Retirement Income – SMALL BIZ TAX LADY

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, General Information, notary, RUNNING YOUR BUSINESS, Self Employed, signing agent, TAX DEBT RELIEF, Tax Reduction, TAXES

HUGE WIN FOR NOTARY SIGNING AGENTS

August 11, 2019August 11, 2019 Howard Tax Prep LLC

Author Trudy M. Howard

In our South Loop Chicago Tax Preparation office , Howard Tax Prep LLC works with entrepreneurs from various industries; however, there are 2 industries that give entrepreneurs a built in self-employment tax deduction. To take advantage of built in self employment tax reductions, one must be employed as a minister, or a notary. While this article will deal with notary signing agents, the same concept can also be applied to ministers.

Per IRS publication 17: “Notary public. Report payments for these services on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). These payments aren’t subject to self-employment tax.” ees received for services performed as a notary public. Also, the instructions for IRS schedule SE reads: “if you had no other income subject to SE tax, enter “Exempt—Notary” on Schedule 4 (Form 1040), line 57. Don’t file Schedule SE.”

So how do you know what part of your loan signing agent payments are for notary services only? It’s simple, you count the # of stamps that you made, and exclude your travel, printing, and shipping/faxing cost. For example, let’s say that you have a 30 page loan document, and you charge $80 for the the total signing, $30 of which is strictly for the notary stamps. Using the above example, if you properly DOCUMENT your job, you can exclude the $30 (the charge for each stamp) from self-employment taxes (the 15.3% Medicare & Social Security taxes aka FICA).

Although I’m pretty sure that you probably don’t want to do anymore documentation, the IRS requires documentation for deductions, and this is a HUGE deduction! Don’t let the lack of documentation, or lack of tax preparers knowledge keep you from taking advantage of the self employment tax reduction for notaries/signing agents (& ministers). While most tax reduction strategies require the use entities, retirement vehicles, and state laws, this simple yet effective tax deduction only requires you to itemize your notary fees, & document your work. Below, please find a basic example of the potential savings.

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$60,000 in taxable for self-employment taxes.
Self-employment taxes on $60,00=$8,478
Income taxes assuming single person no children=$4,013 TOTAL TAX BILL=$12,491

$80,000 Signing agent income.
-$20,000 expenses
$60,000 in taxable income.
$30,000 taxable income for self-employment taxes
Self-employment taxes on $30,000=$4,239 EASY TAX SAVINGS OF $4,239.
Income taxes assuming single person no children=$4,013. TOTAL TAX BILL=$8,252

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 Reduction, TAXES

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

July 23, 2019July 24, 2019 Howard Tax Prep LLC

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.

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

Proprietors and Partners Mistakenly Pay Themselves Illegal W-2 Wages

July 18, 2019 Howard Tax Prep LLC

In our Chicago South Loop Tax Preparation office, we often see sole proprietors and partners who are above the Section 199A thresholds look for W-2 wages as a means to salvage the 20 percent deduction allowed by Section 199A. They also often look enviously at the fringe benefits that are available to employees and not to them as sole proprietors or partners.

To overcome getting shorted on the Section 199A deduction or being denied fringe benefits, some sole proprietors and partners instruct their payroll services to make them W-2 employees. When the payroll services do this, the proprietors and partners believe they are now legitimate employees of their proprietorships and partnerships. Wrong. Totally wrong.

The sole proprietor may not be a W-2 employee of his or her sole proprietorship.
A partner may not be a W-2 employee of a partnership.
Some sole proprietors and partners have had their Certified Professional Employer Organization (CPEO) treat them as employees. Also, wrong!
Using a CPEO does not create the possibility of paying a W-2 wage to a partner or a sole proprietor.

Takeaways

The sole proprietor is not a W-2 employee of the proprietorship. He or she is self-employed and operates under the rules for the self-employed. The partner is not a W-2 employee of the partnership. He or she is a partner and is treated as a partner under the
tax rules. Partners receive remuneration for services as guaranteed payments, which are subject to self employment taxes.

