Carol McAtee's Blog

Real estate, in the form of the home you live in, is one of the most common investments that people make. Like any other investment, when a home is sold, you may be liable for tax on any profit made. This tax is known as the capital gains tax.

Many people can reduce or avoid capital gains tax because of an IRS rule that allows you to exclude some of the gain from your taxable income. In addition, improvements you have made to the property also play a role in reducing the capital gain.

(Note: The sale of a rental property, however, is a completely different situation with a complex set of rules and few of the factors below apply.)

Home Sale Gain Exclusion
The main source of reducing capital gains tax on the sale of a home is the IRS home sale gain exclusion rule – the “Section 21 exclusion” — which allows you to avoid paying tax on a gain up to $250,000 for a single taxpayer or $500,000 for a married couple filing jointly. You can take advantage of the exclusion over and over during your lifetime, but not more frequently than every 24 months, as long as you meet certain ownership and use tests.

During the five-year period ending on the date of the sale, you must have owned the home for at least two years, the Ownership Test. You must have lived in the home as your main home for at least two years, the Use Test. And you must not have excluded the gain from the sale of another home during the two-year period ending on the date of the sale.

The Ownership and Use periods need not be concurrent. Two years means 24 months or 730 days within a five-year period, but the months or days do not have to be consecutive. Short absences, such as for a summer vacation, count in the period of use. But longer breaks, such as a one-year sabbatical, are not counted.

If you are married and file taxes jointly, only one of you needs to meet the Ownership test. Also, people who are disabled, who needed outpatient care, or are in the military may be able to get exceptions to the Use test.

If you own more than one home, you can exclude the gain only on your primary home. The IRS considers a number of factors to determine which home is the principal residence. Indicating the address as your primary home address on as many of the following documents is beneficial:
• Place of employment records
• Documentation related to location of family members’ main home
• Mailing address on bills and correspondence
• Tax returns
• Driver’s license
• Car registration
• Voter registration
• Local bank records
• Local recreational clubs and religious organization memberships

The exclusion can be used repeatedly every time you reestablish your primary residence. Unfortunately, if you experience a loss instead of a profit on the sale of your main home, the loss is not tax deductible, with one exception; If a portion of your home is rented out or used exclusively for business, the loss attributable to that portion of your home may be deductible, subject to various limitations.

Improvements to the Home
The second source of reducing capital gains tax is the cost of any improvements you have made to the home. These costs will increase the “basis” of the home. The basis is simply what you originally paid for the home, plus the cost for any improvements. The profit that could be subject to capital gains tax is the amount that you sell the home for, minus the basis.

Improvements are considered anything that has a useful life of more than one year and may include:
• Building an addition
• Finishing a basement
• Putting in a new fence or swimming pool
• Paving the driveway
• Landscaping or installing new wiring, new plumbing, central air conditioning, flooring, insulation, or a security system

All such improvements made to the home over the years will increase the home’s basis. Items considered ordinary repairs and maintenance such as painting, cleaning or any other improvement that is not part of a larger project and does not extend the life of the related asset, will not increase the basis.

Many costs in selling the home such as commissions, advertising, and legal fees are also added to the basis to reduce the capital gain.

Exclusion Rules
Even if you do not meet the ownership and use tests, there are circumstances when you may be allowed to exclude a portion of the capital gain realized on the sale of your home. Partial exclusions may apply if you sell your home because of health reasons, a change in place of employment, or unforeseen circumstances like a divorce or natural or man-made disasters that result in a casualty loss to your home.

Capital Gains Tax Rates
If you do owe capital gains tax on the sale of your home, two different tax rates may apply. The short-term rate applies if you owned the house for a year or less, and is equal to your ordinary income tax rate. Long-term rates apply if you owned the home for more than a year, and are generally lower than the short-term rate, depending on filing status and income.

Recordkeeping
In general, tax records should be kept for three years after the tax filing due date. However, you should keep documents related to your home’s cost basis for as long as you own your home. The records should include proof of the home’s purchase price and the purchase expenses as well as receipts and other records for all improvements that affect the home’s cost basis.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

An Accountable Plan is an arrangement for reimbursing employees for work-related costs in a way that meets IRS requirements and allows the reimbursed amounts to be treated as nontaxable income. Without an accountable plan, reimbursement for employee expenses is considered part of the employee’s compensation and therefore subject to withholding and reporting on the employee’s W-2 form.

