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Ideas to Lower Your 2021 Tax Bill

Posted on August 16th, 2021

Now is the time to begin tax planning for your 2021 return. Here are some ideas:

Contribute to retirement accounts.

Tally up all your 2021 contributions to retirement accounts so far, and estimate how much more you can stash away between now and December 31. So consider investing in an IRA or increase your contributions to your employer-provided retirement plans. Remember, you can reduce your 2021 taxable income by as much as $19,500 by contributing to a retirement account such as a 401(k). If you’re age 50 or older, you can reduce your taxable income by up to $26,000!

Contribute directly to a charity.

If you don’t have enough qualified expenses in order to itemize your deductions, you can still donate to your favorite charity and cut your tax bill. For 2021, you can reduce your taxable income by up to $300 if you’re single and $600 if you’re married by donating to your favorite charity.

Increase daycare expenses.

If you and/or your spouse work and have children in daycare, or have an adult that you care for, consider using a daycare so you and a spouse can both work. This is because there is a larger tax break in 2021. If you have one qualifying dependent, you can spend up to $8,000 in daycare expenses while cutting your tax bill by $4,000. If you have more than one qualifying dependent, you can spend up to $16,000 in daycare expenses while cutting your tax bill by $8,000. To receive the full tax credit, your adjusted gross income must not exceed $125,000.

Contribute to an FSA or an HSA.

Interested in paying medical and dental expenses with pre-tax dollars? Then read on…If you have a flexible spending account (FSA), you can contribute up to $2,750 in 2021. This allows you to pay for medical expenses in pre-tax dollars! Even better, unspent funds in an FSA can now be rolled from 2021 to 2022. And if you have a health savings account (HSA), you can contribute up to $3,600 if you’re single and $7,200 if you’re married. So add up all your contributions to your FSA or HSA so far in 2021 and see how much more you can contribute between now and December 31.

Please call to discuss these and other tax planning opportunities.


Manage Your Business’s Unemployment Taxes

Posted on August 9th, 2021

As a business owner, you’re required to pay two different types of unemployment taxes (FUTA & SUTA).

FUTA (Federal Unemployment Tax Act)
Employers pay this federal tax to provide unemployment benefits to laid-off workers.

SUTA (State Unemployment Tax Act)
State governments also collect taxes known as SUTA that finance each state’s unemployment insurance fund.

How FUTA and SUTA taxes are calculated

The FUTA calculation. The federal unemployment tax rate is 6% on the first $7,000 of each employee’s income, regardless of where the company does business. In addition, employers who pay their state’s SUTA taxes on time can receive a maximum credit of 5.4%, reducing the FUTA rate to 0.6%. 

SUTA taxes are more complicated. Tax rates and taxable thresholds (known as wage bases) vary from state to state, industry to industry, and business to business. Other factors affecting SUTA tax liability include the firm’s history of on-time payments to the state insurance fund and the number of former employees receiving unemployment benefits.

How to reduce your SUTA and FUTA tax bills

  • Hire cautiously. If you employ someone who doesn’t work out, you could end up with additional unemployment claims and a higher SUTA tax rate.
  • Train vigorously. To increase productivity and reduce turnover, target your investment in continuing education. Keep employees happy and loyal. Again, high turnover leads to unemployment claims, which leads to bigger SUTA tax bills.
  • Terminate judiciously. If you must reduce personnel, consider offering severance or outplacement benefits to terminated employees. The sooner they return to the job market, the fewer the unemployment claims that will be factored into your company’s SUTA tax calculation.
  • Dispute carefully. Take the time to verify the accuracy of unemployment claims, as bogus representations by former workers can drive up your SUTA taxes. If an employee was fired for gross misconduct and thus disqualifying himself or herself from collecting unemployment, have strong documentation to support the termination.
  • Pay regularly. Under federal guidelines, employers who make their SUTA contributions on time can reduce the amount of FUTA taxes by up to 90%.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.


Common Tax Mistakes When Selling a Home

Posted on July 19th, 2021

With home sales booming throughout much of the country, you may decide that now’s the right time to put your abode on the market. If you do put your primary residence up for sale, try to steer clear of the following mistakes.

Not qualifying for the home sale exclusion. If you’ve owned and used your home as your principal residence at least two out of the last five years, you can can exclude from your taxable income the first $250,000 of gain if you’re single and $500,000 if you’re married.

What you can do: Consider a delay of selling your home until you meet the 2-out-of-5 year threshold. If you can’t qualify for a full exclusion, you may qualify for a partial exclusion if your sale results from an employment change, a need for medical care or other IRS-approved circumstances.

Forgetting to deduct points. If you have points from your current mortgage that you haven’t deducted on a previous tax return, include the balance of these points on your next tax return. Too many taxpayers forget to do this and lose thousands in deductions.

What you can do: Review your loan documents before selling your property. Identify all costs, including points, that are included in the loan. Save the document with your tax records to ensure the deduction is not forgotten

Not double checking your settlement statement. Closely review the closing statement. It is easy to assume all the numbers are correct and the math is done right. Often this is not the case! And a mistake here could be costly.

What you can do: Review the closing document multiple times. Have your Realtor and closing agent explain items you don’t understand. Pay special attention to property taxes. The property tax bill will be allocated between the seller and the buyer. Only pay the share of the bill that covers the time period when you’re the owner.

Selling a home is full of tax implications. Since selling a home is not an everyday occurrence, it is easy to make a mistake. So if you need help with these or any other tax questions surrounding the sale of your house, please call…before you sell!

If you have any tax questions and would like to make an appointment, please call our office at 904-351-0195.


How to Roll with a Continuous 12-Month Forecast

Posted on July 5th, 2021

Tax and financial planning is a year-round proposition. In fact, both you individually, and your business can benefit from a continuous, 12-month rolling forecast.

So what is a rolling forecast? Rolling forecasts let you continuously plan with a constant number of periods 12 months into the future. For example, on January 1, you would plan what your financial picture looks like each month through January 1 of the following year. When February 1 rolls around, you would then drop the beginning month and add a forecast month at the end of the 12-month period. In this case, you add February of the next year into your 12-month forecast. The month you add at the end of the 12 months uses the finished month as a starting point. You then make adjustments based on what you think might happen one year from now. For example, if you know you are going to get a raise at the end of the year, your next-year February forecast would reflect this change. 

How to Take Advantage of a Rolling Forecast 

By doing tax and financial planning in rolling 12-month increments, you may find yourself in position to cash in on tax and money saving opportunities within the next 12 months. Here are several strategies to consider, such as planning your personal budget, planning healthcare expenses, planning contributions to a Health Savings Account (HSA), and even planning for future retirement expenses. While initially setting up a rolling 12-month forecast can be a bit of a pain, once established, it is pretty easy to keep up-to-date as you are simply rolling forward last month into the future. A well-planned system can often be the first sign of future challenges or potential windfalls!

Contact us at 904-351-0195 if you have tax questions and would like to make an appointment.


Hire your Kids for Tax Savings

Posted on June 28th, 2021

Summer’s almost here, and soon most children will be on their long-awaited summer vacation. If you own or manage a business, have you thought of hiring your children, nieces, or nephews for a summer job?

