Happy New Year
As we enter 2022 it is time to kick off the tax filing season for 2021. I will be sending out business and individual organizers to all clients over the next two weeks. It is time to think about what has changed over the last year and gather your relevant documents.
If I did not file your taxes over the last two years then please reach out so I can add you to the list for this year.
The end of 2021 is near. Some of you decided to defer some of your employer Social Security or self-employment tax this year. If you did defer, the first payment is due by 1/3/2022. Please reach out if you need help making this payment.
The Tax Cuts and Jobs Act of 2017 will affect how much tax you owe in 2018. Understanding how these changes affect your taxes may help you make changes now to reduce the taxes you pay. It is also important to make sure you are properly paying your quarterly estimated tax payments. Contact me for a free initial consultation and I will help you understand how the changes may affect your business and I will show you how a proper planning engagement can lead to big savings on your tax bill. In this article I will summarize the key points of the changes. I will follow-up with more detailed posts regarding the more complex changes.
Business owners of S corporations, partnerships or sole proprietorships can now receive a deduction of up to 20% of their qualified business income (This applies to LLCs as well. They are taxed as one of the three types mentioned). Qualified business income is generally the net income derive from a US trade or business. It will not include income from any income from investments, interest, dividends, or commodities trades. This deduction is also available for trusts and estates that receive pass through income.
The deduction will begin to phase-out once your income passes $157,500 ($315,000 if married filing jointly). The method of phase out depends on the type of business you are engaged in. If you are bit in one of the specified services business then your deduction will be limited by wages paid or a combination of wages and original basis in qualified property (this can be a big help for Real Estate owners). If you are in a specified service business then the deduction will begin to phase out completely as you pass the threshold. If you are close to the income threshold I recommend professional help to build an appropriate strategy to maximize your deduction.
I am still reviewing the effects on agricultural cooperatives and I will provide an update on this area soon.
Property purchased after September 27th, 2017 and placed into service between September 28th 2017 and December 31, 2022 is now eligible for bonus depreciation of 100%. Used property also qualifies for bonus depreciation as long as this is the first time it has been placed in service by you. As always, depreciation calculations remain complex and determining the best use of bonus depreciation depends on your circumstances.
The §179 expense limit has been raised from $510,000 to $1 million. In addition, the phase-out threshold has been raised from $2.03 million to 2.5 million. For most small business
Depreciation limitations have been increased for listed property (§280F). For cars, trucks, and vans purchased and placed into service in 2018 the first year deduction is $18,000 ($10,000 without special depreciation). Second year depreciation is now $16,000, third year is $9,600, and remaining years are $5,760. Remember that the amount of deductible depreciation is dependent on percentage of business use for the vehicle.
The deduction for a business net operating loss is now limited to 80% of taxable income. In addition, the loss can no longer be carried backward. However the loss can be carried forward indefinitely (until used up) instead of being limited to 20 years.
Expenses for any activity generally considered entertainment are no longer deductible. Previously, if the activity was shown to be directly connected to a trade or business, then you were able to deduct the expense (subject to the 50% limitation. This is no longer the case. If you take your clients to a football game, then you cannot deduct the cost of the tickets. I have had a lot of misinformation about this already. Some have claimed it can be a promotional expense. That is incorrect and the kind of advice that is likely to get you into trouble. Regardless of what you call it, the expense is not deductible.
The are several sections I have not touched on yet and several areas that require a more in-depth treatment. To understand how these and other areas affect your personal situation contact me for help. Do not rely on this post when preparing or planning your taxes.
Get Compliant. Filing tax returns for every year you have or may have a filing requirement is always the best solution. There is no statue of limitations on un-filed tax returns. If the IRS discovers you had or may have had income in a year with an un-filed return they can file the return for you with a substitute for return (SFR). The SFR will be for the maximum out you could possibly owe based on the income data the IRS has. It will not include the exemptions, deductions, and credits you may be eligible for. Once the SFR is filed the tax will be assessed and they will begin collections.
Reconstructing past tax years can be difficult if you do not keep adequate records. When building past tax returns I work with taxpayers to identify the missing information and reconstruct the data so they can submit accurate returns. Equally important is ensuring they are not paying any more then they are legally obligated to pay. The first step in nearly all of our resolution cases is ensuring the client is compliant with at least the past six years on personal income tax returns.
This is often a daunting task. If you have un-filed returns you want to become compliant before the IRS starts to create SFRs. If an SFR is already on your account you need a proper return for that year and you need to ensure all of the other relevant years are compliant. As an enrolled agent I will help you file the appropriate returns. If you owe money after filing I will ensure you are not paying more than you can afford. Don’t wait for the IRS. Contact us today and get compliant.
