Category: Tax Reduction

Family Taxes, General Information, General Tax Topics, Tax Credits, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction

Energy Tax Credits for Homeowners

Howard Tax Prep LLC
Photo by Ksenia Chernaya on Pexels.com

Here in our Chicago South Loop Tax Preparation office and our Homewood Il Tax Preparation office, we work with homeowners and real estate investors that are looking to save on their taxes. As we always say, when it comes to taxes, the best tax benefit is a tax credit, because you receive the amount on a dollar-for-dollar basis, versus tax deductions which only slightly reduce your taxable income. To say it another way, a $2,000 tax credit saves you $2,000 in taxes.

Energy Efficient Home Improvement Credit

Per the IRS, “if you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200.” The Efficient Home Improvement Credits help homeowners pay for various types of energy efficiency improvements. The credit is 30% of energy property cost up to $1,200, and $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers. Since more people will qualify for the energy-efficient improvements, we’ve outlined the details below.

  • Exterior doors (energy star approved). Max 2 doors, $250 each, total credit amount $500. Example, door cost $1,300; 30% of $1,300 is $390. Although 30% of the cost is $390, the taxpayer can only get $250 of the $390 (per door up to $500).
  • Exterior windows & skylights that meet Energy Star Most Efficient certification requirements; max credit amount $600.
  • Electric panel upgrades. 30% of the cost up to $600.
  • Home insulation. 30% of the cost up to $1,200.
  • Central air conditioner. 30% of the cost up to $600.
  • Furnace, heat pumps, water heaters, and hot water boilers. 30% of the cost.
  • Home energy audits. 30% of the cost up to $150.
  • Heat pumps, biomass stoves, or biomass boilers. $2,000 per year.

What if I earn a high income?

The great thing about this credit is that even those that earn higher incomes can take advantage of the credit (because there are no maximum income thresholds).

How many times can I claim this credit?

Although the Energy Efficient Home Improvement Credit has a $1,200 annual cap (with limits on specific items), you can claim the credit each year through 2033. Some homeowners are choosing to perform energy efficiency projects over several years, so that they can claim the credit each year.

Will this credit increase my tax refund?

It depends! The credit is nonrefundable, meaning if you don’t owe any tax, you will not receive the credit as a refund check. However, the credit can reduce what you owe, helping you to receive a refund of the income taxes withheld by your employer.

Can I carry this tax over to another year?

No, you can’t carry the credit over to a future tax year.

Who can claim the credit

Homeowners that use the property as their main residence, or a vacation home.

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, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

Business Taxes, General Information, General Tax Topics, Self Employed, signing agent, Small Business, Tax Credits, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction

2023 Meals that business owners can & cannot deduct (chart included).

Howard Tax Prep LLC
Photo by Daniel Torobekov on Pexels.com

Summer is fast approaching, and with the weather change, businesses will soon be hosting office picnics, award ceremonies, and holiday parties. As is the only constant in tax matters, there are changes (again) in what meals the IRS will allow small business owners to deduct at 100% or 50%. Here in our Chicago South Loop Tax Preparation and our Homewood Il, Tax preparation offices, since you no longer can deduct all restaurant meals at 100%, we’ve done the research for you so that you can plan accordingly when organizing an office outing, having a business lunch, or providing meals for an employee meeting.

As you may already know, there have been some major changes to the business meal deduction for 2023 and beyond. The deduction for business meals has been reduced to 50 percent, a significant change from the previous 100 percent deduction for business meals in and from restaurants, which was applicable only for the years 2021 and 2022 due to Covid.

To help you better understand what you can deduct, please see the table below:

Amount Deductible for Tax Year 2023 and Beyond
Description100%50%Zero
Restaurant meals with clients and prospects X 
Entertainment such as baseball and football games with clients and prospects  X
Employee meals for the convenience of the employer, served by an in-house cafeteria X 
Employee meals for required business meetings, purchased from a restaurant X 
Meal served at the chamber of commerce meeting held in a hotel meeting room X 
Meal consumed in a fancy restaurant while in overnight business travel status X 
Meals cooked by you in your hotel room kitchen while traveling away from home overnight X 
Year-end party for employees and spousesX  
Golf outing for employees and spousesX  
Year-end party for customers  X
Meals made on premises for the general public at a marketing presentationX  
Team-building recreational event for all employeesX  
Golf or theater outing or football game with your best customer  X
Meal with a prospective customer at a country club following your non-deductible round of golf X 
Chart of what meals you can deduct at 100% and what you can deduct at 50%.

