Dominique Molina, CPA MST CTS, Author at Think Outside the Tax Box

AUTHOR SPOTLIGHT

Dominique Molina, CPA MST CTS

Dominique Molina is the co-founder and President of the American Institute of Certified Tax Planners. As the driving force and visionary behind the San Diego-based company, Dominique set out to change the way tax professionals approach tax planning. In 2009, Dominique began to create an elite network of tax professionals including CPAs, EAs, attorneys and financial service providers who are trained to help their clients proactively plan and implement tax strategies that can rescue thousands of dollars in wasted tax. Dominique has successfully licensed over 800 tax professionals as Certified Tax Planners across the country, creating a national network of highly qualified advisors.

Prior to founding Certified Tax Planners, Dominique successfully managed her own practice, a San Diego-based, full-service tax, accounting, and business consulting firm, serving hundreds of business owners and investors across the country for seven years. Preceding this, Dominique assisted a variety of clients for the largest independently owned CPA firm in San Diego.

Dominique received her bachelor’s degree in Accounting from San Diego State University. Upon graduation, she began her accounting work as a staff accountant, controller, and office manager at several closely held asset management and investment companies.

Dominique is an accomplished keynote speaker, teacher, best-selling author, and mentor to tax professionals across the United States. Dominique routinely speaks for Surgent CPE and the AICTP Women’s Leadership Summit, among other leading professional groups. Realizing that many tax professionals were missing government tax breaks and loopholes that could save millions, she began teaching and writing to educate both individuals and tax professionals. Dominique is best known as the coauthor of six best-selling books, including Tax Breaks of the Rich and Famous and The Great Tax Escape. Dominique frequently appears as a tax expert and TV guest in regional television markets, including San Diego, Los Angeles, New Orleans, and Honolulu. Dominique frequently appears in print, television, and radio programs, including CNN Money, and was named one of the 40 Most Influential Accountants by CPA Practice Advisor Magazine and a recipient of the 2014 Financial Services Champion Award from the SBA.

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Using an LLC to Enhance Deductions for Your Personal Residence

A frequent question for tax pros is, “Can I put my primary residence in an LLC?” It is well known that owners holding rental real estate in a limited liability company want to ensure they’re receiving all their entitled benefits.

The problem is, simply placing a personal residence in an LLC does not change the fact that the residence is for personal use and not for business. If you’re hoping that using an LLC will help you gain tax advantages, the LLC might not be the right choice for the property.
The main purpose of an LLC is asset protection. Aside from this valuable benefit, many choose an LLC to hold their business activity. However, simply using an LLC for anything personal not only doesn’t provide additional tax benefits, but it may also cost you the available benefits for your home.

If, however, you’re thinking of locking in the tax advantages you currently have while converting your home to a rental, consider selling it to an entity you own before you make it available for rent.

To learn how to avoid losing tax breaks and gaining more, keep reading.

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Understanding Accountable Plans: Tax Advantages for You and Your Business

Question: I’ve heard other planners talk about using an accountable plan to reduce tax, but how exactly does this save a taxpayer money?

Answer: An accountable plan is a type of reimbursement arrangement between an employer and employee that meets certain IRS criteria. It often covers business expenses that an employee incurs while performing their job, such as travel costs, home office expenses, or supplies. The way this plan helps save money on taxes is through the appropriate treatment of reimbursements or allowances under the tax law.

Did you know that reimbursements for out-of-pocket expenses are taxable income? Normally, reimbursements for expenses are income, and the employee needs to pay income tax on them. However, if the expenses meet the criteria of an accountable plan, they’re excludable from the employee’s income. This means the employee does not have to pay income tax, Social Security, Medicare, or unemployment taxes on these funds.

What about the case of partners in partnerships and shareholders in S-corporations? These individuals often face out-of-pocket expenses that the respective partnership or S-corporation doesn’t reimburse. Is there a way for these individuals to reap tax benefits for these expenditures too?

There used to be. Under pre-TCJA rules, employees and owners of partnerships and S-corporations could deduct ordinary and necessary expenses, which were unreimbursed from the business as a Miscellaneous Itemized Deduction subject to the 2 percent floor.

To learn how to make sure your S-corporation and partnership out-of-pocket expenses are deductible, and reimbursements are not taxable to the owners, click here to read on.

