All Articles - Think Outside the Tax Box

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By Amber Gray-Fenner, EA NTPI Fellow USTCP

Are Electric Vehicle Credits Really Worth It? Spoiler Alert: It Depends!

It happens all the time. A client comes in with the receipt for their new hybrid or electric vehicle and is expecting a huge tax credit to offset some of the purchase expense. It’s a fact that hybrid and electric vehicles cost more (some estimates say an average of $19K more) than their internal combustion engine (ICE) based counterparts. And, despite the fact that hybrids and fully electric vehicles continue to gain market share, it has continued to be difficult to quantify exactly how much fuel and maintenance cost savings offset the larger price tag. Often, the time span for offsetting the difference in purchase price is much longer than many taxpayers want to keep their cars. Taxpayers often hope tax credits will help them to recoup the difference in purchase price more quickly than fuel and maintenance cost savings. Do they? Are electric vehicle tax credits really worth it? Well—it depends.

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COVID Relief Money Is Still Hiding in Plain Sight: The Employee Retention Credit

Business COVID relief funds have been plentiful. We have seen it all from state and local grant programs to the Restaurant Revitalization Fund and Paycheck Protection Program (PPP). The dollars have flowed freely during the past two years although some programs were certainly simpler than others. The Employee Retention Credit (ERC), unfortunately, has been the most complex and misunderstood relief program. It deserves serious consideration along with a second and third look. ERC has suffered from a branding problem, from repeated changes, and because the PPP overshadowed it. The CARES Act brought both programs to life in March 2020 , but small businesses quickly ignored the ERC in favor of the forgivable PPP loans. A taxpayer could only choose one of these programs until the December 2020 COVID relief law retroactively allowed them to coexist in the same business. But once again a second round of PPP loans overshadowed the ERC. Perhaps now with the grants awarded and PPP funds issued, the ERC can finally get the attention it deserves. The benefits are tremendous at up to $5,000 per employee in 2020 and $28,000 per employee in 2021. Opportunities abound for businesses and advisers to be on the hunt for ERC eligibility both obvious and obscure. Today, let’s review the program and cover some of the unusual ways to qualify.

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Wash Up for Tax Savings – Cryptocurrency and the Wash Loss Rule

When recognizing capital gains during a tax year, it can often make financial sense to sell assets that have lost value to offset profits in other investments or regular income. In this situation, you swap stocks, bonds, or mutual funds by buying a similar asset, selling the old asset and taking a loss. This strategy is called tax-loss harvesting, and it can be applied under certain circumstances which will lower your taxes. Yet while the tax deduction might seem appealing, you might have a hard time locking in that loss forever, and you may be inclined to repurchase the same investment in case the value rebounds. This strategy may appear brilliant on paper; however, the IRS doesn’t allow such manipulation just to reduce taxes. The Wash Loss Rule prevents traders from realizing a tax loss on a position that the taxpayer reacquires within 30 days after (or before) selling a security. But a little known loophole may allow you to complete a wash sale and claim your deduction without recognizing the loss forever as long as it is crypto. Cryptocurrency continues to be an area where the rules don’t always seem to make sense. Most experienced investors are already familiar with the “Wash Loss Rule,” while many newer investors have recently learned about it the hard way. To learn this valuable strategy for offsetting your capital gains while remaining in the investment gain for expected future growth, continue reading to learn more.

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California’s AB-5 And Its Impact On Small Businesses That Work with Independent Contractors

Question: I run a virtual business with no employees, but independent contractors perform all the work. I heard about that case in California. Should I be doing something different in my business? Do I owe any penalties for how I’ve done it in the past? Answer: Effective January 1, 2020, AB 5, later AB 2257, radically changed the rules and criteria for determining whether a worker’s classification is independent contractor or employee. The so-called “gig law” was effective based on a California Supreme Court case from 2018. The significance of the ruling is that it changed the criteria of worker classification and held that workers are presumptively employees and the burden is on the hiring entity to establish that a worker is an independent contractor not subject to wage order protections in California. Although this is a change impacting California employers, the rest of the country has eagerly watched and hoped to cash in on the changes that would generate billions in employment taxes. Businesses that prefer to work with independent contractors such as Uber and Lyft were quick to propose a ballot initiative in 2020 that the voters passed and now drivers are exempt from the new criteria (insert eyeroll here). Want to know how to get your own exemption from AB-5? Continue reading.

