financial planning – Page 2 – SMALL BIZ TAX LADY

What tax effect would death, retirement, or disability have on you or your business?

Here’s an easy example to illustrate.

Let’s say that in 2017, you purchased (for business use) a pickup truck with a gross vehicle weight rating greater than 6,000 pounds. Asserting that you use the pickup 100 percent for business, you expensed the entire $55,000 cost.

What happens to that $55,000 expensed amount if you die, retire, or become disabled before the end of the vehicle’s five-year depreciation period?

Death

If your heirs are not going to pay estate taxes, your death is about as good as it gets. Here’s why:

You get to keep your Section 179 deduction. (It goes to the grave with you.)
Your pickup truck gets marked up to fair market value. (Remember, you expensed it to zero, but now at your death, the fair market value is the new basis to your heir or heirs.)

Example. Using Section 179, you expensed the entire cost of your $55,000 pickup truck. You die. Your daughter Amy inherits the pickup at its fair market value, which is now $31,000, and sells it immediately for $31,000. Here are the results:

You get to keep your Section 179 deduction—no recapture applies.
Amy pays zero tax on her sale of the pickup truck.
Your estate includes the $31,000 fair market value of the pickup, and if your estate is less than $11.4 million, your estate pays no estate taxes.

Disability

This is ugly. If you become disabled and you allow your business use of the pickup to fall to 50 percent or below during its five-year depreciable life, you must recapture and pay taxes on the excess deductions generated by the Section 179 deduction.

To make matters worse, you must use straight-line depreciation in making the excess-deduction calculation.

Retirement

With retirement, you have exactly the same problem as you would have if you became disabled. In fact, with retirement, you disable your business involvement, and that makes your pickup truck fail the more-than-50-percent-business-use test, resulting in recapture of the excess benefit over straight-line depreciation.

Takeaways

You need to consider what happens should you become disabled, or retire, or die.

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, TAX DEBT RELIEF, Tax Reduction, TAXES

HOW TO WRITE OFF YOUR 4TH OF JULY PARTY.

July 3, 2019July 3, 2019 Howard Tax Prep LLC

Author: Trudy M. Howard

In our Chicago South Loop Tax preparation office, everyone enjoys a BBQ, and a good party. While we enjoy having a good time, we LOVE saving clients money through effective tax planning. Below are a few tips on how you can reduce your taxable income with your 4th of July party.

INVITE ALL STAFF & FEW FRIENDS: Invite your ENTIRE STAFF to the 4th of July BBQ to get a tax deduction. NON EMPLOYEES WILL NOT give you a tax deduction. For example, if you invite 15 employees & their family to a 4th of July picnic, and you invite 5 of your friends & family members you have a total of 20 guest.If your party cost $2,500 you can write off 3/4 or 75% (20 guest total, 1/4 friends 5/20) of the expense at 100%. $2,500 x .75= $1,875 tax deduction.

Per IRS PUBLICATION 15-B: “Food or beverage expenses related to employee recreation, such as holiday parties or annual picnics, aren’t subject to the 50% limit on deductions when made primarily for the benefit of your employees other than employees who are officers, shareholders or other owners who own a 10% or greater interest in your business, or other highly compensated employees.”

INVITE POTENTIAL BUSINESS PROSPECTS: 1/2 of something is better than 0 of something. You can deduct 50% of the FOOD COST ONLY if you invite current or potential business customer, client, consultant, or similar business contact. Your food cost must be on SEPARATE RECEIPT to be tax deductible. You cannot deduct the cost of the fireworks display, chairs, DJ, etc.

Per IRS PUBLICATION 463: “As discussed above, entertainment expenses are generally nondeductible. However, you may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.

Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.”

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How I went to IRS tax jail, aka IRS withholding compliance program.

June 17, 2019June 17, 2019 Howard Tax Prep LLC

Author: Trudy M. Howard

Have you ever gotten away with something, and found yourself doing it again? Did you keep doing it thinking that you would never get caught, or if you did get caught, you could talk your way out of it? Well that was also me when it came to going exempt on my Federal taxes.

When I was 25 I started working for a major phone company, and I was earning about $70,000 per year. $70,000 wasn’t a shabby salary for a 25 year old single mother, but when the Federal taxes were deducted, I felt as if I was paying more in taxes than I was earning. With the increase in salary I no longer qualified for the earned income tax credit, I didn’t qualify for daycare assistance programs, and I was kicked out of the welfare office when I asked for medical help or food stamps! So what was a girl to do when she felt that she needed more money to survive? Was I supposed to create a budget and stick to it? Should I have stopped dining out? Maybe I should have picked up a side business (which would have created tax planning opportunities) and supplemented my income? While all of these things sound like viable, and reasonable options, 25 year old Trudy was not reasonable, and she certainly wasn’t going to discipline herself to stick to a budget. While discussing my financial crisis (don’t judge me) with a friend, she told me about a “magical thing” called “going exempt from Federal income tax.”
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In order to stop the government from taking $300 and $400 out of my paychecks, “all I had to do (which is the opening statement for all bad ideas)” was write exempt on my W4, hand the form to my employer, and magically, all of the deductions would stop. The first time that I went exempt I was afraid. Was the IRS going to come after me? Was my job going to fire me for not paying taxes? Would I owe the IRS a gazillion dollars? To my surprise (and eventual demise) none of these things happened. In fact, nothing happened, life continued on, and I was happy as jay bird; that is until tax time arrived.

