Eva Rosenberg, EA CTC, Author at Think Outside the Tax Box

AUTHOR SPOTLIGHT

Eva Rosenberg, EA CTC

Eva Rosenberg is the Internet’s TaxMama®. She answers tax questions, provides a free daily TaxQuips podcast and weekly Ask TaxMama® ezine, and a wealth of resources to help folks like you deal with your personal and business tax issues at www.TaxMama.com.

Eva was a syndicated national columnist, writing a tax column for Dow Jones’ www.MarketWatch.com for nearly 15 years. She is a best-selling, award-winning author of several books, including the 4th edition of Small Business Taxes Made Easy, due out in March 2020.

She teaches tax law and representation to tax professionals at TaxMama’s EA Exam Review Course www.IRSExams.school

A popular speaker at tax workshops for Internet businesses, organizations, and tax professionals, Eva helps you see the fun side of taxes and the IRS, while saving you buckets of money. After all these years, if TaxMama® doesn’t know the loopholes, who does?

TaxMama® is a favorite tax guest of radio show hosts around the country, because she’s usually got an interesting and helpful twist on tax laws and strategies – and what a voice!

Oh yes, credentials – my bona fides!

BA in Accounting

MBA in International Business

Enrolled Agent credential – authorized to represent taxpayers before the Internal Revenue Service

READ MORE BY Eva Rosenberg, EA CTC

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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No One Wants to Pay SE Taxes on Royalties

Most of the Tax Code is “gray.” No, I don’t mean the color font it is written in. Unlike a lot of rules, the Tax Code is difficult to judge what is right and wrong. Perhaps it has to be written this way because to try and define every possible money situation is unfeasible. Perhaps, the writers like it this way because as we’ve said here many times at Think Outside the Tax Box, the gray area provides opportunity for tax savings.

Take for example the official Tax Code definition of taxable income. Rather than affirmatively define it, the authors chose to negatively define it. Generally, an amount is part of taxable income unless the law specifically exempts it.

Certain types of income get taxed twice. If, for example, you are subject to net investment income tax, you’ll not only pay income or capital gains tax, but an additional tax, as well. The same is true for royalty income.

In some instances, it is necessary to pay income tax and self-employment tax on royalty checks you receive. To take advantage of breaks we must examine what loopholes or gray areas exist for royalties, and more importantly, how can you shield it from as much tax as possible.

Continue reading to learn how.

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

Jack and Jill went up the hill
to have a lovely wedding
Jack fell down and broke his crown
When Jill learned all his tax debts

That pretty much describes the origin of the taxes faced by an injured spouse: The taxpayer was not married to that spouse at the time he or she incurred the tax obligation or it was assessed or did not sign the tax return where the balance due originated.

In other words, it was never the injured spouse’s debt or obligation in the first place.

What kinds of debts or taxes might the IRS collect (or “offset”) that would affect the injured spouse’s refund?

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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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Do Your Clients Know Their Own Business Entity?

Have you been working with a partnership client or Schedule C client for a couple of years, only to find out: “Oh, by the way, we incorporated two years ago?” Or the taxpayer brings you a notice for non-filing penalties on the partnership or S corporation you didn’t know existed?

When you are working with existing business clients for several years, you are not concerned about their prevailing business structure. After all, if you have been filing the wrong entity’s tax return, you would have been alerted by now. Right?
As it turns out, not always.

When you find out about the error, your gut reaction is that it’s your fault. Is your errors and omissions insurance (or malpractice insurance) up to date? Take a deep breath; it’s not your fault. Probably. Let’s keep reading and find out.

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CURRENT EDITION

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.

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.

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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  • 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?

    Read More

    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!

    Read More

    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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