IRS Rules

Audit-proof your shareholder loan

Posted on Jul 6, 2018

If you’re a business owner and your company lends you money, you’ll enter it in the books as a shareholder loan. However, if your return is audited, the IRS will scrutinize the loan to see whether it is really disguised wages or a dividend taxable to you as income. Knowing what the IRS might look at may be useful when you structure the arrangement. Here are some items that will be considered if you’re audited: Your relationship with the business. First, the IRS will look at your relationship to the company. If you’re the sole shareholder with full control over earnings, that may weaken your case that the loan is genuine. On the other hand, if you’re one of several shareholders and none of the others received similar payments, that suggests it may be a genuine loan. Loan details. The IRS will want to know all the details related to your loan. This may include whether or not you signed a formal promissory note, if you pledge any security against the loan and if the loan has a specific maturity date or a repayment schedule. Other questions may come up about the rate of interest you’re paying and if you missed any payments. The more businesslike the terms of the loan, the more it will appear to be a genuine debt. Other financial details. In addition to loan specifics, the IRS may ask you if your company is paying you a salary that’s in line with the work you perform, and if the company pays dividends. Whether the IRS taxes you on the loan will depend on all these factors. If you’ve paid attention to the details, the loan should withstand IRS scrutiny. Contact us if you’d like more information about getting a loan from your business. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Tips to Maximize Your Mileage Deduction

Posted on Jun 27, 2018

Each year standard mileage rates for business travel, medical driving, moving mileage and mileage rates for charitable driving are set by the IRS. Too often this deduction is overlooked because proper documentation was not followed. Here are a few tips to ensure you receive the full benefit of this tax deduction. Tip 1: Track your applicable mileage in an auto log. This log is required to ensure your deduction is not disallowed during the course of an audit. Please make sure the business/charitable/medical purpose, date and distance is clearly noted. Tip 2: Also keep track of parking, tolls and other miscellaneous travel expenses. These can often be deducted in addition to the standard mileage rate. Tip 3: Submit expense reports if your mileage can be reimbursed. Most employers will reimburse you for business mileage at the approved rate, but many employees fail to ask for reimbursement. Remember, your employer can deduct this reimbursed expense on their tax return as well. Tip 4: Keep track of medical miles. Even though you need to surpass a percent of your income prior to taking medical expenses as an itemized deduction, still keep track of qualified medical miles. It often only takes one major medical bill to make all your other excess medical expenses deductible. Tip 5: Plan your business trips to ensure your miles are deductible. Commuting miles to and from work is not deductible. However, if you stop off at a supplier first, then the mileage from the supplier to your workplace is a deductible expense. Tip 6: Do not forget charitable miles. This deduction is one of the most often overlooked deductions. Do you drive for Meals on Wheels or for a school function? Do you volunteer as a coach for a non-profit sporting group? These miles add up over time and are often not properly documented. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter....

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Getting summer help? Classify properly

Posted on Jun 25, 2018

Don’t subject your business to tax penalties by misclassifying employees and independent contractors. You can avoid misclassification by understanding how the law defines employment (we can help you with this), and by creating and following work-habit guidelines. Thoroughly review your work arrangement not only at the beginning of professional relationships, but regularly to ensure both you and your employee are on the same page. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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A new twist on an old taxpayer scam

Posted on Jun 22, 2018

Scammers have come up with a new way to steal personal and financial information from non-resident aliens and international taxpayers. Fraudsters send letters to people asking them to fill out fake alternate Forms W-8BEN, a form usually used by taxpayers who are not U.S. citizens. Taxpayers end up revealing passport numbers, PINs and other info that aid scammers in stealing their identities. Keep in mind: The IRS doesn’t require taxpayers to recertify their foreign status. Also, the real Form W-8BEN does not ask for passport numbers and PINs. If you believe you received a phony IRS letter, email phishing@irs.gov with the subject line “IRS Impersonation Scam.” Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Parents, Children, and Taxes