In June of 2002 I received my first IRS tax bill (notice CP51A). I ignored it. More letters came; I ignored them. Certified letters came; I refused to pick them up. The only letter that caught my attention was the CP504 intent to levy, and it only caught my attention because it mentioned the word assets. Me being me, I waited until the last minute to contact the IRS, and after my bank account was levied, I finally understood that when the IRS sends letters, it’s best to call them immediately. One would think that the levy would have changed my ways, but nope! All the levy did was teach me to get tax debt help, and work out a payment plan with the IRS.

or an with the IRS click here to call us 1-855-743-5765.

After resolving my tax debt issues, I began the crazy cycle of racking up tax debt, and asking for an installment plan. 10 years into this cycle I finally reached the mother of all IRS agents, and she told me “be careful, because an IRS agents can see that you keep racking up debt, and that you don’t have enough withholding. When you don’t have enough withholdings, the IRS can force you to increase your withholding.” My internal response was “girl bye… I’ve been doing this for years, run the payment plan and shut up” but my external response was “Really they can do that? I always figured that I would settle up with the IRS at the end of the year. I’ll do better this year, I promise.” Little did I know the gig was up, and I was on my way to IRS tax jail.

Merriam Webster defines prison as: “a state of confinement or captivity, or a place of confinement especially for lawbreakers.” While IRS tax jail is not a physical jail with walls, those that have been placed into the IRS withholding compliance program can tell you that it certainly feels like jail! Once the taxpayer becomes a lawbreaker (by not paying their taxes as they go), they are eventually placed into the IRS withholding compliance program (aka IRS tax jail), and held captive for a minimum of 3 years. During this 3 year period the IRS states that: “your employer must withhold income tax from your wages as if you’re single with zero allowances.”

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To illustrate, in 2019, if a person is earning $70,000 (and there were thrown into IRS tax jail aka withholding compliance program), they would have $400.87 withheld from each paycheck to cover their Federal income taxes. In addition to the Federal tax deduction, every paycheck would also have deductions for Social Security ($166.92), Medicare ($39.04), and state taxes ( I live in Illinois, and in IL the tax would be $133.27. After taxes, the taxpayer would be left with a net pay of $1,952.21, not including deductions for health insurance, dental, vision, life insurance, disability, union dues, and so on. So if the IRS tax jail isn’t physical, how is one cast into IRS tax jail? The IRS sends tax payers to IRS tax Jail by sending letter 2800C to the taxpayers employer.

Once your employer receives letter 2800C per IRS.gov: “within 60 days the employer must “begin withholding income tax from this employee’s wages based on a withholding rate (or marital status) single, and withholding allowances of 0.” No amount of pleading, threatening, or arguing with your employer will change this. If you switch employers, the IRS will find you. The only thing that you can do is contact the IRS yourself (for the DIY crowd), or you can work with a professional tax debt resolution firm to negotiate with the IRS on your behalf.. Depending on your number of dependents, and marital status, the IRS may show you some mercy. There is always the option of doing nothing, and if you choose to do nothing, you can expect your lock in rate to begin within 60 days, and you will remain in IRS tax jail for a minimum of 3 years.

As with every good story, there is always a silver lining. If during your 3 year bid, you remain a good little taxpayer (by paying your taxes & staying in tax compliance) the warden can release you from IRS tax jail.

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

Avoid This S Corporation Health Insurance Deduction Mistake

June 12, 2019 Howard Tax Prep LLC

If you have family members working for you in your S corporation, stop and read this article now.

In our SOUTH LOOP OF CHICAGO TAX PREPARATION office, when providing TAX PREPARATION FOR SMALL BUSINESS OWNERS, we often see a common mistake being made amongst S-CORP owners.

Think of this: You own 100 percent of your S corporation. Your 30-year-old daughter works for your S corporation. She owns no stock. Your S corporation covers her with a group health policy. Did your S corporation claim an insurance deduction for the cost of the premiums attributable to your daughter? If yes, that’s wrong. The health insurance is not deductible by the S corporation as health insurance.

With the incorrect setup, your family is simply out the money it paid for the health insurance. This is bad. It means a zero deduction for the S CORPORATION and a lost health insurance deduction for your daughter.

If you own more than 2 percent of an S corporation, you have to do three things to claim a deduction for your health insurance:

You must get the cost of the insurance on the S corporation’s books.
Your S corporation must include the health insurance premiums on your W-2 form.
You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form 1040.

The three-step procedure also applies (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation and get health insurance coverage, even if they don’t own a single share of S corporation stock directly.

You need to get this right. Without the W-2 treatment, the S corporation does not get a tax deduction.