If you do it right, it can be a win-win situation for everyone. The kids will earn some money and gain valuable real-life experience in the workplace while your business will have some extra help during summer months when other staff may be on vacation. If it’s a family business, there might even be some tax advantages as well. If your child is doing a valid job and the pay is reasonable for the work, your business can generally claim a normal tax expense for wages paid. Your child will probably pay no or very little income tax on the wages they earned. And if the child is under age 18 and your business is unincorporated, neither your child nor your business will have to pay Social Security or Medicare payroll taxes in most cases.

To help make the arrangement work, here’s some basic guidelines: 

Ensure it’s a real job. It could be a simple job, such as office filing, packing orders, or simple production activities. But it needs to be an actual job. 

Treat your child like any other employee. Expect your child to work regular hours and exhibit appropriate behavior. Don’t show favoritism or you risk upsetting regular employees. 

Keep proper documentation. Keep records of hours worked just as you would for any employee. If possible, pay your child using your normal payroll system and procedures. 

Avoid family disputes. If the arrangement is not working, or is disrupting the business, help your child find a summer job at another business.

Contact us at 904-351-0195 if you would like to make an appointment.


Know This Number!

Posted on June 21st, 2021

There is a number that every small business owner should know, and that’s your net worth! This number is commonly used by banks, mortgage companies, insurance companies and even by you yourself! It can impact your credit score, taxes, loans, and insurance. 

So, what is your net worth? 

Net worth is the result of taking all the things you own (assets) minus what you owe others (debts and liabilities). Assets include cash, bank account balances, investments, your home, vehicles or anything else that you could sell today for cash. Assets also include any businesses or business interests you own. Liabilities, on the other hand, are what you owe others, such as a mortgage or car loan, and any other debt, like credit card or student loan debt. Your net worth changes over time, reflecting how you spend your money. For example, if you have tons of bills and spend more than you bring in, your bank account balances will be lower. If you spend a lot on your credit cards, your debt will go up. The net effect of this is a lower net worth.

Knowing your net worth contributes to the big picture of your financial circumstance. Whether you’re applying for student loans, attempting to acquire insurance, diversifying investments, or even buying property, knowing your net worth and how to calculate it can help you achieve some of your financial goals.

If you have financial questions and would like to make an appointment, please contact us at 904-351-0195.


Tax History Trivia!

Posted on June 14th, 2021

In 1861, President Abraham Lincoln enacted a flat tax on wages above $800 to help pay for the Civil War. What was the tax rate?

  • 3%
  • 5%
  • 12%
  • 17%

ANSWER: 3%. Even though Lincoln enacted this 3% tax, the Federal government did not have an effective way to collect the tax at the time. The result? The tax fell far short of its projected revenue goals. Thankfully, the government now makes tax law changes with plenty of time to implement the change…oh, maybe not so much has changed after all!


In what year did taxes start being withheld from paychecks?

  • 1924
  • 1937
  • 1943
  • 1951

ANSWER: 1943. In a need to drum up some cash for a war, the government started requiring taxes to be withheld directly from paychecks rather than waiting for quarterly or annual payments.


The estate tax, which may apply to your assets after you pass away, was originally enacted in 1797 to fund which branch of the U.S. Military?

  • Army
  • Navy
  • Air Force
  • Marines

ANSWER: Navy. It was repealed in 1802, but later returned to help fund the Civil War.


The United States has a progressive income tax system, with your first dollar of earnings being tax-free and your last dollar earned being taxed as high as 37%. What was the highest tax rate when the progressive income tax system was first introduced in 1913?

  • 5%
  • 7%
  • 12%
  • 24%

ANSWER: 7%. Hard to believe the federal government did not seem to need more taxes than this. The top tax rate did jump, however, to 77% five years later during World War I. The top individual income tax rate for 2021 is 37%.


How many pages of instructions were needed for the first Form 1040 in 1913?

  • 5
  • 21
  • 13
  • 1

ANSWER: 1. Speaking of added complexity, the basic Form 1040 instructions for the 2020 tax year has 111 pages.

Contact us at 904-351-0195 if you have tax questions and would like to make an appointment.


Most, but not all, of your Income is Subject to Tax

Posted on June 7th, 2021

Income subject to tax
  • While your paycheck is subject to tax, interest earned from certain municipal bonds is not. And the government often excludes things like benefits from the tax man.
  • Capital gains taxes have exclusions for gains on the sale of your home and donated stock.
  • Estate taxes have an exclusion, so only estates in excess of the exclusion are taxed.

This is why having someone in the know can be really helpful in navigating these rules.

The progressive nature of income tax

When it comes to income taxes, the government gets to take the first bite. The question is how BIG of a bite the government gets to take.

For example, if you only have one chocolate chip cookie, the government’s bite is really, really small. If you have 1,000 chocolate chip cookies, the government takes a small bite from the first 100 cookies, a larger bite from the next 100 cookies, and an even larger bite from the remaining 800 cookies.

This is called a progressive tax rate system. For example, if you’re considered single for tax purposes in 2021, the first $9,950 of taxable money you earn gets taxed at 10%. The next $30,575 you earn gets taxed at 12%. The next $45,850 gets taxed at 22%. Money you earn above this point will get taxed at either 24%, 32%, 35% or 37%.

Understanding the progressive nature of our tax system is a key concept in managing the size of the bite the government takes. That is why tax planning is so important!

Deductions can decrease the government’s tax bite

The progressive tax system is complex because it is manipulated in a big way by our elected officials. This is typically done through credits, deductions and phaseouts of tax benefits.

For example, there is a fairly complex deduction for families with children, and the earned income tax credit is an added tax cut for those in the lower end of the progressive income tax base. There are also credits and deductions for businesses, homeowners, education and many more types of taxpayers.

As you can imagine, the U.S. tax system is very complex with many nuances. Please seek help if you have further questions or are facing a complicated taxable transaction.

If you have tax questions and would like to make an appointment, please contact us at 904-351-0195.


Taxes: These Basics are for Everyone

Posted on May 31st, 2021

Understanding how our tax system works can be tricky for anyone. Whether you’re an adult who never paid much attention to the taxes being withheld from your paycheck or a kid who just got his or her first job, understanding the basics can help refine and define questions you may have.

Many schools do not teach these tax lessons. This results in many people entering life with a pretty incomplete picture of how taxes work, unless someone else takes the time to explain these tax concepts. Here are some pointers to help you or someone you know navigate our tax maze.

Taxes are mandatory!

While we can have a debate about how much each person should pay, there is no debating that local, state and federal governments need tax revenue to run the country. These funds are used to build roads, support education, help those who need financial assistance, pay interest on our national debt and defend the country.

There are many types of taxes

When you think of taxes, most think of the income tax, which is a tax on business and personal income you earn from performing a job. But there are also other types of taxes. Here are some of the most common.

  • Payroll taxes. While income taxes can be used to pay for pretty much anything the government needs money for, payroll taxes are earmarked to pay for Social Security and Medicare benefits.
  • Property taxes. These are taxes levied on property you own. The most common example of this is the property tax on a home or vacation property.
  • Sales tax. These are taxes placed on goods and services you purchase. While most of this tax is applied at the state and local levels, there are also federal sales taxes on items like gasoline.
  • Capital gains taxes. If you sell an investment or an asset for a profit, you may owe capital gains taxes. The most common example of this is when you sell stock for a gain. Capital gains taxes could also come into play with other assets, such as a rental property you sell for a profit.
  • Estate taxes. This tax is applied to assets in your estate after you pass away.

