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Tax Planning Time For Small Business Owners

John Dundon- TP Small

As we run full tilt into the holidays – between storing boats & fishing poles, repairing bikes, readying hunting gear and waxing skis don’t forget to THINK about next spring’s tax time.

An ounce of preparation today can save BIG $$ come spring. Particularly if you are looking to lower your tax bill for this year and possibly the next… and who isn’t interested in that?!?

This year tax planning takes place in the light of a new – Tax Cuts and Jobs Act (TCJA) — a generational change in how the United States taxes income. In fact:

  1. the last time the US Tax Code changed this much was in 1986 under President Reagan
  2. tax practitioners are retiring in droves – thoroughly defeated with the sheer volume of changes
  3. the US Treasury is still behind in producing regulations to govern these new statutes
  4. the 2018 filing season may very well  be delayed as a result

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Tax Planning For Pass-Through Business Entities After Tax Reform

John Dundon, Pass-Throughs And Tax Cuts And Jobs Act

Tax planning under the TCJA for pass through entities is a post for small business owners everywhere paying US income taxes.

Now that the Tax Cuts and Jobs Act (TCJA) is in full swing, many of you have been clamoring for tax planning strategies. This post addresses some essential aspects of the Act and suggest some strategic implications to be used for planning purposes.

One of the most significant changes coming out of the TCJA are the new tax rates:

  • The individual tax rate is reduced to a maximum 37%.
  • The tax rate for pass-through entities can be reduced by 20%.
  • The corporate tax rate is reduced from 35% to as low as 21%.

As a result of these new tax rates there is a growing debate over whether a business should be organized as a pass-through entity or a full blown ‘C’ corporation. 

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What Is A Specified Service Or Trade Business(SSTB)?

John Dundon - Specified Service Or Trade Business

When not riding my mountain bike in the Rocky Mountains I tend to hang out with tax nerds … pretty much all the time, to the extent that tax nerds actually ‘hang out’ that is.  At one of our most recent ‘meetups’ (think band camp without the instruments) we had a lot of fun indulging in freshly picked peaches & poking holes in the bizarrely nuanced albeit new ‘concept’ (if you will) of what a Specified Service Trade or Business (SSTB) is ‘proposed to be’ according to our esteemed ‘rule-writers’ from the US Treasury.

Worth noting is that there were a LOT of smart people in the room, many of whom spent their entire adult lives reading and writing about (as well as applying) the US Tax Code/Regulations. 

We all generally agreed that no business wants to be deemed a SSTB (as the acronym alone sounds like a disease) and that as a result there will be all sorts of skulduggery rearing its ugly head in the not too distant future from US Taxpayers and perhaps our beloved federal government alike.

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Tax Planning Under The Tax Cuts And Jobs Act For Pass-Through Entities

John Dundon, Pass-Throughs And Tax Cuts And Jobs Act

Now that the Tax Cuts and Jobs Act (TCJA) is in full swing, many of you have been clamoring for tax planning strategies. This post addresses some essential aspects of the TCJA and suggests some strategic implications to be used for planning purposes.

One of the most significant changes coming out of the TCJA are the new tax rates:

  • The individual tax rate is reduced to a maximum 37%.
  • Tax rate for a pass-through entities can be reduced by 20%.
  • The corporate tax rate is reduced from 35% to as low as 21%.

As a result of these new tax rates there is a growing debate over whether a business should be organized as a pass-through entity or a full blown ‘C’ corporation.

Families with multiple businesses in various life cycle stages are compelled to think very carefully about tax implications associated with their ‘portfolio’ of business entities.
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Federal Tax Deduction Allowed For Gluten Free Diet With Physicians Prescription

John Dundon, Gluten Free Diet Tax Deduction

Many people suffer from Celiac’s disease.  To be eligible to deduct the excess costs of a gluten-free diet under Internal Revenue Code Section 213, you must have a documented reason to require the observance of a gluten-free diet, along with a physician’s prescription to follow a gluten-free diet. This should provide sufficient documentation of eligibility.

The excess cost of gluten-free food can be deducted if you can deduct expenses paid for medical care for yourself, a spouse, or a dependent, to the extent the aggregate expenses exceed 10 percent of adjusted gross income.

If you meet both criteria above and choose to itemize deductions start collecting receipts and record them regularly. Download a spreadsheet from the Celiac Sprue Association for calculating the deductible expense.

