Author Archives: Steve Sartin

Relief For Some 2023 IRA RMDs

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Article Highlights:

IRA Owners Turning 72 in 2023.
Required Minimum Distribution Not Required Until April 1, 2025.
60-Day Rollover Period
Rollover Period Extended Until September 30, 2023.

On July 14, 2023, the IRS issued Notice 2023-54 announcing that traditional IRA owners who will attain age 72 in 2023 (that is, individuals born in 1951) will have to take their first required minimum distribution (RMD) by April 1, 2025, rather than April 1, 2024.
This delay in the required beginning date means that these IRA owners (who, prior to enactment in late December 2022 of the SECURE 2.0 Act, would have been required to take minimum distributions from their IRAs for 2023) will have no RMD due from their IRAs for 2023. Thus, the first distribution for these IRA owners that will be treated as an RMD will be a distribution made for 2024, not 2023.
The significance of this for an individual having their 72nd birthday in 2023 is that IRA distributions in 2023 mischaracterized as 2023 RMDs will be eligible to be rolled back into their IRA account. Thus, the portion of the distribution that is redeposited will avoid tax in 2023. Tax law doesn’t allow RMDs to be rolled over, so this is why the IRS is identifying these distributions as mischaracterized RMDs and eligible for rollover.
The normal period allowed for a rollover is 60 days from the time of the distribution. But to accommodate those who would have preferred not to take this mischaracterized distribution in 2023, the IRS extended the 60-day rollover period to September 30, 2023 for IRA owners and IRA owners’ surviving spouses.
There is also a 12-month waiting time between IRA rollovers but for purposes of the extended rollover period for mischaracterized distributions, the rollover is allowed even if the IRA owner or their surviving spouse has rolled over a distribution within the last twelve months. However, making such a rollover of the mischaracterized IRA distribution would prevent the IRA owner or surviving spouse from rolling over another IRA distribution in the next twelve months.
If you have questions, please contact this office.

Posted in Tax

Your Entrepreneur Start-Up Guide: The Best Practices to Help Motivate Success

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Ask any experienced entrepreneur and they will tell you that the difference between running a business and running a successful business is massive. To truly give yourself the best chance of success, and to help achieve your overall goals in the most effective ways possible, there are a number of key best practices you’ll want to keep in mind along the way.
The Importance of a Well-Laid Plan
By far, the number one best practice that all successful entrepreneurs lean into has to do with developing not just a business idea, but a thorough, actionable business plan.
Anybody can come up with a business idea – countless people do it on a daily basis. Let’s say you have an idea for a great new product and there’s nothing really like it in the marketplace right now. Great – what next?
How are you going to procure the materials needed to bring that product to life? What design challenges are you going to need to overcome? How big is your market, who are your current competitors, and what does your ideal potential customer look like? These are all the types of questions that you need to answer before you even think about saying that you “run a business.”
In five years, if your goal is to open a brick-and-mortar retail location, how do you connect where you want to be with where you currently are? How many employees will you need to make that happen? Where will your initial capital investment come from? Forget five years from now – what does the next fiscal quarter look like?
An actionable business plan breaks the entire process down into a series of smaller, more manageable steps and helps you accomplish your goals more organically.

Listen to Your CustomersAnother key thing that early-stage entrepreneurs need to understand in particular has to do with the idea that you should always listen to your customers and your marketplace whenever possible.
If you’re trying to bring a great new product or service into the world, at a certain point the genesis of that idea is out of your hands. It could be an objectively great product but if the market isn’t there, it isn’t going to be a success. But if the market is telling you in unison that “this would be better if you changed X, Y, or Z elements” or that they would buy it if “it had A, B, or C features,” it is absolutely in your best interest to at least take that all into consideration.
Even though you’re an entrepreneur, you are not the ultimate authority on what your business does and how it does it. Your customers have opinions that they are more than willing to share. Being willing to listen to them is often what propels successful entrepreneurs ahead of the pack.

You Are Not the Smartest Person in the Room… Or at Least, You Shouldn’t Be
Finally, know that just because you’re a passionate start-up entrepreneur doesn’t mean you’ll be able to “go it alone” forever. Yes, your “can-do attitude” has already gotten you far. There will come a time when you need to give that up and surround yourself with others.
When that time comes, resist the urge to hire people who will simply tell you what you want to hear. In your effort to become a “Jack of All Trades,” there will be certain skills that you need that you don’t personally have. Surround yourself with smart individuals – preferably those who are smarter than you are – who have those skills.
Likewise, always be proactive about seeking out advice. Participate in networking events and other opportunities to speak to entrepreneurs who have been where you are now. The type of advice they have to offer can be invaluable to understanding what it will take to sustain your vision for the long haul.
Overall, one of the most important things to understand about being an entrepreneur is that everybody’s journey is different. There is no “one size fits all” approach to starting a successful business and what works incredibly well for one person may be woefully inadequate for the next.

