tax credit – SMALL BIZ TAX LADY

Self Employed, tax deductions, Tax Reduction, TAXES

Trump Accounts: Free Money for Newborns Explained

September 2, 2025 Howard Tax Prep LLC

In our South Loop of Chicago Tax Preparation office, and our Homewood, IL tax preparation office, we often come across taxpayers who want to legally reduce their income tax bill by using the tax code to their advantage. Many of the hardest hit taxpayers are those who don’t have children, and while this new clause in the OBBBA won’t provide a new tax deduction for those with children, for taxpayers who feel “now” is the right time to reproduce, the current administration is offering a sort of savings account for babies born between 2025 and 2028. It is essential to note that this $1,000 incentive isn’t in the form of cash (like the stimulus checks received during COVID) but rather it’s a credit to a child’s retirement-type account, and the funds cannot be accessed. What is this $1,000 incentive that we’re referring to? Keep reading to find out.

In 2025, Congress signed into law the One Big Beautiful Bill Act (OBBBA), which introduced a brand-new savings vehicle: Trump Accounts. At first glance, they appear to be traditional IRAs (without the requirement for contributions to be from earned income), but these accounts come with special rules for beneficiaries under the age of 18. Used correctly, they can provide a powerful head start on your child’s financial future.

Free Starter Money for Newborns

As part of a pilot program, parents of U.S. citizen newborns in 2025-2028 can elect to enroll their child in a Trump Account. Once the parent makes the election, the federal government will deposit $1,000 of free seed money into the account.

Starting July 4, 2026, parents, grandparents, or others may contribute up to $5,000 per year (indexed for inflation beginning in 2028) until the year the child turns 18. The $1,000 government contribution does not count against this limit. To participate, your child must have a Social Security number when you make the election.

How Trump Accounts Work

Contributions by individuals made before the year the child reaches age 18 are not tax-deductible, but funds inside the account grow tax-deferred. Tax deferred means the income tax is pushed down the road, not eliminated.
No withdrawals are permitted until the child reaches the age of 18.
When the child reaches 18, the Trump Account automatically converts into a traditional IRA (retirement accounts that require contributions to be earned through work), subject to the normal rules governing IRA contributions and distributions.
At that point, your child must have earned income to continue contributing. The account can later be converted into a Roth IRA if desired.
Your child will be in full control of the account once they turn 18.
Your child can still contribute to a Roth IRA if they have earned income (such as working in your business).
You can continue to invest in a 529 plan to help fund college costs.

Investments and Employer Contributions

Until the child turns 18, the account can only hold “eligible investments”—low-cost index mutual funds and ETFs that meet IRS guidelines.

Employers may also contribute up to $2,500 annually (indexed for inflation after 2028) to Trump Accounts set up for under-age-18 employees or dependents of employees. These contributions are tax-free to the employee and deductible for the employer as fringe benefits.

State, local, or nonprofit organizations may also make contributions under future IRS rules.

Why This Matters

Over time, Trump Accounts can grow into substantial savings. For example, if you contribute $5,000 annually for 17 years, plus the $1,000 government seed, and the account grows at 5 percent per year, it could be worth about $138,000 by the time your child turns 18. If left invested until your child reaches age 60, that balance could grow to over $1.2 million.

Unlike 529 plans or Coverdell accounts, Trump Accounts don’t require your child to use the funds for education. Unlike custodial accounts or trusts, they offer tax-deferred growth and avoid many of the kiddie tax pitfalls.

Bottom Line

Trump Accounts may not be perfect, but with free starter money, meaningful contribution limits, potential employer or community support, and decades of tax-deferred compounding, they can be a strong wealth-building tool for children.

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.

Family Tax Issues, General Information, REAL ESTATE, Self Employed, tax deductions, Tax Reduction, TAXES

Energy Tax Credits for Homeowners

July 31, 2024July 31, 2024 Howard Tax Prep LLC

Here in our Chicago South Loop Tax Preparation office, and our Homewood Il Tax Preparation office, we work with homeowners and real estate investors that are looking to save on their taxes. As we always say, when it comes to taxes, the best tax benefit is a tax credit, because you receive the amount on a dollar-for-dollar basis, versus tax deductions which only slightly reduce your taxable income. To say it another way, a $2,000 tax credit saves you $2,000 in taxes.