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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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This is How to Increase Your ERC

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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The Inflation Reduction Act Town Hall

We’re hosting a live open discussion forum to help educate you on the new Inflation Reduction Act!

The recently passed Inflation Reduction Act (IRA) makes some big promises: lower energy costs, provide tax credits for electric vehicles, negotiate cheaper medications for seniors, deliver faster tax refunds, and create more responsive IRS agents! How all these promises are paid for and how they impact the average American are already the topic of intense debate and, in some cases, the cause of outright fear!

In fact, there has been so much concern and debate around this new bill that we’ve decided to hold a town hall on the subject! Keep reading to get all the details…

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The Inflation Reduction Act Overview: A Brief Guide for the Non-Tax Professional

Question: How can I explain the recently passed Inflation Reduction Act to my tax planning clients?

Answer: The simplest solution I’ve found so far is to break the Act into three components: tax credits for electric vehicles, tax credits for home improvements, and how the IRS will use the new funds allocated to them. From there, it’s a simple matter of identifying some of the core concepts behind each category. To save you some trouble, I’ve created new client alerts to illustrate how one might do that!

Keep reading to learn more!

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Tax Planning Software – Artificial Intelligence or Skill Saw?

Question: How much time should be devoted to studying tax planning? Can’t I just select a software providing Artificial Intelligence to Inform Me What to Do?

Answer: To answer this question Dear Reader, I’ll ask a question in response. Are you a user of TurboTax or a similar software tool?

Chances are as a reader of Think Outside the Tax Box, you use something (or someone) different than software purchased at a big box store. The answer to this question may be a similar situation to a semi-regular TikTok viewer of DIY household construction projects. Does the job require a router or a Dremel tool?

If you’ve heard me talk about tax planning before, no doubt you’ve heard me describe tax planning software as an instrumental tool. It can provide valuable insights such as data extracted from your tax returns, calculation of minimum required estimated tax payments, and even a few tips to save annual tax.

Whether you are a do-it-yourselfer braving a construction project in your home or a new business owner or novice tax planner, the answer depends on the nature of the job you are doing.

Is it possible for this experienced Tax Planner of more than 20 years with an advanced degree and thousands of tax plans to complete a bathroom remodel in just a weekend with a Dremel tool? Certainly. I’ve even got the pictures to prove it.

Just like the bathroom-in-a-weekend, it is possible with an off-the-internet-software to develop a few ideas to save some tax dollars. But if you look closely at my personal photos – you’ll notice the glue expired on my “driftwood” mirror frame. The recycled wood tiles failed to stay up with the shower moisture in the air, and while the dimensions of my replacement countertop – the walls were just a hair too uneven in my old house.

In the end, my weekend project took more than 4 weekends of my precious free time, more than $1,200 in the after-the-fact hired help to fix my handywork, and a little of my pride revealing this online to a public audience.
To read about when it is a DEAL BREAKER to rely on AI tax planning software, click here to continue reading.

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Tax Breaks for Farmers: Sowing Seeds of Savings!

Ahoy, land-lovers and cultivators of the earth! If you’re a farmer, you’re not just a master of the soil, but also a potential wizard of tax savings. Let’s embark on a journey to understand how you can reduce that pesky tax bill and keep more of your hard-earned green (and we’re not just talking about lettuce)!

Farms may be considered a business. You are considered a farm if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Farmers under the Internal Revenue Code qualify for special tax benefits, yet not all agricultural producers meet the requirements.

In addition to what you are growing, producing, raising, selling or extracting, it is also necessary to examine the facts and circumstances of the applicable tax issue to fully determine whether each tax benefit applies to each situation. For example a business could be split into a farm (reported on Schedule F) and a non-farm (reported on Schedule C unless incorporated).

Take the example of a vineyard and a winery. The production of the grapes is a farm and reported on Schedule F. But lo and behold! When the grapes transform into something else, the sale of wine, juice or preserves would be considered non-farm and reported on Schedule C.

There are many special tax benefits allowed for those who meet the definition of a farmer. It may be advantageous to consider adding a farm as part of a larger tax strategy; however, just like any business, the hobby loss rules apply.

