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Business Strategies, business taxes, Family Tax Issues, General Information, REAL ESTATE, Retirement Income, Self Employed, Tax Reduction, TAXES

Congress Reinstates Expired Tax Provisions—Some Back to 2018

January 13, 2020 Howard Tax Prep LLC

Congress let many tax provisions expire on December 31, 2017, making them dead for your already- filed 2018 tax returns.

In what has become much too common practice, Congress resurrected the dead provisions retroactively to January 1, 2018. That’s good news. The bad news is that we have to amend your tax returns in our Chicago south loop tax preparation office to make this work for you.

And you can relax when filing your 2019 and 2020 tax returns, because lawmakers extended the “extender” tax laws for both years. Thus, no worries until 2021—and even longer for a few extenders that received special treatment.

Back from the Dead

The big five tax breaks that most likely impact your Form 1040 are as follows:

Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
Deduction for mortgage insurance premiums as residence interest
7.5 percent floor to deduct medical expenses (instead of 10 percent)
Above-the-line tuition and fees deduction
Nonbusiness energy property credit for energy-efficient improvements to your residence

Congress extended these five tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020, so you’re good for both 2019 and 2020.
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Other Provisions Revived

Congress also extended the following tax breaks retroactively to January 1, 2018, and they now expire on December 31, 2020 (unless otherwise noted):

Black lung disability trust fund tax
Indian employment credit
Railroad track maintenance credit (December 31, 2022)
Mine rescue team training credit
Certain racehorses as three-year depreciable property
Seven-year recovery period for motorsports entertainment complexes
Accelerated depreciation for business property on Indian reservations
Expensing rules for certain film, television, and theater productions
Empowerment zone tax incentives
American Samoa economic development credit
Biodiesel and renewable diesel credit (December 31, 2022)
Second-generation biofuel producer credit
Qualified fuel-cell motor vehicles
Alternative fuel-refueling property credit
Two-wheeled plug-in electric vehicle credit (December 31, 2021)
Credit for electricity produced from specific renewable resources
Production credit for Indian coal facilities
Energy-efficient homes credit
Special depreciation allowance for second-generation biofuel plant property
Energy-efficient commercial buildings deduction

Temporary Provisions Extended

Congress originally scheduled these provisions to end in 2019 and now extended them through 2020:

New markets tax credit
Paid family and medical leave credit
Work opportunity credit
Beer, wine, and distilled spirits reductions in certain excise taxes
Look-through rule for certain controlled foreign corporations
Health insurance coverage credit

If you have questions about the extenders, please call us at 855-743-5765. Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Strategies, business taxes, Family Tax Issues, General Information, REAL ESTATE, RUNNING YOUR BUSINESS, Self Employed, signing agent, Tax Reduction, TAXES

Unlock Tax Deductions with a Rental Property Home Office

January 9, 2020 Howard Tax Prep LLC

With the start of a new tax year, you’re probably looking for new tax savings opportunities, like our Chicago South Loop Tax Preparation clients.

As you probably know, establishing a home office for your Schedule C or corporate business creates valuable tax deductions.

But it’s not available only for your proprietorship,partnership, or corporate business. If you have rental properties, you can establish a home office to manage your rental properties and deduct the cost on your Schedule E.
or click here to call us 1-855-743-5765.

Rentals as a Business

The first hurdle is that your rental activities have to qualify as a “trade or business” under the tax law.

Luckily for you, that’s relatively simple—you’ll need regular and continuous involvement with your rental activities to meet this requirement.

Whether or not your rental activities are a trade or business depends on the facts and circumstances of your particular situation, and tax court cases give us guidance on that.

Qualifying Area

Your second hurdle is setting aside space in your home that qualifies for the home-office deduction.

For this to work, you need to use that space in your residence regularly and exclusively as the principal place of business for your rental activities.
or click here to call us 1-855-743-5765.

This sounds hard, and it was hard—before lawmakers changed the rules to include, as a principal place of business, the space you use for administrative or management activities, provided there is no other fixed location where you conduct substantial administrative or management activities.

