Are scholarships tax-free or taxable?
With the rising cost of college, many families are in search of scholarships. If your child receives one, you may wonder how it affects your taxes. Good news: Scholarships are generally tax-free for students in elementary, middle and high schools, as well as those attending college, graduate school or an accredited vocational school. It doesn’t matter if the scholarship makes a direct payment to the individual or reduces tuition. However, certain conditions must be met. A scholarship is tax-free if it’s used to pay for tuition and fees required to attend the school, and fees, books, supplies and equipment required of students. Room and board, travel, research and clerical help don’t qualify.
Business automobiles: How the tax depreciation rules work
If you use an automobile in your business, you may wonder how depreciation tax deductions are determined. The rules are complicated, and special limits that apply to vehicles classified as passenger autos can make it take longer than expected to fully depreciate a vehicle. First, note that if you use the “standard mileage rate” (65.5 cents per business mile driven for 2023), a depreciation allowance is built into the rate and you don’t need to worry about the depreciation calculations. But if you choose to use the “actual expense method” to claim deductions on a passenger auto, depreciation is calculated each year based on the car’s cost, how much you use it for business and other factors.
A refresher on the trust fund recovery penalty for business owners and executives
The trust fund recovery penalty has nothing to do with estate planning. Rather, the IRS uses it to hold accountable “responsible persons” who willfully withhold income and payroll taxes from employees’ wages and fail to remit those taxes to the federal government. The penalty is 100% of unpaid taxes, though it applies to only employees’ share of the taxes in question. The IRS may name anyone within or outside a business who possesses significant control or influence over the company’s finances as a responsible person. If several responsible persons are identified, each may be held liable for the full amount of the penalty. Contact us for more information and help staying in compliance.
The tax implications of renting out a vacation home
Many people own a vacation home in a waterfront community, the mountains or elsewhere. If you do, you may want to rent it out part of the year. The tax implications can be complex. It depends on how many days it’s rented and your personal use. Personal use includes vacation use by you, certain relatives and nonrelatives if market rent isn’t charged. But, if you rent the property for less than 15 days during a year, it’s not treated as “rental property.” This can produce revenue and tax breaks. Any rent you receive isn’t included in your income for tax purposes. However, you can only deduct property taxes and mortgage interest (no other operating costs or depreciation). We can help you plan.
What are the tax implications of winning money or valuable prizes?
If you gamble or buy lottery tickets and you’re lucky enough to win, congratulations! But be aware there are tax consequences. You must report 100% of your winnings as taxable income. If you itemize deductions, you can deduct losses but only up to the amount of winnings. You report lottery winnings as income in the year they’re actually received. In the case of noncash prizes (such as a car), this would also be the year the prize is received. With cash, if you take the winnings in annual installments, you only report each year’s installment as income for that year. These are the basic rules. Contact us with questions. We can help you stay in compliance with all the tax requirements.
2023 Q4 tax calendar: Key deadlines for businesses and other employers
Here are some important fourth quarter 2023 tax-filing dates for businesses. OCT. 16: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2022 income tax return. OCT. 31: Report income tax withholding and FICA taxes for Q3 2023 (unless you’re eligible for a Nov. 13 deadline because you deposited on time and in full all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2023 estimated income taxes. Note: Certain deadlines may be postponed in federally declared disaster areas. We can provide more information about filing requirements and ensure you’re meeting all applicable deadlines.
Could value-based sales boost your company’s bottom line?
Improving a company’s sales numbers isn’t easy. One approach you might want to consider is value-based sales. Under this method, sales reps act similarly to business consultants, working closely with customers or prospects to identify specific needs or solve certain problems. The objective is to provide as much value as possible from the sales that result. Generally, value can be defined as dollars gained, dollars saved, risk reduced or qualitative (leads to operational improvement). Perhaps the biggest downside of a value-based sales approach is that it’s labor-intensive. Sales reps will need to do meticulous research, relationship building and knowledge sharing. But the effort can pay off.
Casualty loss tax deductions may help disaster victims in certain cases
This year, many Americans have been victimized by wildfires, severe storms, flooding, tornadoes and other disasters. Unexpected disasters may cause damage to your home or personal property. The rules for deducting personal casualty losses on a tax return changed from 2018 through 2025. Specifically, taxpayers generally can’t deduct losses unless an event qualifies as a federally declared disaster. (The rules for business or income-producing property are different.) Another factor that now makes it harder to claim a write-off is that you must itemize deductions. Through 2025, fewer people will itemize because the standard deduction amounts have increased. Need help? Contact us.
What types of expenses can’t be written off by your business?
If you spend money in the course of doing business, you want to be able to deduct it on your tax return. But in order to write off expenses, they must meet certain requirements. Under tax law, you can deduct “ordinary and necessary” business expenses. In general, an expense is considered ordinary if it’s common or customary in your trade or business. A necessary expense is defined as being helpful or appropriate. In order to be deductible, an expense must also be reasonable in relation to the benefit expected. Proceed with caution if expenses are unusual or could be considered fun, personal or extravagant. And keep careful records to prove your expenses. Consult with us for guidance.
Business owners: Think carefully about fringe benefits related to smartphones
You’d be hard-pressed to find many employees these days who don’t use a smartphone for work. In turn, business owners may consider providing a fringe benefit related to those phones or their usage. For example, you might give your employees a phone. If you do, business use of it may be treated as a nontaxable fringe benefit so long as the phone is provided “primarily for noncompensatory business purposes.” It can’t be a substitute for compensation or a way to draw job applicants or boost morale. The IRS has indicated that it will analyze reimbursement of employees’ expenses for business use of their own phones similarly, though specific conditions must be met. Contact us for more info.