Contact us at 904-351-0195 if you have tax questions and would like to make an appointment.


Building a Fortress Balance Sheet

Posted on May 24th, 2021

Fortress Balance Sheet

Building a Fortress Balance Sheet

The best way to weather a storm is often by being prepared before the storm hits. In the case of small businesses, this means building a fortress balance sheet.

What is a fortress balance sheet? 

This long-standing idea means taking steps to make your balance sheet shockproof by building liquidity. Like a frontier outpost or an ancient walled city, businesses that prepare for a siege—in the form of a recession, natural disaster, pandemic, or adverse regulatory change—can often hold out until the crisis passes or the cavalry arrives.

Building a fortress balance sheet is not just a good idea for mitigating risk. Healthy cash reserves can also enable your firm to capitalize on opportunities, expand locations, or introduce new products.

Consider these suggestions for building your own fortress balance sheet.

Control inventory and receivables.

These two asset accounts often directly impact cash reserves. For example, carrying excess inventories can deplete cash because the company must continue to insure, store, and manage items that are not generating a profit. Also take a hard look at customer payment trends. Clients who are behind on payments can squeeze a firm’s cash flow quickly, especially if they purchase significant levels of goods and services—and then fail to pay.

Keep a tight rein on debt. 

In general, a company should use debt financing for capital items such as plant and equipment, computers, and fixtures that will be used for several years. By incurring debt for such items, especially when interest rates are low, a firm can direct more cash towards day-to-day operations and new opportunities. Two rules of thumb for taking on debt are don’t borrow more than 75 percent of what an asset is worth and aim for loan terms that don’t exceed the useful life of the underlying asset. A fortress balance sheet also means that debt as a percent of equity should be as low as possible. So, total up your debt, equity and retained earnings. If debt is less than 50% of the total, you are on your way to building a stronger foundation for your balance sheet.

Monitor credit.

A strong relationship with your banker can help keep the business afloat if the economy takes a nosedive. Monitor your business credit rating regularly and investigate all questionable transactions that appear on your credit report. As with personal credit, your business credit score will climb as the firm makes good on its obligations.

Reconcile balance sheet accounts monthly.

It is crucial to reconcile asset and liability accounts every month. A well-supported balance sheet can guide decisions about cash reserves, debt financing, inventory management, receivables, payables, and property. Regular monitoring can highlight vulnerabilities in your fortress, providing time for corrective action.

Get rid of non-performing assets.

Maybe you own a store across town that is losing money or have a warehouse with a lot of obsolete inventory. Consider getting rid of these and other useless assets in exchange for cash.

Calculate ratios.

Know how your bank calculates the lending strength of businesses. Then calculate them for your own business. For example, banks want to know your debt service coverage. Do you have enough cash to adequately handle principal and interest payments? Now work your cash flow to provide plenty of room to service this debt AND any future debt! But do not forget other ratios like liquidity and working capital ratios. The key? Improve these ratios over time.

Remember,  the best time to get money from a bank is when it looks like you do not need it. You do this by creating a fortress balance sheet!

Contact us at 904-351-0195 if you have questions and would like to make an appointment.


Income the IRS Can’t Touch

Posted on May 17th, 2021

Wouldn’t it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Here are several types of income that the IRS does not tax.

Tax-Free Interest 

The federal government does not tax municipal bond interest. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition.

Health Insurance Premiums

Most health insurance premiums are tax free (for now). This could change in the future to help pay for health care reform, but for most people this benefit can currently be paid using pre-tax dollars.

Income from Roth IRA and Roth 401(k) Accounts

While the amounts contributed into these retirement savings accounts are taxed, any earnings made on the contributions are tax free for federal income tax purposes as long as holding period and distribution rules are followed.

Health Savings Accounts (HSA)

Contributions are deductible while earnings are tax free as long as disbursements from the account are used to pay for qualified health care expenses.

Child Support Received

Child support income you receive is free from federal tax.

Car Pool Revenue

While commuting expenses are not generally deductible, any reimbursement of your commuting expenses by fellow passengers is not reportable as income.

Home Sale Gains

Up to $250,000 ($500,000 for married filing jointly) of capital gains on a sale of your principal residence can be tax free.

Up to 14 days of Rental Income

If you rent out your home or vacation property, up to 14 days of this rental income each year can be tax free.

Certain Employer Compensation

In addition to health care premiums, there are a number of employee benefits that are not taxable. All have limits, but every tax-free dollar is money in your pocket.

Remember, when you pay for something in pre-tax dollars, it’s like giving yourself a raise. Take advantage of as many tax-free income opportunities as possible.

Contact us at 904-351-0195 if you have tax questions and would like to make an appointment.


Yikes! You Have a Large Refund

Posted on May 10th, 2021

Good News That Is Sometimes Not So Good

For some reason, some believe it is better to receive than give when it comes to filing taxes. While that may help your savings account, it is not always a great idea. Here’s why.

You are giving the IRS an interest-free loan. Granted, interest rates are pretty low, but every dollar you earn money on, is one more dollar of yours and one less of Uncle Sam’s.

Debt costs a lot. While interest on savings is low, the same is not necessarily true for credit card and other forms of debt. Why not lower your withholdings throughout the year and use the extra money to pay down your debt?

IRS identity theft is common. The longer you have your money in the hands of the IRS, the higher the chance some unsavory character is going to try to get it for themselves. Should this happen to you, the IRS will fix the problem…eventually. In the meantime, there is paperwork and tons of hurdles to overcome while your refund is delayed.

You could fund something else. Instead of money being parked at the IRS, you could be investing in your retirement or funding a Health Savings Account to pay for medical expenses in pre-tax dollars! So in addition to saving money in interest, you could actually be lowering your tax bill!

Let’s face it. Sometimes knowing you get a refund versus a tax bill is less stressful. But, for the savvy taxpayer you can accomplish both!

Contact our office at 904-351-0195 if you would like to make an appointment or have any questions.


Defending Fair Market Value

Posted on May 3rd, 2021

Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.

Source: IRS Publication 561

This is the standard the IRS uses to determine if an item sold or donated by you is valued correctly for income tax purposes. It is a definition that is open to interpretation and if the IRS decides your FMV opinion is wrong, you are not only subject to more taxes, but also penalties to boot.

Here are some tips to help defend your FMV in case of an audit.

Understand When It Is Used

FMV is used whenever an item is bought, sold, or donated that has tax consequences. The most common examples are:

  • Buying or selling your home or other real estate
  • Buying or selling personal property
  • Buying or selling business property
  • Establishing values of other business assets like inventory
  • Valuing charitable donations of personal goods and property like automobiles
  • Valuing bartering of services
  • Valuing transfer of business ownership
  • Valuing the assets in an estate of a deceased taxpayer

Ideas to Defend Your FMV Determination

To help defend your FMV determinations, consider the following:

  • Properly document donations.
  • Donate capital items like automobiles to the correct places. 
  • Get an appraisal. 
  • Keep copies of similar items and transactions. 
  • Take photos. 
  • Keep good records. 