Home-Office Deduction

Establishing a rental property home office does two things to your household expenses:

Turns non-deductible household expenses into tax deductions.
Moves household expenses normally deductible on Schedule A to your rental properties on Schedule E.

The latter is especially important after passage of the Tax Cuts and Jobs Act

put a $10,000 limit on your Schedule A state and local tax deductions, and
lowered the amount of your mortgage on which you deduct mortgage interest from $1 million to $750,000.

Eliminate Commuting

Without a qualifying home office, your mileage from home to your first business stop and then from your last business stop back home is non-deductible commuting mileage.

But here is what happens with the rental property’s principal office in your home:

You have no commuting mileage from your home to and from your rentals, if the rentals are in the area of your tax home (say, within 50 miles).
You establish your rental property tax home, and if your rentals are outside the area of your tax home, then the mileage from your home to and from the rentals is deductible business mileage because you are traveling outside the area of your tax home.

Real Estate Professional

If you qualify as a real estate professional under the tax law, then you can deduct 100 percent of your rental losses in the year you incur them.

But there’s a big hurdle to the tax law classification as a real estate professional. You must show that you spend

more than 50 percent of your personal service work time in real property trades or businesses in which you materially participate, and
more than 750 hours of service during the tax year in real property trades or business in which you materially participate.

Having a rental property home office that qualifies as a tax-code-defined principal place of business makes it easier to qualify as a real estate professional, because your time spent on deductible travel to and from your rental properties counts toward the time requirements.

Claiming Your Deduction

The Schedule E instructions not only fail to provide any explanation about where to put your home-office deduction, but they also do not even mention a home office.

But the instructions do say that you can deduct ordinary and necessary business expenses, and the home office meets that rule. Also, as established in Curphey (a precedent-setting case), the home office is allowable as an expense against income from a rental business.

If you would like to discuss your rental properties with me, please call us directly at 855-743-5765. Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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business taxes, Family Tax Issues, General Information, Self Employed, TAX DEBT RELIEF, Tax Reduction, TAXES

How Serious Is your IRS Letter?

November 22, 2019 Howard Tax Prep LLC

Has the IRS sent you a collections letter? How serious is that letter? Can you stroll to the phones, or do you need to break and run to the phones and call for help?

Listed below are the most common IRS collection letters that one may receive when they have tax debt. I’ve listed them in order from stroll to the phones (low detection on the IRS radar) to break and run to the phone lines & get help (requires immediate action).

CP14 – Casually stroll (No sense of real urgency).

CP501 – Put a little pep in your step (Take notice).

CP503 – Speed walk (Decide to do something).

CP504 – Start Jogging (things are getting very serious).

Letter 1058/LT11 – (Final Levy Notice)—Run like you’re trying to lose weight. —act now or lose your collection due process rights (your right to a hearing and a stop of collection).

CP90/CP91 – Run like you’re trying to lose weight. Another form of Final Notice of Intent to Levy.

CP71 – 10 Day Final Notice of Intent to Levy. RUN LIKE YOU’RE BEING CHASED IN A HORROR MOVIE. Act now, you are out of time.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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General Information, Retirement Income, RUNNING YOUR BUSINESS, Self Employed, TAX DEBT RELIEF, Tax Reduction, TAXES

SORTING OUT CONVERSIONS

November 22, 2019 Howard Tax Prep LLC

We’re getting closer and closer to the end of a tumultuous 2019 and almost daily in our Chicago tax office, we’re handling phone calls from clients asking for more ways to save on their tax bills.

Now, that’s nothing new, but these days, the strategies are. One of the biggest savings, long-term, is converting traditional retirement savings structures to Roth-based structures.

The granddaddy of all of these, of course, is the Roth IRA. What makes it so special? Well, for starters, you pay taxes up front. In 401(k)s and Traditional IRAs, those taxes a deferred until retirement or a certain age is reached.

Guess what? That’s a terrible idea! Who knows what the tax bill could look like in two, three or even four decades! Pay those taxes now and get them out of the way.
Here’s what makes most people nervous about converting a traditional 401(k) or IRA into a Roth structure.