Someone not classified as a farmer may still be engaged in farming activities and have farm income. Some of the best benefits include deferred timing of recognizing farm income, not being required to maintain inventory and not being required to make quarterly estimated tax payments.

To learn about these and other tax breaks for farmers, click here to continue reading.

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Staying Afloat in Tax Seas: Understanding the IRS’s Moratorium on ERC

Question: Should I even bother assisting my clients with filing new ERC claims?

Answer: In light of the IRS’s recent moratorium on processing new Employee Retention Credit (ERC) claims and the introduction of a withdrawal option for certain employers, it’s understandable that you might be wondering whether to assist your clients with filing new claims. The answer, like a well-prepared tax return, is nuanced and deserves a detailed examination.

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Self Rental Tax Dilemma: Are Your Deductions at Risk?

It’s challenging at times to understand the passive activity loss guidelines. Many taxpayers are not fully aware of the rules or how they could affect investments and transactions. There are some details that, if not taken care of in advance, could have serious detrimental tax effects.

The way to handle self-rentals in relation to the passive activity loss rules is one of these subtleties. Although many professionals know the self-rental regulations, there are some circumstances that can result in a loss of desired tax benefits.

To continue learning about a general overview of the self-rental provision and the passive activity requirements and how to maximize your deductions from them, keep reading. You will also learn the effects of selling an operating company with a self-rental property still on the books.

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More Cash Available for Employers Under Refundable Tax Credit

As 2020 winds to a close, we have seen many beneficial programs provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Families First Coronavirus Response Act (FFCRA). While most media coverage has focused on loans to employers such as PPP and EIDL, it is important to remember some of the lesser covered programs also included in the tax relief programs. In fact, eligible businesses may qualify to get cash back in some instances.
The employee retention credit (ERC) under the CARES Act offers a refundable payroll tax credit for certain wages and health plan expenses paid by businesses during the economic hardship. However, many business owners have uncertainty as to how to qualify when they have also received a PPP loan.
The paid sick leave and paid family medical leave credits also offer a refundable tax credit for qualifying wages and Medicare tax and health plan expenses.
These refundable tax credits are stackable for maximum benefit when used correctly. Read on to discover how to qualify.

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Mitigating Risks: A Roadmap for Withdrawing Employee Retention Credits or Filing Income Tax Returns for Clients Who Have

Just in – the IRS dropped a hot alert about the Employee Retention Credit (ERC), and it’s time to pay attention . With the March 22, 2024, deadline creeping up for the ERC Voluntary Disclosure Program, it’s crucial for those who mistakenly filed a claim to take action. This program lets businesses repay just 80% of the claimed amount, so it’s a chance to make things right. If your clients filed a claim that’s still in the pipeline, it’s time for a double-check. Review the guidelines ASAP and withdraw the claim if it doesn’t pass muster.

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Maximizing Your Home Office Deduction

Question: Can I avoid depreciation recapture by not claiming it before I sell?

Answer: Nice try. You may save yourself unnecessary worry and fear about so-called recapture, but it won’t save you any tax impact when you do sell. If you want to learn the truth about depreciation, keep reading to learn more.

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Looking at a Trust to Reduce or Eliminate Your Federal Taxes? Not So Fast!

Question: What kind of trusts help a taxpayer pay less or no federal tax?

Answer: If you have trusts and want to minimize state taxes, there are options available. In the United States, there are two types of trusts for federal income tax purposes: grantor and non-grantor trusts. A grantor trust is one the creator or their spouse retains enough control over that they are still the assets’ owner. Therefore, they must pay taxes on any income or gains it generates.

On the other hand, a non-grantor trust is its own entity and is responsible for paying its own taxes. However, state tax laws also have an impact on the taxes trusts must pay. By choosing the right trustees or assets for your non-grantor trust, it’s possible to minimize or even eliminate state income taxes. Don’t miss out on this opportunity. Learn more about your options and take steps to reduce your trust taxes today. Click here to continue reading.

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Last-minute Tax Fix for PTET Businesses That Missed the 12/31 Deadline

Question: My client is just now paying the PTET for California with a timely filed election. Can they deduct the tax payment if they are an accrual basis taxpayer?

Answer: Based on face value, unfortunately, the answer is no.

