Category: Tax Deductions

Business Taxes, Family Taxes, Tax Debt, Tax Deductions, Tax Reduction, Uncategorized

CAN I FILE BANKRUPTCY FOR TAX DEBT?

Howard Tax Prep LLC

bankruptcy

Once the IRS assesses a tax bill, it generally has 10 years to collect that amount before the statute of limitations expires. Holy smokes! That’s a long time to have a creditor chasing you! And this isn’t any ordinary creditor. The IRS has a lot of power that it can use to collect your late payments. The IRS can garnish wages, file a notice of federal tax lien, and empty your bank account.

If your tax bill has exploded beyond what you can pay, you’re probably already feeling the hot breath of the IRS. At this point, you need to consider your options for how to reduce or eliminate your tax bill.

If you have thought about bankruptcy, you need to be aware of its limitations. Tax debts are particularly sticky—many of them stay with you even after the bankruptcy process is complete. And it’s important to know that bankruptcy is not your only recourse. The IRS gives you four avenues of relief to help you get out of tax debt that you can read about here. Depending on your circumstances, one or more of those IRS methods could entirely eliminate that horrible tax cloud hanging over your head, or you can look into filing bankruptcy.

It is important to note that bankruptcy is not a simple process and has many lingering effects, such as the potentially decade-long hit to your credit. However, bankruptcy can be the perfect tool in the right situation—and it can permanently eliminate some of your income tax liabilities, including penalties and interest.

The following rules determine whether you can discharge your income tax debt in bankruptcy. You have to meet all three rules to qualify:
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RULE #1: Debts must be more than three years old. You have to wait at least three years after the filing deadline for the tax years at issue (normally April 15 for calendar year taxpayers) before you file your bankruptcy petition. In other words, if you file your petition on April 15, 2016, you can discharge tax debts for tax years 2013 and earlier. But note that an extension pushes your filing deadline to October 15. So if you got an extension in 2013, you must wait until October 15, 2016, to file your bankruptcy petition before you can discharge tax debts from 2013.

RULE #2: You must file all tax returns. You have to wait at least two years after you filed your tax return before you file your bankruptcy petition. So what happens if you didn’t file a return for a year? To discharge that debt, you must file that return now and then wait for two years before you file for bankruptcy.

RULE #3: Wait eight months after IRS assessment. You must wait at least 240 days after the IRS assessed your taxes before you file the bankruptcy petition.

As you can see, timing is important. If you want to ensure that the bankruptcy proceeding will clear your tax debts, you must:

  • Make sure you have filed all of your returns.
  • Wait until enough time has passed so that you qualify for relief.
  • Commit No fraud. Bankruptcy will not discharge your debt if you committed fraud or willfully evaded taxes.

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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General Tax Topics, Self Employed, Small Business, Tax Deductions, Tax Reduction, Uncategorized, Vehicles

2018 Last-Minute Vehicle Purchases to Save on Taxes

Howard Tax Prep LLC

Long jump.

At our Chicago tax preparation office, we work with a lot of Business owners in the South Loop of Chicago that need business tax preparation. As the year ends, many business owners are looking for tips for year end tax deductions, more commonly referred to as  tax write- offs. For business owners looking for tax deductions, I have two questions: Two questions:

  • Do you need a replacement business car, SUV, van, or pickup truck?
  • Do you need tax deductions this year?

Here are some ideas for you to consider:

  1. Buy a New or Used SUV, Crossover Vehicle, or Van with a GVWR Greater than 6,000 Pounds

Let’s say that on or before December 31, 2018, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four big benefits:

  • Bonus depreciation of 100 percent (new, thanks to the TCJA)
  • Section 179 expensing of up to $25,000
  • MACRS depreciation using the five-year table
  • No luxury limits on vehicle depreciation deductions
  1. Buy a New or Used Pickup with a GVWR Greater than 6,000 Pounds

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2018, then this newly purchased vehicle gives you four big benefits:

  • Bonus depreciation of 100 percent
  • Section 179 expensing of up to $1,000,000
  • MACRS depreciation using the five-year table
  • No luxury limits on vehicle depreciation deductions

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To qualify for full Section 179 expensing, the pickup truck must have

  • a GVWR of more than 6,000 pounds, and
  • a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. It’s still eligible for expensing of up to the $25,000 SUV expensing limit plus 100 percent bonus depreciation. See Section 1 above for how this works.

  1. Buy a New or Used Qualifying Cargo or Passenger Van with a GVWR Greater than 6,000 Pounds

A new or used cargo or passenger van bought and placed in service on or before December 31, 2018, can qualify for four big tax benefits:

  • Bonus depreciation of 100 percent
  • Section 179 expensing of up to $1,000,000
  • MACRS depreciation using the five-year table
  • No luxury limits on vehicle depreciation deductions

Cargo van. To qualify for full Section 179 expensing, the cargo van must

  • have a GVWR of more than 6,000 pounds,
  • fully enclose the driver compartment and load-carrying area,
  • not have seating behind the driver’s seat, and
  • have no body section that protrudes more than 30 inches ahead of the leading edge of the windshield.

