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

How Corporations Reduce IRS Audits of Home-Office Deductions

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In our south loop Chicago tax preparation office, we often work with clients that want to reduce their tax bill, without triggering an audit. If you filed your business income and expenses as a proprietor in 2017 and reported $100,000 or more in gross receipts, your chances of IRS audit were 2.4 percent (2017 returns are still open for audit, so the percentage could increase).

Had you reported this income as an S corporation, your chances of audit were only 0.20 percent.

You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it.

Regardless, let’s assume that you’re a little paranoid about audits, and you want to claim the home-office deduction in a way that doesn’t attract the attention of the IRS.

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.
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With reimbursement, the corporation claims the deduction for the expenses it reimburses to you. The corporation probably puts the reimbursement into a category called “office expenses” or something similar. Thus, the home-office deduction as a name or title does not appear in the corporate return.

You receive the reimbursement from the corporation as a reimbursed employee expense. You do not report employee-expense reimbursements as taxable income on your personal return. Thus, you do not identify the home office on your personal return.

Got it? The home-office deduction does not appear under a home-office label on either the corporate or personal tax return as a tax deduction.

If the corporate form of business appeals to you, please call us at 1-855-743-5765 so we can look at your options to see if we should spend some time on your tax planning.

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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How I went to IRS tax jail, aka IRS withholding compliance program.

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Author: Trudy M. Howard

Have you ever gotten away with something, and found yourself doing it again? Did you keep doing it thinking that you would never get caught, or if you did get caught, you could talk your way out of it? Well that was also me when it came to going exempt on my Federal taxes.

When I was 25 I started working for a major phone company, and I was earning about $70,000 per year. $70,000 wasn’t a shabby salary for a 25 year old single mother, but when the Federal taxes were deducted, I felt as if I was paying more in taxes than I was earning. With the increase in salary I no longer qualified for the earned income tax credit, I didn’t qualify for daycare assistance programs, and I was kicked out of the welfare office when I asked for medical help or food stamps! So what was a girl to do when she felt that she needed more money to survive? Was I supposed to create a budget and stick to it? Should I have stopped dining out? Maybe I should have picked up a side business (which would have created tax planning opportunities) and supplemented my income? While all of these things sound like viable, and reasonable options, 25 year old Trudy was not reasonable, and she certainly wasn’t going to discipline herself to stick to a budget. While discussing my financial crisis (don’t judge me) with a friend, she told me about a “magical thing” called “going exempt from Federal income tax.”
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In order to stop the government from taking $300 and $400 out of my paychecks, “all I had to do (which is the opening statement for all bad ideas)” was write exempt on my W4, hand the form to my employer, and magically, all of the deductions would stop. The first time that I went exempt I was afraid. Was the IRS going to come after me? Was my job going to fire me for not paying taxes? Would I owe the IRS a gazillion dollars? To my surprise (and eventual demise) none of these things happened. In fact, nothing happened, life continued on, and I was happy as jay bird; that is until tax time arrived.

In June of 2002 I received my first IRS tax bill (notice CP51A). I ignored it. More letters came; I ignored them. Certified letters came; I refused to pick them up. The only letter that caught my attention was the CP504 intent to levy, and it only caught my attention because it mentioned the word assets. Me being me, I waited until the last minute to contact the IRS, and after my bank account was levied, I finally understood that when the IRS sends letters, it’s best to call them immediately. One would think that the levy would have changed my ways, but nope! All the levy did was teach me to get tax debt help, and work out a payment plan with the IRS.

Schedule-button-nbor an with the IRS click here to call us 1-855-743-5765.

After resolving my tax debt issues, I began the crazy cycle of racking up tax debt, and asking for an installment plan. 10 years into this cycle I finally reached the mother of all IRS agents, and she told me “be careful, because an IRS agents can see that you keep racking up debt, and that you don’t have enough withholding. When you don’t have enough withholdings, the IRS can force you to increase your withholding.” My internal response was “girl bye… I’ve been doing this for years, run the payment plan and shut up” but my external response was “Really they can do that? I always figured that I would settle up with the IRS at the end of the year. I’ll do better this year, I promise.” Little did I know the gig was up, and I was on my way to IRS tax jail.

Merriam Webster defines prison as: “a state of confinement or captivity, or  a place of confinement especially for lawbreakers.” While IRS tax jail is not a physical jail with walls, those that have been placed into the IRS withholding compliance program can tell you that it certainly feels like jail! Once the taxpayer becomes a lawbreaker (by not paying their taxes as they go), they are eventually placed into the IRS withholding compliance program (aka IRS tax jail), and held captive for a minimum of 3 years. During this 3 year period the IRS states that: “your employer must withhold income tax from your wages as if you’re single with zero allowances.”

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To illustrate, in 2019, if a person is earning $70,000 (and there were thrown into IRS tax jail aka withholding compliance program), they would have $400.87 withheld from each paycheck to cover their Federal income taxes. In addition to the Federal tax deduction, every paycheck would also have deductions for Social Security ($166.92), Medicare ($39.04), and state taxes ( I live in Illinois, and in IL the tax would be $133.27. After taxes, the taxpayer would be left with a net pay of $1,952.21, not including deductions for health insurance, dental, vision, life insurance, disability, union dues, and so on. So if the IRS tax jail isn’t physical, how is one cast into IRS tax jail? The IRS sends tax payers to IRS tax Jail by sending letter 2800C to the taxpayers employer. 

