Some deductions like charitable contributions are conducive to tax fraud. These tax-related events are subject to the utmost IRS scrutiny. Therefore, taxpayers are subject to very detailed rules which require them to produce a specified form of documentation as proof of a viable deduction. If they do not provide the requisite paperwork, then no deduction will be allowed, regardless of the availability of other information that may justify the deduction. Taxpayers that make charitable deductions in excess of $250 and fail to provide specific, detailed documentation to the IRS will have their deductions ultimately disallowed.
Who Is Liable For Failure To Pay Over Employment Taxes?
Employers are required to withhold federal income and payroll taxes from their employees’ wages for payment of payroll taxes such as federal income taxes and FICA (Federal Insurance Contributions Act) taxes, which are held in trust until the employer makes a federal deposit of these amounts. The IRS applies a term, “Trust Fund Recovery Penalty” or TFRP, well-known by employers, to describe the fine for employer’s willful failure to pay over these taxes. Persons responsible for making such payments may be subject to criminal charges for any willful failure to do so. Most TFRP cases involve corporate officers.
Excluding Self-Employment Income Under I.R.C. §1402(a)(3)(C)
Taxpayers earn self-employment income which is net income “from any trade or business carried on by such individual” under I.R.C. §1402. The meaning of “trade or business” is the same as it is under I.R.C. §162. The Supreme Court has “defined a trade or business as an activity engaged in for income or profit and performed with continuity and regularity. Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).”
There is an exclusion from inclusion of income from the sale of property in self-employment income under IRC §1402(a)(3)(C) which provides:
(3) there shall be excluded any gain or loss—
Tax Breaks for Home-Based Businesses
Home-based business owners may not be aware that there are many ways to cut their tax bill. Many tax breaks are available for home-based businesses, here are some tips for taking advantage of these allowable business expenses.
Business structure
Sole proprietors must pay self-employment taxes. Forming a corporation or another business entity like an LLC and electing to treat it as an S Corporation may help reduce self-employment taxes. S Corporations allow home-business owners the opportunity to pay themselves a “reasonable salary” and treat any remaining profits as a profit distribution, both of which are not subject to self-employment taxes.
Losing IRA Status Under IRC § 408(e)(2)
Owners of Self-Directed IRAs which engage in certain types of “prohibited transactions” or invest in life insurance, foreign investments or collectibles may risk losing the tax-deferred status of their IRA accounts. If the owner (or beneficiary) of an individual retirement account, as described in I.R.C. §408(a), engages in any transaction that is prohibited under IRC §4975, the entire value of the IRA, determined as of the first day of the taxable year for which the account or annuity ceases to be an IRA, is treated as distributed to the IRA owner. See I.R.C. §408(e)(2)(B).
When, If Ever, Can I Deduct Pet-Related Costs?
Believe it or not, there are some pet-related expenses which may be deducted from your taxes. Here is a summary of such expenses. And you thought all you were ever going to get out of this relationship was love, affection, and undying loyalty!
Medical Expenses
Taxpayers may include the expenses of buying, training and maintaining guide dogs used for assistance in cases of either reduced vision or hearing. This may include all necessary food, training, grooming and veterinary care. You may also deduct this expense if you’ve been diagnosed with a physical or mental condition that benefits from the attention of a trained therapy animal. Keep in mind that unless the animal is trained or certified as treatment for a diagnosed illness or condition, the IRS will disallow any deduction.
Deductions And Long-Term Care Insurance
A long-term care insurance premium, or a part thereof, may be deductible from federal income taxes as a medical expense. Acknowledging that it can’t assume the primary role in paying for Americans’ long-term health care, the federal government offers tax incentives to encourage middle-aged and older taxpayers to assume responsibility for their future health care needs. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) included provisions for favorable tax treatment of Long-Term Care insurance (LTCi) contracts that meet statutory qualifications.
Taxes And Winning The Lottery
Hopefully, if one of us is ever lucky enough to win a big lottery jackpot, we won’t care about how much of it we have to “share” with Uncle Sam as taxes. But winning any immense lottery jackpot, especially some of the recent Powerball or Mega-Million grand prizes, is likely to result in a considerable share for the Department of the Treasury. How much in tax would the IRS receive from a $500 million lotto winner?
