Planning

September 29 2022

In The News: September 2022 Tax News

IRS Rules, Planning, Tax Law, Tax Planning tax law

September 2022: IRS urges everyone to update and secure their records to prepare now for natural disasters

September is National Preparedness Month. With the height of hurricane season fast approaching and the ongoing threat of wildfires in many places, the Internal Revenue Service urges everyone to develop an emergency preparedness plan, or if they already have one, update it for 2022.

Everyone, from individuals to organizations and businesses, can start now by:

Securing and duplicating essential tax and financial documents.
Creating lists of property.
Knowing where to find information once a disaster occurs.

In the aftermath of a disaster, having the updated documents and other information readily available can help victims apply for the relief available from the IRS and other agencies. Disaster assistance and emergency relief may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.

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Proposed Tax Legislation

The following is an overview of several recent tax proposals discussed or introduced in Congress over the past several weeks. It is important that you not treat these proposals as passed legislation. Many hurdles remain before any of these legislative ideas become law. In the meantime, it is useful to see what types of tax laws may be affecting you in the future.

EARN Act (Senate Bill 4808): This bill, introduced Sept. 8, proposes to amend the Internal Revenue Code of 1986 to reform retirement provisions.
Firearm Industry Fairness Act (House of Representatives Bill 8741): This bill, introduced Aug. 23, proposes to amend the Internal Revenue Code of 1986 to impose a tax on the total revenue of manufacturers and importers of semi-automatic assault weapons.
RETURN Act (House of Representatives Bill 8742): This bill, introduced Aug. 23, proposes that employees of the Internal Revenue Service are brought back to their offices until the backlog of 2020 tax returns has been eliminated.

IMPORTANT: The above are proposals. There are many steps each bill must go through before they are signed into law.

Information retrieved from: GovTrack.us

September 20 2022

Don’t neglect your succession planning

Business Tips, Planning, Retirement business

Succession planning

Succession planning can be one of the most difficult issues faced by a family-owned business. As a business owner nearing retirement, how do you transfer leadership (and perhaps ownership) and keep the business running smoothly? Unfortunately, many businesses don’t survive the transition to the next generation.

As with most business problems, good planning is the key. You’ll need to consider four sets of issues:

Choice of a successor. Often the first preference is for a family member to take over. But the obvious family members may lack the skills, temperament, or interest to run the business. Sometimes several family members are interested in the position, and family squabbles or rivalries can interfere. That’s why an outsider is often chosen as an independent manager.
Transfer of ownership. Whether or not a family member takes over the top position, you’ll still eventually need to transfer ownership to the next generation. That involves questions of estate planning, taxation, and form of business. This is an area where you’ll need sound legal and accounting advice.
Liquidity. Often a transfer of ownership involves issues of liquidity and funding, especially if it happens upon the death or disability of the founder. You’ll need to consider key man life insurance and disability insurance, as well as tax and estate planning issues.
Personal issues. In a family-owned business, it is often very difficult for the founder to retire and hand over his or her “baby” to someone else. And if a family member is the successor, the potential for interpersonal conflict increases. It’s essential to confront and discuss this issue beforehand. It can be useful to have one of your professional advisors mediate these discussions.

One factor is common to all business successions. It’s never too soon to start the planning. Don’t delay until retirement is imminent. This is a mistake for two reasons. First, your initial succession attempt may not work out. Second, a sudden accident or illness may force you to change leadership earlier than expected.

If you’re facing this situation, please plan now to do something about it.

July 28 2022

How to Correct an Error on my Tax Return?

Business Tips, Financial, Planning IRS, tax returns, taxes

Question: After I filed my tax return, I discovered an error. How do I fix it?

Answer: Oversights and errors are not uncommon, so the IRS provides a way for you to correct them. You can correct your return for up to three years after you file your original return by filing an amended return with the IRS.

You need to tell the IRS why you are correcting the return, and include the appropriate documentation with your amended return.

If you’ve discovered income or deductions that you should have reported on your income tax return, give us a call. We can help you set the record straight and pay only the tax actually due.

July 26 2022

Keep Your Business in Top Financial Shape with these Tips

Business Tips, Financial, Planning

Here are five essential tasks to help your business stay in top financial health.