In the past, some employee out-of-pocket expenses were deductible on employees’ personal tax returns. The 2017 law known as the Tax Cuts and Jobs Act (TCJA) disallowed this deduction for out-of-pocket expenses by employees on their personal tax returns. By properly claiming and documenting reimbursements, the accountable plan allows reimbursements to not be taxable to the recipient.

How an Accountable Plan Works
The first caveat about the accountable plan is that the expenses must be business-related and incurred within the course of employment. They must be adequately accounted for and reported, and any excess reimbursement must be returned within 120 days. Employers must retain dates, times and the business purpose for every expense.

Business-related expenses incurred by employees may include travel, meals, lodging, entertainment and transportation and any of the following:
• Travel expenses (either actual or per diem)
• Gas or mileage expenses (either actual or per diem)
• Tools and supplies
• Home office, including depreciation
• Cell phone
• Internet
• Training and development
• Dues, subscriptions and professional licenses

Entertainment expenses are no longer deductible at all under the TCJA, including:
• Nightclubs
• Cocktail lounges
• Theaters
• Country clubs
• Golf and athletic clubs
• Sporting events
• Hunting and fishing

If an employer reimburses entertainment expenses, the reimbursement must be treated as wages.

If an expense involves both a personal use and a business use, the cost must be split between the employer and the employee. For example, if a personal car is used for business trips, the employee needs to account for the miles that were incurred for personal transportation and for work-related transportation, splitting the costs appropriately.

Expenses are subject to third-party confirmation via review of related documentation, such as receipts. Exceptions to this rule may include non-lodging costs that amount to less than $75, meal reimbursement that falls within IRS per diem standards, and transportation costs for which obtaining an official proof of payment is difficult (such as taxis and public transportation).

Requirements for an Accountable Plan
While employers are not required to submit the details of their plan to the IRS, they must be able to demonstrate that they meet the IRS requirements. Employers may choose to implement stricter accountable plan requirements than are posted by the IRS.

Accountable plans do not have to follow the nondiscrimination rules applicable to other employee benefit plans. For example, a business can choose to reimburse an owner for a home office, but not other employees. An employer can have different arrangements with different employees.

Car expenses can be reimbursed using the IRS mileage rate. However, the elements of the business driving (date, mileage, destination, etc.) must be reported to the employer using an expense account report, app or other written record.

Expense advances can be made to employees for anticipated expenses within 30 days of when the expense is to be paid or incurred. The expense must be substantiated within 60 days after it is paid or incurred, and repayment for any overpaid advance must be made within 60 days after the expense is paid or incurred. Alternatively, businesses can utilize quarterly reports tracking these advances, reimbursements and repayments.

The accountable plan does not need not be in writing, but a written document provides a structure to ensure that the required elements are addressed.

A written expense reimbursement policy should clarify:
• The time period for employees to submit expenses
• The process for requesting reimbursement, including what documents are required
• The process for returning excess reimbursements or allowances
• The types of expenses that are reimbursable
• The maximum allowable amounts for certain expenses
• Any preferred suppliers to be utilized for potential expense reduction

As with many IRS regulations, the requirements to qualify for tax-free reimbursement of expenses may not be clear-cut. Your CPA can help you collect and document the information required for an accountable plan in order to satisfy IRS requirements.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The number of employees working from home grew considerably during the COVID-19 pandemic. While many companies are now requiring workers to spend time in the office, significant numbers are still working remotely at least part of the time. Estimates of the percentage working remotely vary from 28% (US Bureau of Labor Statistics) to 41% (Pew Research Center).

State vs. State
Remote work involves complicated tax issues for both workers and businesses. One major issue occurs when your company is in one state and your home workplace is in another state: Which one gets to charge you state income tax?

There is little coordination and some conflict between states on this issue. For example, New Hampshire sought an injunction against a regulation in Massachusetts requiring workers who previously worked in Massachusetts to pay its income tax despite working in other states due to the pandemic.