The single-member LLC is a proprietorship unless the member elects treatment as an S or a C corporation. Similarly, a multi member LLC is a partnership unless it elects treatment as an S or a C corporation.

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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.

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

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)?

April 25, 2019April 25, 2019 Howard Tax Prep LLC

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:

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

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:

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).

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

TCJA Tax Reform Sticks It to Business Start-Ups That Lose Money

February 11, 2019 Howard Tax Prep LLC

The Tax Cuts and Jobs Act (TCJA) tax reform added an amazing limit on larger business losses that can attack you where it hurts—right in your cash flow.

And this new law works in some unusual ways that can tax you even when you have no real income for the year. When you know how this ugly new rule works, you have some planning opportunities to dodge the problem.

Over the years, lawmakers have implemented rules that limit your ability to use your business or rental losses against other income sources. The big three are:

The “at risk” limitation, which limits your losses to amounts that you have at risk in the activity
The partnership and S corporation basis limitations, which limit your losses to the extent of your basis in your partnership interest or S corporation stock
The passive loss limitation, which limits your passive losses to the extent of your passive income unless an exception applies

The TCJA tax reform added Section 461(l) to the tax code, and it applies to individuals (not corporations) for tax years 2018 through 2025.

The big picture under this new provision: You can’t use the portion of your business losses deemed by the new law to be an “excess business loss” in the current year. Instead, you’ll treat the excess business loss as if it were a net operating loss (NOL) carryover to the next taxable year.

To determine your excess business loss, follow these three steps:

Add the net income or loss from all your trade or business activities.
If step 1 is an overall loss, then compare it to the maximum allowed loss amount: $250,000 (or $500,000 on a joint return).
The amount by which your overall loss exceeds the maximum allowed loss amount is your new tax law–defined “excess business loss.”

Example. Paul invested $850,000 in a start-up business in 2018, and the business passed through a $750,000 loss to Paul. He has sufficient basis to use the entire loss, and it is not a passive activity. Paul’s wife had 2018 wages of $50,000, and they had other 2018 non-business income of $600,000.

Under prior law, Paul’s loss would offset all other income on the tax return and they’d owe no federal income tax. Under the TCJA tax reform that applies to years 2018 through 2025 (assuming the wages are trade or business income):

Their overall business loss is $700,000 ($750,000 – $50,000).
The excess business loss is $200,000 ($700,000 overall loss less $500,000).
$150,000 of income ($600,000 + $50,000 – $500,000) flows through the rest of their tax return.
They’ll have a $200,000 NOL to carry forward to 2019.

To avoid this ugly rule, you’ll need to keep your overall business loss to no more than $250,000 (or $500,000 joint). Your two big-picture strategies to make this happen are

accelerating business income, and
delaying business deductions.

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Family Tax Issues, General Information, Retirement Income, TAXES

Tax Consequences of Paying Your Retired Parents To Watch Your Children

January 6, 2019 Howard Tax Prep LLC

Author: Trudy M. Howard

QUESTION: Can I claim the money I pay my mom to watch my children after school? She is on S.S. and I would not want to impact her benefits as she is retired. I pay her $260 a week.

ANSWER: With the IRS most answers usually begin with “it depends” and this is one of those answers; it depends. There are several moving parts to this scenario that will determine the tax benefit/liability to you, and the tax benefit/liability to your mom. Tax liability is determined by figuring what location the child care is taking place in, your marital status, the age of the child, and your mom’s total income. It is unclear to me if you have a business, and you are wanting to “claim the money” as in deduct the total amounts paid from your taxable income as a business expense (which you cannot do), or if you want to “claim the money” for the dependent care credit. I’ll get into the dependent care credit later in the article, but for now, let’s start with is your mom an employee, or an independent contractor.

If your mom is doing the babysitting in your home, you may be considered a household employer, and you will NEED TO PAY EMPLOYER TAXES on the money that you paid to your mom. Employer taxes are Federal Unemployment taxes of 6% of the first $,7000 in wages, 6.2% for Social Security, and 1.45% for Medicare. However, as with everything concerning the IRS there is an exception to this rule. You do not have to count the wages paid for social security and Medicare taxes if:

The child is under 18 years of age, or has physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks, AND

You’re divorced and haven’t remarried.
You’re a widow or widower.
You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.