That is to say, the advice in this list is intended to be exactly that – advice. Find the best practices that generate the results you’re after and lean into them as much as possible. When you encounter a technique that doesn’t work, move on to the next. Part of being an entrepreneur involves a willingness to try just about anything if it can help them get closer to that goal.

Why It’s Never Too Early to Start a Savings Account for Your Children

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Parents – especially new ones – are always looking for new ways to improve the lives of their children. Surprisingly, one of the most effective opportunities that people also often overlook has to do with starting a savings account for that child as early as they’re capable of doing so.
On the one hand, no – it’s probably not a good idea to give a young child in particular unrestricted access to a bank account filled with money. But that’s not the topic under discussion. By starting a savings account for your kids early on in their lives, you put things like compounding interest to work for them (and you). Not only that, but you begin to lay the building blocks of a larger financial education that will serve them well for years to come.

The Impact of Compounding Interest
While terms like “compounding interest” may sound complicated, the idea at the heart of them is anything but. It simply means that any investment you make will generate interest, which means that the investment grows over the next period of time.
For the sake of example, let’s say you open a high-yield savings account for your child when they turn 10 years old. You contribute $60 per month like clockwork or about $15 per week. At an interest rate of 1.5% compounded daily, that account will have $6,205 in it by the time the child turns 18 – all thanks to the magic of compounding interest.
Note that if you open that same account up at birth and make those same contributions, that number climbs to $15,085.
Things get even more impressive if you open a dedicated investment account, which typically has an annual return of about 7%. Here, if you’d made that same $60 per month contribution, the child would have $7,829 by the time they turn 18. Open the same account when they’re born and continue to make the same contribution and that number climbs to $26,337. If you fund it even more the growth is substantial.
All this is because of the major benefits that compounding interest brings with it. When your interest earns its own interest, soon the idea of generating a substantial return on your investment becomes something of a self-fulfilling prophecy. At that point, the momentum of the account should motivate you to keep contributing. It will also represent an excellent educational opportunity for your family to show your child just what can happen when they put the money they’re earning to work for them.

It’s About Building a Foundation
Beyond that, it’s always a good idea to open up something like a Roth IRA for your kids – particularly so that they’re able to start saving for retirement as soon as possible. Unlike older adults, in particular, your kids have literally decades for any contributions that they make to grow. Not only do they grow tax-free, but when you hit retirement age, those contributions can also be withdrawn tax and penalty-free as well.
Truly, it’s a great thing that there are no age limits when it comes to custodial Roth IRAs because “there is no time like the present” to get one started. Your kids will need to have their own earned income (so they need to be legal working age) and they have to obey contribution limits, but all of this can help them understand what saving is and why it matters so much.
The best part of all is that with many financial institutions, opening a custodial Roth IRA can take a half hour or less.
Overall, it’s important to think about many of the financial tips, tricks, and best practices you hear about later in life. When adulthood has set in and you’re actively worried about pesky topics like “paying bills” or “saving for retirement,” you typically always hear two key things:

It’s never too late to start saving for a better future, but

It’s certainly never too early, either.

Most people get to a point where they wish they’d started saving a bit earlier than they really did and now, by setting up a savings account for your children, you have the opportunity to make sure this isn’t something that they spend time stressing about. At the very least, they’ll have a little extra money stashed away for a proverbial “rainy day” that will help out later on.

But in the best-case scenario, you’ll have started them on a critical path to financial literacy that will give them a better shot at making the best possible decisions when it comes to their financial future. The importance of this simply cannot be overstated, regardless of how old they are.

Can a Self-Employed Taxpayer Mix Business and Pleasure During Foreign Travel and Still Get a Tax Deduction?

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Article Highlights:

100% Business
Primarily Vacation
Primarily Business
Special Circumstances
Foreign Conventions, Seminars, and Meetings
Cruise Ships
Spousal Travel Expenses

Note: the business expenses discussed in this article – both foreign and domestic – are not deductible by employees during years 2018 through 2025. However, they are available to self-employed individuals.
When a self-employed individual makes a business trip outside of the U.S. and the trip is 100% devoted to business, all of the ordinary and necessary business travel expenses are deductible, just as if the business trip were within the U.S.
On the other hand, if the trip also incorporates a vacation, then special rules determine the deductibility of the travel expenses to and from the destination; when the other business travel expenses, such as lodging, meals, local travel, and incidentals can be deducted; and when they must be allocated. So, whether you are just visiting Canada, Mexico, a Caribbean island or traveling to Europe or even more exotic locales, here are some travel tax pointers:

