Category: Tax Reduction

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, Small Business, Tax Reduction, Uncategorized

5 last-minute strategies you can use to cut your 2018 tax bill!

Howard Tax Prep LLC

accuracy afternoon alarm clock analogue

Trudy Howard

In my South Loop Chicago Tax Preparation office, I often see clients looking for tax savings at years end. Although December 26th is cutting it close, your year-end tax planning doesn’t have to be hard. I have outlined below five strategies that will increase your tax deductions or reduce your taxable income so that Uncle Sam gets less of your 2018 cash.

1.) Prepaying your 2019 expenses right now reduces your taxes this year, without question. While it’s true you kicked the can down the road some, perhaps you have an offset with a big deduction planned for next year. And even if you don’t have such a plan at the moment, you have plenty of time to create one or to put more big deductions in place for 2019.

2.) The easiest year-end strategy of all is simply to stop billing your customers, clients, and patients. Once again, this kicks the can down the road some and makes your 2019 tax planning more important.

3.) Thanks to the new tax laws With 100 percent bonus depreciation and increased Section 179 expensing in 2018, you can make significant purchases of equipment, machinery, and furniture and write off 100 percent of the value. Make sure you place the assets in service on or before December 31, 2018, to get the deduction this year.
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4.) Charges to your credit cards can create deductions on the day of the charge. This is absolutely true if you are a sole proprietor or you operate as a corporation and the credit card is in the name of the corporation. But if you operate as a corporation and the credit card is in your personal name, your corporation needs to reimburse you before December 31 to create the 2018 deduction at the corporate level.

5.) And finally, claim all your legitimate deductions. Don’t think you have too many, and don’t try to guess which of your too-many deductions could be a red flag. First, it’s unlikely you could have enough deductions to create a red flag. Second, no one knows what those red flags are. Third, if the deduction is legitimate, it doesn’t matter if the IRS audits it—you’ll win.

As you can see from the five strategies above, there’s much you can do to control your tax bite. 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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Self Employed, Small Business, Tax Reduction, Uncategorized

Lower Your Self Employment Taxes. Little known secret…

Howard Tax Prep LLC

cut taxes

Author Trudy M. Howard

Become A S-Corp To Save On Taxes

Howard Tax Prep often works with Chicago residents that have to pay self-employment taxes. Although we are a nationwide tax firm, because our office is located in the South Loop of Chicago, we attract more Chicago tax preparation clients.

If you’re a sole proprietor, a 1 member LLC (SMLLC), or a general partner in a business, you know that the 15.3 percent self-employment tax can eat up your profits in a hurry. For example, let’s assume you operate a sole proprietorship and you earn $100,000 of net income. You must report your income on Schedule C of your tax return, which creates a self-employment tax liability of $14,129.55 in ADDITION to your personal income tax! In order to lower self-employment taxes some self-employed Chicago residents have our firm apply their business for the IRS Subchapter S taxation status.

What Is an S Corporation?

The Subchapter S Corporation is a special IRS election that has to be requested during a very narrow 75-day window of time that begins on the day the business owner forms the corporation or LLC. Many of our self-employed Chicago tax clients choose to keep their legal entity as a corporation or a LLC, but have their taxable entity become an S corporation.

For federal tax purposes, your S corporation is a pass-through entity, meaning that the corporation’s income, deductions, and tax credit items are passed through to you, the shareholder, on a Schedule K-1. For some business owners, this is the best of both worlds: liability protection with personal taxation.

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S Corporation Special Rules

To elect S corporation status, the LLC or corporation must be: To qualify for S corporation status, the corporation must meet the following requirements:

· Be a domestic corporation

· Have only allowable shareholders

· May be individuals, certain trusts, and estates and

· May not be partnerships, corporations or non-resident alien shareholders

· Have no more than 100 shareholders

· Have only one class of stock

· Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

Is Sub Chapter S A Good Fit For Your Business?

No matter how they make look the same, every tax situation is different. S Corporations are great for businesses that:

· Provide services (insurance agents, consultants, etc.);

· Do not have large start-up costs;

· Won’t be making any major equipment purchases before operations begin;

· Generate lots of revenue with minimal effort and expense.

S Corps are typically not recommended for holding real estate due to debt basis issues, transferring of real estate, and unfriendly tax treatment upon death.

If you want to know how much you can save on taxes by lowering your self-employment taxes, call our office today. Howard Tax Prep can provide you with tax reduction strategies for your business taxes, in addition to your personal tax return.

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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 1-855-743-5765 Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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