Energy Efficient Home Improvement Credit

Per the IRS, “if you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200.” The Efficient Home Improvement Credits help homeowners pay for various types of energy efficiency improvements. The credit is 30% of energy property cost up to $1,200, and $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers. Since more people will qualify for the energy-efficient improvements, we’ve outlined the details below.

Exterior doors (energy star approved). Max 2 doors, $250 each, total credit amount $500. Example, door cost $1,300; 30% of $1,300 is $390. Although 30% of the cost is $390, the taxpayer can only get $250 of the $390 (per door up to $500).
Exterior windows & skylights that meet Energy Star Most Efficient certification requirements; max credit amount $600.
Electric panel upgrades. 30% of the cost up to $600.
Home insulation. 30% of the cost up to $1,200.
Central air conditioner. 30% of the cost up to $600.
Furnace, heat pumps, water heaters, and hot water boilers. 30% of the cost.
Home energy audits. 30% of the cost up to $150.
Heat pumps, biomass stoves, or biomass boilers. $2,000 per year.

What if I earn a high income?

The great thing about this credit is that even those that earn higher incomes can take advantage of the credit (because there are no maximum income thresholds).

How many times can I claim this credit?

Although the Energy Efficient Home Improvement Credit has a $1,200 annual cap (with limits on specific items), you can claim the credit each year through 2033. Some homeowners are choosing to perform energy efficiency projects over several years, so that they can claim the credit each year.

Will this credit increase my tax refund?

It depends! The credit is nonrefundable, meaning if you don’t owe any tax, you will not receive the credit as a refund check. However, the credit can reduce what you owe, helping you to receive a refund of the income taxes withheld by your employer.

Can I carry this tax over to another year?

No, you can’t carry the credit over to a future tax year.

Who can claim the credit

Homeowners that use the property as their main residence, or as a vacation home. Landlords can NOT take this credit.

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, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

Family Tax Issues, General Information, tax deductions, TAXES

Is Your Child’s Scholarship Taxable?

June 3, 2024June 3, 2024 Howard Tax Prep LLC

Photo by Gu00fcl Iu015fu0131k on Pexels.com

In our South Loop of Chicago Tax Preparation office, and our Homewood, Il tax preparation office, we have come across many taxpayers with children that are graduating high school, and heading to college. The good news is that many students receive scholarships, but not many people know about the taxable portion of scholarships, so we wrote this blog to help taxpayers get a

For many students, scholarships are an important part of a financial aid package, and they can significantly reduce the burden of higher education costs. While scholarships are generally viewed as a financial windfall, it’s important to understand that not all scholarship funds are tax-free. The U.S. Internal Revenue Service (IRS) imposes taxes on certain portions of scholarships, and being aware of these taxable portions can help students and their families avoid unexpected tax liabilities.

Tax-Free Portions of Scholarships

According to the IRS, “a scholarship or fellowship grant is tax-free only to the extent it:

Doesn’t exceed your qualified education expenses;
Isn’t designated or earmarked for other purposes (such as room and board);
Doesn’t require (by its terms) that it can’t be used for qualified education expenses;
It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship.”

To qualify as tax-free, the scholarship or fellowship must be used for:

Qualified Education Expenses: These include tuition and fees required for enrollment or attendance at an eligible educational institution.
Required Course-Related Expenses: This category encompasses books, supplies, and equipment required for courses at the educational institution.

In addition to the above requirements, the recipient must be a candidate for a degree at an eligible educational institution.

Taxable Portions of Scholarships

Portions of scholarships that do not meet the criteria for qualified education expenses are considered taxable income. The IRS outlines several scenarios in which scholarship funds become taxable:

Room and Board: Scholarships used to pay for room and board, including meal plans and housing costs, are taxable. These living expenses are not considered qualified education expenses.
Travel and Research: Funds used for travel, research, and other non-essential expenses not required for enrollment or course attendance are also taxable.
Stipends and Payments for Services: If a scholarship or fellowship includes stipends or payments for teaching, research, or other services required as a condition for receiving the scholarship, these amounts are taxable. This often applies to graduate students who receive compensation in exchange for their teaching or research services.

Reporting and Paying Taxes on Scholarships

Students receiving scholarships must be diligent in reporting the taxable portions on their tax returns. Here are the steps to ensure compliance:

Documentation: Keep detailed records of all scholarship funds received and how they were spent. This includes receipts for tuition, fees, books, and other educational materials.
Form 1098-T: Educational institutions typically provide Form 1098-T, which details the amount billed for qualified tuition and related expenses. Use this form to help determine the taxable portion of the scholarship.
Tax Filing: Report the taxable portion of the scholarship on your federal income tax return. For most students, this involves including the taxable amount on Form 1040 or 1040-SR.

