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

What is the De Minimis safe harbor $2,500 Expensing ($5,000 with AFS)?

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It’s a new year, and in preparation for the Chicago small business tax preparation season, you can elect the de minimis safe harbor to expense assets costing $2,500 or less ($5,000 with audited financial statements or something similar).

The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if you properly abided by the rules of the safe harbor.

Here are four benefits of this safe harbor:

  1. Safe harbor expensing is superior to Section 179 expensing because you don’t have the recapture period that can complicate your taxes.
  2. Safe harbor expensing takes depreciation out of the equation.
  3. Safe harbor expensing simplifies your tax and business records because you don’t have the assets cluttering your books.
  4. The safe harbor does not reduce your overall ceiling on Section 179 expensing.

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Here’s how the safe harbor works. Say you are a small business that elects the $2,500 ceiling for safe harbor expensing and you buy two desks costing $2,100 each. On the invoice, you see the quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup charge, for a total of $4,778.

Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778 ÷ 2) and then either Section 179 expensed or depreciated it. You would have kept the desks in your depreciation schedules until you disposed of them.

Now, with the safe harbor, you simply expense the desks as office supplies. This makes your tax life much easier.

To benefit from the safe harbor, you and I do a two-step process. It works like this:Schedule-button-nb

Step 1. For safe harbor protection, you must have in place an accounting policy—at the beginning of the tax year—that requires expensing of an amount of your choosing, up to the $2,500 or $5,000 limit. I can help you with this.

Step 2. When I prepare your tax return, I make the election on your tax return for you to use safe harbor expensing. This requires that I attach the election statement to your federal tax return and file that tax return by the due date (including extensions).

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 taxes, Family Tax Issues, General Information, Self Employed, Tax Reduction, TAXES

Now that you’ve filed, do you need to tell your employer to withhold more or less income to pay your 2019 taxes?

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Reprinted with changes, edits, & permission by the IRS.

Was your refund lower than expected, or did you have an unexpected tax bill when you filed this year? In our south loop Chicago tax preparation office, we saw a slight decrease in income tax refunds for personal 1040 taxes. On the other hand, many of our Chicago business tax preparation clients saw a decrease in their taxes dues thanks to the Tax Cut and Jobs Act. If you are concerned about your tax bill for the 2019 tax year, there are steps that you can take steps to make sure your federal income tax withholding is on the right track for this year.
Checking your withholding at the beginning of the year helps ensure you don’t have too little or too much withheld from your paychecks throughout the year. This is especially
important if you changed your withholding in 2018. A mid-year withholding change in 2018 can have a different full-year impact in 2019. You should also check your withholding any time your personal or financial information changes. Use the Withholding Calculator to help you decide whether you need to change your
withholding.

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Federal taxes operate on a pay-as-you-go basis. This means that you need to pay most of your tax during the year, as you earn the income. Paying too much tax throughout the year will result in a refund while not paying enough can lead to a tax bill, penalties and interest when you file. One way to avoid owing a balance is to correctly calculate and adjust how much tax you should have withheld from your wages. Use the Withholding Calculator to help you decide whether you need to change your withholding.

Another option is to consider making quarterly estimated tax payments. Those who
don’t pay taxes through withholding, or don’t pay enough tax that way, may still use the Withholding Calculator to determine if they have to pay estimated tax quarterly during the year to the IRS. Those who are self-employed generally pay tax this way. See Form
1040-ES, Estimated Taxes for Individuals, for details. Visit IRS.gov/payasyougo to learn more about withholding and to determine if you should be making estimated tax payments. You are in the driver’s seat. Check your withholding today.

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, General Information, RUNNING YOUR BUSINESS, Self Employed, Tax Reduction, TAXES

Answers to Common Section 199A Questions

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#smallbiztaxlady 

I’ve been providing tax preparation for small business owners in Chicago’s south loop for quite awhile, and the new tax laws are benefiting business owners like never before! For many small businesses and the self-employed, the 20 percent tax deduction from new tax code Section 199A is the most valuable deduction to come out of the Tax Cuts and Jobs Act.

The Section 199A tax deduction is complicated, and many questions remain unanswered even after the IRS issued its proposed regulations on the provision. And to further complicate matters, there’s also a lot of misinformation out there about Section 199A.

