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

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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.

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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 debtbusiness tax preparationbusiness entity creationbusiness 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!

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

HIDING INCOME FROM THE IRS? HOW WILL THEY FIND OUT?

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In our South Loop Chicago tax preparation office, and in our Homewood, Il tax preparation office, we often receive calls from people that have not filed taxes in years, and they want to know how the IRS knows how much income they have receive. So how does the IRS know when a small business owner is POTENTIALLY hiding income? The IRS has many methods to detect the underreporting of income such as: taxpayer interviews, income probes, Indirect methods, accounting records; QuickBooks files, cash expenditures, bank deposits, net worth, and more; however, this article will be covering a method called the vertical analysis.

The vertical analysis method identifies the differences between gross income, and net profit reported by the business owner, and the industry standards gross income and net profit. In plain English, the IRS compares what businesses owners say their profit is in relation to expenses, to what other people in the same industry say their profit is in relation to expenses. So what data, or statistics does the IRS use to create the comparison? The IRS uses a website called Bizstats.

Information in Bizstats expresses expense categories as a percentage of revenue. Per the IRS “Potential underreporting of income which equals 10% or more of the reported income should be resolved with the taxpayer’s assistance.”

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To give an example, let’s say that we have a caterer that reports $65,000 in gross sales, and $50,000 in expenses, leaving them with a profit of $15,000. The caterer’s expenses to sales ratio is 77% ($50,000 in cost to make sales (expenses)/revenue brought in.) If the industry standard is 60%, the IRS might believe that the taxpayer is hiding an additional $18,333 in revenue (50,000/60%=$83,333. $83,333-$65,000=$18,333).

So who is Bizstats? Per their website, “BizStats is owned and operated by Bizminer of Camp Hill, PA, a leader in online data analysis since 1998. Bizminer also publishes more than 9 million local and national industry statistical reports at its own web site at www.bizminer.com” Bizstats has business statistics and financial ratios for Sole proprietors, Corporations, S-Corporations, & Partnerships.

Where does Bizstats get it’s information? Per their website, Bizstats get it’s data from “the latest available IRS financial information in a useful, readable format.”

What are some drawbacks to Bizstats data? Bizstats are only available for 1 year, and the information is typically 3 years old. At the time of publication, the current stats were showing data from 2017.

How can I protect myself from a vertical analysis?

#1 Always report the GROSS income generated in your business. An accounting mistake that we often see in our Chicago South Loop tax preparation office, is that people don’t do bookkeeping, so instead of reporting their gross receipts, they report gross income less returns, refunds, etc. in the gross receipts area, which is not correct. Gross receipts are gross receipts, and you account for returns in a separate line item.

#2. Invoice clients, or keep copies of receipts if you’re in a business that doesn’t use invoicing.

#3. NEVER COMMINGLE YOUR FUNDS. Your business income and expenses need to be kept separate

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debtbusiness tax preparationbusiness entity creationbusiness 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!

P.S. For wealth building and tax reduction tips, please join Howard Tax Prep LLC  newsletter! 

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

Two Ways to Fix Tax Return Mistakes Before the IRS Discovers Them

In our South Loop Chicago tax preparation office, and in our Homewood, Il tax preparation office, we often receive calls from people that have made an error (or errors) on their tax return. The tax law is complicated and constantly changing, so it’s easy to make a small, or large error that causes you to:

1.) underpay your tax, leaving you open to IRS penalties, or
2.) overpay your tax, meaning you gave a gift to the government.

However, if you made an error on your tax return, don’t worry; there’s good news: you can undo your mistake! Here’s even better news: there are two special ways to fix your incorrect tax return that will save you from paying more to the IRS than you would otherwise. We’ll tell you all about them in this article. —there are two easy ways to fix it:

  1. A superseding return
  2. A qualified amended return

A superseding return is an amended or corrected return filed on or before the original or extended due date. The IRS considers the changes on a superseding return to be part of your original return.

A qualified amended return is an amended return that you file after the due date of the return (including extensions) and before the earliest of several events, but most likely when the IRS contacts you with respect to an examination of the return. If you file a qualified amended return, you avoid the 20 percent accuracy-related penalty on that mistake.