Primarily Vacation – If your travel is primarily for vacation and you spend only a few hours attending professional seminars or meeting with foreign business colleagues, then none of the expenses you incurred in traveling to and from the general business location are deductible. Other travel expenses must be allocated on a day-by-day basis, and only the business portion is deductible.
Primarily Business – If your trip is primarily for business and meets one of the conditions listed below, then the expenses incurred in traveling to and from the foreign business destination are deductible in full (same as for travel within the U.S.).
(1) The travel outside the U.S. is for a period of one week or less (seven consecutive days, excluding the departure day but including the day of return). In addition, all other ordinary and necessary travel expenses are fully deductible.
(2) Less than 25% of your total time outside the U.S. is spent on non-business activities. In addition, all other ordinary and necessary travel expenses are fully deductible. (If 25% or more of the total time is spent on non-business activities, then a day-by-day allocation of all travel expenses between personal and business activities is necessary, and only the business portion is deductible.)
(3 ) You can establish that a personal vacation or holiday was not a major consideration. In addition, all other ordinary and necessary travel expenses are fully deductible.
(4) You did not have ‘substantial control’ over arranging the trip. In addition, all other ordinary and necessary travel expenses are fully deductible.Since a self-employed person generally has substantial control over arranging business trips, self-employed individuals usually won’t be able to meet this condition.

When determining what constitutes business and non-business time, business days include days en route to or from the business destination by a reasonably direct route without interruption; days when actual business is transacted; weekends or standby days that fall between business days; and days when business was to have been transacted but was canceled due to unforeseen circumstances.
Nonbusiness days are days you spent on nonbusiness activities as well as weekends, holidays, and other standby days that fall at the end of the business activity, if you remained at the business destination for personal reasons.
Foreign Conventions, Seminars, or Meetings – No deduction for your travel expenses to attend a convention, seminar, or similar meeting held outside of the North American area is allowed unless you establish that:

1. The meeting is directly related to the active conduct of your trade or business and
2. It is ‘as reasonable’ for the meeting to be held outside of North America as it is withinthe North American area.

The IRS defines ‘North American area’ quite broadly and includes not just the U.S., Canada, and Mexico, as you would expect, but also several countries in the Caribbean basin, U.S. possessions, a few Pacific island nations, and some Central American countries as well. In addition to the USA and the following list of locations, the North American area also includes U.S. islands, cays and reefs that are territories of the U.S. and not part of the 50 states or the District of Columbia.

American Samoa
Jamaica

Antigua and Barbuda
Jarvis Island

Aruba
Johnston Island

Bahamas
Marshall Islands

Baker Island
Mexico

Barbados
Micronesia

Canada
Midway Islands

Costa Rica
Northern Mariana Islands

Curaçao
Palau

Dominica
Palmyra Atoll

Dominican Republic
Panama

Grenada
Puerto Rico

Guam
Saint Lucia

Guyana
Trinidad and Tobago

Honduras
U.S. Virgin Islands

Howland Island
Wake Island

Cruise Ship Conventions –To deduct the cost of attending a convention related to your trade or business on a cruise ship, the ship must be a U.S. flagship, and all of the ports of call must be within the U.S. or its possessions. In addition, the maximum deduction is limited to $2,000 per attendee. The substantiation requirements include certain signed statements by the both you and an officer of the convention sponsor.
Spousal* Travel Expenses – Generally, deductions are denied to a business for the travel expenses of a business owner’s spouse, a dependent, or employee accompanying the business owner on a business trip, unless:

The spouse, etc., is an employee of the taxpayer; and
The travel of the spouse, etc., is for a bona fide business purpose; and
The expenses would otherwise be a deductible business travel expense for the spouse, etc.

*These rules also apply to a dependent or employee of the taxpayer.
However, the law allows a deduction for the single rate of lodging on qualified business trips, and frequently, there is no rate difference between one and two occupants. Thus, virtually the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the business-related transportation would be deductible. This would generally also apply to taxis and ride-share vehicles (Uber, Lyft) at the destination.
As you can see, determining the tax deduction for a foreign business trip that is combined with a vacation can be complicated. If you need additional tax guidance when planning such a trip, please give this office a call.

