CURRENT EDITION
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Intentionally Filing a Defective Tax Return
Creativity on a tax return is a natural tendency. Many strategies and behaviors we know are wrong, e.g. not reporting all income. However, is it ever okay to disregard some deductions and pay more tax? At first glance, it would seem that the IRS should like the idea of more reported income and a higher tax liability attached to the additional income. The IRS does not.
READ MOREGo the Extra (Tax) Mile
Question: Can my business still take a deduction for my car if the title is in my name? Answer: If you want to get all the business deductions you are entitled to for your car, it’s better to have the vehicle titled in your business’s name. Most taxpayers continue to use their vehicles for both personal use and business purposes, as a result, most car titles show just the individual’s name as the owner. This can present a big problem and potential lost deductions, especially due to the Tax Cuts and Jobs Act (TCJA). It is important to review the rules since they have changed recently. You may have deducted expenses on past tax returns as an unreimbursed employee vehicle expense. But under tax reform, the miscellaneous itemized deductions were repealed until 2026, and this is an important rule change. Read on to learn how to still benefit after tax reform and why it can help you go the extra tax mile to title the car in your business’s name.
Read MoreIs Your Spouse Innocent or Injured? Part One: The Injured Spouse
Jack and Jill went up the hill to have a lovely wedding Jack fell down and broke his crown When Jill learned all his tax debts That pretty much describes the origin of the taxes faced by an injured spouse: The taxpayer was not married to that spouse at the time he or she incurred the tax obligation or it was assessed or did not sign the tax return where the balance due originated. In other words, it was never the injured spouse’s debt or obligation in the first place. What kinds of debts or taxes might the IRS collect (or “offset”) that would affect the injured spouse’s refund?
Read MoreAvoiding the Repayment Cliff: Mitigating the Effects of Miscalculating the Advance Premium Tax Credit
The premium tax credit (PTC) is a refundable credit that is available to certain individuals “whose household income for the taxable year equals or exceeds 100%, but does not exceed 400% of an amount equal to the poverty line for a family of the size involved.” In other words, it’s a refundable tax credit that specifically subsidizes the cost of insurance purchased on a health care marketplace for individuals who are over the federal poverty level (FPL), but not by 400 percent or more. This credit is available as an advance paid directly to the marketplace for qualifying taxpayers who cannot afford (or do not wish) to pay their full monthly premium out of pocket. The amount of the credit is calculated based on estimated annual household income. When taxpayers receive more advance credit than they are entitled to, they must repay the excess. So, the consequences for an intentional or inadvertent underestimation of annual income can be severe. What follows is an overview of how the credit works and describes strategies for reducing the amount of advance premium tax credit (APTC) the taxpayer must repay both immediately and after the fact.
Read MoreCoronavirus Tax Credits – How the Self-Employed Can Benefit
March 18, 2020, was a big day for tax bonuses. Congress passed the Families First Coronavirus Response Act (FFCRA). The bad news is this bill requires certain employers to provide two weeks of paid leave to employees impacted by COVID-19. The good news is that when you provide it to your employees, you get a juicy tax credit to reimburse you for these benefits. If you’re self-employed, you may have noticed you tend to miss out on certain tax benefits designed for companies with employees. But in the case of FFCRA, these credits are also available when you are your own boss. Continue reading to find out how to get this cash as soon as the end of the current quarter.
Read MoreHow Late Is Too Late to Request a Late S Election?
Question: How Late Is Too Late to Request a Late S Election? Answer: Late in 2020, the IRS issued a Private Letter Ruling related to a late S election request for relief. Generally, you must file a request to become an S corporation no later than the 15th day of the third month of the taxable year for which the election is to take effect. If you miss this deadline, or don’t file an election at all, the business is generally considered a C corporation or LLC. If you’re like most business owners, however, you may not have known at the time you formed your business all the tax benefits available to you by holding your business as an S corporation. Whether you were unaware, or for some other reason, it may be well past the official IRS deadline to make this request for the current or recently ended tax year. If you haven’t yet filed your tax returns at all, you may be qualified to use the relief available by following the proper procedures. You may also wonder, “How far back can I go in changing the way my business income is taxed?” To learn more about how far back and how long you can be “fashionably late,” continue reading.