Both cash and accrual basis passthrough entities would need to pay the tax by 12/31/21 (assuming calendar year-end) to get the deduction on the 2021 tax return.

This answer is based on IRS Notice 2020-75, stating that an entity could take a deduction in the year paid. While the guidance did not specify cash or accrual in the definition, unless the IRS comes out with any other guidance stating otherwise, it is a federal deduction so it works the same as accrued state taxes, which the taxpayer must pay by the end of the tax year to deduct the amount following the economic performance rules.

However, what if your client is an accrual basis taxpayer? While Notice 2020-75 does not specifically distinguish or reference method of accounting, there may be a way to fix your 2021 state tax deductions if you missed the 12/31 deadline.

Click here to keep reading.

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Is the Augusta Rule a Tax Haven or a Ticking Time Bomb? New Tax Court Memo Cautions Users

Sure, the Augusta Rule can be a game-changer for your finances—but only if you tread carefully. Get one element wrong—be it your business structure, purpose, or documentation—and you could be inviting the taxman to your doorstep. And don’t even think about going it alone; if your tax pro isn’t well-versed in this complex write-off, you’re essentially rolling the dice on an audit nightmare.

The Augusta Rule has lately become the talk of the town on TikTok’s tax scene, capturing the attention of both amateur bloggers and seasoned tax experts. In this article, we’ll demystify what the Augusta Rule really entails, identify who stands to benefit from it, explore legal ways to leverage it, and highlight potential risks you should be aware of.

First, let’s delve into its fundamentals. Read on to find out how to navigate this high-stakes tax strategy without detonating your financial future.

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How to Withdraw Cash from Your C Corporation Tax-free

Question: I understand the concept of paying just 21 percent tax through a C corporation. This makes sense if my tax rate is higher than, say 25 percent or 35 percent. But isn’t this money taxable to me as a dividend as soon as I withdraw it from the corporation? I don’t understand; won’t that actually cost me more tax?

Answer: You have identified the exact reason C corporations can be what we call “high maintenance.” You’re right. Done in the wrong way, using a C corporation can actually cost more in tax than using a pass-through entity and paying tax at your individual rate, even if that rate is, say, 35 percent. By the time you pay qualified dividends tax on any withdrawals, you can wind up paying 45 percent or even 50 percent, depending on your individual tax rate.

The key is to use smart planning. Rather than simply withdrawing the funds from your C corporation as a taxable dividend, use one six ways to withdraw tax-free instead. Doing this will help you lock in the low 21 percent flat rate and permanently save you from your high individual tax brackets.

Keep reading to learn more.

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How to Slash Your Property Taxes

Question: You talk a lot about reducing federal taxes, but what about other taxes? It seems like we get taxed on everything multiple times! Is this even legal?

Answer: Isn’t it the truth! You may feel that your income, purchases, and belongings get taxed double, triple, and even more times. The saying goes, “nothing is certain except death and taxes.” And even when you die the same property and earnings may be taxed again. The Supreme Court even answered the question in 2015 about whether taxing the same income more than once is constitutional. In the case of Maryland v. Wynne, the 5-4 decision indicates that two states do not have the right to tax the same income.

While many of the strategies discussed in Think Outside the Tax Box reduce federal taxes, most of them will reduce your state income taxes as well, depending on whether or not the state in which you pay taxes conforms to federal tax law. In addition, there are many state tax reduction strategies worth learning and implementing.

However, did you know there are also tax reduction strategies for other types of taxes like property taxes?

One of the oldest taxes and primary sources of revenue for states, counties, cities, schools, and fire departments comes from taxing the value of property owned within a jurisdiction. In some locations, this can include personal property as well as real estate.

Like most good tax laws, property tax laws include loopholes you can use to pay less. To learn more, continue reading here.

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How to Pay Less Tax on S Corporation Distributions

Most taxpayers understand that having an S corporation often eliminates the so-called “double tax” issue C corporations pose. However, the majority of S corporations begin as C corporations and the activity that occurred during the time it was a C corporation will determine how and when to tax distributions from the S corporation.

C corporations cannot avoid double taxation on profits simply by electing to be treated as an S corporation (yet there are many other ways to save this double tax on C corporations, stay subscribed to learn about them). Withdrawing C corporation profits even when it later becomes an S corporation can create an extra tax. Here’s how to avoid that.