New Employee Onboarding Best Practices: Factors to Consider for Success

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According to one recent study, replacing an employee who has left your business can cost between 50% to 60% of that person’s salary. This is why it’s virtually always more expensive to hire a new person than it is to simply retain one of your existing workers. If you’re replacing someone who makes about $100,000 per year, it could cost between $50,000 and $60,000 just to get someone new in the door – and that’s before they’ve had a chance to start working.
If you need a single statistic that underlines the importance of employee onboarding, let it be that one.
Salaries are a huge part of the costs incurred when running a business, yes – but they’re also not the only expense of a high turnover. Not only does it delay the ability of your team to drive revenue, but it also significantly hurts employee morale in the long run.
Thankfully, you can take several steps during the employee onboarding process today that will help pave the way for success tomorrow.

The Age of Pre-Boarding is Upon Us
Truly, one of the most important things to understand about all of this is that it’s never too early to start preparing someone for their first day on the job. In recent years, many businesses have begun to engage in this prior to the start of the official “onboarding” process.
This is known as pre-boarding, and it can involve a number of things such as:

Sending a new hire a welcome kit, which can include merchandise like t-shirts with company branding, a laptop or other assets that they’ll need once they get started, and more. If nothing else, you’ll know that they A) have access to certain tools, and B) you’ll have already begun making them feel like they belong.
Sending “what to expect” messages. This is a great way to get someone’s expectations in order as early on in the process as possible. Let them know who they’ll be interacting with on their first day, for example, and what items they should bring with them.
Conduct team introductions. For someone to be at their best, they need to feel like they’re contributing to the larger whole. To get to that point, you’ll want to introduce new hires to team members even before they begin onboarding in earnest.

Take Care of Administrative Tasks First
Once onboarding does begin, you’ll want to make sure that new hires have a “clear runway” to get to know the business and its culture, so to speak. This means completing all common onboarding tasks prior to someone’s arrival. If nothing else, this can help make sure that there are no unnecessary delays in their training and ongoing education.
Just a few of these tasks include but are not limited to things like:

Making sure that all necessary security logins to your business’ technology, along with building access keys, have been accounted for.
Setting up a new hire’s desk for them complete with necessary equipment like a computer, monitor, cables, adapters, and phone service. At the very least, you should make sure that they have a desk to report to in the first place.
Create a profile for the new hire (complete with any associated logins) for any attendance tool that you’re using.
If yours is the type of business that hands out uniforms and personalized name tags, these should be among the first things that the employee receives on their first day on the job.

Hit the Ground Running
New employees are always at their best when they’re engaged with your business. To get there, they have to be excited about their new job. This means that you should go out of your way to make this person’s first day, and the beginning of their larger onboarding experience, as exciting as possible.
If scheduling allows, arrange a lovely lunch with this new hire and a few of the people they’ll be working with. Send out an email to the entire business that introduces the new employee and lets people know when they’ll be starting and how exciting it is that they’ve arrived. You could even give them a gift for their first day.
In the end, it doesn’t matter how much experience a new hire has, or how impressive their resume is. They still need to be onboarded properly. Remember that if a chain is only as strong as its weakest link, your teams are only as strong as their weakest member. Don’t let that weak member be someone who wasn’t onboarded properly because, in that situation, the only people at fault will ultimately be company leadership.

Tax Changes Coming After 2025

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Article Highlights:

Standard Deductions
Personal & Dependent Exemptions
Child Tax Credit
Home Mortgage Interest Limitations
Tier 2 Miscellaneous Deductions
Phaseout of Itemize Deductions
SALT Limits
Moving Deduction
Commuting Tax Benefits
Personal Casualty Losses
Estate Tax Exclusion
Tax Brackets
Alternative Minimum Tax (AMT)
Qualified Business Income (QBI) Deduction

By now you have probably gotten used to the provisions in the Tax Cuts and Jobs Act (TCJA) that became effective January 1, 2018. But don’t forget, most of the tax changes made by the TCJA are not permanent and will expire (sunset) after 2025. This will have an impact on long range tax planning and will result in a mixed bag of tax increases and tax cuts. How it will impact individual taxpayers will depend upon which provisions of TCJA affect them. The following is a review of what will happen when TCJA expires if Congress doesn’t intervene.
Standard Deductions – The standard deduction is that amount of deductions you are allowed on your tax return without itemizing your deductions. The standard deduction is annually adjusted for inflation. In 2018, the TCJA just about doubled the standard deduction as illustrated in the table below that also illustrates the 2023 standard deduction amounts. With expiration of TCJA the standard deduction will be cut roughly in half.