Posted on Jun 20, 2018

  Being a parent brings tremendous rewards, but also the challenge and responsibility of supporting and educating your child. Fortunately, the tax code has many ways to help ease a parent’s financial burden. Here’s an overview of the many ways that taxes can affect your decisions as a parent. Exemptions and credits   Being a parent usually cuts your tax bill in at least two ways. You can generally claim a dependency exemption for each child under age 19, or under age 24 for full-time students. You can also claim a child tax credit for each child under age 17. This is a direct credit against taxes you owe, and it can be partially refundable. Other credits include the adoption credit to offset expenses of adoption and the child care credit. This credit allows you to offset some of the costs of paying for child care so that both spouses can work or attend school full-time. Many of these tax breaks phase out for those at higher income levels. Education expenses   One of the biggest challenges for a parent is funding a child’s college education. A variety of tax breaks can help with this major expense, including savings plans, tax credits, and tax deductions. These measures all have different rules and eligibility requirements. There are two main types of savings plans for education expenses: Coverdell education savings accounts and Section 529 plans. Coverdell accounts work rather like an IRA. Contributions grow tax-free, and withdrawals are free of tax if used for qualified education expenses. Coverdell accounts can also be used to pay for K-12 expenses as well as college costs. Section 529 plans provide tax-free earnings and distributions for higher education expenses, and they generally have fewer restrictions than Coverdell accounts. The American Opportunity credit and the Lifetime Learning Credit are two tax credits available for education expenses. Each has its own rules and income limits, and you cannot use both credits for the same child in the same year. A limited tax deduction is available for student loan interest expense. In addition, interest on U.S. savings bonds can be tax-free if the bonds are used for education expenses. Child tax issues   The “kiddie tax” is a rule that affects the investment income of children. A child’s unearned income above a threshold amount will be taxed at the parent’s highest rate until the child reaches a certain age. The intent is to stop a high-income parent from shifting large amounts of earnings to a child in a lower tax bracket. A strategy of “income shifting” can make sense for a family once the child is old enough to escape the kiddie tax. Parents can gift income-earning assets to older children (subject to the annual and lifetime gift limits), and the children will pay tax on the income earned at their own (presumably lower) rates. Another tax-cutting strategy is to employ your child in the family business. The business can take a deduction for wages paid, while the child often pays little or no taxes on his or her earnings. It must be a real job, though, and the wages must be reasonable for the work. If your children have earnings from summer or after-school jobs, encourage them to open IRA accounts. The additional years of tax-free compounding can produce huge additional savings by the time your children reach retirement age. Don’t overlook the role of grandparents. They can help pay college expenses, for example, either by contributing to education savings plans or by paying tuition bills directly. Also, by giving appreciated stock to their grandchildren, they may be able to boost the children’s savings while reducing overall taxes for the family unit. Estate planning   For a parent, estate planning is especially important. The first priority is to make sure your children are protected in the event that something happens to you. Your estate plan should appoint guardians for your minor children, as well as provide for their financial well-being. Early estate planning can also help to ensure that your assets pass to your children as you...

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Same-sex Couples Deemed Married for Federal Tax Purposes

Posted on Jun 13, 2018

The U.S. Treasury Department and the IRS issued ruling as a direct result of Supreme Court action regarding same-sex couples. In short: Under the ruling any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, or a U.S. territory that recognize same-sex marriage will be treated as married for all federal tax purposes. This includes: •filing status •personal deductions •dependency exemptions •standard deductions •employee benefits •tax credits •retirement plans and contributions More importantly, this ruling applies regardless of where the same-sex couple currently lives. The ruling applies to originally being married in jurisdictions that legally recognize their marriages. Other things to note: Beginning in 2013, same-sex couples within this ruling must file either married filing jointly or married filing separately. You may no longer file as a single taxpayer. You may choose to, but are not required to, file amended tax returns as being married for any prior tax years that are still open under the statute of limitations. This usually means three tax years. This ruling DOES NOT apply to registered domestic partnerships, civil unions or similar formal relationships. If you paid for same-sex health insurance coverage from an employer in after-tax dollars you may be able to shift these premiums into pre-tax dollars. State laws are more complex and are currently evolving so try to keep informed of any new developments on this front. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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