Read MoreMonetized Installment Sale – Risky Business
The monetized installment sale (MIS), which is more of a product than a tax concept sounds very attractive. In the right circumstances MIS promises a very long deferral of capital gains tax for a reasonable cost. But does the strategy actually work?
Read MoreLand Conservation Easements: Tax Avoidance or Evasion?
Question: I was going to look into a conservation easement (CE) for a client and noticed the IRS has focused heavily on compliance efforts for abusive syndicated transactions. Are there any legitimate conservation easement transactions, or is it best to stay away from this strategy until things calm down? Answer: Sounds too good to be true, right? A $500,000 charitable tax deduction for a $100,000 land purchase in December. In your search for information, you may be scared off by the court cases and Department of Justice investigations of the promoters of syndication easements. Syndication deals are partnerships that own land ideal for conservation and allow groups of investors to pool their money in the business, which typically will also include other activities beyond just the land ownership. These deals have come under heavy scrutiny in the past few years as CEs became a listed transaction and more cases have wound their way through the court system. The IRS even announced a settlement program for syndicated conservation easements in mid-2020. Click here to read the full answer.
Read MoreDeducting Business Meals and Entertainment: The good, the bad, the very recently changed
“Say dog.” My dad once told me that a friend paid for his lunch and said, “Say dog, then I can write this off.” She bred show dogs. File that under “nope.” That is not how the meals and entertainment (M&E) deduction works. Not even before the Tax Cuts and Jobs Act (TCJA) changed the rules. The deduction for M&E is a favorite of many of our clients and rightfully so. Nevertheless, it can be a fraught area if taxpayers and their advisors don’t have a comprehensive understanding of how the rules for deducting expenses apply across the many different scenarios in which our clients are likely to apply them. The IRS issued the final regulations for deducting M&E expenses under Internal Revenue Code (IRC) § 274 on October 9, 2020. It made some additional, short-term adjustments when the Consolidated Appropriations Act (CAA) became law on December 27, 2020. Here is an overview of the new regulations, how to use them to your clients’ benefit, and how to avoid the most common pitfalls.
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CURRENT EDITION
![](https://thinkoutsidethetaxbox.com/wp-content/uploads/2024/07/Header-Intentionally-Filing-a-Defective-Return.jpg)
Intentionally Filing a Defective Tax Return
Creativity on a tax return is a natural tendency. Many strategies and behaviors we know are wrong, e.g. not reporting all income. However, is it ever okay to disregard some deductions and pay more tax? At first glance, it would seem that the IRS should like the idea of more reported income and a higher tax liability attached to the additional income. The IRS does not.
![](https://thinkoutsidethetaxbox.com/wp-content/uploads/2024/07/Header-Gig-Economy-Part-2.jpg)
Side Hustles and Tax Tussles: Tax in the Gig and Share Economy Part Two
The gig economy involves more than one-off and part-time jobs. It also includes when you share your property in exchange for money. This can be a residential property, a vacation home, or even a vehicle. The gig economy has connected those who need rides and places to stay with owners via online platforms. We refer to this part of the gig economy as the share economy.
Accessing these accommodations is easy with the online platforms. But how the people participating should report their income isn’t quite as straightforward. Last time we looked at how your clients should report gig income, just like any other income made as a sole proprietor.
But making money from renting your property out is different, right? If you have clients with rental properties, you report their income on Schedule E (1040), Supplemental Income and Loss. We know from last time that we report gig economy income on Schedule C (1040), Profit or Loss from Business. So, how does rental income derived from the share economy get reported on a tax return? Every taxpayer’s favorite answer, it depends.
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Loose Change in Your Couch and Maybe a Tax Break at Your Kitchen Table
A 2023 Tax Court decision upheld what many small business owners and tax practitioners have wondered about for some time. The court found that shareholders of an S corporation could exclude rental income paid to them by their S corporation for holding planning meetings in their homes. While the IRS and court found that the amounts charged by the shareholders were excessive, the court found the arrangement itself within the bounds of the law.
This article examines this case and underlying law and when and how this is a planning idea worth pursuing, the limitations and unknowns involved, and the policy implications of this long standing exclusion. The case is Sinopoli, TC Memo 2023-105 involving the exclusion at IRC Section 280A(g).