HISTORICAL STANDARD DEDUCTIONS

Tax Year
2017 (pre-TCJA)
2018 (post-TCJA)
2023

Married Filing Joint and Surviving Spouse
$12,700
$24,000
$27,700

Head of Household
$9,350
$18,000
$20,800

Single
$6,350
$12,000
$13,850

Married Filing Separate
$6,350
$12,000
$13,850

The increased standard deduction under TCJA benefited lower income taxpayers and retirees, whose itemized deductions often were just barely more than the pre-TCJA standard allowance. The increased standard deductions also meant fewer taxpayers claimed itemized deductions – roughly 10% of filers now itemize versus 30% before TCJA – which helped simplify these filers’ returns.
Personal & Dependent Exemptions – Prior to 2018, the tax law allowed a deduction for personal and dependent exemption allowances. One allowance was permitted for each filer and spouse and each dependent claimed on the federal return. For the year prior to the TCJA’s suspension of the exemption deduction, the exemption amount was $4,050, which would have been inflation adjusted to $4,700 in 2023. The deduction for exemptions phased out for higher income taxpayers.
Child Tax Credit – Prior to 2018 the child tax credit was $1,000 for each child below the age of 17 at the end of the year. With the advent of TCJA the child tax credit was doubled to $2,000 for each child below the age of 17 at the end of the year. This more than made up for the loss of a child’s personal exemption deduction for lower income families.
The child tax credit is subject to phaseout for higher income taxpayers. However, TCJA substantially increased the income phaseout thresholds as illustrated in the table below, so much so that the credit became available to middle-income taxpayers. Also of note is the fact that the phaseout thresholds for the credit are not inflation adjusted. As a result, each year the credit benefit is gradually diminished for higher-income taxpayers.

CHILD TAX CREDIT INCOME PHASEOUT THRESHOLDS

Filing Status
Pre-TCJA
Post-TCJA

Married Filing Joint
$110,000
$400,000

Married Filing Separate
$55,000
$200,000

Head of Household
$112,500
$200,000

All Others
$75,000
$200,000

If the credit is allowed to revert to the pre-TCJA amount of $1,000 and the lower income phaseout levels, it will have significant negative impact on families.
You may recall that for one year during the Covid-19 pandemic, the child credit amount was increased to $3,000 or $3,600, depending on the child’s age, and other temporary changes were made. Some in Congress want to permanently bring back these enhancements, so that possibility could become part of any legislation negotiations surrounding the sunsetting or extension of TCJA provisions.
Home Mortgage Interest Limitations – Prior to the passage of TCJA taxpayers could deduct as an itemized deduction the interest on $1 Million ($500,000 for married taxpayers filing separate) of acquisition debt and the interest on $100,000 of equity debt secured by their first and second homes. With the passage of TCJA, the $1 Million limitation was reduced to $750,000 for loans made after 2017 and any deduction of equity debt interest was suspended (not allowed). A return to pre-TCJA levels will tend to benefit higher income taxpayer with more expensive homes and higher mortgages.
Tier 2 Miscellaneous Deductions – TCJA suspended the itemized deduction for miscellaneous deductions for tax preparation fees, unreimbursed employee business expenses, and investment expenses. Most notable of these is unreimbursed employee expenses which allowed employees to deduct the cost of such things as union dues, uniforms, profession-related education, tools and other expenses related to their employment and profession not paid for by their employer. Investment expenses included investment management fees charged by brokerage firms and tax preparation fees, including the cost of tax return preparation and tax planning expenses. These types of expenses were allowed only to the extent they totaled more than 2% of the taxpayer’s adjusted gross income.
Phaseout of Itemized Deductions – Prior to TCJA itemized deductions were phased out for higher income taxpayers. The phaseout thresholds were annually inflation adjusted and for 2017, the year prior to TCJA taking effect, the AGI thresholds were $313,800 for married taxpayers filing jointly (half that for married filing separate), $261,500 for single filers, and $287,650 for those filing as head of household. Under TCJA the phaseouts were suspended, which only benefited higher income taxpayers. If the phaseout is reinstated, it will negatively affect upper income taxpayers, and increase the complexity of their returns.
SALT Limits – SALT is the acronym for ‘state and local taxes’. TCJA limited the annual SALT itemized deduction to $10,000, which primarily impacted residents of states with high state income tax and real property tax rates, such as NY, NJ, and CA. Several states have developed somewhat complicated work-a-arounds to the $10,000 limits that benefit taxpayers who have partnership interests or are shareholders in S corporations. The elimination of the SALT limitation will favor those residing in states with a state income tax and those with larger property taxes.
Moving Deduction – Prior to the implementation of TCJA taxpayers were able to deduct unreimbursed job-related moving costs where there was an increased commuting distance of 50 miles or more from the prior home and provided the individual worked at the new location full time for 39 weeks of the first 52 weeks (39 weeks first year and 78 weeks in first 2 years for self-employed persons). The moving deduction for active-duty military members was not suspended by TCJA. A restoration of this deduction would benefit taxpayers who are relocating because of job change where the employer is not reimbursing the cost of the move.
Commuting Tax Benefits – Prior to TCJA, an employer could reimburse an employee up to $20 a month for commuting to work on a bicycle, the $20 ($240 annually) was not taxable to the employee, and the employer could deduct the $20. TCJA suspended that benefit for bike commuters for years 2018 through 2025. In addition, although employers can provide a tax-free benefit to employees for transit passes, commuter transportation, and qualified parking, the employer is unable to deduct those expenses under TCJA. For 2023 the maximum monthly exclusion for these fringe benefits is $300 ($3,600 annually). The sunsetting of TCJA may provide an incentive for employers to once again provide the bicycle commuting benefit to their employees.
Personal Casualty Losses – Personal casualty losses are part of the Schedule A itemized deductions. TCJA suspended these losses that did not result from a federally declared disaster. If this deduction is restored, individuals will be able to deduct unreimbursed losses that exceed $100 per casualty and to the extent that these casualties exceed 10% of the individual’s AGI for the year.
Estate Tax Exclusion – TCJA virtually doubled the inflation-adjusted estate and gift tax exclusion as illustrated in the table below. This benefited wealthier taxpayers with larger estates. Also illustrated in the table is the inflation adjusted amount for 2023.