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, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

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

IRS CHANGES MIND ABOUT $600 REPORTING THRESHOLD FROM VENMO, PAYPAL, & OTHER THIRD PARTY NETWORKS.

Howard Tax Prep LLC

Here in our Chicago south loop tax preparation office, and our Homewood Illinois tax preparation office, we have heard from many people that were afraid of the IRS’s pending requirement of having platforms such as Venmo, Cashapp, PayPal, etc. start reporting transactions over $600 that the user received. In addition to platforms reporting, many people were afraid that their Zelle transactions would also be reported to the IRS; however, Zelle transactions are considered bank to bank transactions, so Zelle did not have a requirement to report. After much confusion, and protest, the IRS announced on December 23, 2022 that they will “delay for implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-K.”

To give you a little history, prior to the American Rescue Plan of 2021, third party network providers were required to issue a 1099-K once a user reached $20,000, or 200 transactions. The reporting only applied to goods and services transactions, not for things like paying your family & friends for dinner, sending gifts, etc. Once the American Rescue plan was passed, the threshold amounts were lowered to $600 as a way to catch tax cheats, or as the IRS likes to put it to “encourage voluntary tax compliance.” Now that you understand how the reporting threshold came to be, let’s talk about the change that the IRS announced on December 23, 2022.

Per IRS issue 2002-226 “The IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) including Venmo, PayPal and CashApp that would have generated Form 1099-Ks for taxpayers. “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”1

“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”2

IRS issue 2002-226 also states “the change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers. Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.”3

Although the IRS is not requiring the reporting at the $600 threshold, you are still REQUIRED TO REPORT ALL INCOME RECEIVED from your side gig, hustle, small business, sole proprietorship etc. In our article from July 2022, we discuss the ways the IRS can find out if you’re hiding income from them.

Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now at https://howardtaxprep.com/documents-needed-to-file.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

References

  1. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
  2. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
  3. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
Business Taxes, Family Taxes, General Information, General Tax Topics, Self Employed, signing agent, Small Business, Tax Deductions, Tax Planning, Tax Reduction

END OF THE YEAR TAX DEDUCTION CHECKLIST FOR S CORP HOLDERS

Howard Tax Prep LLC
Photo by Breakingpic on Pexels.com

Here in our Chicago south loop tax preparation office, and our Homewood Illinois tax preparation office, we often work with clients that want to legally reduce their tax bill, without triggering an audit. For our self-employed clients that realize a net profit of $35,000-$40,000 we sometimes recommend that they utilize the S-Corp taxation option (rather than a disregarded entity taxation status), as the S-Corp option will allow them to take advantage of some pretty awesome tax deductions. Below are 3 end of the year things that S-Corps must make sure to have done.

MAKE SURE THAT YOU HAVE PAID YOURSELF A REASONABLE COMPENSATION VIA PAYROLL, AND THAT YOU HAVE PAID YOUR PAYROLL TAXES.

You likely formed an S corporation to save on self-employment taxes. If so, is your S corporation salary

  • nonexistent?
  • too low?
  • too high?
  • just right?

Getting the S corporation salary right is important. First, if it’s too low and you get caught by the IRS, you will pay not only income taxes and self-employment taxes on the too-low amount, but also both payroll and income tax penalties that can cost plenty. Second, in most cases, the IRS is going to expand the audit to cover three years and then add the income and penalties for those three years. Third, after being found out, you likely are now stuck with this higher salary, defeating your original purpose of saving on self-employment taxes. Make sure to work with your accountant to help figure out your salary. You should also make sure that you corporate minutes name your salary, and have documents that prove your salary is reasonable (you can use the market approach, the income approach, or the cost approach).

RENTAL OF PERSONAL RESIDENCE FOR UP TO 14 DAYS FOR TAX FREE INCOME.