With the correct W-2 treatment, the more than 2 percent shareholder who finds the health insurance premiums on his or her W-2 can claim the self-employed health insurance deduction on Form 1040, provided he or she is not eligible for employer-subsidized health insurance through another job or a spouse’s job.

If you or your S corporation did not handle this correctly in the past, we need to get busy amending those returns to create and protect the proper tax deductions. If this is the situation, please call Howard Tax Prep LLC at 855-743-5765.

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Owe the IRS? Find out what your credit report tells them.

May 11, 2019 Howard Tax Prep LLC

man in white shirt using macbook pro

Author: Trudy M. Howard

In our Chicago tax debt office you’ll often hear me say “the IRS is worse than the FBI.” Of course this is simply my opinion (based upon years of research, tax debt cases, education, and government documents), but if the IRS isn’t worse than the FBI, they surely are a close 2nd!

When I tell you that the IRS can find out anything, I mean they can find out anything (except for your blood type, but I’m sure that’s pending)! The IRS has access to systems that you wouldn’t believe existed. For example, did you know that the IRS receives a weekly file of new movers? It’s true. “The United States Postal Service (USPS) provides an address update product — the National Change of Address Linkage (NCOA^Link), and the IRS receives a weekly NCOA^Link file from USPS. The file contains all of the reported changes of address in the United States for the week.” Not only does the IRS use this system, along with several others, the IRS also has the authority to pull a debtor’s credit report! Keep reading to see what your credit report tells the IRS.

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There are 6 key things that an IRS collections representative is looking for when they access your credit report.

Previous residences along with old/current employers.
Other lien holders to see how much you owe, and how much you’ve paid.
Property that may not have been disclosed during your collections interview.
Leads to hidden assets by identifying other creditors.
Financial institutions that you have done business with in the past and currently.
Entities and associations with foreign banks and corporations.

Hopefully, by viewing this list you see that it is important to disclose all financial information when dealing with the IRS. Once you submit all of your financial information, Howard Tax Prep LLC, located in the South Loop of Chicago, can help you with an IRS tax debt settlement, a tax debt payment plan, removal of tax lien, and IRS wage garnishments in Chicago, and all 50 states.

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BUSINESS CREDIT, business taxes, Family Tax Issues, General Information, Retirement Income, RUNNING YOUR BUSINESS, Self Employed

7 KEYS TO SETTING & STICKING TO A BUDGET!

May 6, 2019May 6, 2019 Howard Tax Prep LLC

Author Trudy M Howard.

In our South Loop Chicago Tax Office, we not only help clients with tax planning to reduce their taxes, but we also draft personalized financial wellness plans. If you want to eliminate debt, be prepared for an emergency, and retire with confidence, you must learn how to budget your finances. Not only do you want to set a budget, but you need to STICK TO YOUR BUDGET in order to be successful. Keep reading to find out the 7 KEYS TO SETTING & STICKING TO A BUDGET.

1.) Set realistic amounts: If you know that you like to shop, or that you don’t like to cook, don’t set a budget of $25 a month for shopping and dining out.

2.) Use cash instead of a debit/credit card. Retailers know that consumers spend more when they use their card instead of spending cash. Every Sunday withdraw enough for your gas, lunch, groceries, and incidentals.

3.) Watch your funds: Balance your checkbook! Don’t rely on the online banking system to give you current balances, as some purchases may not show for 24-48 hours later. Balancing your checkbook also helps you avoid overdraft fees, and less overdraft fees equal more savings!

4.) Stick to your entertainment budget: Use a prepaid debit card for your entertainment cost. Once the card is empty, you’ll know that you’ve reached your entertainment budget for the week. Be prepared to say NO to invitations from friends, and don’t feel as if you need to provide a detailed explanation about your financial situation.

5.) Expect unexpected expenses. No matter how disciplined you are in sticking to your budget, just as sure as the sun rises in the East, and sets in the West, I can GUARANTEE YOU that some unplanned expense is going to come up. Whether it be an increase in fuel cost, an increase in your utilities, or an unexpected dental emergency, expect to spend an extra $100-$150 a month.

6.) Track every purchase for the next 30 days. In order to get a clear look at your spending habits, you need to track all of your purchases. From the gum that you purchased, to the car note that you paid, Record. Every. Single. Purchase. Although you can use your bank statements to track your spending, writing down the figures can help you identify and remember areas of your concern.

7.) Pay bills on time to avoid late fees and bad credit. Nothing, and I mean NOTHING, can destroy a budget faster than a late payment fee! If you don’t like having your bills set to auto pay, try using google calendar to set a reminder the day before a bill is due. Not only does paying your bills on time increase your credit score, but it also creates more wealth building opportunities.

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

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Tag: financial planning

Impact of Death, Retirement, & Disability on the 179 Tax Deduction

HOW TO WRITE OFF YOUR 4TH OF JULY PARTY.

Author: Trudy M. Howard

How I went to IRS tax jail, aka IRS withholding compliance program.

Avoid This S Corporation Health Insurance Deduction Mistake

Owe the IRS? Find out what your credit report tells them.

7 KEYS TO SETTING & STICKING TO A BUDGET!

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Author: Trudy M. Howard

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