Once your employer receives letter 2800C per IRS.gov: “within 60 days the employer must “begin withholding income tax from this employee’s wages based on a withholding rate (or marital status) single, and withholding allowances of 0.” No amount of pleading, threatening, or arguing with your employer will change this. If you switch employers, the IRS will find you. The only thing that you can do is contact the IRS yourself (for the DIY crowd), or you can work with a professional tax debt resolution firm to negotiate with the IRS on your behalf.. Depending on your number of dependents, and marital status, the IRS may show you some mercy. There is always the option of doing nothing, and if you choose to do nothing, you can expect your lock in rate to begin within 60 days, and you will remain in IRS tax jail for a minimum of 3 years.

As with every good story, there is always a silver lining. If during your 3 year bid, you remain a good little taxpayer (by paying your taxes & staying in tax compliance) the warden can release you from IRS tax jail. 

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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Backdoor Roth IRA Opportunities Still Available After TCJA

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Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.
Schedule-button-nbThe backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that we are aware of, so we think it’s a good strategy. We also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no 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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Owe the IRS? Find out what your credit report tells them.

 

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Author: Trudy M. Howard

In our Chicago tax debt office you’ll often hear me say “the IRS is worse than the FBI.” Of course this is simply my opinion (based upon years of research, tax debt cases, education, and government documents), but if the IRS isn’t worse than the FBI, they surely are a close 2nd!

When I tell you that the IRS can find out anything,  I mean they can find out anything (except for your blood type, but I’m sure that’s pending)! The IRS has access to systems that you wouldn’t believe existed. For example, did you know that the IRS receives a weekly file of new movers? It’s true. “The United States Postal Service (USPS) provides an address update product — the National Change of Address Linkage (NCOALink), and the IRS receives a weekly NCOALink file from USPS. The file contains all of the reported changes of address in the United States for the week.” Not only does the IRS use this system, along with several others, the IRS also has the authority to pull a debtor’s credit report! Keep reading to see what your credit report tells the IRS.

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There are 6 key things that an IRS collections representative is looking for when they access your credit report.

  • Previous residences along with old/current employers.
  • Other lien holders to see how much you owe, and how much you’ve paid.
  • Property that may not have been disclosed during your collections interview.
  • Leads to hidden assets by identifying other creditors.
  • Financial institutions that you have done business with in the past and currently.
  • Entities and associations with foreign banks and corporations.

Hopefully, by viewing this list you see that it is important to disclose all financial information when dealing with the IRS. Once you submit all of your financial information,  Howard Tax Prep LLC, located in the South Loop of Chicago, can help you with an IRS tax debt settlement, a tax debt payment plan, removal of tax lien, and IRS wage garnishments in Chicago, and all 50 states.

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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7 KEYS TO SETTING & STICKING TO A BUDGET!

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Author Trudy M Howard. 

In our South Loop Chicago Tax Office, we not only help clients with tax planning to reduce their taxes, but we also draft personalized financial wellness plans.  If you want to eliminate debt, be prepared for an emergency, and retire with confidence, you must learn how to budget your finances. Not only do you want to set a budget, but you need to STICK TO YOUR BUDGET in order to be successful. Keep reading to find out the 7 KEYS TO SETTING & STICKING TO A BUDGET.

1.) Set realistic amounts: If you know that you like to shop, or that you don’t like to cook, don’t set a budget of $25 a month for shopping and dining out.

2.) Use cash instead of a debit/credit card. Retailers know that consumers spend more when they use their card instead of spending cash. Every Sunday withdraw enough for your gas, lunch, groceries, and incidentals.

3.) Watch your funds: Balance your checkbook! Don’t rely on the online banking system to give you current balances, as some purchases may not show for 24-48 hours later. Balancing your checkbook also helps you avoid overdraft fees, and less overdraft fees equal more savings!

4.) Stick to your entertainment budget: Use a prepaid debit card for your entertainment cost. Once the card is empty, you’ll know that you’ve reached your entertainment budget for the week. Be prepared to say NO to invitations from friends, and don’t feel as if you need to provide a detailed explanation about your financial situation.

5.) Expect unexpected expenses. No matter how disciplined you are in sticking to your budget, just as sure as the sun rises in the East, and sets in the West, I can GUARANTEE YOU that some unplanned expense is going to come up. Whether it be an increase in fuel cost, an increase in your utilities, or an unexpected dental emergency, expect to spend an extra $100-$150 a month.

6.) Track every purchase for the next 30 days. In order to get a clear look at your spending habits, you need to track all of your purchases. From the gum that you purchased, to the car note that you paid, Record. Every. Single. Purchase. Although you can use your bank statements to track your spending, writing down the figures can help you identify and remember areas of your concern.

7.) Pay bills on time to avoid late fees and bad credit. Nothing, and I mean NOTHING, can destroy a budget faster than a late payment fee! If you don’t like having your bills set to auto pay, try using google calendar to set a reminder the day before a bill is due. Not only does paying your bills on time increase your credit score, but it also creates more wealth building opportunities.

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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Owe taxes? What to do when you owe the IRS.

Listen, I’ve been there. You know the place where you’re afraid to open the notice from the IRS because you think they are coming for your right arm and both legs? The place where you KNEW that you should have been paying more through out the year, but you needed your money, so you chose go exempt from Federal taxes? Or how about the place where you thought you were paying enough to the IRS, and to your surprise you wound up with a tax bill! Listen to this quick podcast below by clicking the play button, or listen on iTunes by searching “small biz tax lady.”

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I talk about if you should file, your payment options, and why you need to read your IRS notices. If you have a more complicated case (such as refund taken due to spousal debt, IRS wage garnishments, or a pending levy, please call us immediately at 855-743-5765 or email me directly at thoward@howardtaxprep.com

Have a podcast idea? Send me your suggestions at podcast@howardtaxprep.com or inbox me.