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?

architecture building buy buyer

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. 
Schedule-button-nb
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.
Schedule-button-nb
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.

Schedule-button-nb

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

 

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

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.

Schedule-button-nb
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.

Schedule-button-nb

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

newsletter

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

activity board game connection desk

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.

newsletter

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.

Schedule-button-nb

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

newsletter

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

ILLINOIS CANNABIS LICENSE DEEP DIVE CLASS.

weed

Most recently, Illinois became the second most-populous state to legalize recreational marijuana. Cannabis licenses in Illinois will be issued in 2 groups. In the first wave in mid-2020, the state will award licenses for up to 75 stores, 40 processors and 40 craft growers. In a second wave in December 2021, the state could issue licenses for 110 stores, 60 craft growers and 60 processors.

Although Cannabis is legal on the state level, Federally, the DEA (Drug Enforcement Administration) still list cannabis as a schedule 1 drug. Those wanting to enter the cannabis business need to understand that the cannabis business doesn’t allow the same tax deductions as other business.

Class attendees will learn the following:

  • The different types of licensing offered.
  • How to maximize the point system.
  • The best entities for Cannabis businesses.
  • Complicated Taxation 280E Rules.
  • Software companies & bookkeeping options.

COMMON CANNABIS FAQ’S

  • What is the state of Illinois looking for in cannabis license candidates?

  • Can I start a home based recreational cannabis business?

  • What are my banking options?

  • What strategies can I use to reduce my Federal tax bill?

  • What type of license will be offered?

  • What must I include in a partnership agreement to protect myself?

  • What’s entity is used the most in the Cannabis business?

  • Is there funding available for s socially and economically disadvantaged small businesses & persons?

Get the answers to these questions and more on August 4th 2019! We have teamed up with Chicago Cannabis Consultants to educate consumers about the 4 types of recreational cannabis licenses, funding for social equity applicants, required insurance, and how to reduce Federal taxation. Chicago Cannabis Consultants have served the cannabis industry for the last 5 years in Denver, Nevada, and California. Chicago cannabis consultants have developed effective marketing, management, product development, and distribution techniques which they will be sharing with us during this class.

Light refreshments & small plates will be served until exhausted. 1 TICKET PER PERSON ANY DUPLICATE EMAILS WILL BE KICKED OUT OF THE SYSTEM AND WILL NOT BE ALLOWED ENTRY. To purchase a ticket, you must sign up for our email list here