If your mom is watching your child outside of your home, (say you are dropping your child off to your mom), then your mom would be considered a “self-employed person” which means that she will need to pay self-employment taxes on her income. The reason she will need to pay report and pay self-employment taxes is because she would have earned over $400 in self-employment income.

TAXES MOM WILL HAVE TO PAY.

Because your mom is self-employed, she would have to pay SELF EMPLOYMENT TAXES in the amount of $1,591.20 (calculated using the 20% qualified business income deduction only, not with any business expense deductions), and if she has over $25,000 in income (social security income plus self-employment income), she may also have to pay INCOME TAXES on the earnings.

TAX BENEFIT TO YOU:

By paying your mom to watch your child, you may be eligible to claim the nonrefundable child and dependent care tax credit. The Child and dependent care tax credit ranges from 20%-35% of either $3,000 or $6,000 depending on your adjusted gross income. A qualifying individual for the child and dependent care credit is:

Your dependent qualifying child who is under age 13 when the care is provided.
Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year.
An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s 2018 return.

Once your AGI (adjusted gross income) is over $43,000 the max tax credit you will receive is $600 for 1 child, and $1,200 for 2 children. Each child must be under the age of 13. This credit is nonrefundable, so if you have a $0 tax liability & you receive the $600 credit, you would not receive a tax refund check for the $600.

CAN YOU DEDUCT THE TOTAL $13,520 FROM YOUR TAXABLE INCOME?

Per IRS PUBLICATION 926 The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You can’t deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

WILL THIS MONEY HAVE AN IMPACT ON YOUR MOM’S RETIREMENT BENEFITS?

There are several types of retirement income. Pension, 401k, IRA, Annuities, Social Security, SSI, Social Security Disability, Disability Payments from a Privately Owned Insurance Plan, etc. For purposes of this article I will be focusing on government sponsored retirement plans.

SOCIAL SECURITY RETIREMENT INCOME: –If your mom’s is unmarried, and her base income (including social security and all other income) is $25,000 or less, she will not have to pay any INCOME tax (remember income tax and self-employment taxes are two different taxes).

Per the benefits planner retirement section on the social security website, if your mom is at full retirement age she can earn as much as she wants, and have unlimited resources and still receive her benefits. However, if your mom is younger than full retirement age and makes more than the yearly earnings limit, her earnings may reduce her benefit amount.

“(Full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.) If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040.”

To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with

the total of:

One-half of your benefits, plus
All your other income, including tax-exempt interest

SOCIAL SECURITY DISABILITY: –This benefit is based on an inability to work, and work history. Per the disability section on the social security website: “Social Security Disability Insurance pays benefits to you and certain members of your family if you are “insured,” meaning that you worked long enough and paid Social Security taxes.” While there are limits on what a person can earn while on disability, they can receive help from outside sources and retain their benefits.

SSI–SOCIAL SECURITY SUPPLEMENTAL INCOME--The Supplemental Security Income (SSI) program pays benefits to disabled adults and children who have financial need, and limited income/resources. This benefit pays a small amount to those that are disabled, but don’t qualify for regular social security disability. The basic monthly SSI payment for 2019 is the same nationwide. It is:

—$771 for one person; or

—$1,157 for a couple.

Not everyone gets the same amount. You may get more if you live in a state that adds money to the federal SSI payment. You may receive less if you or your family has other income. Where and with whom you live also makes a difference in the amount of your SSI payment. SSI eligibility is based on a person’s access to money & assistance, (aka means, aka support, income, total household income), and per the SSA “Income is any item an individual receives in cash or in-kind that can be used to meet his or her need for food or shelter. Income also includes (for the purposes of SSI), the receipt of any item which can be applied, either directly or by sale or conversion, to meet basic needs of food or shelter.” Resources are limited to $2,000 for single people.
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.

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

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