Conclusion

Understanding the taxable portion of scholarships is crucial for students navigating the financial aspects of their education. While scholarships provide significant financial relief, being aware of the IRS rules ensures that students remain compliant with tax laws and avoid unexpected tax bills. By differentiating between qualified and non-qualified expenses, the IRS maintains the integrity of tax-free scholarships and ensures they serve their intended educational purpose.

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, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

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

Will The IRS Accept Your “Reason Why” & Waive Penalties?

May 22, 2024 Howard Tax Prep LLC

In our South Loop of Chicago Tax Preparation office, and our Homewood, Il tax preparation office, we often come across taxpayers who haven’t filed their tax returns in quite some time. However, once a taxpayer chooses to file back tax returns, the IRS and the state Department of Revenue will assess the tax due along with penalties and interest. Although not often discussed, in some cases, the IRS can waive penalties assessed against you or your business if there was “reasonable cause” for your actions.

The IRS permits reasonable cause penalty relief for penalties arising in three broad categories:

Filing of returns
Payment of tax
Accuracy of information

Contrary to what you might think, the term “reasonable cause” is a term of art at the IRS. This seemingly simple phrase has a precise and detailed definition as it relates to penalty abatement.

Here are three instances where you might qualify for reasonable cause relief:

Your or an immediate family member’s death or serious illness or your unavoidable absence
Inability to obtain necessary records to comply with your tax obligation
Destruction or disruption caused by fire, casualty, natural disaster, or other disturbance

Here are five instances where you likely do not qualify for reasonable cause penalty relief:

You made a mistake.
You forgot.
You relied on another party to comply on your behalf.
You don’t have the money.
You are ignorant of the tax law.

What If the IRS Rejects My Request?

You should consider requesting an appeal if the IRS denies your initial request. There is a saying among tax professionals: “The deals are in appeals.”
One reason to appeal is that if you have a complex case, the IRS might not have considered all the aspects of your explanation.

business taxes, Family Tax Issues, General Information, Self Employed, signing agent, Tax Reduction, TAXES

Enrolling your child in summer camp? You might be entitled to a tax credit.

May 26, 2023 Howard Tax Prep LLC

Photo by RDNE Stock project on Pexels.com

Here in our Chicago South Loop Tax Preparation, and our Homewood Il, Tax preparation offices, we specialize in helping taxpayers legally reduce their taxable income, claim every tax deduction they are entitled to, and maximize tax credits. Through our work of helping taxpayers, we’ve come to find that many people often miss the Federal Child and Dependent Care Credit. The Federal child and dependent care tax credit refunds taxpayers a portion of the expenses paid for the care of dependent children and other dependents (qualifying persons).

Since summer is almost here, we wanted to give you some tips on what you need to do to claim the federal Child and Dependent Care credit if you have children (or disabled siblings/parents that you care for) that you plan on enrolling into a summer DAY camp program (so that you can work, or look for work). You’ll notice that we’ve put emphasis on summer DAY camp programs, as overnight summer camp programs are not eligible for the credit. Below please find some key points to claiming the Federal Child and Dependent Care Credit.

🔶The credit is equal to a percentage (from 35%-20%) of the amount you paid for daycare or summer camp attendance, and daycare throughout the year (up to $6,000 for 2 children, & $3,000 for 1 child). However, if you have 2 qualifying children, and paid expenses of $6,000 for only 1 child, you would be able to use the entire $6,000 to figure your credit, even though you only paid expenses for 1 child. To illustrate, Susan is a single mother earning $40,000 a year and has 2 children ages 8 & 12. The local park district is offering an 8-week summer day camp for $100 a week per child totaling $1,600 ($800 per child). Throughout the year, the 8-year-old goes to an afterschool daycare that charges $85 a week for 40 weeks totaling $3,400. At tax time Susan calculates that she paid a total of $5,000 in dependent care expenses, and her income level entitles her to a 22% reimbursement ($1,100) of the amount paid for care. If Susan has a $4,000 tax liability and was receiving a $500 refund, the $1,100 dollar-or-dollar tax credit will reduce her tax liability to $2,900 and increase her tax refund to $1,600.

