If you want to attend a convention, seminar, or similar meeting onboard a cruise ship and deduct all your costs, you face some very special rules. But it can be done.
When you know the tax code rules, you will find an enlightened workaround that removes almost all the hassle and gives you what you want.
In 1982, your lawmakers were attempting to give the U.S. cruise ship industry a leg up by outlawing all cruise ship conventions, seminars, and similar meetings other than those
The 1982 law remains on the books. Lawmakers have not updated the limits for inflation. Here’s the cruise ship convention tax code rule as it existed in 1982 and as it exists today:
With respect to cruises beginning in any calendar year, not more than $2,000 of the expenses attributable to an individual attending one or more meetings may be taken into account under Section 162 . . .”
Had the $2,000 been indexed for inflation, the 2019 amount would be a reasonable $5,431, and that would likely encourage more 2019 U.S. cruise ship convention-type travel.
The $2,000 is pretty skimpy when you consider that the expenses include
Less Turmoil, Bigger Deduction
There are strategies that Spencer Accounting Group has helped clients, with tax plans, to avoid that limit, take the cruise they want, and likely deduct all your costs.
Book a Business Consultation Today, we will help you strategize.
Here are three quick things to know about working abroad.
Issue 1: Section 199A
To qualify for the Section 199A deduction, your business income must be effectively connected with the conduct of a trade or business within the United States. The preamble to the proposed Section 199A regulations clarified that in almost all circumstances, this means the income has to be U.S.-source income to qualify.
If you’re not good at paperwork, the corporate form of business is probably not for you.
Let me tell you about a tax court case involving William H. Bruecher III. He learned a lesson by paying more than $27,000 in taxes on monies his corporation supposedly loaned to him. Mr. Bruecher’s corporation did not pay him a salary; rather, the corporation paid his personal expenses, classifying the payments as advances.
Intent to Repay
To decide whether there is intent to repay, the court looks at four factors and all factors must be satisfied as reasonable.
Neither Mr. Bruecher nor his corporation could produce any proof of these. Further, the very personal nature of some of the advances (the description of the payment) got the court’s attention.
In court, Mr. Bruecher delivered his self-serving testimony and presented as evidence the corporate tax return, on which the advances were classified as loans. Not good enough, ruled the court, as it made the advances taxable dividends to Mr. Bruecher.
When you operate as a corporation, the corporation is a separate legal entity, and you should have a corporate paper trail that clearly reflects intent and action.
Both have specific strategies that will help satisfy the courts. If this story relates to some of the actions you are doing, you need a plan, as you are at risk of paying taxes plus penalty and interest if you are required to recategorize those payment.
Contact us so we can set up a plan for you.
If you operate your business as a pass-through entity, such as a proprietorship, partnership, or S corporation, the profits of that business can generate the Section 199A tax deduction. Let's Tax Plan today.
You qualify for the Section 199A deduction—period, regardless of pass-through business type—when you have
• pass-through qualified business income (QBI), and
• 2019 Form 1040 taxable income equal to or less than $160,700 single (and head of household) or $321,400 married, filing jointly.
With Form 1040 taxable income equal to or less than the thresholds listed above, doctors, lawyers, accountants, financial planners, stockbrokers, manufacturers, retailers, consultants, and all other businesses with pass-through income qualify for the deduction.
There’s no out-of-favor specified service business problem with income below the thresholds. And the calculation is easy.
With taxable income equal to or less than the thresholds, you qualify for the Section 199A deduction. Your deduction will equal the lesser of:
If you operate your business as a sole proprietorship, there are many strategies to reduce your taxes.
Let’s start with the following 10:
If one or more of these look good to you, or you want to implement a Proactive Tax Plan, let’s talk about how to make them work.
If you filed your business income and expenses as a proprietor in 2017 and reported $100,000 or more in gross receipts, your chance for an audit by the taxing authority were 2.4 % (by the way those audits can still happen meaning your percentage could increase). Had you reported this income as an S corporation your chance of audit were 20%.