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Build Back Better Legislation Could Present Complications for QSBS

Tax advisors are seeing more clients looking to claim an exclusion for Qualified Small Business Stock and expecting the gain to be 100 percent tax free. Can this be? Believe it or not, it very well could be, but nuanced criteria, not to mention the recently proposed amendment to IRC Section 1202 through the Build Back Better Act, make it a complex incentive to evaluate and monitor over time. In fact, QSBS gains haven’t always been 100 percent tax free. When introduced in 1993, QSBS started out as a 50 percent capital gain exclusion. The exclusion was increased to 75 percent in 2009, and increased to 100 percent in September 2010. Currently, the exclusion percentage is solely based on the date the owners acquired QSBS stock, but the proposed BBB amendment would additionally subject the exclusion percentage to the taxpayer’s Adjusted Gross Income (AGI), depending on a $400,000 threshold. The proposed language has accountants scratching their heads over the seemingly circular reference in determining what level of exclusion their clients would receive. As written, you need to know the QSBS exclusion percentage to calculate AGI, and you need AGI to know the exclusion percentage! Keep reading to learn how.

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Office in the Home – Real Estate

As many of us become more accustomed to working from home, it is easy to forget that some industries were regularly working remotely prior to the COVID-19 pandemic. It might be easy to forget altogether that real estate businesses also qualify for the same deductions as other businesses. Yet, it is often easy to overlook something like a home office for a real estate rental operation, but the home office typically functions as the glue holding these businesses together. To learn more about the how and the where to grab this deduction, keep reading.

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Just Good Business: When It’s Time to Hire a Pro

Often, clients and potential clients grumble when their tax professionals recommend hiring a bookkeeping and/or accounting professional. Why? Because many people (including some tax practitioners) simply do not understand the miraculous complexity that is double-entry accounting. As some are probably aware, proper bookkeeping and accounting are much more than simply entering income and expenses into a software program. Nevertheless, it is sometimes difficult to explain the nuances of and the necessity for double-entry accounting to clients. Following are the specific circumstances under which clients should hire a professional bookkeeper and/or accountant. And remember, what works for clients also works for busy tax and accounting professionals. You may, after reading this article, decide that it’s in your own best interests to outsource your business’s tax and accounting work both for peace of mind and for time and money saved. So, when is it just good business to gently insist that your client hire an accounting professional? Keep reading to find out.

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Your Questions Answered: The Dubious Anonymity of Virtual Currency Transactions

Question: Bitcoin being treated as property by the IRS was partially related to not being “legal tender in any nation.” Does the fact that El Salvador is now using cryptocurrency have any cascading ramifications for tax/currency treatment of bitcoin in the U.S.? Answer: The Department of Justice recently issued a news release to strike terror in the hearts of anyone attempting to execute cryptocurrency tax shenanigans. Similarly, the federal court for the Northern District of California entered an order authorizing a John Doe’s summons on Payward Venture Inc. and subsidiaries d/b/a Kraken. The IRS wants to look at the records of U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. What’s with all the sudden interest in crypto, and why are the feds looking to snoop around retroactively? If you’re curious to find out why and how to stay off its radar, keep reading.

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Conservation Easements: Good Execution Is the Key

If someone approaches your client offering four to one deductions on conservation easements (probably somewhere in the Southeast), you need to do your best to talk them out of it. And if you cannot, it may be best to let some other practitioner have the honor of preparing their return. On the other hand, if your client has land or a building they would like to preserve forever, a conservation easement may be just the thing. Assuming the desire to have the property preserved anyway, it is about as close to a free lunch as you can get. Good execution is the key to making it work. Read on to learn how!

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