With proper planning, establishing the fair market value of an item sold or donated can be done in a way that can be defended against a challenge from the IRS.

As always, should you have any questions or concerns please feel free to call at 904-351-0195.


Oops! I Wish I Knew That.

Posted on April 26th, 2021

Couple at computer

Six tax topics that seem innocent but can cause problems if not handled correctly.

1. Gambling winnings. If you receive a tax form at a casino for your winnings, that information is sent to the tax authorities. Since the form typically only contains the amount you won, save copies and records of any gambling losses.

2. Maturing CDs. Be careful with maturing CD’s in a retirement account that are rolled over into new CDs. Your financial institution may provide you with tax forms showing the distribution, but not the rollover. You will need to account for this on your tax return. In this case, there is not a taxable event, but the IRS may think there is!

3. Retirement distributions. Make note of any distributions from your retirement accounts and note the type of account. You should receive informational 1099’s for the distributions. Depending on your age and the type of retirement account, a number of tax surprises could occur if not properly recorded. This includes early withdrawal penalties, potential required minimum distribution penalties, and income tax on the withdrawals. Remember that required minimum distributions are not required in 2020. The early withdrawal penalty is also waived in 2020.

4. Gifts over $15,000. If you provide gifts in excess of $15,000 ($30,000 for a couple) to any one person during the year, you must fill out a gift tax return.

5. Contemporaneous documentation. The time to put together proper documentation to support your deductions is when the activity takes place. For example, if you misplace a receipt for a charitable donation, you can go back to the organization and ask for a copy of the “old receipt,” but a new receipt to replace the one you lost is not valid documentation. Common areas where this is important are charitable contributions, mileage logs, and other itemized deductions.

6. Unemployment income. Unless specifically excluded by the federal government, unemployment income is taxable. Many taxpayers become surprised by an unwanted tax bill if federal withholdings are not taken out of these payments.

If you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


Businesses Get More Time to Apply For PPP Loans

Posted on April 20th, 2021

Legislation Provides Other Business Relief Provisions

Here’s what you need to know about the Paycheck Protection Program (PPP) loans and other business relief provisions of the recently passed American Rescue Plan Act.

PPP loan application deadline extended. The deadline to apply for PPP loans is now May 31, 2021.

Big increase in Employee Retention Credit.

  • Businesses can get up to a $28,000 tax credit per employee in 2021, up from a $5,000 maximum credit in 2020. This credit can be claimed through Dec. 31, 2021.

Sick leave extended. If your business provides sick leave for COVID-related reasons, you might get reimbursed for the sick pay through a tax credit.

  • Businesses which voluntarily provide sick leave through September 30, 2021 qualify for the credit. There are limits for each employee. However, for employees who took 10 days of sick leave in 2020 using this same provision, they can take another 10 days beginning April 1, 2021.
  • Refundable tax credits are available through September 30, 2021.
  • Covered reasons to get the tax credit now include sick leave taken to get COVID testing and vaccination, and to recover from the vaccination.
  • These benefits are also extended to self-employed workers.

Family Medical Leave Act Provisions extended.

  • Additional coverage is now available through September 30, 2021.
  • Qualified wages for this provision move to $12,000 (up from $10,000) however the credit was not increased.
  • The Family Medical Leave Act also applies to the self-employed.

There are many more provisions in the close to $2 trillion dollar spending package, including money given to states. As everyone digests this new 500-plus page piece of legislation, more clarifications will be forthcoming from the IRS and other sources.

Contact our office at 904-351-0195 if you would like to make an appointment or have any questions.


The $24,000 Tax Time Bomb

Posted on April 12th, 2021

A Terrible Tax Surprise Everyone Should Know

What follows is a true story. A story with a sad ending, but one that has a lesson for everyone. Stick with the story, with a high degree of certainty you probably know someone in this exact situation.

The Ingredients

Back in the 1970s, U.S. Savings Bonds were a popular savings alternative. Grand parents purchased them for kid’s college. Many used them to build funds for retirement. Even better, you paid ½ the face value and later (usually 20 years) the bonds matured at twice what you paid for them. So a $1,000 investment yielded $2,000 when it reached maturity. In our case, this tax bomb had the following ingredients:

  • Converted old Series E savings bonds with deferred interest;
  • Series HH savings bonds with annual taxable interest;
  • Owning un-cashed savings bonds that no longer earn interest;
  • Little help from the bank; and
  • Confusing information from federal tax authorities about impending tax obligations.

The Bomb Is Set

Joe purchased Series E saving bonds each year in the 1970s. With half down and promise of double value upon maturity, Joe amassed a nice $140,000 retirement fund. After 20 years the bonds matured. Joe did not yet need the money, so he converted them to Series H savings bonds. This effectively deferred the interest income on the Series E bonds since the bonds were not cashed.

With the new Series H savings bonds, Joe paid federal income tax each year on the interest earned. Meanwhile the taxable interest from the series E bonds continued to be deferred.

The result? Joe thought he was paying tax on the interest each year…BUT there was a sleeping tax bill on interest of $70,000 just waiting until Joe cashed in his series H bonds!

The Bomb Explodes

Joe received word that his series H bonds would no longer pay interest. So he tells his grandson to go to a bank and cash in the bonds. Heck, why have bonds that no longer pay interest? And…it’s no big tax deal because he has been paying tax on his Series H bond interest each year. The grandson has financial power of attorney so he does as his grandfather asks. Surprise! He receives a notice from the IRS saying he owes them $24,000! This includes plenty of penalties and tax.

Lessons for All of Us

  • Never disregard 1099s or printed details. When the grandson cashed the bonds, if he looked closely on the face of the bonds, he may have noticed the deferred interest. But it would contradict what grandpa had told him. Further, his grandpa probably received a Form 1099 that was disregarded because he believed he was already paying the tax.
  • Old savings bonds can be confusing. There are many different issues and flavors of savings bonds. When you see any uncashed bonds, conduct the necessary research to understand your potential obligations. This is especially true for bonds past their maturity date.
  • Ask before you sell. Always understand the tax consequences BEFORE you sell any property. Even the most innocent of transactions can have their own tax time bomb. So call an expert before you buy or sell.
  • Tax planning matters. While Joe would always owe federal income tax when he cashed the bonds, he could have reduced his effective tax rate by cashing them over time instead of all in one year. In this case, it exposed a lot of income to a much higher tax rate. He could have saved over $10,000 in tax with a little planning!

Because neither the bank nor federal taxing authorities believe it is part of their duty to help you make knowledgeable tax decisions, you are on your own. This one-way street of knowledge makes having an expert on your side more important than ever!

Please contact us if you have any tax questions and would like to schedule an appointment.


Get Your Contractor or Employee Classification Right

Posted on April 5th, 2021

Tax challenges can be VERY expensive.

As a small business owner, you may face the issue of whether to classify workers as employees or as independent contractors.

Classifying your workers as independent contractors generally saves you money. That’s because you avoid paying employment taxes and benefits on their behalf.

If the IRS determines that you misclassified your employees as contractors, you could end up paying all of the employment taxes and benefits that would have been paid over the years. Depending on the size of your work force, the cost to your business could be substantial.