You gotta pay taxes on it. Period. That’s it! You’ll pay – at least this year, on what you converted. In the future, of course, you’ll have already paid taxes on those monies or earnings prior to placing them into a Roth, but for a lot of people, that one-time conversion “tax” can be painful.

Don’t let it be. You’d have to do nearly the same thing if you took an “emergency” dispersion due to a financial challenge that forced you to crack open one of those retirement accounts. In most cases, anyway, the funds will be diverted out automatically, so your “payment” is really painless.
Just a little mental anguish.

Besides, you’re paying taxes on money you literally have in your hands!
Once you actually have a Roth set up, it’s surprisingly easy to convert old accounts to them.

You’ll essentially do one of three things:

• Execute a “Rollover” where monies from one account are drafted in a check to you, the account holder, and deposited into the new account within 60 days.
• Execute a “trustee to trustee transfer” where your current institution will transfer the monies from your account there to your Roth account elsewhere.
• Or execute a “same-trustee transfer” where you’ll merely instruct the institution to convert the current account to a Roth standard.

See? It’s not hard and, in fact, it’s easier than many types of banking we all do on a daily or weekly basis. In the long run, though, the tax savings can be considerable, and when you consider this is the money you’ll be using to fund your retirement, it’s important to understand – or know – all that money is yours, not the taxman’s!

Let us know how we can help you sort through all these challenges and we’ll chat soon! Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Strategies, business taxes, Family Tax Issues, General Information, RUNNING YOUR BUSINESS, Self Employed, TAX DEBT RELIEF, Tax Reduction, TAXES

401k For The Self Employed

November 18, 2019November 18, 2019 Howard Tax Prep LLC

You Don’t Have To Work For Others To Have A 401k Plan

In our Chicago South Loop tax preparation office, we often meet people that are ready to leave their jobs & start a new business. If you’re new to entrepreneurship, or even a veteran (seasoned) business owner, you may not realize that you can start an IRS qualified retirement plan for your business. The best thing about a small business owners solo 401k is that if you’re leaving your old an employer, you can transfer your current 401k plan to your own company’s 401k!

Transferring your 401k to a traditional solo 401k will help you avoid LOSING YOUR INVESTMENT TO TAXES & PENALTIES! Don’t want to leave your employer? No problem! You can still have a traditional or roth 401k plan with your own company, as long as you don’t defer more than the IRS yearly contribution limit.

WHAT DOES IT DO? A traditional solo 401k allows you to exclude income from currents years’ taxes,and defer the income for taxation at a later time. Build your retirement income, and maintain access of up to 50% of the funds’ assets through loans.

WHAT WILL IT SAVE ME? With the traditional solo 401k, you will be able to defer up to $56,000 of taxable income in 2019, and $57,000 in 2020. For example, if you generate $100,000 in business revenue, expenses, you would be taxed on the remaining $60,000. With a solo 401k, you can defer $19,000 as an employee of your company, and $15,000 for the employer contributions giving you a total deduction of $34,00 (leaving you with a taxable income of $26,000). By using this method you would remove yourself from the 22% tax bracket, and place yourself into the 12% tax bracket giving yourself a tax bill (including self employment taxes) of $4,650 instead of a $13,509 tax bill!

or click here to call us 1-855-743-5765.

WHAT CAN I INVEST IN? If you choose the traditional 401k plan, you will be able to invest in securities such as stocks, bonds, ETFs, commodities, and more. Should you choose a self directed Solo 401k, you can invest in things such as real estate, businesses, antiques, and more.

WHAT IF I HAVE OTHER RETIREMENT PLANS? Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your 401(k) contribution limit.

WHY DO I NEED IT? Retirement plans are an important element of a tax reduction plan. While an IRA is a good plan, if you need to access your money, you will have to pay a penalty. Those that can, should have a mix of 401k and traditional and Roth IRA’s.

or click here to call us 1-855-743-5765.

Solo 401k Contribution Calculator: What is the maximum amount you can contribute?