ESTATE AND GIFT TAX EXCLUSION

Tax Year

2017 (pre-TCJA)

2018 (post-TCJA)

2023

Maximum Exclusion

$5.49 Million

$11.18 Million

$12.92 Million

Most taxpayers have estates well under the pre-TCJA exclusion amount and will not be affected by a restoration of the lower amounts. However, this is not true of wealthier taxpayers, especially considering the estate tax rate is currently 40%.
Tax Brackets – TCJA altered the tax brackets and although most taxpayers benefited, higher income taxpayers benefited the most with a 2.6% cut in the top tax rate. The table only reflects different tax brackets. They may or may not apply to the same levels of income.

TAX BRACKETS

Pre-TCJA

10%

15%

25%

28%

33%

35%

39.6%

Post-TCJA

10%

12%

22%

24%

32%

35%

37%

A return to the pre-TCJA rates would have the largest negative effect on higher income taxpayers.
Alternative Minimum Tax (AMT) – As part of TCJA Congress did eliminate the Corporate AMT, and even though they had also vowed to eliminate the individual AMT, when the final TCJA was passed, it was still there. But they did include a modest increase of the AMT exemption amounts and a huge increase in exemption amount phase-out thresholds. These, in addition to several other regular tax changes made by TCJA that eliminated certain itemized deductions that caused the AMT in the past, virtually wiped away the AMT for most taxpayers that were affected by it in years before 2018. Depending what changes Congress makes when TCJA expires, the AMT could again cause grief for many taxpayers.
Qualified Business Income (QBI) Deduction – As part of TCJA, Congress changed the tax-rate structure for C corporations to a flat rate of 21% instead of the former graduated rates that topped out at 35%. Needing a way to equalize the rate reduction for all taxpayers with business income, Congress came up with a new deduction for businesses that are not organized as C corporations.
This resulted in a new and substantial tax benefit for most non-C corporation business owners in the form of a deduction that is generally equal to 20% of their qualified business income (QBI).If allowed to sunset with TCJA, businesses (generally small businesses) will lose a substantial deduction.
Of course, these potential changes assume Congress does not extend or alter them. And they aren’t the only tax issues impacted by the December 31, 2025, TCJA sunset date, but are probably those that will affect the most taxpayers. Depending upon your particular circumstances, these possible changes can potentially impact your long-term planning such as buying a home, retirement planning, estate planning, future tax liability and other issues. Please contact this office with any questions.

Posted in Tax

When Tax Issues Become a Criminal Situation in the Eyes of the IRS

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Due to the admittedly complicated nature of the tax code in the United States, the idea that someone might experience issues when filing is not exactly unheard of. Oftentimes people will calculate certain aspects of their returns wrong, fail to submit the necessary paperwork, or something similar. That’s part of what amended returns are for – eventually, either you or the IRS will discover the mistake and at that point, things can be properly corrected.
Of course, the chasm between a “minor accident” and “intentional fraud” when it comes to your taxes is a big one, indeed. The latter can get you into a significant amount of trouble and may even venture into criminal territory if you’re not careful.

