Tyler Davis, CPA, Author at Think Outside the Tax Box

AUTHOR SPOTLIGHT

Tyler Davis, CPA

Tyler is a native of Carrollton, GA. He graduated summa cum laude with his bachelor’s degree in Accounting from Samford University and received his Master of Tax Accounting degree from The University of Alabama where he was awarded a Graduate Council Fellowship.

Currently, Tyler is the Chief Financial Officer (CFO) and an Associate Advisor at SVN | Saunders Ralston Dantzler Real Estate in Lakeland, Florida. Tyler brings a wealth of financial knowledge to the team, having spent over five years working at PwC, one of the largest professional services firms in the world.

Mr. Davis is a licensed Florida real estate agent and a member of the American Institute of Certified Public Accountants. He is also a member of The Lakeland Rotary Club and sits on the Board of Directors for the Friends of Bonnet Springs Park.

READ MORE BY Tyler Davis, CPA

Other State Taxes to Consider During Relocation – Not Just Income Tax!

Looking to save money by moving to a low tax state? If so, determining how much you will save in taxes by moving is a question many people are often asking that doesn’t have a simple answer. Many people miss out big time because they simply think about state income taxes.

However, there are so many other types of taxes that can be just as important when thinking about moving to a new state.

Simply because a state has low (or no) income taxes doesn’t necessarily mean it’s a low overall tax state. Other taxes such as sales tax, payroll tax, and property tax can have just as big an impact on your taxes as the traditional income tax.

Don’t get hit with unexpected “stealth taxes,” when moving to a low tax state, while state tax free states are great, out of the seven states without an income tax, three are not in the top 10 lowest tax burden states.

Keep reading to learn how to choose the lower tax places to live.

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Moving to a Low Tax State

Looking to escape high state taxes? Perhaps the taxpayer wants to leave the gridlock, housing congestion, and cement jungles behind for the likes of slower, less expensive living?

COVID-19’s long-term impact on urbanization may be uncertain, but we have already seen people moving to low-tax states because these states offer more land and outdoor space. Along with the people, many businesses are also looking to relocate to low tax jurisdictions.

But before packing up that U-haul, consider how to lock in your tax savings; otherwise, there may be a nasty bill waiting for you in that new mailbox.

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Here’s How a Family Limited Partnership Can Protect Your Assets From Tax

Planning for your future generations often means being real about how much (or how little) will be left behind for your heirs. If you’re like most, it is difficult to imagine telling your grandchildren they may be forced to sell the family home to pay off the IRS in estate tax.

One solution is to look for a legal way to move assets and money to your children (or others) while minimizing your tax. A Family Limited Partnerships (FLP) might be the perfect mechanism for you to accomplish this.

These special types of partnerships provide solutions to two main issues: asset protection and estate tax reduction. Not only will this help you create a legacy of giving, but it will also ensure that the family business or home actually stays, “in the family.”

Asset protection is important as it limits your risk exposure and liability to lawsuits, bankruptcy, and other claims. FLP’s are used to move assets during your life leaving the amount of your taxable estate smaller, and helping you gift much more than the law typically allows.

But if you’re thinking this means giving a seat to Jr. at the board room table, think again. You can optimally set up this arrangement to ensure you maintain control until you are ready to step down.

All is not rosy in the world of FLPs however. These types of arrangements can be viewed by the IRS as abusive tax shelters to transfer wealth tax free.

Keep reading for an in-depth look at FLP’s.

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Defer and Eliminate Capital Gains With Opportunity Zones

The Tax Cuts & Jobs Act of 2017 (TCJA) created Opportunity Zones (OZ). Taxpayers who invest in Qualified Opportunity Zones can reduce capital gains tax and pay zero tax on the investment’s future appreciation. For this reason, Opportunity Zones have a significant edge over traditional capital gain deferral strategies like the 1031 Exchange.

With more than 8,500 economic zones throughout the United States, investors and business owners have plenty of choices. Additionally, the investment gives them a chance to do some good in an economically depressed area, make some tax-free money, and achieve some permanent capital gain savings even after you’ve already sold your asset. What’s not to love?