If your S-Corp is paying you (or your spouse) as an individual rent to use your residential space for hosting business meetings, please do the following:

  1. Research the going rate for conference/meeting room rental in your area. Please view our detailed YouTube video on how to use the 14 day free rental income tax rule, & find the rental rates that your S-Corp can pay individuals.
  2. Invoice your corporation for room conference/meeting rental.
  3. Create a conference/meeting room rental agreement, or order one from Howard Tax Prep LLC.
  4. Write a check, send a zelle, cash app, etc. from your corporate bank account, to your personal bank account.
  5. Document the business purpose with meeting minutes, & resolutions.

HOME OFFICE & CELLPHONE REIMBURSEMENT

If you operate as a corporation, your home-office deduction does not show on either your personal return or your corporate return if you have the corporation reimburse the office as an employee business expense. To reimburse as an employee business expense, you must do the 5 things listed below.

  1. Have a written corporate reimbursement policy. We offer plans for home office, travel, and cellphone usage reimbursement.
  2. Have employee (you) submit a reimbursement sheet, and keep track of cost for reimbursement.
  3. Pay employee (you) from the corporation’s bank account.
  4. Document business use of home office. For example, accounting, marketing, emailing clients, creating policies, planning meetings, etc.

LIST OF 12 MEETING IDEAS

Annual Meeting Minutes.Recent Accomplishments.
Next Quarters Sales Goals.Industry News.
Process Updates.Customer/Client Feedback.
Design/Branding Review.Marketing Plan.
Annual Budget Meeting.Review of compliance records.
Board of Directors Decisions.Annual Financial Performance Review.

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.

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

IRS says that some PPP (Paycheck Protection Program) loans that were forgiven improperly, are taxable.

Howard Tax Prep LLC
Photo by RODNAE Productions on Pexels.com

The IRS recently issued guidance addressing improper forgiveness of a Paycheck Protection Program loan (PPP loan).

To summarize, the guidance says that if a taxpayers PPP loan is forgiven based upon lies, or leaving things out (misrepresentations or omissions) the taxpayer cannot exclude the forgiven loan income from taxation; basically, you will have to pay taxes on the loan amount that you received.

According to the IRS, while many small business owners were entitled to receive the loan (and properly claimed the PPP loan forgiveness), there are many taxpayers who weren’t eligible for the loan, or loan forgiveness. Some taxpayers lied to receive the PPP loan funds, while other’s spent the loan proceeds on ineligible items.

Per IRS Issue Number IR-2022-162: “Under the terms of the PPP loan program, lenders can forgive the full amount of the loan if the loan recipient meets three conditions. 

1 – The loan recipient was eligible to receive the PPP loan.  An eligible loan recipient:

  • is a small business concern, independent contractor, eligible self-employed individual, sole proprietor, business concern, or a certain type of tax-exempt entity; 
  • was in business on or before February 15, 2020; and
  • had employees or independent contractors who were paid for their services, or was a self-employed individual, sole proprietor or independent contractor.

2 – The loan proceeds had to be used to pay eligible expenses, such as payroll costs, rent, interest on the business’ mortgage, and utilities.

3 – The loan recipient had to apply for loan forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information, and meet other legal qualifications.

If the 3 conditions above are met, then under the PPP loan program the forgiven portion is excluded from income.  If the conditions are not met, then the amount of the loan proceeds that were forgiven but do not meet the conditions must be included in income and any additional income tax must be paid.”

Per IRS Issue Number IR-2022-162: “Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.” In essence, if you know that you lied about how you spent the PPP (paycheck protection program) funds, take the lie back by amending (changing) your tax return to reflect the truth.

IRS Commissioner Chuck Retting said: “This action underscores the Internal Revenue Service’s commitment to ensuring that all taxpayers are paying their fair share of taxes.” “We want to make sure that those who are abusing such programs are held accountable, and we will be considering all available treatment and penalty streams to address the abuses.”

If you, or someone you know had a person “do your PPP loan” (complete the application, and get you the funds), and you need assistance with amending your tax return, please reach out to us for assistance.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, 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. Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!