In determining whether the person providing a service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. There are three primary categories of control and independence that the IRS considers when determining if a worker is a contractor or an employee:

  • Behavioral. Does the company control or have the right to control what the worker does and how the worker does his or her job? If yes, the worker is an employee.
  • Financial. Are the business aspects of the worker’s job controlled by the payer? This includes things like how the worker is paid, whether expenses are reimbursed and whether the employer provides tools and supplies. If yes, the worker is an employee.
  • Type of relationship. Are there written contracts or employee-type benefits? A written contract does not assure contractor status. The IRS will look to your books for employee type benefits such as a pension plan, insurance, and vacation pay.

Deciding whether a worker is a contractor or employee can get complicated. And remember that there are significant financial consequences for incorrectly classifying a worker. Please call if you have a question about how to classify one or more of your employees.

Contact our office at 904-351-0195 if you have questions or would like to make an appointment.


American Rescue Plan Act

Posted on March 29th, 2021

While the COVID-19 pandemic is finally slowing down, the economic damage that it caused lingers on. In order to relieve the financial burdens facing many taxpayers and accelerate recovery, Congress has passed the American Rescue Plan Act (the Act). The Act is a $1.9 trillion relief package that will affect millions of individuals and businesses.

Two of the Act’s key tax provisions affecting business are as follows:

Modification of Exceptions for Reporting of Third Party Network Transactions

The Act lowers the threshold for the dollar amount of sales that will cause a payment processor to send a Form 1099K to a seller. Previously, the threshold was $20,000 in gross receipts when collected in over 200 transactions. After 2021, that threshold is $600. This means that if you sell online or process cards, you will be receiving a 1099k for your sales amount from each processor. And if you process cards under one company name for several related entities, then the accounting and tax reporting just got complicated.

Preferential Treatment of EIDL and Restaurant Revitalization Grants

The Act provides that these grants are not includible in the recipient’s income on a federal level. State taxation does not follow federal in some states; therefore, you should contact your tax expert for clarification.

Contact our office at 904-351-0195 if you have questions or would like to make an appointment.


Starting a Business Now Could Make a Lot of Sense

Posted on March 22nd, 2021

Entrepreneur

The same factors that we’ve been dealing with for the past 12 months during the pandemic can also create an opportunity if you are considering starting a small business.

Problems Create Opportunity

For one thing, fewer businesses in the marketplace can mean fewer potential competitors. For a start-up company, that can be good news.Also, a slower economy can mean cheaper prices for certain goods and services you’ll need to get up and running. As companies close branch offices, they may be willing to sell office equipment, furniture, electronics, and other items at discounted rates. Commercial property managers have tons of empty space with no rent income. They may be willing to cut you a deal.Skilled labor is also more readily available in a slow or uncertain economy. With today’s employment outlook, skilled workers may be willing to take lower salaries, at least for now. As your business prospers, you may be able to ramp up salaries and offer other benefits.

Some Time-Tested Suggestions

If you’re thinking about starting a small business now while the short-term economic outlook is still slow or uncertain, here are some time-tested suggestions:

  • Start small. Test the market for your product or service without risking too many resources. This could be as simple as a concept test that you share with a few prospective customers. Or it might be creating a pop-up restaurant with pick-up or delivery only. Not only does this approach take less money, it also develops a proven business model you can then present to bankers to possibly obtain more funding when you wish to expand. So consider taking it slow and letting it build.
  • Under promise and over deliver. With customers hard to come by in some industries, consider wowing your customers even more than you normally do to try and quickly gain their loyalty. Remember, success is not always defined by what you do or make, but how well you do it!
  • Seek advice. Find other small business owners and pick their brains for suggestions about overcoming obstacles, keeping the business focused, and prospering during hard times.
  • Look for jump starts. Sometimes there is a similar business that could use your help or is willing to sell at a reasonable price. Starting out with a book of business and systems already in place can save a substantial amount of time and money.
  • Create a plan. Start with a feasibility study of your idea and then translate that into a well-developed introductory plan. This review and road map will help you succeed when starting your business.
  • Build a team. Successful businesses have great accountants, legal advisors, and trusted suppliers. Start networking to build your team. You’ll need your team both in the short-term as you start your business and in the long-term as you look to grow your business.

    Please call if you’d like additional suggestions for getting your business started.


When “Family” Is More Than Family

Posted on March 15th, 2021

Did you know that hiring your family members in your business could affect your upcoming tax plans? For instance, if your children are your employees, then they may induce a minimal amount of income tax. Spouses, siblings, and further family members have unique tax laws regarding their employment as well. Our firm can help you understand the benefits and costs of using family members as employees and give you the best chance of financial success.

Please feel free to call us at 904-351-0195 to schedule a conference.


Organizing for Success

Posted on March 8th, 2021

Binders

Organizing and documenting your business transactions is a key element to success. Without proper policies, procedures, and tax planning, your business could be blindsided by unforeseen IRS liabilities. Conversely, being aware of current tax incentives, practicing proper organization, and ensuring proper record-keeping can all help your business navigate its way to success. Need help keeping everything in order and planning for unforeseen tax hurdles? Contact our office today to set up an appointment.


You’ve Got Mail!

Posted on March 1st, 2021

Mail

Notice Mailed to Address Shared with Other Businesses Started 30-day Filing Deadline

Do you have upcoming IRS Tax Notice deadlines? If so, you could be affected by a recent tax court action. The Tax Court has held that an IRS Notice of Intent to Levy that was mailed to a taxpayer’s actual (and last known) address by certified mail, return receipt requested, started the running of the 30-day period under Code Sec. 6330(a)(2).

Multiple businesses shared the taxpayer’s address. The USPS carrier left the notice at that address with a person who was neither the taxpayer’s employee nor authorized to receive mail on the taxpayer’s behalf. This is a simple reminder that, obviously, Certified Mail from the IRS should never be ignored, regardless of the situation.


Pandemic & Unexpected Taxes

Posted on February 22nd, 2021

The recent pandemic has changed many aspects of our daily lives. But it is not just your schedule that Covid-19 might be changing! For instance, you may find yourself with unusual profits and losses, as well as new and unusual taxes regarding unemployment and side jobs. We are prepared to help you navigate these changes to ensure you don’t receive any unfortunate tax surprises.

If you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


C Corp Confusion

Posted on February 15th, 2021

Recent Tax Court Claims Payments to Shareholders
Were Not Deductible Management Fees

It is always important to optimize your tax planning to achieve maximum success. Recent tax court actions, however, may throw your tax planning for a loop. The Tax Court has recently decided that a C corporation was not entitled to deductions for management fees paid to its three shareholders because the payments were disguised distributions. The court noted that the corporation never paid dividends to its shareholders. Even more so, it presented no evidence showing that an independent investor would have been satisfied with investment returns after shareholder compensation. Don’t find yourself caught in a similar situation! Your tax planning should be reviewed and, if necessary, updated accordingly. Contact our office to set up an appointment today.

Call us at: 904-351-0195


Seven Tips For Financial Wellness In 2021

Posted on February 8th, 2021

Financial Wellness

Common New Year’s resolutions are to lose weight or become more active. Perhaps 2021 is the year to shift focus. Here are seven tips to help you become more financially fit.