To avoid double-taxation — paying taxes on the same income in two different states — the taxpayer may be able to credit the taxes paid in their non-resident state against their home state’s tax liability (or vice versa, depending on which state has higher taxes). Consulting a CPA fluent with these complicated rules is recommended to help avoid double taxation.

Home Office Tax Deduction
In the past, home office tax deductions were available to workers who were paid as employees, through a W-2. That changed in 2018 and now only self-employed people (generally paid through 1099s) are eligible to claim tax deductions when working from home.

The home office must be a specific area dedicated to your self-employed business, for example, not a kitchen table that you use occasionally. There are two different methods that self-employed workers can use to determine the home office tax deduction: the direct method and the simplified method.

The direct method determines the home office tax deduction based on the percentage of your home office square footage relative to your entire home. Workers deduct a portion of home-related expenses, such as mortgage interest, property taxes, homeowners’ insurance and utilities, based on the proportion of the space to the rest of the residence.

Expenses also can include many costs related to repairing and maintaining the space, as well depreciation of a portion of the house if the worker owns it.

The other option is the simplified method. This method calculates the home office deduction by expensing $5 per square foot of your office, up to 300 square feet, for a maximum of $1,500.

If you use your home office for both your W-2 job and your side gigs, you won’t be able to claim the same home office as a tax deduction. You would need to maintain separate spaces for your employee job and for your self-employment work.

Employer Reimbursement
The best option for W-2 employees who pay for business expenses related to working at home, is to seek reimbursement from their employers. These reimbursements are typically tax-free as long as the employer has an accountable plan — requiring the employee to submit an expense report or some other means of accounting for expenses.

The accountable plan consists of a set of procedures that ensures that employees don’t get reimbursed for personal expenses. Under such a plan, an employer has options on how to structure home office reimbursement expenses, such as through a stipend or reimbursement policy. Being reimbursed for an expense is almost always more advantageous than taking a deduction for the same expense on your taxes.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Every year during tax preparation season, the Internal Revenue Service issues its annual list of tax scams, called The Dirty Dozen – representing the common scams that taxpayers may encounter. These scams can happen anytime but especially peak during filing season as many people scramble to prepare their returns or hire someone to prepare them.

Perpetrators of these fraudulent schemes look for ways to steal money, personal information, data and more. In general, the IRS warns of avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. Taxpayers should be wary if a tax deal sounds “too good to be true.”

Here are some of the most common, from the 2023 Dirty Dozen list released recently by the IRS:

Employee Retention Credit Claims
The Employee Retention Credit was a legitimate tax credit created by the U.S. government to encourage smaller businesses to retain employees during the COVID-19 pandemic. It can be taken on 2020 and 2021 tax returns, including amending a previously filed return to take the legitimate credit. But some scammers are using advertisements touting these credits and then providing inaccurate information related to the taxpayer’s eligibility.

The IRS notes that some of these promotions exist solely to collect the taxpayer’s personal information in exchange for false promises, facilitating sale of personal data and identity theft.

Smishing and Phishing
Scammers pretending to be the IRS or state taxing authorities can reach out to taxpayers through unsolicited texts (smishing) or email (phishing). Their intent is to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. Taxpayers need to keep in mind that the IRS initiates contacts through only regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.

Online Account “Help”
Swindlers can pose as a “helpful” third party and offer to help create a taxpayer’s online account at the IRS web site, www.IRS.gov. But taxpayers can easily create the accounts themselves. Again, third parties making these offers may be out to steal a taxpayer’s personal information.

False Fuel Tax Credits
The fuel tax credit is specifically meant for off-highway business and farming use and is not available to most taxpayers. However, dishonest tax return preparers and promoters can entice taxpayers to inflate their refunds by erroneously claiming this credit.

Fake Charities
Bogus charities sprout up whenever a crisis or natural disaster strikes, to take advantage of the public’s generosity. They solicit money and personal information, which can be used to further exploit victims through identity theft. Charitable donations only count as tax deductions (for taxpayers who Itemize) if they go to qualified tax-exempt organizations recognized by the IRS.