Superseding Return Example

You file a joint Form 1040 tax return electronically on February 21, 2022, for tax year 2021, but you later decide you want to file a separate return. Since the joint-filing election is irrevocable, on or before April 15, 2022 (which is the unextended due date for your 2021 Form 1040), you must file a superseding return to undo the joint election.

IRS electronic filing rules for amended returns do not permit you to file this superseding return electronically, because you are changing your filing status (from married, filing jointly, to married, filing separately). That being said, your only other option is to use “snail mail.” Using a paper return via snail mail, you’ll submit either:

1.) A second original Form 1040 return using the married-filing-separately filing status, or
2.) An amended Form 1040X showing the change from joint to separate filing status.
Be sure to write “SUPERSEDING RETURN – IRM 21.6.7.4.10” in red at the top of page 1 of either Form 1040 or Form 1040X.

Qualified Amended Return Example

You realize your return preparer left a $30,000 IRA distribution off your 2019 tax return. Ouch!
Let’s assume you are in the 32 percent tax bracket and had no federal income tax withholding on the distribution: you owe an additional $9,600 in federal income tax on your 2019 tax return due to this distribution.

If you file an amended return before the IRS contacts you about the missing income, then it’s a qualified amended return, and you avoid $1,920 (20percent of $9,600) in audit penalties.

If you don’t file the amended return, and if the IRS contacts you about the missing income, the IRS will propose the $1,920 penalty. You may be able to request penalty relief, but you’ll have to make your case, and the facts may or may not be on your side.

In both circumstances, you’ll also pay interest on the $9,600 back to July 15, 2020 (the COVID-19-postponed 2019 Form 1040 due date). Of course, the earlier you pay the tax, the less interest you’ll accrue. You’ll pay less interest with a qualified amended return because you’re paying the tax sooner.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debtbusiness tax preparationbusiness entity creationbusiness 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!

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

Congress Reinstates Expired Tax Provisions—Some Back to 2018

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Congress let many tax provisions expire on December 31, 2017, making them dead for your already- filed 2018 tax returns.

In what has become much too common practice, Congress resurrected the dead provisions retroactively to January 1, 2018. That’s good news. The bad news is that we have to amend your tax returns in our Chicago south loop tax preparation office to make this work for you.

And you can relax when filing your 2019 and 2020 tax returns, because lawmakers extended the “extender” tax laws for both years. Thus, no worries until 2021—and even longer for a few extenders that received special treatment.

Back from the Dead

The big five tax breaks that most likely impact your Form 1040 are as follows:

  1. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
  2. Deduction for mortgage insurance premiums as residence interest
  3. 7.5 percent floor to deduct medical expenses (instead of 10 percent)
  4. Above-the-line tuition and fees deduction
  5. Nonbusiness energy property credit for energy-efficient improvements to your residence

Congress extended these five tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020, so you’re good for both 2019 and 2020.
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Other Provisions Revived

Congress also extended the following tax breaks retroactively to January 1, 2018, and they now expire on December 31, 2020 (unless otherwise noted):

  • Black lung disability trust fund tax
  • Indian employment credit
  • Railroad track maintenance credit (December 31, 2022)
  • Mine rescue team training credit
  • Certain racehorses as three-year depreciable property
  • Seven-year recovery period for motorsports entertainment complexes
  • Accelerated depreciation for business property on Indian reservations
  • Expensing rules for certain film, television, and theater productions
  • Empowerment zone tax incentives
  • American Samoa economic development credit
  • Biodiesel and renewable diesel credit (December 31, 2022)
  • Second-generation biofuel producer credit
  • Qualified fuel-cell motor vehicles
  • Alternative fuel-refueling property credit
  • Two-wheeled plug-in electric vehicle credit (December 31, 2021)
  • Credit for electricity produced from specific renewable resources
  • Production credit for Indian coal facilities
  • Energy-efficient homes credit
  • Special depreciation allowance for second-generation biofuel plant property
  • Energy-efficient commercial buildings deduction

Temporary Provisions Extended

Congress originally scheduled these provisions to end in 2019 and now extended them through 2020:

  • New markets tax credit
  • Paid family and medical leave credit
  • Work opportunity credit
  • Beer, wine, and distilled spirits reductions in certain excise taxes
  • Look-through rule for certain controlled foreign corporations
  • Health insurance coverage credit

If you have questions about the extenders, please call us at 855-743-5765. 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.

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

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