  • Create a budget. It’s easy to get into financial trouble if you spend more than you earn. By watching your budget more carefully, you might be surprised by how much you spend in certain areas of your life. Many banks and credit unions offer budgeting tools directly on their websites.
  • Get a free credit report. You can obtain a free copy of your credit report from each of the three major credit reporting agencies every 12 months. Reviewing your reports regularly can help ensure the data in your report is accurate and allows you to contact creditors to dispute any errors.
  • Pay down debt. Start chipping away at your debts through a series of regular payments. Begin with bills that have the highest interest rates. Research whether it makes sense to consolidate debts at a more reasonable interest rate.
  • Review your investments. With recent changes in Washington, D.C. and market volatility, reviewing your investments is more important than ever. Protect yourself against risks by diversifying across different classes of investments. If you have not developed an asset allocation plan, do so. If you have, adjust your portfolio to ensure it is still meeting your objectives.
  • Plan ahead for retirement. Take advantage of tax-favored retirement plans such as a 401(k) at work. Both the contributions and earnings are tax-deferred and can compound over time. The 401(k) limit for 2021 is $19,500 ($26,000 if you’re age 50 or over). Also consider contributing to an IRA, which has a contribution limit of $6,000 ($7,000 if you’re age 50 or older).
  • Check your insurance coverage. Things can change over time, so don’t assume the coverage you acquired years ago still provides adequate protection for your family or business. Take a look at your policies to determine if adjustments are needed.
  • Save for emergencies. And finally, would you be financially prepared if your business failed or you lost your job? The COVID-19 pandemic has reminded us the importance of establishing an emergency fund that can last for several months if you lost your salary or business revenue dramatically declines.

Acting on all these tips may seem a bit overwhelming. By focusing on a few now, before you know it, your financial wellness will improve over time.


2021 Retirement Plan Limits

Posted on January 25th, 2021

As part of your 2021 tax planning, now is the time to review funding your retirement accounts. By establishing your contribution goals at the beginning of each year, the financial impact of saving for your future should be more manageable. Here are annual contribution limits for 2021:

Take Action

If you have not already done so, please consider:

  • Reviewing and adjusting your periodic contributions to your retirement savings accounts to take full advantage of the tax advantaged limits
  • Setting up new accounts for a spouse or dependent(s)
  • Using this time to review the status of your retirement plan
  • Reviewing contributions to other tax-advantaged plans including flexible spending accounts and health savings accounts

For any questions or concerns, please feel free to call us at 904-351-0195.


PPP Loan Expenses Are Now Tax Deductible

Posted on January 18th, 2021

PPP Loan Expenses

If you or your business received funds from the Paycheck Protection Program (PPP), the recently passed Emergency Coronavirus Relief Act of 2020 will help to dramatically cut your tax bill. Here’s what you need to know.

Background

The PPP program was created by the CARES Act in March 2020 to help businesses which were adversely affected by the COVID-19 pandemic. Qualified businesses could apply for and receive loans of up to $10 million. Loan proceeds could be used to pay for certain expenses incurred by a business, including salaries and wages, other employee benefits, rent and utilities.

If the business used at least 60% of loan proceeds towards payroll expenses, the entire amount of the loan would be forgiven.

The Dilemma

While the CARES Act spelled out that a business’s forgiven PPP loan would not be considered taxable income, the legislation was silent about how to treat expenses paid for using PPP loan proceeds if the loan was ultimately forgiven.

Congress intended for these expenses to be deductible for federal tax purposes. But since the legislation was silent on this issue, the IRS swooped in and deemed these expenses to be nondeductible.

There was considerable debate over the latter half of 2020, with Congressional politicians explaining that their intent was that the expenses be deductible and the IRS responding “Too bad, they’re nondeductible.”

The Solution

Congress overruled the IRS’s position in the Emergency Coronavirus Relief Act of 2020. The legislation officially makes deductible for federal tax purposes all expenses paid for using proceeds from a forgiven PPP loan.

Stay tuned for updates as to how this new legislation affects your business.


Make Preparations for Form 1099s This Year

Posted on January 11th, 2021

Deadline for filing new Form 1099-NEC is February 1, 2021!

Here are three tasks to consider that will make meeting your business’s information reporting requirements less stressful this tax season.

  • Review your general ledger. Even if you’ve already identified 1099 vendors in your payables system, review current year expenses to make sure no new or infrequent payments have been overlooked. For example, it’s easy to forget that fees totaling $600 or more paid to service providers must be reported on a Form 1099. But be careful! There is a new form this year, Form 1099-NEC. Be sure to know whether you should use the existing Form 1099-MISC or the new Form 1099-NEC.
  • Verify vendor information. Check your files for up-to-date Forms W-9, the form you use to request a vendor’s federal taxpayer identification number (TIN). In general, you should have Form W-9 on file for each vendor who provides services, even if the transaction is a one-time event. Why? Filing mismatched 1099 forms – where the combination of name and TIN do not match IRS records – will result in a notice, and possibly penalties. To avoid problems, consider signing up for the TIN Matching Program, an online service run by the IRS, so you can verify identification numbers prior to filing 1099s.
  • Order forms. If you plan to file paper forms this year, the copy you mail to the IRS must be on forms preprinted with scan-friendly ink. You’ll also need Form 1096, the annual summary, for each type of information return you file.

As always, should you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


A Happy Banker Makes for a Happy Business

Posted on January 4th, 2021

With the onset of COVID-19, small business banks are more nervous about potential loan losses than ever. Here are several tips for your business to maintain a great working relationship with your lender. These same tips can also be used if you want to plant seeds with your banker for potential future loans.

  • Produce timely financial statements. Your lender may require you to produce financial statements over the duration of your loans to ensure that you have enough cash to make consistent, on-time payments. Strive to produce up-to-date financial statements and send them to your bank before they ask for them. Not only will timely financial statements make your lenders happy, the pro-active nature of your financials will show a level of transparency to them. Be prepared to include a note explaining major changes and schedule regular phone calls to go over the business.
  • Implement solid internal controls. How does a lender have faith that the dollar amounts on your financial statements are accurate? By properly implementing internal controls. You’ll have a happy banker if your company can provide evidence that your internal controls are operating properly.
  • Communicate. If your business encounters turbulent financial waters, the best thing to do is immediately let your lender know about it. Better yet, by keeping in constant communication, your lender will most likely be able to spot if your business starts experiencing a downturn and will try devising a plan before you begin missing payment deadlines.

Remember your banker probably has their hands full right now. These tips allow them to spend more time on their problem loans, and one of them will not be yours.

If you have any questions, please feel free to call us at 904-351-0195.


Using Depreciation to Control a Loan Forgiveness Tax Surprise

Posted on December 28th, 2020

Depreciation for Loan Forgiveness

Bonus depreciation and Section 179 expense can be a valuable tool to help you manage your business’ profit margin this year. Here are some thoughts to consider.

The Problem

Many businesses struggling during the pandemic took out Small Business Association Payroll Protection Program loans (SBA PPP loans). The SBA’s willingness to forgive these loans is now creating a potential tax obligation. This is because the expenses used to offset this loan can no longer be deducted from the business.

So the loan forgiveness could create an unexpected taxable event.