Unethical Tax Return Preparers
The vast majority of tax preparers operate under high professional and ethical standards. Warning signs that tax preparers are disreputable include charging a fee based on the size of the refund and being unwilling to sign the tax return or include their IRS Preparer Tax Identification Number (PTIN), as required by law.

“Offers in Compromise” Mills
“Offers in Compromise” is an IRS program that allows people who are truly unable to pay their tax liability to settle their federal tax debts. It involves a complicated application process and very specific eligibility requirements. Companies known as OIC mills aggressively promote the program through TV ads and other channels. They solicit people who may not meet the qualifications, potentially costing these taxpayers even more money in the future.

Ethical CPAs/Tax Preparers
As tax preparers, we are trusted advisors to our clients, who come to us for guidance and peace of mind. The vast majority of us follow the due diligence practices we are required to keep in optimizing your tax liability – in accordance with the law.

In addition, the CPA license requires rigorous education preparation and adherence to a code of ethics. It indicates an accounting professional’s commitment to excellence and integrity in a complex, highly regulated and constantly changing business world.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Businesses have the option of paying a worker as a regular employee through Form W-2 (Wage and Tax Statement) or an independent contractor through Form 1099 NEC (Non-Employee Compensation). There are rules regarding each option and possible legal repercussions for inaccurately treating an employee as an independent contractor. Below, I discuss how the IRS considers the issue.

Independent Contractors Versus Employees
An independent contractor is a worker who individually contracts with an employer to provide specialized or requested services on an as-needed or project basis rather than ongoing. In general, independent contractors have greater control over the way they carry out their work than employees.

Employers assume fewer duties with respect to independent contractors, who are generally outside the coverage of various laws that apply to the employer-employee relationship, such as tax withholding. The penalties for misclassifying a worker can include back taxes or premiums, civil fines, interest and other retroactive charges.

Essential Determinant: Degree of Control
The IRS classifies evidence of the degree of control that distinguishes an employee from an independent contractor into three categories:

1. Behavioral Factors – Does the company control or have the right to control what the worker does and how the worker does his or her job?
This includes instructions about how to do the work – when and where, what tools to use, where to purchase supplies and services and what order or sequence to follow in doing the work. Also, the more detailed the instructions the worker is given, the more control the business exercises.

Training on how to do the job is strong evidence that the worker is an employee. Finally, if an evaluation system measures the details of how the work is performed, that would also suggest an employee.

2. Financial Factors – Are the business aspects of the worker’s job controlled by the payer?
An independent contractor often has a significant investment in the work equipment used and may have unreimbursed expenses, though those may also be true for employees. The possibility of incurring a loss, such as their expenses exceeding their income from the work, suggests the worker is an independent contractor. An independent contractor is generally free to seek out other business opportunities in the relevant market.

An independent contractor is usually paid by a flat fee for the job, while an employee is generally guaranteed a regular wage amount for an hourly, weekly or other period of time

3. Relationship – Are there written contracts or employee benefits?
Employee benefits include insurance, pension plans, paid vacation, sick days and disability insurance. Businesses generally do not grant these benefits to independent contractors.
If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

If a worker provides services that are a key aspect of the business – such as a law firm hiring a lawyer — it is more likely that the business controls his or her activities and is thus an employee.

Burden of Proof
Businesses must weigh all the above factors when determining whether a worker is an employee or independent contractor. The IRS presumes that a worker is an employee unless proven otherwise. So, the burden of proof is on the employer to show that it has classified a worker correctly.

Employers and workers can file Form SS-8 (Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding) to get a determination from the IRS as to whether or not a worker is an independent contractor. A business that continually hires the same types of workers may want to consider filing it.

Department of Labor Classification
To complicate matters, the Department of Labor uses a different classification system to determine worker status for purposes of wage and hour laws, including minimum wages, overtime and child labor laws. So, a worker may be classified as an independent contractor under one system and as an employee under another.