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How to Get More Tax Benefit from a Fully Depreciated Property

Question: I have a fully depreciated rental property that I purchased more than 40 years ago. What are some tax planning strategies I should consider?

Answer: Congratulations! You defied the odds and the thousands of advertisements claiming that real estate investing is an easy way to get rich. But now that your precious “paper losses” a.k.a. depreciation is long gone, it’s time to search for a new way to create tax advantaged income.

There are some fun ways to “re-depreciate” your investment again, and even put some of those carryovers to use. But before jumping into tax, let’s also consider your investment returns since you achieved this milestone.

One issue I see many real estate investors face is that they tend to be short-sighted with their goals. You might, initially, have a goal to get rental income sufficient to cover your mortgage payments. You might have a longer-term goal of eventually having rental income pay off your mortgage. Often, when either of these events occur, I notice some investors sit back to enjoy their success.

While success specifically means something different for everyone, from a wealth and tax perspective it is important to also evaluate your choices and returns on your investment.

Examining the cash-on-cash return on investment is especially important for real estate investors who may not consider more than their initial down payment as their own investment.

In addition, identifying loopholes which allow you to re-depreciate your property can also create significant tax benefits you cannot afford to miss.

Keep reading to learn more…

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How to Earn $1 Million in Two Years Tax-Free Using Real Estate

No doubt you’re familiar with taxes arising from the sale of real estate. Capital gains tax applies whenever anyone sells an asset for profit.

A capital gain is the sale price minus your “adjusted basis.”
● The “basis” starts at the price paid for the property; and then:
● ADD the amount that was put into improving the property and;
● SUBTRACT the amount, if any, that you may have “written off” based on depreciation.
● Short term capital gains (within one year of purchase) are taxed as ordinary income.
● Long term capital gains are taxed at a lower rate. (15 percent if your taxable income is less than $501,600.)

You’re probably also familiar with the homeowners’ gain exclusion for the sale of your primary residence. This is the spectacular Section 121 exclusion that allows you to exclude up to $500,000 of profit related to the sale of your home ($250,000 if you are single).

But you may not be aware of how to claim this exemption on two homes – and you can do it on nontraditional homes such as boats or motorhomes and even vacation homes. Continue reading to learn how.

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How to Avoid the Top 4 Mistakes in Selling Tax Planning to Current Clients

After two years of “The Tax Season That Never Ends,” tax pros everywhere are looking for ways to leverage their services and improve profit margins in their firms. But many are missing out on their biggest opportunity to dramatically increase profits: selling tax planning to existing clients.

As technology has advanced and firms have adopted more automation, tax pros can do much more work in less time. This is a problem when you are in the business of selling billable hours.

Additionally, as the Tax Code has grown in complexity, we often find that taxpayers don’t fully understand the value of our expertise and knowledge – they simply see the same prepared form year after year. This makes it difficult to continue increasing prices beyond the market rate for tax prep.

As a result, many tax preparers have embraced value pricing for tax planning services. The market demand for strategic planning has increased and as small business owners embrace do-it-yourself accounting software, it is easy to offer this missing expert advice needed to assist the business owner in reducing tax expense. Accountants have found success in breaking through pricing barriers and reducing the risk of scope creep in their experiments with value pricing.

Yet most are fearful of bringing this offer to existing clients and start offering higher priced planning only to new customers. Many judge that existing clients will be upset the pros haven’t offered this work in the past, assuming taxpayers will be unhappy missing out on value they could have created long ago. Still others worry merely raising rates will mean losing customers.

Despite discovering that new customers really like price certainty and value the strategic work, tax pros are still reluctant to upsell existing relationships, thereby, offering different processes to lists of “new” and “old.” Yet considering it costs five times more to gain a new client than to approach an existing client, many accountants are leaving profits on the table.

According to research by Bain and Company, increasing your client retention rate increases profits by 25 percent to 95 percent. And statistics show that keeping and selling more services to a current client is less expensive compared to securing a new client. Still, fear blocks many from making this transition, creating more loyal, profitable, and happy clients.

Here are the four biggest mistakes I see tax professionals make by not offering advisory services to clients.

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How Do Community Property States Affect Tax Returns?

