The Inflation Reduction Act of 2022 expanded existing energy credits and created brand new ones. There are now several new ways tax professionals can help taxpayers save thousands of dollars a year by planning for these tax credits. In this webinar, we will cover the credits likely to be used by individuals and small businesses. We will also discuss tax planning considerations and areas in need of additional guidance.
READ MORE BY Thomas Gorczynski, EA USTCP CTP
The Treasury Department offers two types of federal savings bonds, Series EE and Series I, for individuals and businesses to invest in cash savings.
Until 2021, federal savings bond rates were low; however, with the dramatic increase in inflation and interest rates, interest in federal savings bonds as a savings vehicle has skyrocketed. For example, in May 2023, TreasuryDirect issued $230 million in I bonds in that one month; in May 2020, only $13 million were issued.
Federal savings bonds have very favorable tax features. At the federal level, the interest earned is generally tax-deferable and sometimes entirely excluded from tax. At the state level, the interest is always entirely excluded from tax.
This article will review the differences between Series EE and Series I savings bonds and the tax savings opportunities available to owners of these bonds.
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!
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.
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.
When an individual sells a stock for a loss, it is a capital loss, and Congress makes it difficult for individuals to use their capital losses.
The tax law only allows capital losses to the extent of capital gains. If capital losses exceed capital gains, the individual can only use up to $3,000 per year against ordinary income ($1,500 if married filing separately).
However, there is a way around this rule: Losses on Section 1244 stock are ordinary losses, and claiming this valuable tax benefit allows an individual to save thousands of dollars in tax in the year of sale compared to the standard capital loss treatment.
Let’s review what qualifies as Section 1244 stock, what benefits a taxpayer can get from Section 1244 stock, and how to claim those benefits on a tax return.
The IRS loves to issue penalties to taxpayers. In fiscal year 2019, the IRS imposed a whopping $40.5 billion in civil penalties.1
If a taxpayer wants to contest an IRS penalty, it usually takes a really good explanation plus a lot of time and effort.
However, there is a little-known IRS policy that allows a taxpayer to get penalty relief with no explanations required.
Taxpayers who file returns late can quickly rack up huge penalty bills.
The tax law disadvantages gamblers with its treatment of gambling gains and losses. Add that to the fact that gamblers often aren’t the best recordkeepers, and you have a recipe for years of overpaying taxes.
How most tax professionals attempt to reconcile gambling reporting on the tax return can cost gamblers thousands of dollars a year in increased taxes and Medicare premiums (if over age 65).
We’ll discuss how to calculate gambling gains on the tax return, which in many cases reduces or eliminates the excess taxes many gamblers could pay.
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.
Many taxpayers use S corporations (governed by Subchapter S of the Internal Revenue Code) or C corporations (governed by Subchapter C of the Internal Revenue Code) to legally reduce income taxes, payroll taxes, and self-employment taxes for their business.
However, without careful planning, a taxpayer may have a surprise tax bill from using a corporation for federal tax purposes.
This article will tell you when these unexpected tax hits can happen and how the taxpayer can avoid them with proper planning.
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.Read More
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.Read More
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.Read More
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%.Read More
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?Read More
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.Read More