Business Entities
Some groups of professional workers, such physicians and other licensed health professional often create their own business entities, often limited liability companies (“LLC”), or professional service corporations (“PA”). Since a business entity in the US can never be classified as an employee, contracting with business entity is one way in which an employer knows that the individual actually providing the services does not have to be treated as an employee.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Traditional Individual Retirement Accounts (IRAs) and other retirement plans are “tax-deferred plans,” meaning you don’t pay taxes on your account contributions or earnings until you take withdrawals. Because the IRS wants to start collecting those taxes sooner rather than later, it requires you to start making annual withdrawals when you turn age 73, known as a “required minimum distribution” or RMD. The RMD is the smallest amount you must withdraw from your tax-deferred retirement accounts every year after age 73, whether you need the money or not.

RMDs and Life Expectancy
RMDs are based on the IRS life expectancy tables. For example, at 73, the average person is expected to live another 16.4 years. To figure the RMD for that year, a person would divide their IRA account balance by 16.4. For example, if the IRS account balance were $100,000, they would have to withdraw $6,098 ($100,000 divided by 16.4) and pay taxes on this withdrawal in that year.

Each year, your life expectancy is one year less, so the RMD goes up a little bit every year until the age of your life expectancy is reached. Then it levels off and gradually decreases.

Retirement Accounts Subject to RMDs
In addition to traditional IRAs, these other types of retirement accounts are also subject to RMDs:
• Simplified Employee Pension (SEP) IRAs
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs
• 401(k)s
• Nonprofit 403(b) plans
• Government 457 plans
• Profit-sharing plans

You can take your RMD out of one account, or take some from each account, as long as you withdraw the required minimum.

Because Roth IRAs are funded with contributions already taxed, these don’t require RMDs until after the owner dies. And, if you’re still working after age 73 and have a traditional 401(k) or other workplace contribution plan, you may be able to defer RMDs until April 1 of the year after you stop working.

Schedule for Taking RMDs
For tax year 2023, you must start taking RMDs by April 1 of the year after you turn 73. Let’s say you celebrate your 73rd birthday on July 4, 2023. You must take the RMD by April 1, 2024. You’ll have to take another RMD by Dec. 31, 2024 and by Dec. 31 each year after that.

Note that if you wait until 2024 (up to April) to take your AMD, you will actually be taking two RMDs in 2024: your RMD for tax year 2023 AND your RMD for tax year 2024. Taking two RMDs in one tax year could push you into a higher tax bracket, so it might be wiser to take the 2023 RMD by December 31, 2023.

Penalties
The penalty for not taking an RMD is severe: a 50 percent excise tax on the amount you should have taken out. Although the IRS will sometimes forgive the penalty, it’s best not to incur it in the first place.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Although they sound similar, “tax avoidance” and “tax evasion” are completely different. Tax avoidance lowers your tax bill by structuring your transactions so you realize the largest tax benefits – in a completely legal way. Tax evasion, on the other hand, is an attempt to reduce your tax liability by deceit, subterfuge or concealment and is a crime.

The IRS sometimes refers to tax evasion as “illegal tax avoidance” or “abusive tax avoidance.” In addition, the media often refers to “tax shelters” which can refer to either legal tax avoidance strategies or illegal tax evasion.

“Fair Taxation” Strategies
For both business owners and individuals, there is often more than one way to complete a taxable transaction. We use advance tax planning to evaluate these different options in order to reduce or eliminate your tax liability. I suggest you scan my previous blogs for tips on some of these approaches.

Strategies often fall into one of these categories: (legally) minimizing taxable income, maximizing tax deductions and tax credits and controlling the timing of income and deductions. For example, we encourage our clients to consider the big picture when claiming deductions. Claiming certain types of deductions can have a tax impact in later years.

One example is when a business asset has been purchased. You may be able to claim the entire expense as a deduction in the year of purchase and lower your tax liability for the current year. But if you anticipate your business income increasing in the future, you may want to scale back the current deduction so that you can claim depreciation deductions in future years.

Your fair taxation strategy should consider investment options such as traditional 401(k) retirement accounts and tax-deductible IRAs to lower your taxable income today – though you may still have to pay income taxes when you withdraw the money later.

Common tax deductions to which you may be entitled include health savings account contributions, student loan interest, the educator expense deduction and expenses, if you choose to itemize, such as home mortgage interest and real estate taxes.

