Married couples filing separate tax returns: Why would they do it?
If you’re married, you may wonder if you should file joint or separate tax returns. It depends on your individual tax situation. In general, you should use the filing status that results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for tax on your combined income (as well as any additional tax the IRS assesses, plus interest and most penalties). Therefore, the IRS can come after either of you for the full amount. In most cases, joint filing offers more tax savings but some people can save by filing separately. We can look at both options. Contact us to prepare your tax return or if you have questions.
Making withdrawals from your closely held corporation that aren’t taxed as dividends
Do you want to withdraw cash from your closely held corporation at a minimum tax cost? The simplest way is to distribute cash as a dividend. However, a dividend distribution is taxable to you as a shareholder and not deductible by the corporation. But there are some alternatives that may allow you to withdraw cash from a corporation and avoid dividend treatment. For example, you might be able to receive capital repayments, or obtain reasonable compensation for you (or family members), as well as certain fringe benefits. If you’re interested in discussing these or other ideas, contact us. We’ll help you get the most out of your corporation at a minimum tax cost.
Approach turnaround acquisitions with due care
Last year brought historic global M&A activity, and experts expect 2022 to be busy as well. If you’re thinking about acquiring a distressed business, approach the deal cautiously. Look for a target with hidden value, such as untapped market opportunities, poor leadership or excessive costs. Determine whether the return on investment will likely exceed the acquisition costs and risks. Don’t rush or let emotions cloud your judgment. Conduct due diligence to understand the target’s core business, specifically its profit drivers and roadblocks. Also identify its cash inflows and outflows. Finally, pay close attention to taxes and the structure of the deal. We can help you throughout the process.
Did you give to charity in 2021? Make sure you have substantiation
To claim a tax deduction for a donation of $250 or more, you generally need a contemporaneous written acknowledgment from the charity. “Contemporaneous” means you receive it by the date you file your return, or the extended due date of the return. If you made a donation in 2021 but don’t have a letter from the charity, request it from the organization and wait to file your 2021 return until you receive it. Additional rules apply to certain types of donations. Under COVID-19 relief laws, taxpayers who don’t itemize deductions can claim a federal income tax write-off of up to $300 of cash contributions to qualified charities for the 2021 tax year ($600 for married couples filing jointly).
Important tax aspects of operating your business as a sole proprietor
Do you operate a small business as a sole proprietor? There are many tax rules and considerations involved in operating this way. For example, you may qualify for the pass-through deduction on qualified business income. You must pay self-employment tax and make estimated tax payments on income earned. You can deduct health insurance costs as a business expense. If you hire employees, you need a taxpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan. Contact us if you want more information about the tax aspects of your business, or if you have questions about recordkeeping requirements.
Updates to the New Michigan Pass-through Entity Tax
On December 20, 2021, Michigan Governor Whitmer signed legislation making Michigan the latest state to allow pass-through entities the option to be taxed at the entity level. The 2017 Tax Cuts and Jobs Act signed into law on December 22, 2017, capped the amount of state and local taxes that can be deducted as itemized […]
IRS continues work to help taxpayers; suspends mailing of additional letters
Source: IRS Website As part of ongoing efforts to provide additional help for people during this period, the IRS announced today the suspension of more than a dozen additional letters, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax, and the IRS has no record of a taxpayer filing […]
Polk & Associates TaxCaddy Software Update
Polk and Associates, PLC is excited to announce the utilization of TaxCaddy software to assist in the preparation of your individual tax return. If you have been utilizing our ShareFile software, expect a TaxCaddy invitation in the coming days. TaxCaddy simplifies tax time by allowing you to: Easily gather documents year-round by Uploading them from […]
2022 deadlines for reporting health care coverage information
A business with 50 or more full-time employees or full-time equivalents is generally considered an applicable large employer (ALE) under the Affordable Care Act. ALEs can be subject to penalties for failing to offer minimum essential coverage that’s affordable and provides at least “minimum value” to full-time employees and their dependents. ALEs also must comply with information reporting requirements using IRS Forms 1094-C and 1095-C. For businesses that were ALEs for calendar year 2021, three key deadlines this year are: 1) February 28, to file the 2021 forms on paper. 2) March 2, to furnish Form 1095-C to employees. 3) March 31, to file the forms electronically. Contact us for more info.
The Ins and Outs of IRAs
Traditional and Roth IRAs can help you save for retirement on a tax-favored basis. Contributions to a traditional IRA reduce your current tax bill, if you’re eligible, and earnings are tax-deferred. However, withdrawals are taxed in full (plus a 10% penalty if taken before age 59½, unless an exception applies). Roth IRA contributions aren’t deductible. But earnings are tax deferred and withdrawals are tax free if certain conditions are met. The maximum annual IRA contribution is $6,000 for 2022 and 2021 ($7,000 if age 50 or over). In addition, your contribution can’t exceed your compensation includible in income for the year. There’s no age limit for making contributions if you’re eligible.
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