🔷You must have earned income. Earned income is defined as W2 Income, rideshare driving, food delivery person, MLM business, self-employment, etc.

🔶The provider must provide you with their name, EIN (unless it’s a tax-exempt organization like a church or school), and address.

🔷You must provide your tax professional with the amount paid to the provider PER CHILD.

🔶The dependent(s) must be age 13 or under.

🔷You must be the custodial parent.

🔶There are no minimum or maximum income limits on this credit.

🔷If your filing status is married filing separately, you must have lived apart from your spouse for the last 6 months of the year. You don’t have to be legally separated, but you must be able to prove that you lived apart from your spouse.

🔶 Sometimes you can file married filing separately, and the person may not qualify as your dependent for head of household status, earned income credit, etc., but they can still qualify as your person for the Federal Child and dependent care credit tax credit. For example, you left your cheating spouse in May, and you’re the primary caregiver for your disabled sister. Your disabled sister receives a monthly dividend check of $400 from her ownership of Ford stock (left to her by your parents). While your sister isn’t your qualifying dependent because her gross income is more than $4,400, you can still claim the child and dependent care credit for any dependent care expenses that you pay on her behalf.

Although we’ve given you the basics, this article is not all-inclusive. 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.

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

IRS says that some PPP (Paycheck Protection Program) loans that were forgiven improperly, are taxable.

September 21, 2022 Howard Tax Prep LLC

Photo by RODNAE Productions on Pexels.com

The IRS recently issued guidance addressing improper forgiveness of a Paycheck Protection Program loan (PPP loan).

To summarize, the guidance says that if a taxpayers PPP loan is forgiven based upon lies, or leaving things out (misrepresentations or omissions) the taxpayer cannot exclude the forgiven loan income from taxation; basically, you will have to pay taxes on the loan amount that you received.

According to the IRS, while many small business owners were entitled to receive the loan (and properly claimed the PPP loan forgiveness), there are many taxpayers who weren’t eligible for the loan, or loan forgiveness. Some taxpayers lied to receive the PPP loan funds, while other’s spent the loan proceeds on ineligible items.

Per IRS Issue Number IR-2022-162: “Under the terms of the PPP loan program, lenders can forgive the full amount of the loan if the loan recipient meets three conditions.

1 – The loan recipient was eligible to receive the PPP loan. An eligible loan recipient:

is a small business concern, independent contractor, eligible self-employed individual, sole proprietor, business concern, or a certain type of tax-exempt entity;
was in business on or before February 15, 2020; and
had employees or independent contractors who were paid for their services, or was a self-employed individual, sole proprietor or independent contractor.

2 – The loan proceeds had to be used to pay eligible expenses, such as payroll costs, rent, interest on the business’ mortgage, and utilities.

3 – The loan recipient had to apply for loan forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information, and meet other legal qualifications.

If the 3 conditions above are met, then under the PPP loan program the forgiven portion is excluded from income. If the conditions are not met, then the amount of the loan proceeds that were forgiven but do not meet the conditions must be included in income and any additional income tax must be paid.”

Per IRS Issue Number IR-2022-162: “Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.” In essence, if you know that you lied about how you spent the PPP (paycheck protection program) funds, take the lie back by amending (changing) your tax return to reflect the truth.

IRS Commissioner Chuck Retting said: “This action underscores the Internal Revenue Service’s commitment to ensuring that all taxpayers are paying their fair share of taxes.” “We want to make sure that those who are abusing such programs are held accountable, and we will be considering all available treatment and penalty streams to address the abuses.”

If you, or someone you know had a person “do your PPP loan” (complete the application, and get you the funds), and you need assistance with amending your tax return, please reach out to us for assistance.

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

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

Two Ways to Fix Tax Return Mistakes Before the IRS Discovers Them.

July 2, 2021 Howard Tax Prep LLC

In our South Loop Chicago tax preparation office, and in our Homewood, Il tax preparation office, we often receive calls from people that have made an error (or errors) on their tax return. The tax law is complicated and constantly changing, so it’s easy to make a small, or large error that causes you to:

1.) underpay your tax, leaving you open to IRS penalties, or
2.) overpay your tax, meaning you gave a gift to the government.