Tax Consequences Of Selling Or Giving Your Home To Your Children
Many parents consider and assume that one of their children will succeed them in living in the family residence. Of course, this place may be the house in which the child grew up and spent a considerable amount of time. To return to such a place can be very special. But what in fact are the tax consequences of such an event? What happens if the parents wait until death? What if they want to make an outright gift of the property? Perhaps they wish to make a sale at a bargain price? What if they make a more traditional sale that involves financing?
Tax Breaks For Small Businesses
The US government defines a small business as one with sales of $7 million to $25 million a year and up to 1,000 employees. There are more than a few tax breaks available for small businesses and many have been extended for 2016. Some notable tax extenders include I.R.C. § 179 and bonus depreciation as well as tax credits for research and development, work opportunity, and energy production.
*I.R.C. §179 & Bonus Depreciation
Two important tax breaks for small business have been extended: I.R.C. § 179 and bonus depreciation. I.R.C. § 179 allows businesses to deduct the full price of any qualifying equipment or software purchased or leased during the year. The tax-extension bill makes permanent the $500,000 maximum deduction for new and used equipment that was purchased or leased in 2015. Bonus depreciation, which was extended through 2017, allows business owners to depreciate 50 percent of the cost of new equipment purchased in 2015. The two tax incentives can be used together.
Under I.R.C. § 179, taxpayers may claim certain business expenses in the year in which they were incurred rather than depreciating the costs over several tax years. The limit of $500,000 is double the previous limit and large enough that the average small business owner can write off most, if not all, of their equipment purchases in the year of the transaction.
The 50 percent bonus depreciation provision also was extended. After the full $500,000 is taken, exhausting the claim, an additional 50 percent of the adjusted basis of certain depreciable business property purchased and placed in service during 2015 may be deducted.
*Research and Development Credit
Originally enacted to act as an economic stimulus. Internal Revenue Code (IRC) § 41 enables a taxpayer to claim a tax credit for qualified research expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business. The availability of this tax credit is established by the definition of qualified research expenses under I.R.C. § 41 and the regulations under I.R.C. § 174. New York State income tax law also permits an New York tax credit for qualified research expenses. An investment tax credit equal to 9% of qualified investment in R&D buildings and tangible personal property (the credit is 7% for personal income taxpayers).
*Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers who hire veterans and individuals from other target groups with significant barriers to employment. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are only a few simple steps to follow to apply for the WOTC. After the required certification is secured, qualifying employers can claim the tax credit as a general business credit against their income tax.
*Energy Tax Credits: Investment Tax Credit & Production Tax Credit
The Federal Production Tax Credit (PTC) and Investment Tax Credit (ITC) are incentives for
development and deployment of renewable energy technologies. The Production Tax Credit (PTC) reduces the federal income taxes of qualified tax-paying owners of renewable energy projects. The Investment Tax Credit (ITC) reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects. The ITC is earned when the equipment is placed into service.
In December of 2015, the House and Senate agreed by significant margins to grant extensions to the 30 percent investment tax credit (ITC) for solar energy and the 2.3-cent-per-kilowatt-hour production tax credit (PTC) for wind power. Other technologies—including geothermal, marine energy and small hydropower—received one-year extensions to their 30 percent ITC under the joint spending and tax measures passed. New York State also offers a tax credit for biofuel production.
*Deductions
In addition to the tax breaks mentioned above, there are an abundance of good old-fashioned deductions that can help lower a small business owner’s tax liability, including:
• Automobile expenses related to business;
• Membership fees in trade organizations, professional groups and chambers of commerce;
• Classes, seminars, and other training in a profession;
• Banking, credit card and ATM fees incurred in business;
• Business travel and meal costs;
• Professional journals, newspapers and books necessary to conduct business.
• Internet and other telecommunication, including cellphone, charges for business use. Only the amount used for business may be deducted;
• If a small business operates from home, expenses relating to that portion of the residence that is work space should be deducted;
• State and local sales taxes.
If you are a small business owner and have questions about any credits or deductions that may reduce your business tax liability, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
