Paul S. Hamann, Author at Think Outside the Tax Box

AUTHOR SPOTLIGHT

Paul S. Hamann

Paul Hamann is an expert on determining Reasonable Compensation for closely-held business owners. He has educated more than 80,000 tax advisors and valuators on the topic of Reasonable Compensation and has been published in numerous national and state journals.

Paul, along with other experts in their own fields founded RCReports in 2010. RCReports cloud software determines reasonable compensation for Closely-Held Business Owners and is used by CPA’s, EA’s, Tax Advisors, Valuators, Forensic Accountants and Attorneys when they need to determine a Reasonable Compensation figure for a client.

When Paul isn’t in the office, he enjoys spending time with his wife and two chocolate labs, hiking Colorado’s back country or paddling its scenic lakes and rivers.

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Live Event! Reasonable Compensation for S Corps Webinar

A TOTTB Live Webinar Event sponsored by our friends at RCReports! For two decades the IRS has been preparing an assault on reasonable compensation for S Corps. Their arsenal is now fully locked and loaded. In it, there is everything from commonsense tools to obscure memos. We will explore key court cases, IRS guidelines, preparer penalties and some of the obscure weapons the IRS has put in place. We debunk common myths and fiction on how reasonable compensation should be calculated and replace it with facts and methodologies that the IRS relies on.

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IRS Tech Targets S Corp Officer Compensation

The IRS is deploying technology and big data to combat compensation under-reporting. What does this likely mean for you and your S Corps? That Reasonable Compensation challenges will likely occur outside the traditional exam process. A challenge may come from the ongoing Employment Tax Program or the recently launched CIP.

From our polling, we find most tax advisors and their S Corp clients are dangerously unprepared for an IRS reasonable compensation challenge. If you are working with S corps, here’s the news you need to know…

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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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CURRENT EDITION

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).

Should You File Your Client’s Taxes Early?

Common sense says that filing taxes as early as possible in the year gets an onerous chore off your plate and, chances are, gets your clients’ tax refund into their pockets quicker. Common sense can also be wrong if you need, as most taxpayers do, various tax-reporting forms that can arrive in early spring, if not later. There are also many other reasons you may, or may not want, to file your client’s taxes as early as possible.

Harnessing ChatGPT with “BEST WILD”

In the realm of tax research, the journey from traditional methods to the digital age has been transformative. The evolution of AI in this field marks a significant milestone, reshaping how tax professionals approach complex regulations and compliance. This journey began with simple tax software, gradually advancing to more sophisticated AI tools capable of analyzing large datasets and identifying patterns beyond human capability. Today, we stand at a pivotal moment where AI, particularly ChatGPT, is not just an aid but a game-changer in tax research.

Enter “BEST WILD”, a revolutionary technique designed specifically for this new era. By integrating the advanced capabilities of ChatGPT, “BEST WILD” offers a systematic approach that transcends traditional boundaries in tax law analysis. This method doesn’t just aid in navigating the complexities of tax regulations; it revolutionizes the process, making it more efficient, accurate, and insightful.

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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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