The Solo 401k Contribution Calculator allows you to calculate the maximum amount you can contribute to your plan. Click on the link below, enter requested info below and click the “Submit” button to see your results. A PDF document will be generated with the option for you to save or print it. It is very important that you select the correct business type; please note that Sole-Proprietor is selected by default (if your business is a single member LLC, select the Sole-Proprietor type). For an alternative calculator click HERE.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Strategies, business taxes, Family Tax Issues, General Information, RUNNING YOUR BUSINESS, Self Employed, signing agent, Tax Reduction, TAXES

5 LAST MINUTE YEAR END TAX SAVINGS TRICKS TO INCREASE YOUR BUSINESS DEDUCTIONS

November 12, 2019 Howard Tax Prep LLC

In our South Loop of Chicago tax preparation office, we often have small business owners looking to reduce their taxable income. In the spirit of the holiday’s we’ve written this article for small business owners with the purpose of you the reader getting the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.

Here are five powerful business tax deduction strategies that you can easily understand and implement before the end of 2019.

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2019 prepayments cannot go into 2021. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Tuesday, December 31, 2019, you mail a rent check for $36,000 to cover all of your 2020 rent. Your landlord does not receive the payment in the mail until Thursday, January 2, 2020. Here are the results:

• You deduct $36,000 in 2019 (the year you paid the money).
• The landlord reports $36,000 in 2020 (the year he received the money).
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You get what you want—the deduction this year. The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Don’t surprise your landlord: if he had received the $36,000 of rent paid in advance in 2019, he would have had to pay taxes on the rent money in tax year 2019.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2019. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jim Schafback, a dentist, usually bills his patients and the insurance companies at the end of each week; however, in December, he sends no bills. Instead, he gathers up those bills and mails them the first week of January. Presto! He just postponed paying taxes on his December 2019 income by moving that income to 2020.

3. Buy Office Equipment

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2019.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.
or click here to call us 1-855-743-5765.
If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

Continue reading “5 LAST MINUTE YEAR END TAX SAVINGS TRICKS TO INCREASE YOUR BUSINESS DEDUCTIONS” →

Business Strategies, business taxes, General Information, RUNNING YOUR BUSINESS, Self Employed, Tax Reduction, TAXES

Know Whether Your Trip Is a Deductible Business Expense

October 30, 2019October 30, 2019 Howard Tax Prep LLC

In our Chicago South Loop Tax preparation office, everyone is getting excited for the holidays. The holidays are a time to give thanks, spend time with family, and reflect on your year. For small business owners, travelling can also create business deductions! To help you understand business travel, consider this:

You planned a personal trip to Los Angeles, arriving on Friday afternoon and leaving on Sunday afternoon.

About a week later, you learn that a vendor you need to meet with is going to be in L.A. when you are. You arrange a dinner on Friday night to finalize negotiations on a large contract.

Can you now deduct 100 percent of your flight expenses to Los Angeles? How about meals?

Trouble. You must have business as your primary purpose for the trip. In general, a business trip can involve two types of business days:

1. Travel day. You count as business those days you spend traveling in a reasonably direct route to your business destination. (Again, note this is your business not your personal destination.)
2. Presence-required day. If someone requires your presence at a particular place for a specific and bona fide business purpose, this counts as a business day. That “someone” could be any business associate, employee, partner, client, customer, or vendor.

This trip we created for you works like this:

Day 1, Friday, is a personal day. (You may deduct the cost of the business meal with the vendor whether you pay for it in total or go Dutch treat.)
Day 2, Saturday, is a personal day.
Day 3, Sunday, is a personal day.

But let’s say you had this situation: you travel on Friday to meet with the vendor on Saturday and return home on Sunday. Now, you have a deductible trip.

Do I Have to Keep a Tax Diary for My Business Travel?

No, but the combination of the timely records you keep must prove the four elements below:

Amount. The amount of each expenditure for traveling away from home, such as the costs of transportation, lodging, and meals.
Time. Your dates of departure and return, and the number of days on business.
Place. Your travel destination described by city or town.
Business purpose. Your business reason for the travel, or the nature of the business benefit derived or expected to be derived.

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