Several common credits can also legally reduce the amount of tax you owe: the Child Tax Credit, the Saver’s Credit and education credits such as the American Opportunity Credit and the Lifetime Learning Credit.

Criminal Tax Evasions
Many of the common criminal evasions below can apply to both personal and business tax returns, though business owners have more options – or temptations – for evading.
• Deliberately under-reporting or omitting income. This could include a landlord failing to report rent payments or a business owner’s failure to report some of the day’s receipts.
• Keeping “two sets of books” or making false entries in books and records.
• Claiming false or overstated deductions on a return, from claiming unsubstantiated charitable deductions to overstating travel expenses. It can also include paying your children or spouse for work that they did not perform.
• Claiming personal expenses as business expenses. While some assets, such as a car or a computer, will have both business and personal use, proper record-keeping will help the taxpayer from inadvertently committing tax fraud.
• Hiding or transferring assets or income such as concealing funds in another bank account.
• Engaging in a “sham transaction” by labeling a transaction as something it is not, for example, calling payments by a corporation to its stockholders “interest” when they are in fact actually dividends.

Overseas Bank Accounts
Popular culture is full of stories of the wealthy or criminals (often both) moving money into overseas bank accounts run by authorities that refuse to divulge information about client accounts. Banks in Switzerland long had the distinction of this kind of secrecy but lawsuits and fines over the past few years appear to be eroding that policy.

There’s nothing unlawful about where you keep your money. The federal income tax system requires you to report your worldwide income no matter where it is. What’s illegal is not reporting or not paying taxes on any income or interest.

Penalties for Tax Evaders
People convicted of criminal tax evasion have to pay their original tax liability plus interest, but there are also hefty fines that can be as much $100,000 for an individual and possible prison terms of a few months to several years.

As in all tax matters, it’s best to discuss any decisions in advance with your tax professional to be sure you are in line with tax law and best practices.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Even before a business is off the ground, expenses are often incurred, from prospecting and market research to travel and interviewing prospective employees. Essentially, you are spending money before you have the opportunity to make money. Fortunately, some startup costs are eligible for tax deductions.

The costs incurred before the business is formed are treated as capital expenditures. You can either deduct a limited amount of these capital expenditures on your tax return in that same year, or you can amortize those costs over 180 months. If you decide later not to start the business, then those expenditures are no longer deductible.

Expenses That May Be Deductible
In general, a startup cost is only deductible if it meets two criteria:
• The cost is paid or incurred before the day your active business launches.
• You could deduct the cost if you were operating an existing business in the same field as the one you plan to enter.

The expenses that may qualifying as startup costs include:
• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business
• Salaries and wages for employees who are being trained and their instructors
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers
• Salaries and fees for executives and consultants, or for similar professional services

Unfortunately, equipment purchases do not quality as startup costs. These are considered assets of the business and can be depreciated and written off over time after the business is already an official entity.

Corporate Startups
In addition, corporations can claim organizational costs associated with forming the business that other business structures cannot. This includes everything from legal fees and meeting costs to the costs associated with bringing on a board of directors.

If your business is related to some type of new technology, science, or innovation, your development expenses may be eligible for the Research and Development Tax Credit. While the word “research” conjures up thoughts of test tubes and lab coats, even improvements to software and systems may qualify.

IRS is strict in its determination of which expenses qualify. As with anything tax-related, talk with your accountant to understand how to take advantage of startup expenses that may qualify as deductions.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Many families see the annual tax refund check as a windfall that will finance a family vacation or to catch up on bills. Unfortunately, that may not be as true in 2022 and going forward. Several tax credits offered on personal tax returns (Form 1040) as part of pandemic relief are expiring and will no longer be available in tax year 2022. That means some taxpayers could see smaller tax refunds for 2022 and could even end up owing money. As in most tax matters, knowing ahead of time what might happen will allow you to plan for it.

Child Tax Credit
Available to working parents who meet certain income requirements and other rules, the child tax credit was up to $3,600 per child is 2021. But for tax year 2022, it reverts to a maximum of $2,000 per child. So, a family with three children could have received a credit of as much as $10,800 in 2021, but they will only get up to $6,000 in 2022.