Below are answers to six common questions about this new 199A tax deduction.

Question 1. Are real estate agents and brokers in an out-of-favor specified service trade or business for purposes of Section 199A?

Answer 1. No.

Question 2. Do my S corporation shareholder wages count as wages paid by the S corporation for purposes of the 50 percent Section 199A wage limitation?

Answer 2. Yes.

Question 3. Will my allowable SEP/SIMPLE/401(k) contribution as a Schedule C taxpayer be based only on Schedule C net earnings, or do I first subtract the Section 199A deduction?
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Answer 3. You’ll continue to use Schedule C net earnings with no adjustment for Section 199A.

Question 4. Is my qualified business income for the Section 199A deduction reduced by either bonus depreciation or Section 179 expensing?

Answer 4. Yes, to both.

Question 5. I took out a loan to buy S corporation stock. The interest is deductible on my Schedule E. Does the interest reduce my Section 199A qualified business income?

Answer 5. Yes, in most circumstances.

Question 6. The out-of-favor specified service trade or business does not qualify for the Section 199A deduction, correct?

Answer 6. Incorrect.

Looking at your taxable income is the first step to see whether you qualify for the Section 199A tax deduction. If your taxable income on IRS Form 1040 is $157,500 or less (single) or $315,000 or less (married, filing jointly) and you have a pass-through business such as a proprietorship, partnership, or S corporation, you qualify for the Section 199A deduction.

With taxable income equal to or below the thresholds above, your type of pass-through business makes no difference. Retail store owners and medical doctors with income equal to or below the thresholds qualify in the same exact manner.

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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Family Tax Issues, General Information, TAX DEBT RELIEF, Tax Reduction, TAXES

CAN I FILE BANKRUPTCY FOR TAX DEBT?

bankruptcy

Once the IRS assesses a tax bill, it generally has 10 years to collect that amount before the statute of limitations expires. Holy smokes! That’s a long time to have a creditor chasing you! And this isn’t any ordinary creditor. The IRS has a lot of power that it can use to collect your late payments. The IRS can garnish wages, file a notice of federal tax lien, and empty your bank account.

If your tax bill has exploded beyond what you can pay, you’re probably already feeling the hot breath of the IRS. At this point, you need to consider your options for how to reduce or eliminate your tax bill.

If you have thought about bankruptcy, you need to be aware of its limitations. Tax debts are particularly sticky—many of them stay with you even after the bankruptcy process is complete. And it’s important to know that bankruptcy is not your only recourse. The IRS gives you four avenues of relief to help you get out of tax debt that you can read about here. Depending on your circumstances, one or more of those IRS methods could entirely eliminate that horrible tax cloud hanging over your head, or you can look into filing bankruptcy.

It is important to note that bankruptcy is not a simple process and has many lingering effects, such as the potentially decade-long hit to your credit. However, bankruptcy can be the perfect tool in the right situation—and it can permanently eliminate some of your income tax liabilities, including penalties and interest.

The following rules determine whether you can discharge your income tax debt in bankruptcy. You have to meet all three rules to qualify:
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RULE #1: Debts must be more than three years old. You have to wait at least three years after the filing deadline for the tax years at issue (normally April 15 for calendar year taxpayers) before you file your bankruptcy petition. In other words, if you file your petition on April 15, 2016, you can discharge tax debts for tax years 2013 and earlier. But note that an extension pushes your filing deadline to October 15. So if you got an extension in 2013, you must wait until October 15, 2016, to file your bankruptcy petition before you can discharge tax debts from 2013.

RULE #2: You must file all tax returns. You have to wait at least two years after you filed your tax return before you file your bankruptcy petition. So what happens if you didn’t file a return for a year? To discharge that debt, you must file that return now and then wait for two years before you file for bankruptcy.

RULE #3: Wait eight months after IRS assessment. You must wait at least 240 days after the IRS assessed your taxes before you file the bankruptcy petition.

As you can see, timing is important. If you want to ensure that the bankruptcy proceeding will clear your tax debts, you must:

  • Make sure you have filed all of your returns.
  • Wait until enough time has passed so that you qualify for relief.
  • Commit No fraud. Bankruptcy will not discharge your debt if you committed fraud or willfully evaded taxes.

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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Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

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