A Possible Solution

Instead of paying some of the loan back to cover the tax created by the loan forgiveness, consider investing some of the funds in necessary capital purchases. You could then use special depreciation rules to manage your tax obligation. This can be done by using:

  • Bonus depreciation. For assets that you purchase during the current fiscal year, you can deduct 100% of an asset’s cost using bonus depreciation. You can use this option to expense 100% of an asset’s cost using bonus depreciation this year.

    Note: This bonus depreciation is 100% in 2020 and 2021. After that the bonus depreciation amount phases out through 2025.
  • Section 179 depreciation. Section 179 depreciation works similarly to using bonus depreciation, as you can deduct 100% of an asset’s cost that you purchase and place in service during the current year. You can deduct up to $1.04 million of qualified Section 179 purchases in 2020.

The Downside

Whenever you use these special tax rules, you will lose the ability to take this depreciation for these capital purchases in future years, so some tax planning is required. But at least you will be able to use some of the forgiven loan proceeds to help your business, versus paying it back in the way of additional tax.

Even worse, recent IRS notices suggest the PPP loan forgiveness needs to be reflected in this year’s tax return, so you have little time if you wish to take advantage of bonus depreciation and Section 179 this tax year. To consider this option, you will need to select qualified assets and ensure they are placed in service before the end of your tax year. But if used correctly, depreciation can be used to offset business income and lower your taxes. Please call if you want to discuss your situation.

As always, should you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


Turn Your Home Office Into a Tax Deduction

Posted on December 21st, 2020

If you are working from home for the first time in 2020, you may be wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.

Here’s a quick look at the basic requirements to be able to deduct your home office expenses, along with some suggestions for how to qualify for the deduction if you’re currently working for your company as an employee.

The Basics

There are two requirements for having a tax-deductible home office:

  • Your home office is only used for business purposes. Your home office must be used exclusively for operating your business. It can’t double as the family media center or living room. To meet this requirement, set up your office in a separate area of your house. Then if you get audited by the IRS, there is no doubt that your office is used exclusively for business purposes.
  • Your home office is your primary place of business. You need to demonstrate that your home office is the primary place you conduct your business. The IRS has clarified that you can meet clients and conduct meetings at separate office locations, but your home office must be the only location where your administrative work is completed. So if you meet with clients or work on any part of your business away from your home office, keep a journal of each specific activity undertaken and describe how it doesn’t violate the primary place-of-business rule.

Looking at these two criteria, everyone that is now required to work from home probably meets both qualifications. If you’re a W-2 employee, however, you can’t deduct your home office expenses on your tax return.

Solving the Problem

Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.

  • Become an independent contractor. The easiest way to deduct your home office expenses is by switching from being an employee to an independent contractor. With a number of firms cutting pay and hours due to the pandemic, it may be worth exploring. There’s a big warning label if you go this route, however. You will need to account for lost benefits such as health insurance, and the additional cost of self-employment taxes. If you can meet the IRS requirements for becoming an independent contractor, it may be worth doing the math and considering all the deductions your home office may make available to you.
  • Start a side business. If becoming an independent contractor for your current employer isn’t an option, consider starting a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. If you go this route, ensure your home office is in a different location in your home than your other work space.
  • Consider your entire household. Even if you don’t qualify for the home office deduction, maybe someone else living in your home does qualify. So look into your options to see if a family member can take advantage of the home office deduction.

What if none of these options for deducting home office expenses are feasible for you? While you won’t be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.

Get Reimbursed by Your Company

There’s no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. They do this by setting up an accountable plan. With financial pressures on businesses, this might be a tough subject to broach, but if the system is already in place you may be able to find a way to get some of your home office expense reimbursed.

So if you’re stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.

Figuring out how to properly deduct your home office or get reimbursed by your employer can be a lot more complicated than it appears. If you need help, please call us at 904-351-0195.


Common IRS Surprises

Posted on December 14th, 2020

Common IRS Surprises

No one likes surprises from the IRS, but they do occasionally happen. Here are some examples of unpleasant tax situations you could find yourself in and what to do about them.

  • An expected refund turns into a tax payment. Nothing may be more deflating than expecting to get a nice tax refund and instead being met with the reality that you actually owe the IRS more money.

    What you can do: Run an estimated tax return and see if you may be in for a surprise. If so, adjust how much federal income tax is withheld from your paycheck for the balance of the year. Consult with your company’s human resources department to figure out how to make the necessary adjustments for the future. If you’re self-employed, examine if you need to increase your estimated tax payments due in January, April, June and September.
  • Getting a letter from the IRS. Official tax forms such as W-2s and 1099s are mailed to both you and the IRS. If the figures on your income tax return do not match those in the hands of the IRS, you will get a letter from the IRS saying that you’re being audited. These audits are now done by mail and are commonly known as correspondence audits. The IRS assumes their figures are correct and will demand payment for the taxes you owe on the amount of income you omitted on your tax return.

    What you can do: Assuming you already know you received all your 1099s and W-2s and confirmed their accuracy, verify the information in the IRS letter with your records. Believe it or not, the IRS sometimes makes mistakes! It is always best to ask for help in how to correspond and make your payments in a timely fashion if they are justified.
  • Getting a tax bill for an emergency retirement distribution. Due to the pandemic, you can withdraw money from retirement accounts in 2020 without getting a 10% early withdrawal penalty, but you’ll still have to pay income taxes on the amount withdrawn. If you don’t plan for this extra tax you will be surprised with an additional tax bill. You may still get an underpayment penalty bill from the IRS because you did not withhold enough during the year. You may also still receive an early withdrawal penalty in error because the IRS is still scrambling to update their systems with all of this year’s tax relief changes.

    What you can do: Set aside a percentage of your distribution for taxes. Your account administrator may withhold funds automatically for you when you request the withdrawal, so check your statements. Your review should be for both federal and any state tax obligations. If the withholding is not sufficient, consider sending in an estimated tax payment. If you are charged a withdrawal penalty, ask for help to correspond with the IRS to get this charge reversed.

No one likes surprises when filing their taxes. With a little planning now, you can reduce the chance of having a surprise hit your tax return later.

If you have any questions please call our office at 904-351-0195.


Levy Release for Economic Hardship Doesn’t Apply to Corporations

Posted on September 27th, 2021

The Tenth Circuit affirmed a Tax Court decision and held that the IRS’s obligation under Code Sec. 6343(a)(1)(D) to release a levy if it determines that the levy is creating an economic hardship applies only to individuals, not corporations. The court found that the use of the word “taxpayer” in the statute is ambiguous and that Reg. Sec. 301.6343-1(b)(4)(i), which restricts the economic hardship exception to individual taxpayers, is a valid interpretation of the statute. Seminole Nursing Home, Inc. v. Comm’r, 2021 PTC 284 (10th Cir. 2021).

If you have any tax questions and would like to make an appointment, please call our office at 904-351-0195.


You Owe Us, Not Them!


Posted on September 20th, 2021

State Tax Authorities Clamp Down

If you work remotely in another state or are thinking about changing your residence from one state to another, you may be caught in the middle of a major state tax issue.

Understand Domicile

Tax residency is usually based on the concept of domicile. You may have many homes, but you can only have one domicile. A domicile is the place you intend to be your permanent home, and where you intend to return after being away. When these cases go to court, they are often decided by determining a person’s intentions regarding their domicile.