If the van passes the GVWR test but fails one of the other qualifying tests listed above, the law deems it an SUV.
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Passenger van. If the van has a GVWR of greater than 6,000 pounds and seats more than nine people behind the driver’s seat, it is a tax law–defined passenger van, not an SUV, and it qualifies for full Section 179 expensing of up to $1,000,000 and 100 percent bonus depreciation.

  1. Buy a Depreciation-Limited New or Used Car, SUV, Truck, or Van

If you or your corporation buys and places in service a new or used passenger vehicle such as a car (or a pickup, SUV, or van with a GVWR of 6,000 pounds or less) on or before December 31, 2018, then you or your corporation may claim up to $8,000 in bonus depreciation.

Tax reform increased the 2018 luxury passenger vehicle depreciation limits to

  • $10,000 for the first taxable year in the recovery period,
  • $16,000 for the second taxable year in the recovery period,
  • $9,600 for the third taxable year in the recovery period, and
  • $5,760 for each succeeding year in the taxable period.

Here’s how this works: Say you buy a car. You add the $8,000 in bonus depreciation to the $10,000 car limit, for a 2018 limit of $18,000. To get to this limit, you can use a combination of bonus depreciation and regular depreciation. You reduce the $18,000 limit by any personal use.

The vehicle tax rules can be confusing. 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 Deductions, Uncategorized

12 Things You Must Ask Your Tax Preparer!

Howard Tax Prep LLC

banking business checklist commerce

Author Trudy Howard

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1.) Can I pay my fees out of my return?

This one question will give you insight into whether or not your preparer has passed the IRS & BANK CRIMINAL & CREDIT BACKGROUND CHECKS! If your tax return preparer only accepts cash (or cash equivalents such as PayPal, cash app, or even credit/debit cards), 9 times out of 10 you’re dealing with an unauthorized E-file provider. In order to offer clients, refund advances, and the ability to have their tax preparation fees deducted from their tax refund, a tax preparer (or the agency they work for) has to be approved by the IRS as an ERO (electronic return originator) that is authorized to send the IRS E-files. ERO providers have to pass background checks, credit checks, and suitability checks in order to become an authorized E-file provider.

2.) Do you screen your tax return preparers and assistants to see if they’ve ever been arrested for (or charged with) bank fraud, theft, identity theft, or any other criminal charges?

This is HUGE. During tax season I always see an increase in social media post referencing bank accounts that have been compromised, and identity theft issues. While your preparer may not be committing fraudulent acts, your preparer may have unknowingly hired a data entry assistant that is using/selling your information. Ask questions about the assistant, and find out if they’ve been background checked.

3.) Will my preparer sign my return, and do all of the preparers have a paid tax identification number?

I’ve seen HUNDREDS of tax returns in which consumers paid someone to prepare their returns, only to have the “tax return preparer” use Turbo Tax or some other software, and submit the tax return as a SELF PREPARED return without the return preparers signature. THIS IS A HUGE RED FLAG! Whenever you pay someone to prepare your tax return, that preparer needs to sign your return.  Also, although YOU ARE RESPONSIBLE for what is on your tax return, some penalties can be waived if you can prove that you relied on the advice of a tax professional. **

4.) What safety measures do you have in place to protect my data (locked file cabinets, encrypted file sharing, etc.)?

This is self-explanatory.

5.) What are the minimum education and experience requirements for your preparers?

You don’t necessarily need a CPA, but you also don’t want someone that dropped out of the 8th grade.

6.) Do you have a special concentration (small business, truck drivers, realtors, salespeople etc.)?

Have you ever heard the term jack of all trades, master of none? Make sure that you get a tax preparer familiar with your industry as tax law, and deductions can vary based on profession. For example, a salesperson can’t take per diem, but an owner operator truck driver can.

7.) Do your preparers have any accounting experience?

There are 2 words that come to mind when thinking of why you want your tax preparer to have accounting knowledge/experience. Those two words are: depreciation, and basis.

8.) How many continuing education hours are your tax preparers required to meet? How often must they complete these continuing education requirements (yearly, every 3 years, etc.)?

Tax law changes often, so you want an agent that stays abreast of the new Federal, State, and county tax law changes.

9.) Are you and your agents listed on the IRS website under the
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications?

The IRS has an online directory that will let you know if the person you are dealing with is credentialed; use it.

10.) If I get audited can you represent me before the IRS?

Make sure that your preparer can represent you in front of IRS employees, and the tax payor advocate service.

11.) Are you open year round? What if I need help after April 15th?

You want to work with a tax firm that is open year round, and not just during tax season. Many “fly by night” operations come into town for tax season, submit fraudulent tax returns, and then disappear into the night just as quickly as they appeared.

12.) Do you offer tax planning services?

Tax preparation is the method of recording facts & reporting the facts to the IRS in proper format. Tax planning is the act of analyzing data & creating a plan of action to reduce tax liability. Tax planning requires that your tax preparer not only knows tax law, but also understands how to apply tax law.

*See Whitsett, T.C. Memo. 2017-100. Also see United States v. Boyle, 469 U.S. 241, 250 (1985))
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