There are a number of intricate rules concerning OZ investment tax breaks so if you want to begin or expand your business or real estate holdings using these tax breaks, read on to learn more.

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Coronavirus Tax Credits – How the Self-Employed Can Benefit

March 18, 2020, was a big day for tax bonuses. Congress passed the Families First Coronavirus Response Act (FFCRA). The bad news is this bill requires certain employers to provide two weeks of paid leave to employees impacted by COVID-19. The good news is that when you provide it to your employees, you get a juicy tax credit to reimburse you for these benefits.

If you’re self-employed, you may have noticed you tend to miss out on certain tax benefits designed for companies with employees. But in the case of FFCRA, these credits are also available when you are your own boss. Continue reading to find out how to get this cash as soon as the end of the current quarter.

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CURRENT EDITION

Electric Vehicles Credits - Worth It

Are Electric Vehicle Credits Really Worth It? Spoiler Alert: It Depends!

It happens all the time. A client comes in with the receipt for their new hybrid or electric vehicle and is expecting a huge tax credit to offset some of the purchase expense. It’s a fact that hybrid and electric vehicles cost more (some estimates say an average of $19K more) than their internal combustion engine (ICE) based counterparts. And, despite the fact that hybrids and fully electric vehicles continue to gain market share, it has continued to be difficult to quantify exactly how much fuel and maintenance cost savings offset the larger price tag. Often, the time span for offsetting the difference in purchase price is much longer than many taxpayers want to keep their cars. Taxpayers often hope tax credits will help them to recoup the difference in purchase price more quickly than fuel and maintenance cost savings. Do they? Are electric vehicle tax credits really worth it? Well—it depends.

COVID Relief hiding in plain sight

COVID Relief Money Is Still Hiding in Plain Sight: The Employee Retention Credit

Business COVID relief funds have been plentiful. We have seen it all from state and local grant programs to the Restaurant Revitalization Fund and Paycheck Protection Program (PPP). The dollars have flowed freely during the past two years although some programs were certainly simpler than others.

The Employee Retention Credit (ERC), unfortunately, has been the most complex and misunderstood relief program. It deserves serious consideration along with a second and third look. ERC has suffered from a branding problem, from repeated changes, and because the PPP overshadowed it. The CARES Act brought both programs to life in March 2020 , but small businesses quickly ignored the ERC in favor of the forgivable PPP loans. A taxpayer could only choose one of these programs until the December 2020 COVID relief law retroactively allowed them to coexist in the same business. But once again a second round of PPP loans overshadowed the ERC.

Perhaps now with the grants awarded and PPP funds issued, the ERC can finally get the attention it deserves. The benefits are tremendous at up to $5,000 per employee in 2020 and $28,000 per employee in 2021.

Opportunities abound for businesses and advisers to be on the hunt for ERC eligibility both obvious and obscure. Today, let’s review the program and cover some of the unusual ways to qualify.

Crypto and the Wash Loss Rule

Wash Up for Tax Savings – Cryptocurrency and the Wash Loss Rule

When recognizing capital gains during a tax year, it can often make financial sense to sell assets that have lost value to offset profits in other investments or regular income. In this situation, you swap stocks, bonds, or mutual funds by buying a similar asset, selling the old asset and taking a loss.

This strategy is called tax-loss harvesting, and it can be applied under certain circumstances which will lower your taxes. Yet while the tax deduction might seem appealing, you might have a hard time locking in that loss forever, and you may be inclined to repurchase the same investment in case the value rebounds.

This strategy may appear brilliant on paper; however, the IRS doesn’t allow such manipulation just to reduce taxes.

The Wash Loss Rule prevents traders from realizing a tax loss on a position that the taxpayer reacquires within 30 days after (or before) selling a security.

But a little known loophole may allow you to complete a wash sale and claim your deduction without recognizing the loss forever as long as it is crypto.

Cryptocurrency continues to be an area where the rules don’t always seem to make sense. Most experienced investors are already familiar with the “Wash Loss Rule,” while many newer investors have recently learned about it the hard way.

To learn this valuable strategy for offsetting your capital gains while remaining in the investment gain for expected future growth, continue 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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    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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