Demonstrate Your Intentions

If you’re going to file as a resident of a new state but also have a potential tax claim in another state, you have to be able to demonstrate your sincere intent to change your domicile. Here are some things you can do:

  • Change your driver’s license to reflect your new home.
  • Register to vote in your new state.
  • Relocate your checking and savings accounts to a local bank.
  • Use local service providers. Start going to a new, locally based doctor, dentist and church.
  • Make sure as many things near and dear to your heart are located in the new state. These can include your loved ones, pets or favorite personal items.
  • Spend the required amount of time in your new home, according to the state’s tax laws.

The last thing you want is a call from a state auditor looking for income tax. By being prepared, you can greatly reduce the risk of a surprising tax bill. Reach out if you’d like to discuss your unique situation.


Make the Most of Your Vehicle Expense Deduction

Posted on September 13th, 2021

Tracking your miles whenever you drive somewhere for your business can get pretty tedious, but remember that properly tracking your vehicle expenses and miles driven can lead to a significant reduction in your taxes.

Here are some tips to make the most of your vehicle expense deduction.

  • Keep track of both mileage and actual expenses. 
  • Consider using standard mileage the first year a vehicle is in service (to keep option open).
  • Don’t forget about depreciation! 
  • Don’t slack on record-keeping. 

If you would like to make an appointment, please call our office at (904) 351-0195.


A Letter from the IRS!

Posted on September 6th, 2021

What Steps You Should Take 

If you receive a notice from the IRS, do not automatically assume it is correct and submit payment to make it go away. Because of all the recent tax law changes and so little time to implement the changes, the IRS can be wrong more often than you think. These IRS letters, called correspondent audits, need to be taken seriously, but not without undergoing a solid review. So what should you do if you receive one?

Stay calm. 

This is easier said than done, but remember that the IRS sends out millions of these types of correspondence each year. The vast majority of them correct simple oversights or common filing errors.

Don’t assume it will go away.

Until receiving definitive confirmation that the problem has been resolved, you need to assume the IRS still thinks you owe the money.

Get Help. 

You are not alone. Getting assistance from someone who deals with this all the time makes the process go much smoother.

Certified mail is your friend.

This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest tacked on to your tax bill. 

For any tax questions, please call our office to make an appointment.


SBA Substantially Improves PPP Loan Forgiveness Process for Loans of $150,000 or Less

Posted on August 30th, 2021

The Small Business Administration (SBA) has issued favorable new guidance relating to the forgiveness of loans made under the Paycheck Protection Program (PPP). The guidance provides that:

(1) for Second Draw PPP Loans of $150,000 or less, where the borrower is required to provide revenue reduction documentation at the time of loan forgiveness, a COVID Revenue Reduction Score developed by SBA’s contractor may be used by lenders as an optional method to document a borrower’s revenue reduction;

(2) a direct borrower forgiveness process is now available for lenders that choose to opt-in as an alternative method for processing borrower loan forgiveness applications for all PPP loans of $150,000 or less;

(3) an extension of the loan deferment period is available for those PPP loans where the borrower files a timely appeal of a final SBA loan review decision with the SBA Office of Hearings and Appeals. SBA-2021-0015.

If you have questions and would like to make an appointment, please call (904) 351-0195.


The Tax Court and the Salesman

Posted on August 23rd, 2021

Salesman’s Incentive Payments Are Reportable as Other Income, Not Schedule C Income

In Monroe v. Comm’r, T.C. Summary 2021-24, the Tax Court held that a car salesman, who received a Form W-2 for commissions received on cars he sold for a car dealership and received a Form 1099-MISC for performance incentive payments he received from the dealership’s parent company, was required to report his incentive payments as “Other Income” on Form 1040, and could not report it as Schedule C income. Similarly, the related deductible business expenses incurred with respect to the incentive pay income were reportable on Schedule A, rather than Schedule C. 

If you have any tax questions and would like to make an appointment, please call our office at 904-351-0195.


Small Business IRS Audit Mistakes

Posted on August 2nd, 2021

In late 2020, the IRS announced that it will increase tax audits of small businesses by 50 percent in 2021. Here are several mistakes to avoid.

  • Mistake: Missing income. A long history of investigating has led IRS auditors to focus on under-reported income. If you’re a business that handles cash, expect greater scrutiny from the IRS. The same is true if you generate miscellaneous income that’s reported to the IRS on 1099 forms. Be proactive by tracking and documenting all income from whatever source. Invoices, sales receipts, profit and loss statements, bank records—all can be used to substantiate income amounts.
  • Mistake: Higher than normal business losses. Some small businesses struggle in the early years before becoming profitable. If your company’s bottom line never improves, the IRS may view your enterprise as a hobby and subsequently attempt to disallow certain deductions. As a general rule, you must earn a profit in three of the past five years to be considered a legitimate business.
  • Mistake: Deductions lacking substantiation. Do you really use your home office exclusively for business? Does your company earn only $50,000 a year but claim charitable donations of $10,000? Do you write off auto expenses for your only car? The key to satisfying auditors is having clear and unequivocal documentation. They want source documents such as mileage logs that match the amount claimed on your tax return and clearly show a business purpose. If you can’t locate a specific record, look for alternative ways to support your tax return filings. In some cases, a vendor or landlord might have copies of pertinent records.
  • Mistake: No detailed records, receipts, or expense reports. If you use your credit card for business, create an expense report with account numbers and attach it to each statement. Then attach copies of the bills that support the charges. This is an easy place to blend in personal expenses with business expenses and auditors know it.
  • Mistake: No separate books, bank accounts or statements. Never run personal expenses through business accounts and vise versa. Have separate bank accounts and credit cards. A sure sign of asking for trouble is not keeping the business separate from personal accounts and activities.

Please call if you either need help preparing for an upcoming IRS audit or would like to know how to audit-proof your financial records.


IRS Responsible Person Penalty

Posted on July 26th, 2021

Sometimes, when businesses get in financial trouble, they are tempted to pay creditors or others instead of paying the government the income and employment taxes it has withheld from employees’ wages. This is a big mistake and can lead to large penalties against business owners or others who are responsible for paying over such taxes. In such situations, the IRS can levy on the individual assets of the responsible person.

To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for a trust fund recovery penalty (TFRP). Income and employment taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business.

The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on the unpaid income taxes withheld, plus the employee’s portion of the withheld FICA taxes. For collected taxes, the penalty is based on the unpaid amount of collected excise taxes.

The TFRP may be assessed against any person who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and willfully fails to collect or pay them. 

For purposes of the TFRP, a responsible person includes, but is not limited to an officer or employee of a corporation, a partner or employee of a partnership, a member or employee of an LLC, a corporate director or shareholder, another corporation, or a surety or lender.

Most trust fund recovery cases involve corporate officers. A director who is not an officer or employee of the corporation may be responsible for the trust fund recovery penalty if he or she was responsible for the corporation’s failure to pay taxes that were due and owing.

If you have any questions regarding this penalty or have any concerns relating to any potential personal liability, please give me a call at your earliest convenience so we can discuss your situation.


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M Disbrow CPA Blog

© Marilyn M Disbrow CPA 2021, 88 Riberia St - Ste 400, St. Augustine, FL 32084
T: 904-351-0195 Free Case Review F: 904-814-8415 E: M.Disbrow@DisbrowCPA.com

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