taxpayer’s main home or second home that they used to buy, build, or substantially improve their main home or second home.
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Buying a home.

New homeowners buying after Dec. 15, 2017, can only deduct mortgage interest they pay on a total of $750,000, or $375,000 if married filing separately, in qualifying debt for a first and second home.

For existing mortgages if the loan originated on or before Dec. 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.

Donate items. Deduct money. Those long-unused items in good condition found during a summer cleaning and donated to a qualified charity may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and have proof of all donations.

Donate time. Deduct mileage. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2019.

Reporting gambling winnings and claiming gambling losses. Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings.
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The last two tips are for taxpayers who have not yet filed but may be due a refund and those who may need to adjust their withholding.

Refunds require a tax return.

 Although workers may not have earned enough money from a summer job to require filing a tax return, they may still want to file when tax time comes around.

It is essential to file a return to get a refund of any income tax withheld. There is no penalty for filing a late return for those receiving refunds, however, by law, a return must be filed within three years to get the refund. See the Interactive Tax Assistant, Do I need to file a tax return?

Check withholding. Newlyweds, summertime workers, homeowners and every taxpayer in between should take some time this summer to check their tax withholding to make sure they are paying the right amount of tax as they earn it throughout the year.  Taxpayers should remember that, if needed, they should submit their new W-4 to their employer, not the IRS.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office at 855-743-5765. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Taxes, cannabis, Chicago cannabis, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Proprietors and Partners Mistakenly Pay Themselves Illegal W-2 Wages

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In our Chicago South Loop Tax Preparation office, we often see sole proprietors and partners who are above the Section 199A thresholds look for W-2 wages as a means to salvage the 20 percent deduction allowed by Section 199A. They also often look enviously at the fringe benefits that are available to employees and not to them as sole proprietors or partners.

To overcome getting shorted on the Section 199A deduction or being denied fringe benefits, some sole proprietors and partners instruct their payroll services to make them W-2 employees. When the payroll services do this, the proprietors and partners believe they are now legitimate employees of their proprietorships and partnerships. Wrong. Totally wrong.

  • The sole proprietor may not be a W-2 employee of his or her sole proprietorship.
  • A partner may not be a W-2 employee of a partnership.
  • Some sole proprietors and partners have had their Certified Professional Employer Organization (CPEO) treat them as employees. Also, wrong!
  • Using a CPEO does not create the possibility of paying a W-2 wage to a partner or a sole proprietor.

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Takeaways

The sole proprietor is not a W-2 employee of the proprietorship. He or she is self-employed and operates under the rules for the self-employed. The partner is not a W-2 employee of the partnership. He or she is a partner and is treated as a partner under the
tax rules. Partners receive remuneration for services as guaranteed payments, which are subject to self employment taxes.

The single-member LLC is a proprietorship unless the member elects treatment as an S or a C corporation. Similarly, a multi member LLC is a partnership unless it elects treatment as an S or a C corporation.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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