If you are paranoid about audits, and you want to claim the home-office deduction in a way that doesn't attract the attention of the IRS, then you need a plan. Spencer Accounting Group, is where innovate tax solutions and businesses come together.
We will tax do a deep dive into proven strategies to ensure your home office deduction does not even appear as a home office label and its perfectly legal.
The $100-a-day Penalty is quite simple for certain entities. You may have wondered why certain entities can pay for or reimburse a solo owner-employee’s individually purchased health insurance without worrying about the $100-a-day penalty.
The answer is that some entities payments of the solo shareholder-employee’s individual health insurance premiums are exempt from the $100-a-day penalty.
The exemption does not apply to health coverage for the rank-and-file employees. For the rank and file, you need either
If you would like me to review your health coverage for compliance with the tax rules, please call me on my direct line at 262-358-8297.
The skinny on the 30% residential solar credit:
If you are thinking of the 30% tax credit for a solar installation on a residence you own don't let December 31 come and go without having those solar property in service.
If your family has trouble with the kiddie tax, you face some new wrinkles for tax years 2018 through 2025 thanks to the Tax Cuts and Jobs Act (TCJA) tax reform. This is one of the many areas where tax planning can pay off.
For 2018–2025, the TCJA tax reform changes the kiddie tax rules to tax a portion of an affected child’s or young adult’s unearned incomeat the federal income tax rates paid by trusts and estates.
Trust tax rates can be as high as 37 percent or, for long-term capital gains and qualified dividends, as high as 20 percent.
Unearned income means income other thanwages, salaries, professional fees, and other amounts received as compensation for personal services. So, among other things, unearned income includes capital gains, dividends, and interest.
Earned income from a job or self-employment is never subject to the kiddie tax.
Your dependent child or young adult faces no kiddie tax problems if he or she does not have unearned income in excess of the kiddie tax unearned income threshold ($2,100 for 2018 and $2,200 for 2019).
And when your dependent child exceeds the threshold by only a minor amount, the kiddie tax hit is minimal and nothing to get too upset about.
But if your child is getting hit hard by the kiddie tax, your tax planning should consider two proven strategies.
If your family is facing a kiddie tax problem, be sure to contact us so we can help you reduce or maybe eliminate the kiddie tax.
What tax effect would death, retirement, or disability have on you or your business? Here’s an easy example to illustrate.
Let’s say that in 2017, you purchased for business use a pickup truck with a gross vehicle weight rating greater than 6,000 pounds. Asserting that you use the pickup 100 percent for business, you expensed the entire $55,000 cost.
What happens to that $55,000 expensed amount if you die, retire, or become disabled before the end of the vehicle’s five-year depreciation period?
If you operate your business as a pass-through entity, such as a proprietorship, partnership, or S corporation, the profits of that business can generate the Section 199A tax deduction.
You qualify for the Section 199A deduction— with Trump's new tax plan, exceptions do apply.
With Form 1040 taxable income equal to or less than the thresholds certain thresholds, even doctors, lawyers, accountants, financial planners, stockbrokers, manufacturers, retailers, consultants, and all other businesses with pass-through income may qualify for the deduction.
If your taxable income is above certain thresholds, you will need to consider tax planning- now!
Why now? Because some strategies require that you have time on your side.
If you are looking at a retirement plan strategy, you want time to consider your options and get that tax-savings plan in place.
As you can see, no issues.
Book your Business Consultation Today!
Your personal residence combined with a desire for a rental property can provide an opportunity for tax savings double play!
The tax-saving strategy is to combine the tax-avoidance advantage of the principal residence gain exclusion break with the tax-deferral advantage of a Section 1031 like-kind exchange. With proper planning, you can accomplish this tax-saving double play with full IRS approval.
The double play is available when you strategically satisfy the requirements laid out in IRC Code. The kicker is that tax-deferred exchange treatment is allowed only on like kind exchanges.
With tax planning our average client has avoided taxes on a gain of $2.4 million, using the strategies according to the 7,000 plus page tax laws.
