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Congress Reinstates Expired Tax Provisions—Some Back to 2018

January 14, 2020 Howard Tax Prep LLC

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:

Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
Deduction for mortgage insurance premiums as residence interest
7.5 percent floor to deduct medical expenses (instead of 10 percent)
Above-the-line tuition and fees deduction
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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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.
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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, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Staying Out Of Trouble With “Gigs”

September 21, 2019September 21, 2019 Howard Tax Prep LLC

hustle led signage — Photo by Tnarg on Pexels.com

In our Chicago South Loop Tax Preparation office, we often help people with tax bills through our tax debt help services. After seeing so many get into tax trouble with their side gigs, we decided to give some pointers on how to stay out of trouble for those with side gigs.

Let me give you a scenario: You’ve got a great job, and you’re moonlighting as a graphics designer on a freelancer website. All your clients are paying you through PayPal & CashApp, and honestly, you’re cleaning up. An easy extra couple thousand dollars each month. How do you report that income?

Legally, you’re bound to report ANY income you have, but these days, with so many folks doing their side gigs, are you actually reporting it? There’s actually even a darker side to this, though, and it’s nothing really new. Tipped employees – those like servers and bartenders who have for years existed on tips from their customers, have had this challenge for decades. Legally, they, too, are required to report all their income. Do they?
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So what happens when you don’t report all of your income? You could get audited, if you earn over a certain amount the third party vendor can report your income to the IRs, but sometimes, the real place where not reporting your income can trip you up is… when you want FINANCE anything. In many cases, your ability to borrow money is based strongly not only on your repayment history, but also on your income. Guess where the bank or lender gets that information? Your tax returns, especially if you are a W2 employee.

Now, before you go and fall on your sword and claim every dime, understand there are a myriad of ways in which you can mitigate your tax bill even as you claim every dime you make. It could be by forming a S-corp, funding a retirement account, or shifting your income, starting a nonprofit, trust, or any one of a number of ways. As a result, though, especially if you create a so-called “pass-through” entity, you’ll have the ability to claim the income you’re legally responsible for AND make use of the deductions and protections afforded to these types of entities.

More importantly, it’s not expensive to set these up and the bookkeeping and tax preparation is very simple in such a small business. In the end, you’ll have the best of both worlds.

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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IRS PUBLISHES SUMMERTIME TAX TIPS.

July 22, 2019 Howard Tax Prep LLC

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.

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.

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.

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.

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

Proprietors and Partners Mistakenly Pay Themselves Illegal W-2 Wages

July 18, 2019April 18, 2022 Howard Tax Prep LLC

In our Chicago South Loop Tax Preparation office, we often see sole proprietors, single member LLC members, 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, single member LLC members, or partners.

To overcome getting shorted on the Section 199A deduction or being denied fringe benefits, some sole proprietors, single member LLC members, and partners instruct their payroll services to make them W-2 employees. When the payroll services do this, the proprietors, single member LLC members, and partners believe they are now legitimate employees of their proprietorships/disregarded entities (the IRS regards single member LLC’s as a sole proprietorship/disregarded entity for tax purposes), and partnerships. This belief is wrong; Totally wrong!

The sole proprietor/single member LLC member, may not be a W-2 employee of his or her sole proprietorship/disregarded entity UNLESS they have elected to have their single member LLC taxed as S-corp, or C-corp.
A partner may not be a W-2 employee of a partnership.
Some sole proprietors, single member LLC members, and partners have had their Certified Professional Employer Organization (CPEO) treat them as employees; this is also, wrong!
Using a CPEO does not create the possibility of paying a W-2 wage to a partner, single member LLC member, or a sole proprietor.

Takeaways

The sole proprietor, nor the single member LLC member is a W-2 employee of the proprietorship/disregarded entity. He or she is self-employed and operates under the IRS 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 viewed as a disregarded entity, and taxed as a sole proprietorship unless the member elects treatment as an S or a C corporation. Similarly, a multi member LLC is a partnership.

If you are looking to setup single member LLC payroll in Chicago, and learn how to pay yourself through your business, please look into our service of changing your LLC to be taxed as a S-Corp, or C-Corp.

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