The Case With Criminal Charges and the IRS: What You Need to Know
Whenever this topic comes up, the first question that most people ask involves “What does ‘criminal conduct’ mean within the context of the IRS, anyway?” The answer, unfortunately, is pretty broad. The government defines it as ANY action you take that violates tax laws or regulations. So if you’ve claimed a deduction that you weren’t entitled to in order to reduce your tax liability, that would be considered criminal conduct. If you underreported your income in an attempt to get a bigger refund, that would be criminal conduct.
Just because that may be true doesn’t mean the IRS will prosecute anyone and everyone it finds that falls into this category, however.
Overall, know that the IRS doesn’t go to the trouble of pursuing criminal charges for any old taxpayer with a basic filing issue, regardless of how negligent they may be. Ultimately, it will come down to a few different factors including the severity of the issue in question, whether they can prove an intent to defraud, and of course the Statute of Limitations.
To start in the reverse order, know that the Statute of Limitations is the amount of time that the IRS has to legally begin criminal prosecution in the first place. If you haven’t filed taxes at all or have underreported your income (and they can prove it), they have six years from the date the correct return was supposed to be in their hands to do anything about it.
If you have a fraudulent return, however – meaning you’ve intentionally lied about things like your income sources – there is no statute of limitations. So don’t make the mistake of assuming you’ll be able to “wait them out” on this one.
The IRS will also need to be confident that they’d be able to prove their case should they choose to bring criminal charges. If they suspect something like filing false returns, unpaid taxes, mail fraud, or even bank fraud, the most likely next step will be to begin an investigation. This will likely involve not only the dreaded audit but interviews with yourself and other key witnesses, subpoenas to obtain your financial records like bank statements, and more.
If key evidence is uncovered throughout all this, the Criminal Investigation Division (CID) of the IRS will likely get involved.

Additional Considerations About Your Taxes
Understand that when you’re talking about criminal charges and the IRS, this is not a situation to be taken lightly. The average amount of jail time given to people for tax ovation is between three and five years, for example.
But that’s not all – you could also easily get fined up to $100,000 (again, depending on the severity of the crime) or up to $500,000 if you’re a corporation. The IRS takes all of this incredibly seriously which means that you need to as well.
In the end, all of this helps to underline the importance of making sure that your taxes are done properly in the first place. Obviously, showing an intent to defraud the federal government when filing your taxes is a situation that you would do well to avoid at all costs. But you also want to guarantee that everything is submitted exactly as it should be and that you’ve ultimately paid everything you owe (whether you like it or not).
Even if you don’t rise to the bar of criminality, underpayments, late payments, and other issues could still get you hit with significant fees and other penalties. If you don’t feel like you’re able to handle things on your own, don’t be afraid to enlist the help of an experienced financial professional to do so on your behalf. That way, you’ll be able to rest easy knowing that all matters with the IRS are being taken care of.

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Seasonal Summer Employees Can Provide Tax Benefit

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Article Highlights:

What is the Work Opportunity Tax Credit?
Maximum Credit
Who Can Claim the Credit?
Qualified Employees
Pre-screening and Certification
Tax-exempt Employers

Summer is upon us, which signals the need for seasonal employees to fill in for workers who are on vacation during the busy months ahead and even for some gearing up for the upcoming hectic holiday season. However, given the current labor shortage many businesses are facing a tight jobs market. So, it may be time to become creative.
One solution might be hiring family members. Financially, it makes more sense to keep the family employed rather than hiring strangers, provided, of course, that the family member is suitable for the job.
You might even consider hiring your children to work in your business. Rather than helping to support your children with your after-tax dollars, you can instead hire them in your business and pay them with tax-deductible dollars. Of course, the employment must be legitimate and the pay commensurate with the hours and the job worked. Click here for information related to hiring your children in your business and the associated tax breaks.
Another solution might be hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. Doing so may allow you to benefit from the Work Opportunity Tax Credit (WOTC).
The Work Opportunity Tax Credit (WOTC) is a general business tax credit that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.
The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups.
In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:

Is in their first year of employment with the business;
Is certified as being a member of a targeted group; and
Performs at least 400 hours of services for that employer.

However, an employer cannot claim the WOTC for employees who are rehired.
Maximum Credit – Thus, the maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be considered in determining the WOTC for certain qualified veterans.
Who Can Claim the Credit – Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and in certain U.S. territories. Taxable employers claim the WOTC against income taxes, and in general, may carry the current year’s unused WOTC back one year and then forward 20 years. ‘Carrying back’ the credit means that the tax return filed for the prior year will need to be amended to claim the credit on that return. The procedure is different for eligible tax-exempt employers; please contact this office for details.
Qualified Employees – An employer may claim the WOTC for an individual who is certified as a member of any of the following targeted groups:

Qualified IV-A Recipient (relates to Temporary Assistance for Needy Families (TANF))
Qualified Veteran
Qualified Ex-Felon
Qualified Designated Community Resident (DCR)
Qualified Vocational Rehabilitation Referral
Qualified Summer Youth Employee
Qualified Supplemental Nutrition Assistance Program (SNAP) Recipient
Qualified Supplemental Security Income (SSI) Recipient
Qualified Long-Term Family Assistance Recipient
Qualified Long-Term Unemployment Recipient

Pre-screening and Certification – An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850. The instructions to Form 8850 provide details about the targeted groups.
Please contact this office for additional information and assistance to determine if hiring family members or hiring individuals who qualify for the WOTC is appropriate for your business.

