Category: Blog

The tax-code-defined vacation home rules come into play when you have both rental and personal use of a home. Thus, you can have tax-code-defined vacation homes in the city, in the suburbs, and in recreation areas. If you have no combined rental and personal use of the home, the rules are easy. The property is one of the following: Principal residenceSecond homeRental property But when you have both rental and personal use of the home, your tax life gets more complicated because you...

The federal income tax tables do not give you your “true” tax rates. Here’s one example: the net investment income tax (NIIT). It’s a hefty 3.8 percent on top of what you pay according to the table rates. If you own rental property, you’re one of the NIIT’s prime targets. You pay the NIIT only if your modified adjusted gross income (MAGI) exceeds $200,000 if you’re single, or $250,000 if you’re married filing jointly ($125,000 for married couples filing separately), andyou have net...

Now that most of us have made it through tax season, let me ask you a question: Are you tired of the stress?  I mean, some of it you’ll never get rid of – it’s just the nature of the beast for us as business owners.  In this instance, I’m talking about the stress that taxes and tax season brings on many business owners. First of all, it doesn’t have to be that way, and I can show you how to quit freaking out every Spring and how “taxes” don’t have to stress you out.  In...

When you own more than one business, you need to consider the grouping rules that apply for passive-loss purposes. Should one of your businesses lose money, you may not deduct the losses from that business during the current tax year unless you materially participate in the business or, if grouped, materially participate in the group; ordo not materially participate but have passive income from other sources against which to deduct your passive business losses. Example. Sam Warren, MD,...

Don’t let this happen to you. Here’s what happened to Mr. Kazmi. First, a little background. Urgent Care Center Inc., an Illinois corporation, employed Mr. Kazmi as a part-time hourly bookkeeper. He had no ownership interest in Urgent Care.He was not an officer of Urgent Care.His name was not on any of Urgent Care’s bank accounts.He did not have check-signing authority for Urgent Care or any power to make payments on behalf of Urgent Care. At all times, Mr. Kazmi worked under the...

If you have a home that you both rent out and use personally, you have a tax-code-defined vacation home. Under the tax code rules, that vacation home is either a personal residence, ora rental property. The tax code classifies your vacation home as a rental property if you rent it out for more than 14 days during the year, andyour personal use during the year does not exceed the greater of (a) 14 days or (b) 10 percent of the days you rent the home out at fair market rates. Count...

You have heard the horror stories about mail sent to the IRS that remains unanswered for months. Reportedly, the IRS has mountains of unanswered mail pieces in storage trailers, waiting for IRS employees to process them. Because the understaffed IRS is having so much trouble processing all the documents it receives, you need to protect yourself when you send an important tax filing due by a specific deadline. If you can file a document electronically, do so. The IRS deems such filings as...

Many employers are struggling to hire and retain employees during the COVID-19 pandemic and the resulting “great resignation.” If you’re one of those employers (or about to become one), examine your use of tax-free fringe benefits. It’s one of the proven ways to help keep good employees. Such benefits are deductible by you, the employer, but tax-free to the employee. Common examples of tax-free benefits are health insurance and paid vacation. But there is another potential employee fringe...

Imagine this: your Schedule C business buys a home at the beach, uses it solely as an entertainment facility for business, pays off the mortgage, and deducts all the expenses. Now say, 10 years later, without any tax consequence to you, you start using the beach home as your own. Is this possible? Yes. Are there some rules on this? Yes. Are the rules difficult? No. Okay, so could you achieve the same result if you operate your business as a corporation? Yes, but the corporation needs...

Let’s say you own the building. Now, let’s say that you rent this building to your business. With no tax planning, you have a self-rental, and that makes rental income from this building nonpassive, meaning that it cannot offset any passive losses (very bad); andmakes rental losses from this building passive losses, meaning that you likely cannot deduct the losses this year (also very bad). So, there you have it: with no tax planning, you get the worst of both worlds. Solution But...