Business Strategies

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.

“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.

Whether you’re preparing to have kids in the future or already have kids, there are tax strategies available (but often overlooked) that you should take advantage of. These are proven ways to save you money on your tax return. How do I know? Well, I use them myself. Bringing children into this world is a great joy and brings immense satisfaction. It’s important to remember, though, having children is a significant responsibility you should take seriously. From a very early age, you need to begin planning for your financial future to ensure you care for your children. There are 10+ unique ways the wealthy families in this country use their families to “qualify” for deductions that often go unused by the middle class. They go unused, not because the middle class can’t qualify; it’s that they don’t make the time to take proactive steps to prepare themselves. Here are just a few of the things you should know as you begin tax planning for your family.

Question: If I am making a late S election for a client, how do I handle the fact that the officer received no officer’s compensation throughout the year? One of the biggest areas of audit for an S corporation return Form 1120S is officer’s compensation. The IRS collects and examines data from all returns filed and develops a computerized standard of insufficient compensation. Since this area can result in deficiencies for payroll taxes (Social Security and Medicare) for every dollar of distribution reclassified to wage, tax advisors would be wise to avoid risk factors that might raise the risk of audit on officer’s compensation. By avoiding what resembles unreasonably low compensation, we can help business owners by limiting the number of Forms 1120S without officer’s compensation. However, when making a late S election, what is the rule when officer’s truly have taken no compensation? You might be surprised to learn it isn’t filing a Form 1099. Read on to find out how to reduce the risk of audit, while accurately reporting your first Form 1120S.

As we navigate a world with COVID-19, large swings in the stock market have become the norm. Many buy and hold-style investors are more actively managing their portfolios to take advantage of these swings. The IRS has a special trader status for taxpayers who frequently engage in trading. This status includes a special accounting method, not available to the average investor, that can come with substantial tax savings. The status allows an investor to make special deductions and opens the door to a wide range of tax reduction strategies unavailable to the casual investor. However, with potential savings also come risks that could end up costing the taxpayer/trader more than the average investor. Weighing the pros and cons of this status is crucial in minimizing tax liability. The big question for tax planning is this — does obtaining trader tax status result in less tax?

Question: Given the recent passing of the stimulus law (CAA 2021) permitting a business to deduct payroll expenses paid with Paycheck Protection Program (PPP) funds, how does an S corporation or Partnership basis negatively impact this? I’m hearing that even though the law allows the deduction, some businesses will have suspended losses due to PPP funds. Which is true? Can a business deduct losses from PPP payroll or not?

It’s finally here! After much political wrangling, Congress and President Trump signed the Consolidated Appropriations Act, 2021 (HR 133) into law on December 27, 2020. Attached to this omnibus spending bill were a number of unrelated pieces of legislation, including the latest COVID-19 relief and stimulus measures. The law puts much needed cash in the hands of business owners and individuals alike, while Congress thumbs its collective nose at the IRS by including an override of the recent notice disallowing the deduction of expenses paid for using PPP funds. Several more key provisions in the new legislation’s Division N include process simplification and forgiveness for PPP borrowers, which will make life easier for everybody. To find out how to qualify for new rounds of stimulus, automatic forgiveness, and how to get both tax credits and free money, keep reading.

I have a few physician clients who earn their income via Form 1099 and are perfect candidates for an S corporation. However, the hospital won’t issue the Form 1099 in the name/EIN of an S corporation. Is this an issue? Can I still report the income on the Form 1120S and report the Form 1099 on a Schedule C with a negative adjustment for the same amount and attach an explanation annually? Or is there any other way?