Posted in Tax

5 Ways QuickBooks Online Can Make You More Profitable

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QuickBooks Online is really good at a lot of things. It helps you create and manage contact records and sales forms. It can keep you apprised of your online account transactions and balances and help you pay your bills. It simplifies customer payments and provides easy-to-use templates for reports.
But it’s much more than just an online bookkeeper. It can get the numbers right, but it can also help get them headed in the right direction by providing tools in several areas. When you take advantage of them, you’ll see the positive impact they can have on your company’s financial health.
Preparing for Positive Change
Maybe you already know about some or all of these tools but just haven’t incorporated them into your regular workflow. Most of them are actions you can take on your own, though you may want our help on at least one of them. Set a goal to try these for three months, and you’ll see whether they help your company experience:
Improved Cash Flow
You know you should be doing what you can to maximize income and minimize expenses. But do you know you can achieve at least modest improvements in these areas without a great deal of effort? To do so, you just have to be very aware of what you’re bringing in and purchasing.
Click Get paid & pay, then Customers. The colored bars at the top show you unfinished business: unresolved estimates, unbilled activity, and overdue and open invoices. Related transactions appear when you click on one. You’ll probably discover that you have some money just sitting there, waiting to be processed by, for example, sending reminders and statements.

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The Customers page displays transactions that need additional attention to bring in the money you’re owed.

Next, go to Bookkeeping | Transactions | Expenses. Filter your account register so you only see Expenses, then do the same for Bills. Assign a Category to any that are blank. Now when you run reports, you’ll be able to see where your spending needs to be reined in. Taxes and reports will be more accurate – and more useful.
Smart Inventory Levels
Does your business sell products? If so, you know what a balancing act it is to maintain a stable level of inventory. You may have seen what happens when you run out of a particular product unexpectedly. Not only did you lose the sale, but you might have lost the customer completely. And if you carry too much stock that isn’t selling, you’re tying up money unnecessarily.
QuickBooks Online allows you to create detailed inventory records that include the number of items you have on hand initially and your self-imposed reorder point. When you look at an item record, you’ll see how many are currently in your possession and when you need to reorder based on how sales have reduced inventory. Reports that might be helpful here include Physical Inventory Worksheet and Sales by Product/Service Detail.
Faster Customer Payments
In addition to the action described above, there are a number of reports you can run to see whether customers are late with invoice payments. These include Open Invoices, Unbilled Time, and Accounts Receivable Aging Detail. You’ll find these under Who owes you. If you learn that some customers are paying late, consider setting up a merchant account through QuickBooks Payments so you can accept credit and debit cards and ACH payments. You may find that customers pay faster when it’s more convenient to do so.

Your customers will be likely to pay faster if you make it easier for them to do so.

Better Customer Relationships
Your customers are the lifeblood of your company. Are you going beyond simply filling their orders? Unless you have hundreds of them, you might want to keep an eye on their buying habits and initiate some contact between purchases – especially if there’s a lengthy gap between orders.
QuickBooks Online’s Customer pages provide what you need to know, including a real-time status update on their estimates, invoices and sales receipts, and payments. You might want to be in touch if they haven’t ordered for a while and offer them a one-time discount. Or notify them of new products or services they might like. Frequent customers deserve special attention, too. Sales by Customer Summary can be a helpful report here.
A Clearer Path Forward
QuickBooks Online is very good at providing reports that help you make short-term decisions. But to truly understand the current state of your company’s financial health and make longer-term plans, you really need to see and understand your financial statements, like Balance Sheet, Profit and Loss, and Statement of Cash Flows. You’ll find these under For my accountant. They’re easy to create, but it really takes a trained processional to analyze and interpret them for you.
We’d be happy to take this on this critical task, at least on an annual basis, if not quarterly or monthly. In the meantime, let us know if you have questions about QuickBooks Online’s operations or concerns about your use of it. Hope you’re enjoying the summer!

July 2023 Individual Due Dates

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July 3 – Time for a Mid-Year Tax Check UpTime to review your 2023 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties.July 10 – Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during June, you are required to report them to your employer on IRS Form 4070 no later than July 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
Weekends & Holidays:
If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.
Disaster Area Extensions:Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:
FEMA: https://www.fema.gov/disaster/declarationsIRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situationsFor example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

Posted in Tax