Archives for Uncategorized

CARES (Coronavirus Aid, Relief, and Economic Security) Act

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that I previously sent you, I now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27,
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Families First Coronavirus Response Act

Right now, your highest priority is the health of those you love and yourself. But if you have time to read about some non-medical but important matters related to the health crisis, here is a summary of IRS action already taken and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by COVID-19 (commonly referred to as Coronavirus). I’ll be sending you summaries of additional developments as they take place. Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all
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Business Meals

Dear Client: You may be interested in the requirements for deducting business meal expenses. Unfortunately, after the Tax Cuts and Jobs Act (”TCJA,” P.L. 115-97, 12/22/2017) it’s less than clear whether business meals provided to clients and business associates are deductible. The TCJA provides that—starting Jan. 1, 2018—entertainment, amusement or recreation expenses for clients and business associates are no longer allowed as business deductions. IRS is expected to issue guidance providing that meals aren’t considered “entertainment, amusement or recreation,” but it could change its mind and include meal expenses in the category of deductions that are disallowed by the new
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Qualified Business Income Deduction

Dear Client: I am writing to inform you of a significant new tax deduction taking effect in 2018 under the new tax law. It should provide a substantial tax benefit to individuals with “qualified business income” from a partnership, S corporation, LLC, or sole proprietorship. This income is sometimes referred to as “pass-through” income. The deduction is 20% of your “qualified business income (QBI)” from a partnership, S corporation, or sole proprietorship, defined as the net amount of items of income, gain, deduction, and loss with respect to your trade or business. The business must be conducted within the U.S.
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TCJA Provisions Affecting Depreciation

Dear Client: I’m writing with good news. The Tax Cuts and Jobs Act (TCJA) has effectively lowered the cost of acquiring capital assets by making substantial changes to the income tax rules for bonus depreciation and other “cost recovery.” There’s a lot to discuss, but please bear with me. There’s a good chance that one or more of these changes will change your tax bill. Bonus depreciation. Before the TCJA, taxpayers were allowed to deduct 50% of the cost of most new tangible property (other than buildings and some building improvements) and most new computer software in the year placed
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TCJA Provisions Affecting Individuals

Dear Client: The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Here’s a look at some of the more important elements of the new law that have an impact on individuals. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025. Tax rates. The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly.
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Retention of Tax Records

Dear Client: You have asked for guidance on how long you should retain your personal income tax records. You may have to produce those records if IRS (or a state or local taxing authority) audits your return or seeks to assess or collect a tax. In addition, lenders, co-op boards, or other private parties may require that you produce copies of your tax returns as a condition to lending money, approving a purchase, or otherwise doing business with you. Keep returns indefinitely and the supporting records usually for six years. In general, except in cases of fraud or substantial understatements
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Employee vs. Independent Contractor

The question of whether a worker is an independent contractor or employee for federal income and employment tax purposes is a complex one. It is intensely factual, and the stakes can be very high. If a worker is an employee, the company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages plus FUTA tax, and often provide the worker with fringe benefits it makes available to other employees. There may be state tax obligations as well. These obligations don’t apply for a worker who is an independent contractor. The business sends the
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Reasonable Compensation

As the owner of an incorporated business, you’re probably aware that there’s a tax advantage to taking money out of the corporation as compensation (salary and bonus) rather than as dividends. The reason is simple. A corporation can deduct the compensation that it pays, but not its dividend payments. Thus, if funds are withdrawn as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is taxed only once, to the employee who receives it. However, there’s a limit on how much money you can take out of the corporation in this
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