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It’s a new year, and in preparation for the Chicago small business tax preparation season, you can elect the de minimis safe harbor to expense assets costing $2,500 or less ($5,000 with audited financial statements or something similar).

The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if you properly abided by the rules of the safe harbor.

Here are four benefits of this safe harbor:

Safe harbor expensing is superior to Section 179 expensing because you don’t have the recapture period that can complicate your taxes.
Safe harbor expensing takes depreciation out of the equation.
Safe harbor expensing simplifies your tax and business records because you don’t have the assets cluttering your books.
The safe harbor does not reduce your overall ceiling on Section 179 expensing.

Here’s how the safe harbor works. Say you are a small business that elects the $2,500 ceiling for safe harbor expensing and you buy two desks costing $2,100 each. On the invoice, you see the quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup charge, for a total of $4,778.

Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778 ÷ 2) and then either Section 179 expensed or depreciated it. You would have kept the desks in your depreciation schedules until you disposed of them.

Now, with the safe harbor, you simply expense the desks as office supplies. This makes your tax life much easier.

To benefit from the safe harbor, you and I do a two-step process. It works like this:

Step 1. For safe harbor protection, you must have in place an accounting policy—at the beginning of the tax year—that requires expensing of an amount of your choosing, up to the $2,500 or $5,000 limit. We can help you with this.

Step 2. When we prepare your tax return, Howard Tax Prep LLC make the election on your tax return for you to use safe harbor expensing. This requires that I attach the election statement to your federal tax return and file that tax return by the due date (including extensions).

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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Family Taxes, General Information, General Tax Topics, Uncategorized

Tax Consequences of Paying Your Retired Parents To Watch Your Children

January 6, 2019January 6, 2019 Howard Tax Prep LLC

Author: Trudy M. Howard

QUESTION: Can I claim the money I pay my mom to watch my children after school? She is on S.S. and I would not want to impact her benefits as she is retired. I pay her $260 a week.

ANSWER: With the IRS most answers usually begin with “it depends” and this is one of those answers; it depends. There are several moving parts to this scenario that will determine the tax benefit/liability to you, and the tax benefit/liability to your mom. Tax liability is determined by figuring what location the child care is taking place in, your marital status, the age of the child, and your mom’s total income. It is unclear to me if you have a business, and you are wanting to “claim the money” as in deduct the total amounts paid from your taxable income as a business expense (which you cannot do), or if you want to “claim the money” for the dependent care credit. I’ll get into the dependent care credit later in the article, but for now, let’s start with is your mom an employee, or an independent contractor.

If your mom is doing the babysitting in your home, you may be considered a household employer, and you will NEED TO PAY EMPLOYER TAXES on the money that you paid to your mom. Employer taxes are Federal Unemployment taxes of 6% of the first $,7000 in wages, 6.2% for Social Security, and 1.45% for Medicare. However, as with everything concerning the IRS there is an exception to this rule. You do not have to count the wages paid for social security and Medicare taxes if:

The child is under 18 years of age, or has physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks, AND

You’re divorced and haven’t remarried.
You’re a widow or widower.
You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.

If your mom is watching your child outside of your home, (say you are dropping your child off to your mom), then your mom would be considered a “self-employed person” which means that she will need to pay self-employment taxes on her income. The reason she will need to pay report and pay self-employment taxes is because she would have earned over $400 in self-employment income.

TAXES MOM WILL HAVE TO PAY.

Because your mom is self-employed, she would have to pay SELF EMPLOYMENT TAXES in the amount of $1,591.20 (calculated using the 20% qualified business income deduction only, not with any business expense deductions), and if she has over $25,000 in income (social security income plus self-employment income), she may also have to pay INCOME TAXES on the earnings.

TAX BENEFIT TO YOU:

By paying your mom to watch your child, you may be eligible to claim the nonrefundable child and dependent care tax credit. The Child and dependent care tax credit ranges from 20%-35% of either $3,000 or $6,000 depending on your adjusted gross income. A qualifying individual for the child and dependent care credit is:

Your dependent qualifying child who is under age 13 when the care is provided.
Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year.
An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s 2018 return.

Once your AGI (adjusted gross income) is over $43,000 the max tax credit you will receive is $600 for 1 child, and $1,200 for 2 children. Each child must be under the age of 13. This credit is nonrefundable, so if you have a $0 tax liability & you receive the $600 credit, you would not receive a tax refund check for the $600.

CAN YOU DEDUCT THE TOTAL $13,520 FROM YOUR TAXABLE INCOME?

Per IRS PUBLICATION 926 The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You can’t deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

WILL THIS MONEY HAVE AN IMPACT ON YOUR MOM’S RETIREMENT BENEFITS?

There are several types of retirement income. Pension, 401k, IRA, Annuities, Social Security, SSI, Social Security Disability, Disability Payments from a Privately Owned Insurance Plan, etc. For purposes of this article I will be focusing on government sponsored retirement plans.

SOCIAL SECURITY RETIREMENT INCOME: –If your mom’s is unmarried, and her base income (including social security and all other income) is $25,000 or less, she will not have to pay any INCOME tax (remember income tax and self-employment taxes are two different taxes).

Per the benefits planner retirement section on the social security website, if your mom is at full retirement age she can earn as much as she wants, and have unlimited resources and still receive her benefits. However, if your mom is younger than full retirement age and makes more than the yearly earnings limit, her earnings may reduce her benefit amount.

“(Full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.) If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040.”