However, if you made an error on your tax return, don’t worry; there’s good news: you can undo your mistake! Here’s even better news: there are two special ways to fix your incorrect tax return that will save you from paying more to the IRS than you would otherwise. We’ll tell you all about them in this article. —there are two easy ways to fix it:

A superseding return
A qualified amended return

A superseding return is an amended or corrected return filed on or before the original or extended due date. The IRS considers the changes on a superseding return to be part of your original return.

A qualified amended return is an amended return that you file after the due date of the return (including extensions) and before the earliest of several events, but most likely when the IRS contacts you with respect to an examination of the return. If you file a qualified amended return, you avoid the 20 percent accuracy-related penalty on that mistake.

Superseding Return Example

You file a joint Form 1040 tax return electronically on February 21, 2022, for tax year 2021, but you later decide you want to file a separate return. Since the joint-filing election is irrevocable, on or before April 15, 2022 (which is the unextended due date for your 2021 Form 1040), you must file a superseding return to undo the joint election.

IRS electronic filing rules for amended returns do not permit you to file this superseding return electronically, because you are changing your filing status (from married, filing jointly, to married, filing separately). That being said, your only other option is to use “snail mail.” Using a paper return via snail mail, you’ll submit either:

1.) A second original Form 1040 return using the married-filing-separately filing status, or
2.) An amended Form 1040X showing the change from joint to separate filing status.
Be sure to write “SUPERSEDING RETURN – IRM 21.6.7.4.10” in red at the top of page 1 of either Form 1040 or Form 1040X.

Qualified Amended Return Example

You realize your return preparer left a $30,000 IRA distribution off your 2019 tax return. Ouch!
Let’s assume you are in the 32 percent tax bracket and had no federal income tax withholding on the distribution: you owe an additional $9,600 in federal income tax on your 2019 tax return due to this distribution.

If you file an amended return before the IRS contacts you about the missing income, then it’s a qualified amended return, and you avoid $1,920 (20percent of $9,600) in audit penalties.

If you don’t file the amended return, and if the IRS contacts you about the missing income, the IRS will propose the $1,920 penalty. You may be able to request penalty relief, but you’ll have to make your case, and the facts may or may not be on your side.

In both circumstances, you’ll also pay interest on the $9,600 back to July 15, 2020 (the COVID-19-postponed 2019 Form 1040 due date). Of course, the earlier you pay the tax, the less interest you’ll accrue. You’ll pay less interest with a qualified amended return because you’re paying the tax sooner.

BUSINESS CREDIT, Business Strategies, business taxes, Family Tax Issues, Self Employed, TAX DEBT RELIEF, Tax Reduction, TAXES

Wow! Married, Filing Separately, May Be the Tax Year 2020 Strategy

April 8, 2021 Howard Tax Prep LLC

If you are married like many of our clients in our Chicago south loop tax preparation office, most likely you’ve always filed a joint tax return with your spouse. Most of the time, a joint return shows less overall tax than two separate tax returns do, because the married-filing-separately status has many tax disadvantages.

Fast-forward to the 2020 tax filing season, however—and nothing is as it was. This year, four tax provisions will be key to determining whether you’ll be better off filing a joint tax return or separate tax returns for tax year 2020:

Tax-free unemployment
Recovery rebate, round 1
Recovery rebate, round 2
Recovery rebate, round 3

Tax-Free Unemployment

The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, excludes from tax the first $10,200 of 2020 unemployment benefits paid to an individual with 2020 modified adjusted gross income (MAGI) of less than $150,000.

Recovery Rebate, Round 1

The recovery rebate, round 1, is a refundable tax credit on the 2020 tax return, equal to

$1,200 ($2,400 on a joint return), plus
$500 for each dependent under age 17.

Your credit decreases by 5 percent of the amount your adjusted gross income (AGI) exceeds

$150,000 if married, filing a joint return;
$112,500 if head of household; or
$75,000 if single or if married, filing separately.

The IRS gave you an advance payment of this credit based on either your 2018 or 2019 AGI and dependents. And now the IRS looks at your 2020 tax return and does the following:

Smiles on you if the tax credit based on your 2020 tax return exceeds the advance payment. What do we mean by “smiles on you”? You get the additional amount as a refundable tax credit.
Smiles on you (again!) if your actual credit is less than the advance payment. You keep the money. You don’t have to pay back any excess received.

Recovery Rebate, Round 2

This is a refundable tax credit on the 2020 tax return, equal to

$600 ($1,200 on a joint return), plus
$600 for each dependent under age 17.

