You may have loads of student debt, but it may be hard to deduct the interest
If you have student loan debt, you may wonder if you can deduct the interest you pay. The answer is yes, subject to certain limits. However, the deduction is phased out if your adjusted gross income exceeds certain levels. The maximum amount of student loan interest you can deduct per year is $2,500. For 2021, the deduction is phased out for single taxpayers with AGI between $70,000 and $85,000 ($140,000 and $170,000 for married couples filing jointly). The deduction is unavailable for singles with AGI of more than $85,000 ($170,000 for married couples filing jointly). The interest must be on funds borrowed to cover qualified education costs of the taxpayer or his spouse or dependent.
Keeping remote sales sharp in the new normal
Many experts predicted that companies’ experiences during the COVID-19 pandemic would accelerate the existing trend toward more digital sales interactions. Indeed, this seems to be coming to pass. Here are three tips for keeping your remote sales activities sharp in the new normal: 1) Focus on targeted sales to existing customers and well-researched prospects. 2) Leverage the most up-to-date, well-suited technology tools, but don’t forego in-person sales calls where safe and feasible. 3) Create an outstanding digital experience that includes an easily navigable website and perhaps even a convenient mobile app. Contact us for help managing your technology costs.
There’s currently a “stepped-up basis” if you inherit property — but will it last?
If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes. The current rules Under the current fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, […]
Getting a new business off the ground: How start-up expenses are handled on your tax return
Despite the COVID-19 pandemic, government officials are seeing a large increase in the number of new businesses being launched. From June 2020 through June 2021, the U.S. Census Bureau reports that business applications are up 18.6%. Entrepreneurs often don’t know that many start-up expenses can’t be currently deducted. Some likely have to be amortized over time. You might be able to elect to deduct up to $5,000 currently, but the deduction is reduced by the amount by which your total start-up costs exceed $50,000. You can also deduct $5,000 of the organizational costs of creating a corporation or partnership. Contact us if you have tax questions about a start-up business.
Can taxpayers who manage their own investment portfolios deduct related expenses? It depends
Do you have significant investment-related expenses, including subscription costs and home office expenses? Under current tax law, these expenses aren’t deductible through 2025 if they’re considered investment expenses for the production of income. But they’re deductible if they’re considered trade or business expenses. The U.S. Tax Court has developed a 2-part test that must be satisfied in order to be a trader. Under the test, investment activities are considered a trade or business only if: 1) the taxpayer’s trading is substantial, and 2) the taxpayer seeks to profit from short-term market swings, rather than from long-term holding of investments. Contact us if you have questions.
Who in a small business can be hit with the “Trust Fund Recovery Penalty?”
There’s a harsh tax penalty that you could be at risk for paying personally if you own or manage a business with employees. The Trust Fund Recovery Penalty applies to the Social Security and income taxes required to be withheld by a business from employees’ wages. Because taxes are considered government property, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the people liable and responsible for the taxes will be penalized 100% of the taxes due. The amounts the IRS seeks when the penalty is applied are usually substantial, and the IRS is aggressive in enforcing the penalty.
5 ways to take action on accounts receivable
No matter the size or shape of a business, one really can’t overstate the importance of sound accounts receivable policies and procedures. If your company’s collections aren’t as efficient as you’d like, consider the following five suggestions: 1) Redesign your invoices to ensure they’re clear and easy to understand, 2) Appoint a collections champion who has the primary responsibility of following up on past due invoices, 3) Expand your payment options to include the latest mobile technology, 4) Acquaint (or reacquaint) yourself with your B2B customers’ procedures for invoice formatting and submission, and 5) Generate accounts receivable aging reports. Contact us for help.
IRS extends administrative relief for 401(k) plans
In Notice 2021-40, the IRS recently announced a 12-month extension (through June 30, 2022) of its temporary relief from the requirement that certain signatures must be witnessed “in the physical presence” of a 401(k) plan representative or notary public; instead, audio-video technology can be used. The relief was provided primarily to facilitate plan loans and distributions under the CARES Act, but it applies to any signature that is required to be witnessed in the physical presence of a plan representative or notary public. This includes spousal consents. Notice 2021-40 also requests comments regarding whether permanent modifications should be made. Contact us for more information.
IRS audits may be increasing, so be prepared
The IRS just released audit statistics for the 2020 fiscal year and fewer taxpayers had their returns examined compared with prior years. Overall, just 0.5% of individual returns were audited. Historically, this is very low. However, even though a small percentage of returns are being audited these days, that will be little consolation if yours is one of them. Plus, the Biden administration has announced it would like to increase tax compliance. The easiest way to survive an IRS audit is to prepare. On an ongoing basis, maintain documentation (invoices, bills, canceled checks, receipts, or other proof) for items reported on your returns. Contact us if you receive an IRS audit letter.
10 facts about the pass-through deduction for qualified business income
Are you eligible to take the deduction for qualified business income (QBI)? This valuable tax break is also referred to as the pass-through or Section 199A deduction. It’s available to owners of sole proprietorships, single member limited liability companies, partnerships and S corps. The deduction is intended to reduce the tax rate on QBI to a rate closer to the corporate tax rate. It’s available regardless of whether you itemize or take the standard deduction. The deduction is complex but is generally equal to 20% of qualified business income. There are two other limitations based on W-2 wages and on some “specified service trades or businesses.” Contact us with questions.
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