Question: How do community property states affect tax returns?

Answer: While fairly easy to determine your filing status when married (either joint or separate), tax rules get more complicated when you live in a community property state. Generally, the state laws where you live govern whether you have community property and community income or separate property and separate income for federal tax purposes.

Not only do these rules affect how much income is taxable to you, but they also impact rules in things such as deductions, credits, taxes and payments, basis for things like capital gains, and participation rules. In some states, the income you earn after you separate and before a final divorce decree continues to be community income. In other states, it is separate income. Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations.

This year particularly is important for evaluating whether or not to file separately if married, especially if there is a big difference in each spouse’s income. What may appear on the surface to qualify for stimulus and child tax credits, may, in fact, be disqualified once you report community property income.

Click here to see if these disadvantages impact you and how to avoid them.

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Home Sale Rules for Newlyweds and Significant Others

Question: A spouse didn’t meet the residence test when the home sold because they weren’t legally married for two years on the date of the house sale. You indicated, however, the spouse is eligible for the home exclusion because by the end of the year they were married for two years

Answer: If you want to understand how getting married impacts your ability to take tax-free profit, we must look at two issues and pass two tests.

To take the full 121 exclusion deduction amount ($250,000/$500,000), first you have to determine filing status. If you were married or an RDP as of December 31, 2022, even if you did not live with your spouse/RDP at the end of 2022, your filing status is either Married Filing Joint or Married Filing Separate. Either way, the IRS considers you married for tax purposes.

Now that you’ve determined that the client’s filing status is married, the potential gain exclusion is $500,000 under Section 121.

But there are two important tests to apply to see whether you can exclude the maximum of $500,000 or whether it is going to be less. To learn about these tests, read on.

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Finally – SALT Cap Workarounds to Bypass Schedule A Limits

Finally – SALT Cap Workarounds to Bypass Schedule A Limits

Ever since TCJA passed, taxpayers in high income tax states have been wincing each time they see the $10,000 limitation appearing on Schedule A. But while the law included this $10,000 state tax deduction limit for individuals , it did not include a limit for partnerships, S, or C corporations.

To clarify the deduction’s limitation, the IRS issued a notice blessing an entity-level tax and accordingly, many states have implemented such a tax. This allows you the ability to bypass the $10,000 limit on Schedule A and deduct the state taxes paid as a business expense.

As of this writing, 19 states have passed what are known as “pass-through entity taxes,” but there are pros and cons to using this loophole. If you are the owner of a pass-through entity and pay more than $10,000 each year in state taxes, this workaround may increase the state tax deduction beyond the limit. Keep reading to learn how.

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Ethical Concerns in Using Tax Planning Software

Question: What are my ethical responsibilities when I use software to produce a tax plan?

Answer: In the world of taxes, there are many ethical issues that can come into play. One area that involves judgment and expertise is when it comes to interpreting tax codes for various purposes such as taking deductions or understanding how ambiguous language might apply in certain situations – all while trying not to make any mistakes.

To learn more about your ethical obligations, continue reading.

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ERC Rebellion: A CPA’s Toolkit for Dealing with Disregarded Advice

Question:
I have several long-term clients I’ve advised they didn’t qualify for ERC under the requirements. I’ve discovered over time that all three were sold by an ERC mill and filed amended tax returns to claim credits. What are the risks they will be audited and what are my responsibilities in representing them? Should I release them as clients because they didn’t listen to me?

Answer:
You know, the Employee Retention Credit (ERC) might sound like a pretty sweet deal, especially if your business took a hit during the pandemic. It’s a tax break designed to help you out. But don’t be fooled. It’s not as simple as it sounds. You need to know the ins and outs before you jump in.
Some new kids on the block, a bunch of specialist firms, are offering to help businesses claim this ERC. Unless you’ve been trapped in a cave (or under a pile of tax files) you’ve probably seen the mail, heard the commercials, clicked the ads.

They make it seem so easy, don’t they? Just let us take care of everything and ignore the rules. This is music to the ears of employers – especially if we’ve already told them based on the rules, they don’t qualify.