Earned Income Tax Credit (EIC)
The EIC is available to low- to moderate-income taxpayers. A qualifying taxpayer with no children who received approximately $1,500 in 2021 would now receive approximately $560.

Child/Dependent Care Credit
Taxpayers who pay for day care or similar for children and dependents while they work could receive a credit in 2021 of up to $8,000 in care expenses. For 2022, the maximum credit they can receive is $2,100.

Economic Stimulus Payments
Most taxpayers received economic impact payments of $1,400 in March of 2021 as direct deposits in their bank account. Those who did not get the direct deposit were able to claim it on their 2021 tax returns as a refundable credit. Since no stimulus payments occurred in 2022, that is one less credit for some taxpayers.

Charitable Deduction
Taxpayers who itemize their deductions can include their contributions to charity among their tax deductions. In 2021, non-itemizing taxpayers could claim a special deduction of up to $300 in contributions. But this does not apply in 2022.

Extensions and Estimated Tax Payments
Some taxpayers with a history of getting refunds use a tax filing extension (typically mid-October) to give them more time to pull their tax information together. When no tax money is owed, this works out fine. However, if they end up owing the IRS, there will likely be a late-payment penalty and interest owed unless they pay an estimated tax when they file the return.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Florida is a haven for snowbirds not only for its warm winter weather and outdoor lifestyle but also as being one of the few states without a state income tax. If you live in a state with a high state/local tax burden and you are spending significant time in Florida every year, you may benefit from becoming an official Florida resident. However, you must satisfy residency requirements and take a number of steps in case your “summer” state challenges your status with a residency audit and tries to compel you to pay state tax on all of your income as a resident there.

The Six-Month Rule
The basic and most important aspect of establishing residency is spending the majority of your time here. Many states have what’s called the “183-day rule,” which means the state will tax you as a resident if you own a home there and spend at least 183 days during the year (about six months) in the state. The days don’t have to be consecutive, and even part of a day can count as a full day.

If you are not able to spend six months consecutively here in Florida, you could also take your vacations here or visit family/friends to reach your six months. You should keep a record for each day and save supporting records like receipts for meals and other purchases made in Florida.

Licenses and Registrations
You should get a Florida driver’s license, which will enable you to vote, apply for property tax breaks, and other important things in Florida that also help you establish residency. Make sure you register your car, RV and boat here, further evidence that you consider Florida your permanent home.

Home Size
Having a large home in your “summer” state but only a small apartment here could hurt your case for residency. For example, New York State considers the size of each home owned or rented as a key factor in establishing residency. In addition, that state’s tax auditors take value into account, since a modest residence in New York City may cost more than a larger house here.

Update Your Address
Auditors will look for any evidence that you don’t consider Florida your primary home, so update addresses on all of your correspondence, credit cards and bills, including utility bills for your “summer” location. You may be able to file a “Declaration of Domicile” with the clerk of the court in the Florida county where you live. In Pinellas County, you can do that at https://www.mypinellasclerk.org/.

Community Affiliations
The more you socialize in Florida and maintain ties to social organizations in the state, the easier it is to document your commitment. So attend local meetings of any national organizations you are involved with, like the Lions Club or VFW. Consider attending a local church, synagogue or other house of worship. You should see doctors, dentists, lawyers, accountants and other professionals here in Florida.

Financial Commitments
Tax auditors know that most people use a bank near their homes. So, you should move your money to a Florida bank or a national bank with a branch close to your Florida home. Of course, be sure bank statements are sent to your Florida address. If you are retired, your Social Security checks or retirement plan distributions should be mailed to Florida or deposited into a Florida bank.

Income Records
Whether your income comes from an employer (W2) or you are an independent contractor (1099), your paperwork must reflect your Florida address. If you’re a doctor, lawyer or other professional, you should get licensed to practice to Florida. If you own a business in your “summer state,” moving it to Florida will help your case if your status as a Florida resident is challenged.

Taxes
And of course, your federal tax return should list your Florida location as your home address. Keep your real state taxes and any other Florida taxes levied on residents paid, to avoid diminishing your ability to satisfy the Florida residency requirements.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.