Bring financial statements up to date

A clear understanding of your company’s current cash flows, revenues, expenses, assets, and liabilities is critical. For example, in an effort to cut expenses, you might prematurely lay off or furlough workers who are, in fact, essential to the continued success of your business.

Create a forecast

After getting a solid grip on current finances, project those numbers by month for the next twelve months. What will revenues and expenses look like in two months? By year end? Of course, the future—especially in light of the current crisis—can seem especially hazy. But as the old saying goes, “Those who fail to plan, plan to fail.”

Build a three-scenario sensitivity analysis

Because of the future uncertainty, once you’ve established a baseline forecast, create three different scenarios – a best-case, worst-case and most-likely case scenarios. Then come up with action plans to adjust costs for each scenario.

Communicate

Don’t leave customers, suppliers, creditors, and employees in the dark. Communicate with your community frequently. If workers, managers, suppliers and others don’t know what you’re thinking, they may develop erroneous conclusions about the direction of your business. In time, such misunderstandings can lead to unanticipated staff turnover, irritated customers, costly disputes with vendors, and other problems that may take years to correct. Even if the news is uniformly bad, talk to them.

Stay in touch with advisors

Attorneys, accountants, insurance brokers, lenders—all these experts can provide independent help to you and your business. Advisors with a fresh set of eyes can analyze your company and offer insights into what their other clients are doing to survive an economic downturn. Even better, they are often best positioned to share perspectives about recently-enacted tax law provisions targeting small businesses.

With proper planning, your business can maintain a healthy fiscal outlook.

April 22 2022

What if I owe more to the IRS than I can pay?

Personal Planning, Planning, Tax Planning Accounting, Tax

The IRS offers several options to taxpayers who cannot pay their taxes in full when they file their returns.

You can charge your taxes on a credit card. The IRS’s credit card service providers charge a convenience fee of about 2.5% in addition to the interest rate your credit card company charges on your balance.
You can request to pay your taxes to the IRS in installments. If you owe $50,000 or less and agree to pay off the balance within a six-year period, the approval process is pretty straightforward. Larger balances can be set up on an installment plan too, but they won’t be automatically approved. The IRS will continue to add interest and penalties to your account until you pay off the balance.
You can enter into an offer-in-compromise agreement with the IRS to settle your tax bill and get off to a fresh start. Under this arrangement, the IRS will settle your account for a portion of the tax you owe if you agree to file and pay your future taxes on time. You’ll have to submit financial information to the IRS to prove that you don’t have the money or ability to pay off the entire balance.

April 11 2022

What tax breaks are available due to a natural disaster?

Personal Planning, Planning, Safety, Tax Break, Tax Tips Accounting, Tax

What tax breaks are available if I suffer a loss due to a natural disaster?

If the federal government declares your area to be a major disaster area, the tax law allows individuals and businesses to get a faster refund by claiming disaster losses on their prior years’ returns. This is done by filing an amended return for the prior year.

Also, in some disaster situations, the IRS might allow additional time to file current year returns and pay any tax due.

It is important to check as soon as possible to note any approved filing delays or tax benefits due to your unfortunate circumstance.

March 24 2022

Retirement Account Funding

Personal Planning, Planning, Retirement planning, Retirement

While there are many tax-advantaged retirement savings plans, the various options and rules can make the most sophisticated of us cringe. One of the things to consider is whether you can continue funding your retirement account after you reach the age of 70 ½ (6 calendar months after you reach your 70th birthday). Here is what you need to know if you wish to have this option.

The Basics: the 70 ½ age-based limit

A number of retirement accounts no longer allow you to contribute funds after you reach age 70 ½ or older. Many of these same accounts also trigger Required Minimum Distributions (RMD) rules after this age 70 ½ date. So not only must you stop contributing funds into your retirement account, you must also withdraw some of it and pay income tax on the withdrawal. This is true with 401(k) accounts after retirement and traditional IRA accounts. The RMD rules aside, here are some options for you should you wish to continue making retirement plan contributions.

Some Options

Look into Roth accounts. Roth IRAs and Roth 401(k) accounts allow you to continue making contributions after 70 ½. In fact you can continue to contribute into these accounts for as long as you have income. However, there are differences. Roth IRA’s have income limitations and are not subject to RMD rules. In the case of a Roth 401(k), you can contribute as long as you are working and are a participant in your employer’s plan, but you are subject to RMD regulations. While contributions must be made with after-tax earnings, your marginal tax rate is probably lower once you reach retirement age.
The SIMPLE IRA option. There is not an age limit for contributions into this type of small business IRA account. So if you plan to continue to build your retirement nest egg after reaching age 70 ½, look into this type of retirement plan. An added bonus in this retirement account is that continued participation also includes receiving any employer match funding. The downside is that this plan requires annual distributions after reaching the 70 ½ year old age limit.
Contributions while still working. If you work for an employer after retirement age you can continue to participate in employer sponsored plans. So if you are looking to supplement your income after age 70 and your employer offers a 401(k) or similar program you can continue to participate no matter your age as long as you are employed and are active within the plan.

The rules around retirement plan contributions and distributions are complex. Not the least of which are rules placing limits on 5 percent or greater owners of small businesses. Should you wish to explore your contribution options, please ask for assistance prior to taking action.

March 18 2022

Do you qualify for a home office deduction?

Personal Planning, Planning, Tax Planning Accounting, deductions, Tax

If you run a business from home, you may be entitled to a home office deduction. This is only if you claim your home office as a business write-off on Schedule C as miscellaneous deductions have been eliminated for tax years 2018-2025.

Your business space doesn’t have to take up an entire room, but you have to use that space exclusively for business purposes.

You must also meet at least one of the following conditions:

Your home must be your principal place of business. In other words, it’s the only place you have to conduct administrative and management activities, such as billing customers, keeping the books, setting up appointments, or placing orders.
You use the space to meet with your customers, clients, or patients.
You use a space in a separate structure not attached to your home; for example, a detached garage.
You use the space to store inventory or product samples, and your home is the only fixed location of your business. For example, you are an outside salesman, and you store product samples in your basement.
You use the space as a licensed day-care facility.

Caution: Taking the home office deduction can limit the tax-free gain on the future sale of your home.

Optional square foot deduction. Taxpayers can use an optional per square foot deduction for a home office. This optional method does not change the criteria of who may take a home office deduction. The deduction is $5 per square foot of home office up to a maximum of 300 square feet (a maximum deduction of $1,500). Your home mortgage interest and real estate taxes can still be taken as itemized deductions. There is no recapture of depreciation in later years for years when this optional method is used.

March 15 2022

What is Alernative Minimum Tax?

Personal Planning, Planning, Tax Planning Accounting, audit, Tax

The alternative minimum tax (or AMT) was created many years ago to ensure that higher-income taxpayers with lots of deductions and credits pay at least a minimum amount of tax.

The AMT is a separate tax calculation that disallows many of the deductions and credits used to calculate regular income tax. It also adds back certain income that is not normally taxed. The most common AMT adjustments are for certain itemized deductions and adjustments, such as state and local taxes. Also, if you exercise incentive stock options, sell investments with large long-term capital gains, or take depreciation on business property, you may be hit with the AMT.

You’re required to calculate your tax under both the regular and AMT methods. You then pay whichever tax is higher.

February 25 2022

I’m retired. Do I need to file a tax return?

Financial, Individual Taxes, Planning, Tax Planning, Tax Tips Accounting, Tax

Do I need to file a tax return after I retire?

You may need to file a return even after you retire. You’re required to file a return if your income is over certain levels. Generally, you must file a federal income tax return, even if you don’t owe tax, when your gross income exceeds the following limits:

Single – $12,550
Head of household – $18,800
Married filing jointly – $25,100
Married filing separately – $12,550

If you are 65 or older or legally blind, you are allowed to make more money before you have to file a return. Single taxpayers who are legally blind or over age 65 can take another $1,700 ($1,350 for each married taxpayer).

If your total income is less than these amounts, you’ll still have to file a return if you are self-employed and your business net income is $400 or more.

Even if you do not have to file a return, you might still want to do so. For example, if you paid taxes to the IRS or had taxes withheld from your wages or pension, the only way you can get your money back is to file a tax return.