Pay No Income Taxes Ever! There are tax plans to accomplish this goal!
TCJA which is our Tax Reform has many still contemplating how this new law will apply to various aspects of their business. The good news is that TCJA has provided significant benefit to most business owners. Planning is vital to taking advantage of these benefits.
These proactive strategies will avoid limits that the Net Operating Loss (NOL) rules impose.
Changes lawmakers made to the NOL deduction rules can take tons of money out of your pocket. Prior to tax reform you could carry back NOL to prior year and receive refunds of taxes paid in those years. Read Article.
Those days are over!
Which is where tax planning can help this is good news. Contact us so we can set up tax planning options that best fit your needs.
If you claim your business miles at the IRS optional rate, and are now being audited by the IRS for your business mileage, they may request odometer readings for your vehicle.
Your next questions:
The tax code is very clear about this and the answer is yes.
The IRS, in its Internal Revenue Manual has precise steps that examiners must take when looking at business miles.
The bottom line here is that once you get the letter from the taxing authority don't go at it alone.
Had you reported this income as an S corporation, your chances of audit 20%.
If you filed your business income and expenses as a proprietor in 2017 and reported $100,000 or more in gross receipts, your chances of IRS audit were 2.4 percent (2017 returns are still open for audit, so the percentage could increase).
Had you reported this income as an S corporation, your chances of audit were only 0.20 percent.
You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it.
Regardless, let’s assume that you’re a little paranoid about audits, and you want to claim the home-office deduction in a way that doesn’t attract the attention of the IRS.
If keeping more money for your future appeals to you, please contact us, so we can look at your options to see if we should spend some time on your tax planning.
If you own more than 2 percent of an S corporation and your company pay health care benefits there are laws that dictates your claim to a deduction for health insurance.
We call like to call these laws the three-step health-insurance procedure, and there are tax laws and rules that we must follow in order to Maximize your deduction claims.
You need to get this S corporation health-insurance thing right. there are laws that will prevent the S corporation from taking the tax deduction.
Book Your Business Consultation with us, we will explore various strategies to help keep more money in your pocket.
It’s common to consider making your S corporation a partner in your partnership: since it can save you self-employment taxes.
Does this affect your Section 199A deduction? It does.
Certain payments are not qualified business income (QBI) for the Section 199A deduction. The non-QBI payment rule applies whether the partner receives the payment as an individual or as pass-through income from an S corporation.
Keep the S corporation self-employment tax savings in mind when considering your partnership activity. It is possible that the self-employment tax savings can make the S-corporation-as-a-partner strategy well worth it. We have to look at your total tax and financial situation and align them with your goals to find out if this strategy will work for you.
You have an option if you want your Section 199A deduction (psssst it's an extra 20% deduction). We will be happy to explore that option with you. Take a look at our blog on Tax Strategies or book with us now.
If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes.
Seven days example. Say you have a beach home and you rent it 15 times during the year, for a total of 85 days. What is your average rental. Is it an average of seven days?
The right type of beach home or vacation cottage can produce great tax results when the average rental period is within our seven days example. But it’s tricky because when the average rental period is within our seven days example, the property is not a rental property as defined by the tax code. Instead, the property is a commercial hotel type property that you report on Schedule C of your tax return.
However, If you have a profit on the rental you likely will qualify for the 20% deduction, depending on your tax filing strategy.
The tax law has also imposed restriction on a loss of $20,000 for the year, in which you likely have only two ways to take advantage of this tax strategy.
Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can now change what you expense.
Contact us for Tax Planning so we can determine if this strategy is going to help you save money.
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 even 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 tax 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 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 carry back losses, instead, net operating loss (NOL) will carryover to the next taxable year.
If one of your businesses will have a loss in excess, 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 for certain pass through entities.
But once your taxable income is greater than the threshold amount, 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.
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Did The Tax Cuts and Jobs Act (TCJA) harm the backdoor Roth strategy?
As you likely know, there are ways to use an Roth IRA to grow your wealth with tax planning around tax deductions, because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.
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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.