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We are offering fixed pricing for taxpayers that qualify for streamlined offer-in-compromise. The rate is $350 including all forms and required responses through acceptance or rejection. This offer does not include the cost of appeals. To qualify your household income must be less than $100,000 per year and your tax debt must be less than $50,000. If you schedule C business income, then your gross receipts must be less than $500,000. This takes the guesswork out of representation costs and the quality of the offer you are submitting. You can learn more about the offer in compromise process here.
Contact us today to see if you qualify!
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The IRS is putting out the word that many tax payers may not be withholding enough from their paychecks this year. Changes to the tax rules stemming from the Tax Cuts And Jobs Act of 2017 may have made the W4 filed with your employer not accurately reflect your circumstances. This can lead to too much or too little being withheld from your monthly paycheck. This is particularly a concern for families with two incomes and for those living in areas with high local taxes. The IRS has updated their withholding calculator at IRS.GOV to reflect recent tax law changes. This tool will be enough for many taxpayers to verify they are withholding enough and won’t be surprised with payments, penalties, and interest when filing season rolls around next spring.
For taxpayers with more complex tax situations we recommend professional help in better understanding the proper balance of withholding and estimated payments you should have to ensure you are in compliance. Advanced Tax Services will help you with planning to not only ensure your compliance, but also to ensure you are doing everything you can to minimize your tax bill. For example, small business owners may be eligible to receive a 20% deduction on qualified business income. This deduction can be taken by sole proprietors (including single member LLCs), partnerships, and S corporations. We can help you plan to maximize the potential deduction this year with appropriate business decisions. Reach out to us today for a free initial consultation and learn what we can do to help you.
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Being notified of an impending audit can be both frightening and overwhelming. IRS audits come in three basic varieties: the correspondence audit, the office audit, and the field audit. We can work with you to prepare for any type of audit. More importantly, once we are engaged as your representative the IRS will communicate directly with. This will free you to run your business, spend time with your family, and enjoy your life.
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Being notified of an impending audit can be both frightening and overwhelming. IRS audits come in three basic varieties: the correspondence audit, the office audit, and the field audit. We can work with you to prepare for any type of audit. More importantly, once we are engaged as your representative the IRS will communicate directly with. This will free you to run your business, spend time with your family, and enjoy your life.
What type of audit notification did you receive?
IRS Correspondence Audit
The notification for a correspondence audit usually arrives as a letter labeled CP2000. This type of IRS audit is usually triggered by a discrepancy between your income tax returns and records the IRS has received from other sources. You will have 30 days to provide a response explaining the issues under examination with supporting documentation.
IRS Office Audit
The taxpayer is usually notified of an office audit by IRS letter 3572 or similar notice. The letter will identify the issues under examination and provide a number to call and schedule an appointment for the audit. You typically have 10 days to schedule the appointment. Contact us right away to secure representation before you schedule your appointment.
IRS Field Audit
Field audits are usually done on businesses. During a field audit a Revenue Agent will usually spend 1-2 on-site reviewing your business records. The bulk of the audit will be conducted at the location where the records are stored. The records can be at your business or with a representative. Secure representation as soon as possible when you are notified of a field audit. This will allow us adequate time to prepare and help to minimize any potential disruption at your business.
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There continues to be a lot of confusion around how virtual currency is treated for federal income tax purposes. The IRS treats virtual currency as property. It is treated like any other property. Therefore all of the following are true:
There are dozens of more cases we can go through, but the net result is being paid in virtual currency is no different than being paid by any other means. It is also important to note that when you convert your virtual currency to fiat currency you will have a taxable gain or loss based on the basis you had in the currency regardless of how it was received.
Please contact us if you need help correcting your prior year returns or planning for the current and future years. We can help you plan to minimize your taxes and remaining compliant with tax laws. We are able to work with clients nationwide. As always you can call us at (972) 521-7800 or use our contact form.
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Advanced Tax Services has expanded the scope of the free consultation we offer clients. We will now include a review of your IRS transcripts as part of our standard free consultation.
We will begin with a discussion and find out more information about your current tax situation and any notices or letters you received. Next, we will have you complete an authorization form which we will submit to the IRS. Once this form has been processed (usually a couple of business days) we request your transcripts and schedule a follow up call with you to discuss our review.
Clients that have more urgent needs don’t need to wait for this process to complete. We will be happy to discuss your current situation with you and identify the best path forward in your situation. Remember, it is important not to delay if you have received a notice or letter from the IRS. Give us a call today at (972) 521-7800 and we will be happy to help you understand your options.
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Our tax season hours are now in effect. We are available to answer calls and email between 8:00 AM and 7:00 PM Monday through Saturday. Give us a call at (972) 521-7800.
