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.

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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.

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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

Proprietors and Partners Mistakenly Pay Themselves Illegal W-2 Wages

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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.

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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.

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

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

adult chill computer connection

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:

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

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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:Schedule-button-nb

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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Business Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Deductions, Uncategorized, Vehicles

Commercial Fuel Card Without A Personal Guarantee.

gas card

Commercial Fuel Card

Gas Cards Without A Personal Guarantee

Would you like to free up some cash so that you can increase your marketing budget, purchase more supplies, or reward your employees? Have you heard about obtaining business credit without a personal guarantee, but haven’t been able to secure your own business credit? Are you a small business owner that has damaged personal credit? Have you been told that you can’t get business credit if you have bad personal credit? If any of these things apply to you, you’ve come to the right place!
To start, let us explain what a “personal guarantee is.” A personal guarantee means that the owners will be held personally liable for the debts of their business. Suppose you have a LLC Howard Tax Prep LLC has partnered with a national gas chain (comparable with Exon Mobil, Citgo, etc. with over 18,000 locations worldwide) to offer small business owners (being defined as businesses with revenues under 1 million dollars) fuel cards that report business payment history to Dunn and Brad Street, and Equifax every 30 days!
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Only verified businesses that are structured as a LLC, S-Corp, or C-Corp with a Dun and Brad Street number will qualify. Because this is not a publicly marketed program, your business must be verified, prior to receiving the name of the fuel company (but trust us, you can find a station near you).  

The best part about this offer? THE CARDS ARE ISSUED WITHOUT ANY PERSONAL LIABILITY TO THE OWNERS, & WITHOUT THE USE OF THE OWNERS PERSONAL CREDIT. If you need a truck driver fuel card, Uber driver fuel card, Lyft driver fuel card, or just a general small business owner fuel card, we can help! 

WHAT ARE THE DETAILS?

  • National fuel provider. Qualified businesses that are ready to move forward will be given the name of the fuel company prior to paying the 1 time $49.95 Howard Tax Prep LLC processing fee.
  • Minimum deposit of $200 for a $500 credit line is required.
  • Accounts are reviewed every quarter for credit line increases.
  • After 12 months of ON TIME PAYMENTS, your deposit will be returned.

WHAT ARE THE REQUIREMENTS?

  • Business Must Be Structured As A LLC, Corporation, or S-corporation.
  • Must have a BUSINESS CHECKING account.
  • Must Agree To Make ON-TIME Payments.
  • Deposit Payment Can Only Be Drafted From Business Checking account.

Who should use fuel cards?

Owner Operator Truck Driver

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Owner Operator Truck Drivers no longer have to use personal credit cards or cash profits to purchase fuel! Reduce driver fraud by setting fuel limits & restricting usage. Save on fuel cost, while building your business credit Paydex score.     

  • The principal or owner is not personally liable for any bad debt.
  • The account will be in the name of the business.
  • Helps to Establish & build business credit.
  • Account payment history reported to DnB and Equifax every 30 days.
  • Accepted at over 18,000 locations Worldwide.
  • Free online invoicing.
  • Activate new cards as needed.
  • Restrict cards with fuel only limits & purchase restrictions during non-business hours.
  • Save up to 6¢/gal* on fuel purchases at thousands of locations in the U.S.
  • Earn rebates on fuel at branded locations.

GET YOUR CARD NOW!

Small Business Owner

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Small business owners no more using your profits & personal credit cards to cover fuel cost. Use the cash you save and apply it toward marketing, inventory, and more! Save on fuel cost, while building your business credit Paydex score. 

  • The principal or owner is not personally liable for any bad debt.
  • The account will be in the name of the business.
  • Helps to Establish & build business credit.
  • Account payment history reported to DnB and Equifax every 30 days.
  • Accepted at over 18,000 locations Worldwide.
  • Free online invoicing.
  • Activate new cards as needed.
  • Restrict cards with fuel only limits & purchase restrictions during non-business hours.
  • Save up to 6¢/gal* on fuel purchases at thousands of locations in the U.S.
  • Earn rebates on fuel at branded locations.

GET YOUR CARD NOW! 

Uber & Lyft Driver

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Uber and Lyft Drivers that would like to build their business credit, and free up their cash flow. Use your additional cash flow for brake repairs, oil changes, and more! Save on fuel cost, while building your business credit Paydex score.  

  • The principal or owner is not personally liable for any bad debt.
  • The account will be in the name of the business.
  • Helps to Establish & build business credit.
  • Account payment history reported to DnB and Equifax every 30 days.
  • Accepted at over 18,000 locations Worldwide.
  • Free online invoicing.
  • Activate new cards as needed.
  • Restrict cards with fuel only limits & purchase restrictions during non-business hours.
  • Save up to 6¢/gal* on fuel purchases at thousands of locations in the U.S.
  • Earn rebates on fuel at branded locations.

 GET YOUR CARD NOW!  

How easy it to use the card?

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 1-2-3 Driver Instructions 

  • Swipe card
  • Enter driver ID when prompted (may also be call DIN or PIN)
  • Enter odometer reading when prompted
  • The principal or owner is not personally liable for any bad debt.
  • The account will be in the name of the business.
  • Helps to Establish & build business credit.
  • Account payment history reported to DnB and Equifax every 30 days.
  • Accepted at over 18,000 locations Worldwide.
  • Free online invoicing.
  • Activate new cards as needed.
  • Restrict cards with fuel only limits & purchase restrictions during non-business hours.
  • Save up to 6¢/gal* on fuel purchases at thousands of locations in the U.S.
  • Earn rebates on fuel at branded locations.

 GET YOUR CARD NOW!