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IRS Penalty: What Is Reasonable Cause?

IRS penalty relief brings big business opportunities for astute tax practitioners as the IRS does indeed have the authority to provide relief from various penalties if you know how to do the dance.

In 2014 the IRS abated either in part or in full approximately 12.3% of the 40.3 million penalties issued reducing penalty assessments paid by US Taxpayers up to $9.8 billion.

According to the IRM, relief from penalties can fall into one of four separate categories.

  • Reasonable cause.
  • Statutory exceptions.
  • Administrative waivers.
  • Correction of IRS error.

This post drills down into Reasonable Cause. The IRS bases reasonable cause on all the facts and circumstances of each individual case file and it allows for relief of penalties as per IRM 20.1.1.3.2.

The IRS grants reasonable cause relief when you exercised ordinary business care and prudence in determining your tax obligations but nevertheless were unable to to timely comply with those obligations.

IRS Policy Statement 3-2 provides a very limited list of ’causes’ which can be ‘reasonable’ for late filing of a return or failure to deposit or pay tax when due (IRM 1.2.12.1.2).

Examples of sound causes for delay which can be accepted as reasonable cause include:

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How To Formulate An IRS Penalty Abatement Request

Greetings fellow tax nerds! Perhaps life might suck for me at present but lately, there seems to be nothing more satisfying than making tax penalties go away. Think about it. You’re a good person. You work hard. You struggle every day to do right. Then all of a sudden something changes. It appears innocuous.

Your busy and it gets blown off. Happens all the time. Three years later the IRS sends you a letter asserting that you are guilty and you are indeed guilty as charged. I’ve grown exhausted by toothless IRS letters and more so the reprobate tax collection practice of preying on taxpayer fears of the IRS…for profit.

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How To Submit A Reasonable Cause Claim To The IRS For Penalty Abatement

If you have not filed your personal income tax form (1040), generally, you should get the tax form filed ASAP without consideration for the yet to be assessed penalties.

Then exercise patience.

Wait for the IRS to assess the penalty and then send a reasonable cause explanation to the address indicated on the notice from the IRS. This way you mitigate all sorts of procedural kerfuffles. Read more

Navigating The Shoals Of IRS Penalties

For those of us inclined to the proverbial ‘head-bury’ strategy with Big Brother, it is best to understand the civil penalties assessed when IRS systems catch up – as measured in tangible $$ out the pocket. For the brave of heart, navigating the shoals of IRS Penalties can be intimidating to comprehend but it is far from rocket science.

Understanding IRS civil penalties starts with picking up Part 20.1 of the Internal Revenue Manual (IRM).  Here you will find guidance on all areas of civil penalties imposed by the Internal Revenue Code (IRC).

Criminal penalty provisions are contained in IRM 9.1.3 and beyond the scope of this post. Read more

5 IRS Penalties Changed Under The Tax Cuts And Jobs Act Of 2018

This post contains cocktail party killer one liners about how 5 IRS Penalties Changed Under the Tax Cut and Jobs Act of 2018.

My editor also quipped that reading this post helps with insomnia as well. So if you are looking to either kill a party and/or fall asleep faster please continue reading.

If you are a tax practitioner however, you better know this stuff and with all due respect – most do NOT.

The 5 big changes are summarized as follows: Read more

What You Should Know About Your Form W-2

It’s tax time, and you need your Form W-2, Wage and Tax Statement from your employer(s) to file an accurate federal tax return. You should have received this form by January 31.

If you did not get it by now check with your employer to make sure they have your correct address.

If the employer(s) in question have your correct address and the W-2’s have not arrived by the end of February you must still file your income tax forms and pay any income taxes due on time. Not to worry. Read more

Reporting Casualties Under The New US Personal Income Tax Regimen- Thefts Not So Much

The new Tax Cuts and Jobs Act (TCJA) amends Internal Revenue Code Section 165further restricting our ability as individual taxpayers to write off CASUALTY LOSSES going forward solely to ‘disaster areas’ as declared by the POTUS.

Say whaaaat ?!?!?!?!?!?!?!?

Effective immediately this new restriction detailed in the US Tax Code WILL HARM ANYONE who falls victim to any tragedy that does not rise to a less than fully clear standard set by our beloved Twitter-In-Chief, aka #StableGenius (presently ‘trending’). Read more

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