In Part 1 of this series, we took a deeper dive into IRMAA planning and minimizing tax on your Social Security benefits. You play a large role in shaping your retirement years in terms of lifestyle and financial health. Think of taking advantage of the many techniques to lower your tax during your retirement years as another aspect of self-care. By treating your financial health and well-being as carefully as you treat your mental and physical well-being, you can ensure that you have resources to attain your financial goals and support yourself in the style for which you’ve planned. In my practice, I see a wide range of client behavior surrounding retirement – from no planning to thoughtful, long-range planning. Looking ahead, whether you’re working with your tax professional and financial team or whether you’re planning on your own, pays off enormously.
Please read on for some additional tips and techniques for tax savings involving charitable giving, Roth IRA conversions, and minimizing capital gains taxes – and two more examples.
Federal, state, and local governments, as well as private organizations, have collectively given trillions of dollars in financial support to individuals and businesses during the pandemic through a maze of government and private programs.
These benefits will help taxpayers to a greater extent if they are tax-free, but are they? In some cases, we have a definite answer. For many, it is the classic tax law answer: “It depends.”
We’ll review the general tax law rules applicable to deciding, then show three ways you can use the tax law to exclude these benefits from a taxpayer’s income.READ MORE
Health Expenses: A Commonly Ignored Portion of the ERC Leaves Relief Money on the Table
The Employee Retention Credit (ERC) is a huge benefit for businesses, but it is often incredibly difficult to maximize fully. Practitioners must perform a complex interplay of wages between PPP, grants, or other wage credits. They must know the voluminous rules of the ERC program itself, the other programs that may enter into the equation, and the related portions of the Tax Code. With so much to consider, a particularly powerful tool can easily be missed: the ERC health expenses. Many are surprised when someone asks about health programs since they do not realize these benefits count as ERC qualified costs. Some ERC claims ignore health costs entirely or only capture the employee portions. Deductions for health costs are in the payroll data, but employer costs are typically not in pay records. By reviewing all the qualifying health expenses and available methods for allocating costs, you can really increase your ERC. Keep reading to learn more!Read More
Even an Existing Business Can Claim the $100,000 of COVID Relief Money for Startups
You might be a startup without even knowing it. If you are not a startup business today, you could be shortly. The incentive to start a business and hire employees is especially high now due to the Employee Retention Credit (ERC). With a special rule specifically for startups, the government will pay 70 percent of the first $10,000 of an employee’s wages in both the third and fourth quarters of 2021. This means it’s possible a business with as few as eight employees can claim the maximum $100,000 under the Recovery Startup Business rules (RSB). Even an existing business may qualify as a startup to claim RSB ERC. There are steps a business can still take today to qualify. A new business activity, reorganization, change in ownership, related company, business purchase, or even a more detailed review of the average receipts calculations could trigger a qualification. Read on to learn more about this planning opportunity and the rules to do it well.Read More
Are Electric Vehicle Credits Really Worth It? Spoiler Alert: It Depends!
It happens all the time. A client comes in with the receipt for a 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 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.Read More
This is How to Increase Your Employee Retention Credit
Are you seeking clarity on whether employee owners can claim the Employee Retention Credit (ERC) tax credit for yourself? Or perhaps you want to know whether qualifying for the Recovery Startup Business bonus is really that easy. You’re in luck! On August 4, 2021, the IRS released Notice 2021-49 to answer our questions related to the definition of wages, majority owner wages treatment, timing of the deduction disallowance, and recovery startup businesses. The ERC has been a phenomenal tax credit getting much needed cash to qualifying businesses using qualifying wages paid between June 30, 2021, and January 1, 2022. It hasn’t been uncommon to see small businesses recovering $50,000 to $200,000 in cash refunds just by claiming the credits for wages paid during 2020. The recovery startup business element of the CARES Act incentivizes new businesses to hire employees by offering up to a possible $100,000 in refundable credits using wages paid in the third and fourth quarters of 2021. This means if you hire seven employees (who are unrelated to you) in your new business, which began after February 15, 2020, and their average earnings are $10,000 for the quarter or more, you can receive up to $100,000 in credits. Naturally, we’ve received a lot of questions related to this lucrative credit and so has the Treasury Department. If you’re wondering how the IRS weighs in on how to maximize these tax credits, keep reading because we have six clear ways to qualify for even more money!Read More
Owner Employee Wages – Do They Qualify For ERC?
Question: I read the recent IRS Notice, but I’m not sure I understand whether or not an employee/owner’s wages qualify for the ERC. Help! Answer: On August 4, 2021, the IRS released Notice 2021-49 to answer exactly this question – albeit true-to-form in the confusing way only the IRS offers as an explanation. The notice addresses full-time equivalents, how to stack the ERC with tip credits, the timing of adding back wages for tax purposes, and whether a majority owner’s wages qualify for ERC. Is it possible the IRS is favoring orphans in this notice? It certainly appears that way. The original text of the CARES Act referenced the rules for Work Opportunity Credits. Specifically, the act indicates that relationships listed in Code Section 51 apply and, while not explicitly saying only payments made to the list of related parties were ineligible, most readers assumed wages to the owners were not disqualified. Here’s what the guidance now says.Read More
Can I Double Dip? Qualifying for Both PPP Forgiveness and COVID-related Tax Credits
Question: Is it possible to qualify for both PPP forgiveness and COVID-related tax credits? Answer: The short answer, of course, includes, “it depends.” We were fortunate that the Consolidated Appropriations Act passed in December 2020 made it so that businesses that received PPP loans may now be eligible for the Employee Retention tax credits retroactively. The tax credits are great – a dollar for dollar reduction of tax, and for 2020 the value is up to $5,000 per employee! It is a credit against the employer’s share of the Social Security tax, but it is refundable, so if the amount of the credit is more than the tax, you’ll get free cash from the IRS. In addition, we’ve discussed previously in Think Outside the Tax Box about paid leave tax credits and even how to get them if you are a small business. These credits are also applicable even if you received PPP forgiveness provided you otherwise qualify. Here’s where it gets complicated. You can stack the benefits, but you can’t double dip. While no one likes a double dipper at the snack bowl (especially during COVID) there are ways to get the benefit from forgiven PPP funds and tax credits allowing you to have your chips and “dip” them too. Keep reading to learn how to legally take these benefits.Read More
Coronavirus 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 More
How 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 More