Making loans to your corporation became more hazardous 33 years ago with the Tax Reform Act of 1986. That was pretty awful.
But the new Tax Cuts and Jobs Act tax reform made things worse for tax years 2018 through 2025. If you operate your business as a corporation, you need to know how the rules apply when you loan money to your corporation.
Imagine this: you loan $100,000 to your corporation.
The corporation goes bankrupt and has no money to pay you anything on your loan.
And now, the new tax law gives you a zero tax deduction for your $100,000 loan.
Yep! That’s the way it is.
If you think the corporation is going to fail, but, against your better judgment, you still want to make the loan, you need to do some planning around this.
When you need to consider making a loan to the corporation, we should absolutely discuss the issues. My direct line is 262-358-8297, and I’m at your service.
The Tax Cuts and Jobs Act (TCJA) tax reform added an amazing limit on larger business losses that can attack you where it hurts—right in your cash flow.
And this new law works in some unusual ways that can tax you even when you have no real income for the year. When you know how this ugly new rule works, you have some planning opportunities to dodge the problem.
Over the years, lawmakers have implemented rules that limit your ability to use your business or rental losses against other income sources.
The big three are:
The TCJA tax reform added Section 461(l) to the tax code, and it applies to individuals (not corporations) for tax years 2018 through 2025.
The big picture under this new provision: You can’t use the portion of your business losses deemed by the new law to be an “excess business loss” in the current year. Instead, you’ll treat the excess business loss as if it were a net operating loss (NOL) carryover to the next taxable year.
If one of your businesses will have a loss in excess of the limits, we should start discussing planning opportunities as soon as possible. The longer we wait, the fewer opportunities we will have to limit or, better yet, eliminate the damage. We will help you determine your business excess loss.
Section 199A is a 20 percent tax deduction if you have the following:
But once your taxable income is greater than the threshold amount listed above, your deduction becomes more complicated. Under the rules that apply to this new Section 199A tax deduction, the tax code creates two types of businesses:
Here’s a tax rule to know: if you have your principal office in your home, your trips from home to your first stop, and from your last stop to home, create deductible business mileage.
Here’s high proof from IRS Revenue Ruling 99-7, conclusion paragraph 3, which reads as follows:
If a taxpayer’s residence is the taxpayer’s principal place of business within the meaning of Section 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.
If you would like to review the rules that you would need to follow to create a principal office in your home, book a Tax Planning Session with us.
Photo by lalesh aldarwish from Pexels
Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.
As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.
Courtesy of stock photo from pexel
Photo from Skitterphoto from Pexel
Have you wondered what it takes to deduct the costs of sponsoring a sports team? What if you play on the team? Could you pay for the team travel expenses?
Revenue Ruling 70-393 states that the monies spent to outfit and support a sports team are similar to monies spent on other methods of advertising; accordingly, you may deduct them as business expenses for federal income tax purposes.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.