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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

How Corporations Reduce IRS Audits of Home-Office Deductions

October 16, 2019 Howard Tax Prep LLC

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.
or click here to call us 1-855-743-5765.

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, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Are you a homeowner marrying a homeowner?

October 3, 2019October 3, 2019 Howard Tax Prep LLC

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.

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.

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!

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Business Taxes, Family Taxes, General Information, retirement planning, Self Employed, Small Business, Uncategorized

Is the Money on My Prepaid Card FDIC-Insured?

September 25, 2019 Howard Tax Prep LLC

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

HUGE WIN FOR NOTARY SIGNING AGENTS

August 11, 2019 Howard Tax Prep LLC

Author Trudy M. Howard

In our South Loop Chicago Tax Preparation office , Howard Tax Prep LLC works with entrepreneurs from various industries; however, there are 2 industries that give entrepreneurs a built in self-employment tax deduction. To take advantage of built in self employment tax reductions, one must be employed as a minister, or a notary. While this article will deal with notary signing agents, the same concept can also be applied to ministers.

Per IRS publication 17: “Notary public. Report payments for these services on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). These payments aren’t subject to self-employment tax.” ees received for services performed as a notary public. Also, the instructions for IRS schedule SE reads: “if you had no other income subject to SE tax, enter “Exempt—Notary” on Schedule 4 (Form 1040), line 57. Don’t file Schedule SE.”

So how do you know what part of your loan signing agent payments are for notary services only? It’s simple, you count the # of stamps that you made, and exclude your travel, printing, and shipping/faxing cost. For example, let’s say that you have a 30 page loan document, and you charge $80 for the the total signing, $30 of which is strictly for the notary stamps. Using the above example, if you properly DOCUMENT your job, you can exclude the $30 (the charge for each stamp) from self-employment taxes (the 15.3% Medicare & Social Security taxes aka FICA).

Although I’m pretty sure that you probably don’t want to do anymore documentation, the IRS requires documentation for deductions, and this is a HUGE deduction! Don’t let the lack of documentation, or lack of tax preparers knowledge keep you from taking advantage of the self employment tax reduction for notaries/signing agents (& ministers). While most tax reduction strategies require the use entities, retirement vehicles, and state laws, this simple yet effective tax deduction only requires you to itemize your notary fees, & document your work. Below, please find a basic example of the potential savings.

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$60,000 in taxable for self-employment taxes.
Self-employment taxes on $60,00=$8,478
Income taxes assuming single person no children=$4,013 TOTAL TAX BILL=$12,491

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$30,000 taxable income for self-employment taxes
Self-employment taxes on $30,000=$4,239 EASY TAX SAVINGS OF $4,239.
Income taxes assuming single person no children=$4,013. TOTAL TAX BILL=$8,252

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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

July 23, 2019 Howard Tax Prep LLC

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.

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.

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