Feature Article Archives - Page 8 of 12 - Think Outside the Tax Box

Feature Article

By Timalyn Bowens, EA

An Overview of Health Reimbursement Arrangements

Life is the best teacher, especially in the tax industry. You can take all the continuing education that your heart desires, but sometimes the information doesn’t seem to really click until you have hands-on experience. That’s how it was for me when it came to Health Reimbursement Arrangements (HRAs). I learned about them in school. I even remember learning about them at the first accounting firm I worked at. But it wasn’t until I was working with a small business owner with his own “insurance” that I got it.

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Qualified Small Business Stock and Your LLC or S Corporation

Your optimal choice of entity depends on many factors, including which tax breaks and loopholes are available for that entity type. The C corporation leaps to the top of entity choices if your C corporation stock will qualify as small business stock (QSBS). The tax law gives two huge tax breaks to QSBS: 1. Up to $10 million of gain exclusion upon sale or the stock’s liquidation; or 2. Tax-deferred rollover of gains if the taxpayer purchases additional QSBS. But beware: There are two issues that are ambiguous under the law that could cause you to not qualify for either of these tax benefits. Read on to learn more!

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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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5 Keys to Beating the Biden Tax Increase

Lawmakers have moved even closer to voting on a bipartisan infrastructure bill to build bridges, roads, and national broadband internet as party leaders announced an agreement recently. While Biden’s tax hikes are unpopular, the Senate will need to determine how to pay for the increase in spending. The President’s original $3.5 trillion spending plan calls for higher taxes for those making more than $400,000 per year as well as higher corporate tax rates and changes to capital gains and estate tax. This leaves those benefiting from the current “sale prices” on tax considering their next move. In our previous coverage on this topic, I listed 5 Ways to Avoid Biden’s Capital Gain Increase, but let’s focus here on how to beat the increases to corporate and individual tax rates. The answer might surprise you.

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Trump Corporation Charged in Fringe Benefits Tax Fraud Scheme – How to Do It the Legal Way

Prosecutors in New York have charged the Trump Corporation with tax fraud related to deductions of more than $1 million in fringe benefits over 15 years. The Manhattan DA indicted longtime CFO Allen Weisselberg for tax evasion on $1.7 million in business deductions, which paid for an apartment, private school tuition for family members, two Mercedes Benz vehicles, and other perks in exchange for his employment at the Trump Organization. The former President and company spokespeople responded that every company deducts fringe benefits, describing the charges as a witch hunt or political gamesmanship by opponents. If this leaves you a tad confused about whether or not you can deduct fringe benefits for yourself or employees in your small business, rest assured, there is a legal way to do it. Keep reading to discover the right way to deduct non cash or other indirect fringe benefits.

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5 Ways to Avoid Biden’s Capital Gain Increase

The headlines have said it all. “Biden Wants up to 43 percent of Your Retirement Gains!” or “Americans Can’t Afford Biden Inflation Tax!” Also recently seen, “Biden Doubles Capital Gains Rate,” and “Biden Tax Rule Would Rip Billions From Big Fortunes at Death!” The hysteria presented in the media as we anxiously await proposed changes in tax law through the pending budget proposal has many investors debating whether or not to lock in low capital gains before anticipated tax hikes. Wealthy investors like Jeff Bezos and Warren Buffet have reportedly been selling large numbers of stock market shares rumored as a response to news of an impending capital gains tax increase, many people are left wondering what moves, if any, should they take now to avoid higher taxes. Given that we know to anticipate higher taxes, here’s what you should do now to lock in taxes while they are on sale.

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How Are You Determining Reasonable Compensation – Legal Fact or Convenient Fiction?

Accountants are facts and figures folk. Accountants rely on data and analysis, not myths and tales. Well, not always. In 2020, we asked 4,671 tax advisors whether the IRS recognized rules of thumb such as a 50/50 split between distributions and reasonable compensation. Thirty-three percent said yes. The IRS “rule of thumb” is a myth. But it’s a fact that we found 1,555 professional accountants who relied on this myth. It’s not that they didn’t have the facts. All of those surveyed had just attended a continuing education class on reasonable compensation that walked them through, step by step, recent court cases, the IRS’s definition, rules, guidelines, and criteria for determining reasonable compensation. Nowhere in the class were they taught that the IRS accepts “rule of thumb” or “safe harbor” calculations based on percentage of distributions, sales, or revenue. So, what gives? Why do so many accountants believe these rules of thumb are actually “rules”? And more importantly, does the IRS follow the same?

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Does the Cohan Rule Still Matter?

Looking to write off your favorite wine? Better yet, how about deducting it while lacking the receipts? For nearly a century, freewheeling salespeople, hobnobbers, and schmoozers alike have treated potential customers and employees to fine dining and entertaining all while seeking the maximum tax break in the process with minimal substantiation. While proving these expenses has certainly gotten easier with technology, smart planners have made use of the so-called Cohan rule to enjoy the deductions without the paperwork nightmare. Want to make use of it yourself? Read on to learn more.

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Is Your Spouse Innocent or Injured? Part 2: The Innocent Spouse

Jack Sprat did pay no tax. His wife paid all of hers. But when they filed a joint return, She learned she owed all of his! This is the heart of the innocent spouse! The innocent spouse filed a joint return with a balance due – but didn’t really create the tax obligation. S/he did everything right, paid all the proper withholding or estimated tax payments. Yet, s/he suddenly finds out that the spouse has a balance due and doesn’t have the money to pay it all.

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