When do valuable gifts to charity require an appraisal?
If you donate valuable items to charity and you itemize deductions on your tax return, you may be required to get an appraisal. The IRS requires donors and charities to supply certain information to prove their right to deduct contributions. If you donate an item of property (or a group of similar items) worth more than $5,000, certain requirements apply. You must: get a qualified appraisal; receive the qualified appraisal before your tax return is due; attach an appraisal summary to the first tax return on which the deduction is claimed; include other information with the return; and maintain certain records. Other rules apply to larger gifts and there are exceptions. Questions? Contact us.
The tax advantages of including debt in a C corporation capital structure
Let’s say you plan to use a C corporation to operate a newly acquired business or you have an existing C corp that needs more capital. Be aware that the federal tax code treats corporate debt more favorably than corporate equity. So for shareholders of closely held C corps, it can be a tax-smart move to include in the corporation’s capital structure some third-party debt (owed to outside lenders) and/or some owner debt. The reasons have to do with the income tax rate, the capital gains / dividend tax rate and the double taxation that occurs when a corporation pays tax on its profits and shareholders pay tax again when the profits are distributed as dividends. Contact us about your situation.
8 key features of a customer dispute resolution process for businesses
No matter how carefully you run your business, customer disputes will likely happen. You can protect your company’s reputation and strengthen its brand with an effective customer dispute resolution process. Consider including these eight key features: 1) Accessible communication channels, so customers can easily contact you. 2) An efficient timeline that lets customers know what you’re going to do. 3) Empathy and patience on the part of customer-facing staff. 4) Rigorous investigatory techniques. 5) Strong data protection. 6) Proactive follow-ups during investigations. 7) Timely resolution of disputes. 8) Documentation and analysis of incidents so you can continuously improve the process.
Taxes when you sell an appreciated vacation home
If you’re selling a vacation home at a profit, what will you owe in taxes? It depends on whether you’ve used the home as your principal residence for a time or whether you’ve rented it out. If you haven’t done either, the principal home sale gain exclusion tax break (up to $250,000 or $500,000 for a married couple) is unavailable. Your vacation home sale profit will be treated as a capital gain. If you’ve owned the property for more than a year, the gain will be taxed at no more than the 20% top federal rate on long-term capital gains, plus the 3.8% net investment income tax, if applicable. Other rules apply to a home used as a rental or principal residence. Contact us about your situation.
B2B businesses need a cohesive strategy for collections
If your company operates in the business-to-business (B2B) marketplace, you’ve probably experienced collections challenges. There’s no easy solution, of course. But you can “grease the wheels,” so to speak, by devising and always improving a methodical collections process. Start with payment terms that are written in unambiguous language and include specific due dates, payment methods, and late-payment penalties. Invoice promptly and accurately, minding all the details and monitoring metrics such as days sales outstanding and average days delinquent. Establish a timeline for payment reminders and follow-ups. Today’s software can help automate this part of the process. Contact us for help.
Growing your business with a new partner: Here are some tax considerations
There are several financial and legal implications when adding a new partner to a partnership. Here’s an example to illustrate: You and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to the business. Assume that your basis in […]
Pay attention to the tax rules if you turn a hobby into a business
Many people dream of turning a hobby into a business. You probably won’t have any tax problems if your new business is profitable over a certain period of time. But what if the venture consistently generates losses (deductions exceed income) and you claim them on your tax return? In an audit, the IRS may say it’s a hobby (an activity not engaged in for profit) rather than a business. Then you can’t deduct losses. There are 2 ways to avoid the hobby loss rules: 1) Show a profit in at least 3 out of 5 consecutive years (2 out of 7 years for certain horse businesses). 2) Run the venture in a way that shows you intend to turn it into a profit maker rather than a hobby. Contact us to learn more.
When partners pay expenses related to the business
It’s not unusual for a partner to incur expenses related to the partnership’s business. This is especially likely to occur in service partnerships such as an architecture or law firm. When a partner can be reimbursed for business expenses under a partnership agreement or standard operating procedures, the partner should turn them in for reimbursement. Otherwise, the partner can’t deduct the expenses on his or her tax return. On the partnership side, the business should have a written firm policy that clearly states what will and won’t be reimbursed, including home office expenses if applicable. (This applies to members of LLCs that are treated as partnerships for federal tax purposes.)
Health care self-insurance and stop-loss coverage: What business owners need to know
When businesses decide to sponsor a health insurance plan for employees, they can either buy a plan from an insurer (“fully insured”) or design, fund and manage their own plan (“self-insured”). The latter option, commonly known as “self-insurance,” offers greater control of claims and potential cost savings. But it also requires you to buy stop-loss coverage to guard against substantial unexpected or catastrophic claims. Stop-loss coverage kicks in once an individual claim and, if the self-insured policy is so designed, annual aggregate claims reach a contracted threshold known as the “attachment point.” Setting the right attachment point can be tricky. Contact us for assistance.
Watch out for “income in respect of a decedent” issues when receiving an inheritance
Most people appreciate inheritances. But in some cases, they may turn out to be too good to be true. “Income in respect of a decedent” (IRD) may create a surprise tax bill for those inheriting certain types of property. Fortunately, there may be ways to minimize the IRD tax bite. For the most part, property you inherit isn’t included in your income for tax purposes. Items that are IRD, however, do have to be included, although you may also be entitled to a deduction on account of them. One common IRD item is the decedent’s last paycheck, received after death. Other common IRD items include pension benefits and amounts in a decedent’s IRA at death. Contact us if you have questions.
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