TAX DEBT – Page 4 – SMALL BIZ TAX LADY

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.

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?

January 30, 2019January 30, 2019 Howard Tax Prep LLC

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:

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.

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Family Tax Issues, General Information, Self Employed

Tax Consequences of Bartering & Trading

January 11, 2019January 11, 2019 Howard Tax Prep LLC

Author Trudy M. Howard

When it comes to filing taxes in Chicago, many residents believe that they don’t have to file taxes because they were not paid via a W2, 1099, or with cash payments. However, even if you don’t receive cash in exchange for work done, if you receive property or you “bartered” services, you have to report the FAIR MARKET VALUE of the service/property as SELF EMPLOYMENT INCOME!

For example, let’s say one of my baker friends wanted to pay me with cakes (a girl can dream can’t she?) to prepare her taxes, and I agreed to take 5 $50 cakes in exchange for my tax preparation services. Once our transaction was done, the IRS would expect me to report the value of those cakes, and pay self employment taxes on the value of the services/property that what we bartered! Don’t believe me? Read the law for yourself below.

Per the IRS: “Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. Generally, you report this income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). However, if the barter involves an exchange of something other than services, such as in Example 4, later, you may have to use another form or schedule instead.”

FACT CHECK me with IRS publication 525 PAGE 19. I’ve included the link to the IRS tax publication here: https://www.irs.gov/pub/irs-pdf/p525.pdf

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General Information, TAX DEBT RELIEF, TAXES

Get rid of tax debt fast!

December 11, 2018May 15, 2019 Howard Tax Prep LLC

Author Trudy M Howard

Nothing can be more distressing than receiving a letter from the IRS. Having tax debt can cause stress, high blood pressure, sleepless nights, and it can also cause a break down in family relationships (we see this often in marriages). At Howard Tax Prep, in our Chicago South Loop tax office, we help clients resolve their IRS tax debts and State tax debt once and for all.

So what can you do you need to solve tax problems? Here are the Top 5 things that you can do when you owe the IRS, and have tax debt.

In plain English your options are:

Don’t over pay!
Ask for a settlement.
Ask for A payment plan.
Ask them to waive the Fees.
Tell them Don’t blame me!

In IRS Speak and complicated tax language, your options are:

1. Have a competent, and experienced tax consultant review your return for MISSED DEDUCTIONS! I once found $6,000 in missed deductions that put my client into a lower tax bracket, netting her a large tax refund of over $2,000! To be honest, I was actually shocked that I found such a large tax deduction, because the missed tax deduction was something that every good Chicago tax preparer should know! 101. In plain English: Don’t over pay!

2. IRS Offer in compromise. We’re sure that you’ve heard the commercials promising to “settle your tax debt for pennies on the dollar.” While every good tax debt consultant dislikes the phrase “pennies on the dollar” in some cases you can settle your tax debt with a low payment. We’ve seen cases such as: $150,000 tax debt settled for $4,000; $20,000 tax debt settled for $50; and $200,000 tax debt settled for $10,000! Not only can you possibly lower your tax debt, while the IRS considers your offer, you have a little more time raise money for your tax debt. In plain English: Ask for a tax settlement.

3. IRS Installment agreement. When most people receive a letter from the IRS the very first thing they do is think of ways to pay down their tax debt. The IRS offers 3 types of installment plans for tax debt. IRS tax debt installment plans, are basically agreements to pay what you owe on a continual basis, over a defined period of time. In plain English: Ask for a tax debt payment plan.

4. IRS Abatement of penalties. This can reduce or eliminate your penalties. In plain English: Waive the Fees.

5. IRS Innocent spouse relief. This can free you from liability if your spouse (or ex-spouse) is the reason for your tax problems. In plain English: Don’t blame me!

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