To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with

the total of:

One-half of your benefits, plus
All your other income, including tax-exempt interest

SOCIAL SECURITY DISABILITY: –This benefit is based on an inability to work, and work history. Per the disability section on the social security website: “Social Security Disability Insurance pays benefits to you and certain members of your family if you are “insured,” meaning that you worked long enough and paid Social Security taxes.” While there are limits on what a person can earn while on disability, they can receive help from outside sources and retain their benefits.

SSI–SOCIAL SECURITY SUPPLEMENTAL INCOME--The Supplemental Security Income (SSI) program pays benefits to disabled adults and children who have financial need, and limited income/resources. This benefit pays a small amount to those that are disabled, but don’t qualify for regular social security disability. The basic monthly SSI payment for 2019 is the same nationwide. It is:

—$771 for one person; or

—$1,157 for a couple.

Not everyone gets the same amount. You may get more if you live in a state that adds money to the federal SSI payment. You may receive less if you or your family has other income. Where and with whom you live also makes a difference in the amount of your SSI payment. SSI eligibility is based on a person’s access to money & assistance, (aka means, aka support, income, total household income), and per the SSA “Income is any item an individual receives in cash or in-kind that can be used to meet his or her need for food or shelter. Income also includes (for the purposes of SSI), the receipt of any item which can be applied, either directly or by sale or conversion, to meet basic needs of food or shelter.” Resources are limited to $2,000 for single people.
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.

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 Deductions, Uncategorized

12 Things You Must Ask Your Tax Preparer!

September 17, 2018January 23, 2019 Howard Tax Prep LLC

Author Trudy Howard

1.) Can I pay my fees out of my return?

This one question will give you insight into whether or not your preparer has passed the IRS & BANK CRIMINAL & CREDIT BACKGROUND CHECKS! If your tax return preparer only accepts cash (or cash equivalents such as PayPal, cash app, or even credit/debit cards), 9 times out of 10 you’re dealing with an unauthorized E-file provider. In order to offer clients, refund advances, and the ability to have their tax preparation fees deducted from their tax refund, a tax preparer (or the agency they work for) has to be approved by the IRS as an ERO (electronic return originator) that is authorized to send the IRS E-files. ERO providers have to pass background checks, credit checks, and suitability checks in order to become an authorized E-file provider.

2.) Do you screen your tax return preparers and assistants to see if they’ve ever been arrested for (or charged with) bank fraud, theft, identity theft, or any other criminal charges?

This is HUGE. During tax season I always see an increase in social media post referencing bank accounts that have been compromised, and identity theft issues. While your preparer may not be committing fraudulent acts, your preparer may have unknowingly hired a data entry assistant that is using/selling your information. Ask questions about the assistant, and find out if they’ve been background checked.

3.) Will my preparer sign my return, and do all of the preparers have a paid tax identification number?

I’ve seen HUNDREDS of tax returns in which consumers paid someone to prepare their returns, only to have the “tax return preparer” use Turbo Tax or some other software, and submit the tax return as a SELF PREPARED return without the return preparers signature. THIS IS A HUGE RED FLAG! Whenever you pay someone to prepare your tax return, that preparer needs to sign your return. Also, although YOU ARE RESPONSIBLE for what is on your tax return, some penalties can be waived if you can prove that you relied on the advice of a tax professional. **

4.) What safety measures do you have in place to protect my data (locked file cabinets, encrypted file sharing, etc.)?

This is self-explanatory.

5.) What are the minimum education and experience requirements for your preparers?

You don’t necessarily need a CPA, but you also don’t want someone that dropped out of the 8th grade.

6.) Do you have a special concentration (small business, truck drivers, realtors, salespeople etc.)?

Have you ever heard the term jack of all trades, master of none? Make sure that you get a tax preparer familiar with your industry as tax law, and deductions can vary based on profession. For example, a salesperson can’t take per diem, but an owner operator truck driver can.

7.) Do your preparers have any accounting experience?

There are 2 words that come to mind when thinking of why you want your tax preparer to have accounting knowledge/experience. Those two words are: depreciation, and basis.

8.) How many continuing education hours are your tax preparers required to meet? How often must they complete these continuing education requirements (yearly, every 3 years, etc.)?

Tax law changes often, so you want an agent that stays abreast of the new Federal, State, and county tax law changes.

9.) Are you and your agents listed on the IRS website under the
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications?

The IRS has an online directory that will let you know if the person you are dealing with is credentialed; use it.

10.) If I get audited can you represent me before the IRS?

Make sure that your preparer can represent you in front of IRS employees, and the tax payor advocate service.

11.) Are you open year round? What if I need help after April 15th?

You want to work with a tax firm that is open year round, and not just during tax season. Many “fly by night” operations come into town for tax season, submit fraudulent tax returns, and then disappear into the night just as quickly as they appeared.

12.) Do you offer tax planning services?

Tax preparation is the method of recording facts & reporting the facts to the IRS in proper format. Tax planning is the act of analyzing data & creating a plan of action to reduce tax liability. Tax planning requires that your tax preparer not only knows tax law, but also understands how to apply tax law.

*See Whitsett, T.C. Memo. 2017-100. Also see United States v. Boyle, 469 U.S. 241, 250 (1985))

Tag: senior taxes

What is the De Minimis safe harbor $2,500 Expensing ($5,000 with AFS)?

Tax Consequences of Paying Your Retired Parents To Watch Your Children

12 Things You Must Ask Your Tax Preparer!

Author Trudy Howard

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