Your credit decreases by 5 percent of the amount your AGI exceeds

$150,000 if married, filing jointly;
$112,500 if head of household; or
$75,000 if single or if married, filing separately.

The IRS gave you an advance payment of this credit based on your 2019 AGI and dependents. And now the IRS looks at your 2020 tax return and

Smiles on you if the tax credit based on your 2020 tax return exceeds the advance payment. What do we mean by smiles on you? Once again, you get the additional amount as a refundable tax credit.
Smiles on you (again!) if your actual credit is less than the advance payment. You keep the money. You don’t have to pay back any excess received.

Recovery Rebate, Round 3

This is a refundable tax credit on the 2021 tax return, equal to

$1,400 ($2,800 on a joint return), plus
$1,400 for each dependent, regardless of age.

Your credit phases out over the following AGI ranges:

$150,000 to $160,000 if married, filing jointly;
$112,500 to $120,000 if head of household; or
$75,000 to $80,000 if single or if married, filing separately.

The IRS will give you an advance payment of this credit based on your 2019 or 2020 AGI and dependents. If your first advance payment used your 2019 return information, then the IRS will send an additional payment based on your 2020 tax return if the IRS processes your 2020 tax return by August 15, 2021.

You then reconcile your advance payment(s) on your 2021 tax return:

If your actual credit amount exceeds the advance payment, you get the difference as a refundable credit.
If your actual credit is less than the advance payment, you keep what you have. You don’t have to pay back the excess benefit.

There are two main reasons you may have net lower federal tax with separate returns versus a joint return. First, if your MAGI is $150,000 or more on a joint return, but the spouse who received the unemployment compensation earns under $150,000 on a separate return, then that spouse can take the full exclusion up to $10,200 (except possibly in a community property state).

Second, if one spouse has AGI of $75,000 or less, but your joint AGI is over $150,000, then that spouse can claim the dependents and get all the available round 1 and round 2 credits on the 2020 tax return as well as the entire round 3 advance payment.

When considering the above, keep two important notes in mind:

For a couple that got joint advance payment(s), the law says you allocate 50 percent of the payment to each spouse. The higher-earning spouse doesn’t pay back any of his or her allocated advance payment, while the lower-income spouse will get the difference as a refundable tax credit.
Married taxpayers who agree how to allocate dependents on separate returns do not have to use the “tiebreaker” rules and can choose who claims which dependents.

Important note. You may lose other deductions and credits on a separate return. The only way to know which is better in light of these temporary provisions is to run your tax returns both ways and see which puts you ahead. For example, separate returns can change your health insurance premium tax credit and perhaps some non-tax items such as your Medicare premiums.

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

2020 Last-Minute Vehicle Purchases to Save on Taxes

November 11, 2020 Howard Tax Prep LLC

We’re finally getting closer to the end of a tumultuous 2020, and (almost daily) in our South Loop Chicago tax preparation office, we’re handling phone calls from clients asking for more ways to save on their tax bills.

Here’s an easy question: Do you need more 2020 tax deductions? If yes, continue on.

Next easy question: Do you need a replacement business vehicle?

If yes, you can simultaneously solve or mitigate both the first problem (needing more deductions) and the second problem (needing a replacement vehicle), but you need to get your vehicle in service on or before December 31, 2020.

To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2020. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions. Now that you have the basics, let’s get to the tax deductions.

1. Buy a New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2020, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four big benefits:

The ability to elect bonus depreciation of 100 percent (thanks to the Tax Cuts and Jobs Act)
The ability to select Section 179 expensing of up to $25,900
MACRS depreciation using the five-year table
No luxury limits on vehicle depreciation deductions

Example. On or before December 31, 2020, you buy and place in service a qualifying used $50,000 SUV for which you can claim 90 percent business use. Your business cost is $45,000 (90 percent x $50,000). Your maximum write-off for 2020 is $45,000.

2. Buy a New or Used Pickup

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2020, then this newly purchased vehicle gives you four big benefits:

Bonus depreciation of up to 100 percent
Section 179 expensing of up to $1,040,000
MACRS depreciation using the five-year table
No luxury limits on vehicle depreciation deductions

To qualify for full Section 179 expensing, the pickup truck must have

a GVWR of more than 6,000 pounds, and
a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. The vehicle is still eligible for either expensing of up to the $25,900 SUV expensing limit or 100 percent bonus depreciation.

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

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.

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

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this: