Tax Credits Archives - Page 2 of 4 - Think Outside the Tax Box

Tax Credits

By Keith Schroeder, EA

Buying Tax Credits: Inflation Reduction Act

Tax shelters offered high income taxpayers an easy way to reduce and even eliminate federal income taxes at the individual level. The growing tax avoidance schemes, many questionable in nature, threatened to collapse the U.S. tax system. Hence the need for tax reform and the Economic Recovery Tax Act of 1981 (ERTA). New rules cannot keep a tax professional down. Real estate was once again the favorite tool for reducing taxes. Enter cost segregation. Couple that with bonus depreciation and the automatic change of accounting method using Form 3115 , and you have a recipe for serious tax reduction. The tax shelters of the 1970s were often questionable. Cost segregation is still a valid way to accelerate deductions for income property owners. But none of that compares to the tax benefits available under the Inflation Reduction Act of 2022 (the IRA).

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10 Reasons Your Clients Should Get a Tax Divorce

As a married individual, you can select a tax filing status as either married filing jointly or married filing separately, and in some cases neither of these statuses achieve what is possible for two single taxpayers each filing their own tax return. In many cases it can seem you are getting penalized for being married in the U.S. You may get frustrated that you seem to keep getting hit with “wealth taxes or penalties.” Of course, you may not refer to it that way. But when you see things like the Alternative Minimum Tax, The Net Investment Income Tax, the Additional Medicare Tax, and a whole variety of other taxes that are higher for married filers than they are for two single people…you may be tempted to think about a divorce. And “live in sin”? No matter your personal beliefs there are at least 10 tax attributes that cost married filers more than two single people. In some instances, children are in the mix, as they relate to specific credits. Some of these situations only apply to wealthy couples. Some only apply to those earning $50,000 or less or seniors. These attributes, commonly known as the so-called “marriage penalty” refer to situations where it may pay to file as two single individuals rather than as a married couple. However to qualify, you cannot legally be married as of December 31. To learn more about these penalties and find out how to work around them, continue reading.

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Make Tax Magic with a Health Savings Account

Congress created one of the best tax savings vehicles in 2003. It wasn’t the individual retirement account (IRA). It wasn’t the Roth IRA.It was the health savings account (HSA). The HSA is the only tax-preferred savings vehicle in which a taxpayer potentially gets both an upfront tax deduction in addition to tax-free and penalty-free distributions. The IRS wrote the HSA rules to give taxpayers maximum flexibility in how they use their HSAs for medical expenses. Strategic use of the HSA can lead to lifelong tax savings opportunities. Let’s review the basic rules as to how an HSA operates, the little-known rules that create tax savings opportunities, and examples of how the HSA can be used to provide tax-free and penalty-free distributions when the taxpayer has a cash need.

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Client Alert

Enjoy Decades of Tax-Free Growth With a 529A

If you’re disabled or support someone who is, a 529A plan can be a powerful way to save for the future. Potential earnings grow tax-free, and you won’t have to pay taxes when you withdraw, as long as the withdrawals meet qualifications. Also known as Qualified ABLE (Achieving a Better Life Experience) programs, these will not only assist you next time you are playing Tax Code Jeopardy but help you create a tax advantaged savings account. One reason you may not hear much about these tax vehicles is that there really is no way I can discern that advisers can make money on them. But since you and I are members of the same club as tax practitioners, I’m confident you will tell your clients about things that can help regardless of whether there is any profit in it. As my first managing partner the late Herb Cohan used to say, “The world is longer than a day.” To learn more about future tax-free money, keep reading.

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COVID-19 Benefits: Taxable or Tax-Free?

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.

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Client Alert

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!

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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.

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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.

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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!

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