When a married couple files a joint tax return, each spouse is “jointly and severally” liable for the full amount of tax on the couple’s combined income. Therefore, the IRS can come after either spouse to collect the entire tax — not just the part that’s attributed to one spouse or the other. This includes any tax deficiency that the IRS assesses after an audit, as well as any penalties and interest. (However, the civil fraud penalty can be imposed only on spouses who’ve actually committed fraud.) Innocent spouses In some cases, spouses are eligible for “innocent spouse relief.” This generally involves individuals who were unaware of a tax understatement that was attributable to the other spouse. To qualify, you must show not only that you didn’t know about the understatement, but that there was nothing that should have made you suspicious. In addition, the circumstances must make it inequitable...[ Read More ]
One of the worst things that can happen to a not-for-profit organization is to have its tax-exempt status revoked. Among other consequences, the nonprofit may lose credibility with supporters and the public, and donors will no longer be able to make tax-exempt contributions. Although loss of exempt status isn’t common, certain activities can increase your risk significantly. These include ignoring the IRS’s private benefit and private inurement provisions. Here’s what you need to know to avoid reaping an excess benefit from your organization’s transactions. Understand private inurement A private benefit is any payment or transfer of assets made, directly or indirectly, by your nonprofit that’s: Beyond reasonable compensation for the services provided or the goods sold to your organization, or For services or products that don’t further your tax-exempt purpose. If any of your nonprofit’s net earnings inure to the benefit of an individual, the IRS won’t view your nonprofit...[ Read More ]
Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2020. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. January 31 File 2019 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees. Provide copies of 2019 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required. File 2019 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS. File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2019. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited...[ Read More ]
You may still have time to reduce your federal tax liability by taking certain steps. For example, contribute the maximum to your retirement plans by year end, including traditional IRAs and SEP plans. Another idea: If you make your Jan. 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize deductions on your tax return). You can also “harvest” any investment losses by Dec. 31. If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income. Any remaining losses are carried forward to future tax years. Contact us if you want to discuss ways to minimize your 2019 tax liability.
Bitcoin and other forms of virtual currency are gaining popularity. But many businesses, consumers, employees and investors are still confused about how they work and how to report transactions on their federal tax returns. And the IRS just announced that it is targeting virtual currency users in a new “educational letter” campaign. The nuts and bolts Unlike cash or credit cards, small businesses generally don’t accept bitcoin payments for routine transactions. However, a growing number of larger retailers — and online businesses — now accept payments. Businesses can also pay employees or independent contractors with virtual currency. The trend is expected to continue, so more small businesses may soon get on board. Bitcoin has an equivalent value in real currency. It can be digitally traded between users. You can also purchase and exchange bitcoin with real currencies (such as U.S. dollars). The most common ways to obtain bitcoin are through...[ Read More ]
Working from home has its perks. Not only can you skip the commute, but you also might be eligible to deduct home office expenses on your tax return. Deductions for these expenses can save you a bundle, if you meet the tax law qualifications. Under the Tax Cuts and Jobs Act, employees can no longer claim the home office deduction. If, however, you run a business from your home or are otherwise self-employed and use part of your home for business purposes, the home office deduction may still be available to you. If you’re a homeowner and use part of your home for business purposes, you may be entitled to deduct a portion of actual expenses such as mortgage, property taxes, utilities, repairs and insurance, as well as depreciation. Or you might be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500). Requirements to...[ Read More ]
  Do you want to withdraw cash from your closely held corporation at a low tax cost? The easiest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient, since it’s taxable to you to the extent of your corporation’s “earnings and profits.” But it’s not deductible by the corporation. Different approaches Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five ideas: 1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity...[ Read More ]
  As we head toward gift-giving season, you may be considering giving cash or securities to your loved ones. Taxpayers can transfer amounts free of gift taxes to their children or others each year through the use of the annual federal gift tax exclusion. For 2019, the exclusion is $15,000 to each person. If you’re married, gifts made during a year can be treated as split between you and your spouse. By “gift-splitting,” up to $30,000 a year can be transferred to each person by a married couple, because two annual exclusions are available. If you give appreciated assets to loved ones in lower tax brackets, they may be able to pay a 0% long-term capital gains tax rate. Contact us with questions.
What’s the purpose of a corporation? For the last 50 years, the answer was “to maximize shareholder value.” But, on August 19, CEOs of 181 leading U.S. businesses, including Amazon, Apple, General Motors and Walmart, pledged to broaden the scope. Beyond shareholder value Putting shareholders first was the doctrine of University of Chicago economist Milton Friedman. In 1970, he famously wrote that “the social responsibility of business is to increase its profits.” While this mindset has enriched large shareholders, it’s also had negative consequences, including pay disparities between executives and frontline workers, layoffs and pollution. Last year, Chairman of the Business Roundtable Jamie Dimon launched a project to update its principles. The new version of its Principles of Corporate Governance looks beyond delivering value to shareholders. It also recognizes the importance of: Investing in employees through training and education, as well as providing fair compensation and benefits, Fostering diversity, inclusion,...[ Read More ]