We want our clients to know they gotta be careful. These mills may promise you the moon and the stars, but the reality is, there’s a pretty tight rule book on how and when you can claim the ERC. Misunderstanding these rules could mean you lose out on a potential $26,000 tax credit per employee. Worse, you could be tricked into claiming money you’re not actually entitled to and end up with a nasty surprise later. And when you factor in the steep fees charged by these fly-by-nights, often up to 30% of promised refunds – there is a real risk of loss should these businesses lose their claims.

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Can I Deduct My Dog?

Question: I’ve had clients ask and, of course, heard at cocktail parties the discussion about claiming a pet’s medical expenses and other costs. But what is the citation that prevents these deductions?

Answer: Wouldn’t it be nice if you could get a little tax help from the government by deducting your dog? Aside from the enormous price breeders charge for designer pets, there are vet bills, food (some people even have their pets eat raw or vegan), obedience classes, clothing, exercise, and daycare to name a few!

While today’s is a softball question, I thought we could all use a break from the continuation of the never-ending tax season of 2020. It also raises the issue of citations and documentation. Have you tried finding the one that says you cannot deduct pet expenses? What about the one that says you can?

Keep reading to learn how.

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CA AB-5 and Impact

California’s AB-5 And Its Impact On Small Businesses That Work with Independent Contractors

Question: I run a virtual business with no employees, but independent contractors perform all the work. I heard about that case in California. Should I be doing something different in my business? Do I owe any penalties for how I’ve done it in the past?

Answer: Effective January 1, 2020, AB 5, later AB 2257, radically changed the rules and criteria for determining whether a worker’s classification is independent contractor or employee.

The so-called “gig law” was effective based on a California Supreme Court case from 2018. The significance of the ruling is that it changed the criteria of worker classification and held that workers are presumptively employees and the burden is on the hiring entity to establish that a worker is an independent contractor not subject to wage order protections in California.

Although this is a change impacting California employers, the rest of the country has eagerly watched and hoped to cash in on the changes that would generate billions in employment taxes.

Businesses that prefer to work with independent contractors such as Uber and Lyft were quick to propose a ballot initiative in 2020 that the voters passed and now drivers are exempt from the new criteria (insert eyeroll here).

Want to know how to get your own exemption from AB-5? Continue reading.

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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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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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2022 Summer Education Series Event Calendar

TOTTB proudly introduces our 2022 SUMMER EDUCATION SERIES! That’s right! Every month through August we will be bringing you a FREE, live webinar event to help educate and inspire you on all things tax! As a monthly or annual subscriber, these webinars are 100% exclusive, and free to you! Guest speakers include regular columnist, Peter Reilly, Boston Tax Institute Founder, Lucien Gauthier, the Tax Mama, Eva Rosenberg, and more! Every webinar comes with free continuing education credits for those who qualify! Keep reading for more details…

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CURRENT EDITION

How to Deal with Huge Tax Debt

The only thing scarier than owing Uncle Sam a lot in taxes is being unable to pay the bill. Luckily, the Internal Revenue Service has ways for you to whittle what you owe. Just make sure which method works for you, depending on such factors as the size of your tax debt and what you can afford to pay and when. Don’t panic. Here’s how individual taxpayers can proceed – and what to watch out for.

Client Retention Strategies for Accountants: Building Long-Term Relationships

Client acquisition is crucial for business growth in the fast-paced accounting world. However, retaining existing clients is equally important, if not more so. Servicing long-term client relationships is a testament to your firm’s reliability and is critical to sustained success. My first client is still with me, now more than seven years. Our relationship has grown and changed over time but has also strengthened.

Loyalty and commitment are two of my core values. I’m always looking to provide value to my prospects and clients to attract and retain them long-term. However, some clients do not fit those values, and I have decided to forgo working with them.

I believe that attracting and retaining the right clients starts with your mission, vision, and core values. However, it is also essential to have effective client retention strategies to ensure clients remain loyal and satisfied for the long haul.

Health Savings Accounts vs Flexible Spending Accounts

With the rising cost of healthcare, our clients are looking to save money where they can, especially if they can save money on their healthcare costs and taxes at the same time. As their trusted advisor, you can offer them a basic understanding of what savings tools are available to your clients. Some of the tools available will come in handy if there is a minor unexpected tax bill this spring.

That is why today we’re going to look at the triple tax advantaged health savings account (HSA) and the health flexible spending account (FSA). We’ll look at what they are, who is eligible to open one, and how they can save your clients money each year.

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  • Avoiding Passive Loss Limitations Through Short-term and Alternative Rentals

    Short-term rentals like AirBnb are becoming increasingly popular with taxpayers who invest in real estate. For many taxpayers, the appeal of these properties is the flexibility and cash flow potential. However, there may be an overlooked third tax benefit. In many situations these short-term rentals may not qualify as a rental activity to the IRS, and that may offer a big tax break. While many rental activities generate losses, this can leave taxpayers facing the frustrations of not always getting to deduct those losses right away due to the passive activity limitations.

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    How Business Owners Can Boost Income by Avoiding the $10,000 SALT Cap

    Taxpayers have been whipsawed by confusing rules for the $10,000 limit on deducting state and local taxes (SALT), the most politically charged piece of the Tax Cuts and Jobs Act (TCJA) of 2017. The cap has caused nearly 11 million individuals to lose an annual deduction worth $323 billion. But many owners of private businesses known as passthroughs can avert that financial pain. If you own your company and thus report your business income on your personal federal income tax return, here’s what you need to know.

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    GOFUNDME & KICKSTARTER: TAXABLE? DEDUCTIBLE?

    Millions of taxpayers in the United States are using crowdfunding websites like GoFundMe and Kickstarter to raise money for important needs, such as paying medical bills, paying legal fees, or funding a new business venture. Both the IRS and the courts have been surprisingly silent on the tax consequences of crowdfunding platforms. The good news is that established tax law provides a clear road map for answering most tax questions created by raising money from a crowdfunding website. By knowing these rules, taxpayers can use crowdfunding to raise cash and minimize their overall tax exposure.

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    My Client Stuck with a Mistaken C Corporation Election?

    My client formed three limited liability companies (LLCs) to hold his rental properties. Without consulting me, he filed Form 8832, Entity Classification Election, to elect C corporation treatment, effective January 1, 2020, for these LLCs. I want the LLCs to be disregarded entities, which is the most tax-efficient structure for his situation. What is the best way to undo these elections?

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    Quick Guide to Claiming Work-From-Home COVID-19 Expenses to Reduce Your Tax Bill

    This information is particularly important if you are the owner/shareholder of your own corporation – C or S corp. You can set up payroll and designate tax-free reimbursements for you to be working at home – as well other tax-free money for you and for your employees. (We will discuss employees momentarily. Yes, it’s essential.) If being an employee is your main source of income – watch out! The short answer to employees claiming an office in home deduction this year is... There is no deduction!

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    Five Tax Reduction Strategies for the Casual Cryptocurrency Owner

    With so many people looking for more ways to make money outside their 9 to 5 jobs, many are turning to money making methods using technology including trading in cryptocurrency. For tax purposes, the IRS considers cryptocurrencies property, not as currency. Just like other property types, stocks, investments, or real estate, when you sell, swap, or otherwise dispose of your cryptocurrency for more or less than you acquired it for, you incur a tax reporting obligation. As an example, there would be a $1,000 capital gain if 0.1 bitcoin is bought for $2,000 in June of 2020 and then sold for $3,000 two months later. This profit must be reported on the tax return and a certain amount of tax is due on the gain, depending on the tax bracket of the taxpayer. In this example, the gain would be short term requiring the profit to be taxed at the filer’s ordinary tax rate. These rates range anywhere from 0-37%.

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    Extra Taxes on S Corporation Distribution?

    My client plans to take about $15,000 in distributions in excess of his basis from his S corporation construction business. I know this generates tax for him. He’s in the 32 percent tax bracket and single. Does he also have to pay the 3.8 percent net investment income tax and the 0.9 percent additional Medicare tax on this amount? Is there a way for him to avoid taxes on this amount?

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    Reduce Taxable Income Up to $25,000 with Passive Rental Losses

    You have likely heard that owning rental real estate provides great tax benefits. This is true for a multitude of reasons, but there’s one benefit that is arguably the best of the bunch: The Small Taxpayer Allowance for Deducting Passive Rental Losses. Based on average household income levels, more than three-quarters of taxpayers can potentially qualify for this fantastic tax benefit that offers taxable income reduction of up to $25,000.

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