Major Tax Savings

Heavy Vehicle + Deductible Home Office = Major Tax Savings

You can reap major tax savings with the heavy vehicle and home-office combo. The heavy vehicle produces quick deductions. The home office that qualifies as a principal office eliminates commuting miles, and such an elimination can dramatically increase your business-use percentage of vehicles.

For example, say you bought a $50,000 vehicle that you use 60 percent for business. Your depreciation and expensing elections apply to $30,000. But if you can increase your business percentage to 90 percent with a tax code–defined principal office in your home, your base for tax deductions increases to $45,000—that’s a $15,000 increase, and you did not spend a penny or drive a mile farther to capture it.

Give us a call at (610) 863-8347 today for a free consultation!

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How to Protect Your Gambling Winnings from the IRS

Your gambling income is taxable. And—just as important—it’s reportable. The good news is that you can offset your gambling winnings with your gambling losses provided you keep good proof of those losses. The IRS and courts expect you to maintain a “contemporaneous gambling diary.”

You face specific rules for a gambling diary depending on the type of gambling. For example, with slot machines, the IRS advises that you record the machine number, date, and time played to support your winnings. Often, you can find the machine number clearly displayed on the machine. If not, simply ask the casino operator for the machine number.

If your gambling losses exceed your winnings, you get no deductions for your net loss. Further, the net loss does not carry forward. It simply disappears.

As you can see, you need to know how the rules work if you gamble. Don’t reach the end of the year with lots of income on Form W-2Gs and no appropriate tax records for your losses.

Have questions? Give us a call at (610) 863-8347 today for a free consultation!

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Selling to a Related Party?

Selling to a Related Party can Kill Your Tax Losses

If you sell property to a related party, you may not deduct your loss on the sale. And it gets worse; the loss you cannot deduct no longer belongs to you. It moves to the related party, and that can really complicate matters. This brings up two questions:

  1. Who are your related parties?
  2. What happens to the loss that the government took away from you?

Related Parties: The tax code says that your related parties include, among others, you and your spouse, brothers and sisters, parents, children, grandparents, or grandchildren. Additionally, it includes corporations and partnerships in which you own, directly or indirectly, more than 50 percent (e.g., stock, value, profits interest).

The constructive ownership rules expand your network of related parties because you are deemed to own what you and your family members own, and if you are a shareholder or partner, you own a proportionate share of the stock owned by the corporation or partnership.

Where the Loss Goes: Your tax-deductible loss is lost to you when you sell to a related party. But here’s a possible (although often unlikely) silver lining: the loss you lost travels to the buyer, and the buyer can use that loss to reduce any taxable gain on a later sale of the property.

For example, say you incur a loss when you sell your business vehicle to your brother. You can’t deduct the loss. If your brother later sells the vehicle for more than he paid you, then he can use your loss to offset his gain. If he sells it for less than he paid you, then he can’t deduct the loss.

You need to know that the related-party loss-disallowance rule exists, so you don’t mistakenly make your tax-loss deductions disappear. If possible, don’t sell to a related party. Instead, sell to a remotely related person, such as an in-law, aunt, niece, cousin, or employee of the business.

Thinking of selling to a Relative? Give us a call at (610)863-8347 for a free consultation. 

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Thinking of Sending Your Child to Summer Camp?

Claim a Tax Credit for Sending Your Children to 

Summer Camp

You may be able to claim the child and dependent care credit if you pay expenses for the care of your under-age-13 child or another qualifying person to enable you (and your spouse, if filing a joint return) to work or look for work.

The tax credit is a percentage of the expenses you paid during the year for the care of a qualifying person, such as your child under age 13. The cost of camps and before- and after-school programs qualifies for the credit if the camps are primarily for the protection and well-being of your child. On the other hand, the cost of overnight camps, summer schools, and tutoring programs does not qualify.

Although the credit is not large, it’s free money. You would, and likely did, spend this money without regard to the credit. This means you have likely done all you need to do to claim the credit when it comes time for us to prepare your tax return.

Have questions? Give us a call at (610) 863-8347 today for a free consultation!

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Hire Your Child and Get Paid

You can pay your child to work in your business and get paid yourself for this arrangement. Sound too good to be true? The basic mechanics of this are (a) you deduct the wages and (b) your child pays zero or very little in income taxes.

The three points below elaborate on this:

1. The child pays zero taxes on earnings up to the $6,350 standard deduction amount. Say you pay tax-deductible wages of $6,350. This reduces your taxes or gives you tax refunds, and the child pays no taxes.

2. The child can use the traditional IRA to avoid taxes on $5,500, for a total of $11,850 on which he or she can avoid taxes. You can pay this amount and reduce your taxes.

3. The child can use the 10 percent tax bracket, the standard deduction, and the traditional IRA so as to pay low taxes on earnings up to $21,175, while you reap the tax benefits of paying your child this much larger amount.

To get this right, you need to file a W-2 for the child, have him or her keep a time sheet, and create proof of a reasonable wage. And you will be happy to know that the IRS has approved employing children as young as seven years old.

Here’s another benefit: If the child working for a parent is under age 18, both the child and the parent or parents are exempt from payroll taxes. In these cases, the parent operates a Schedule C business or both parents are the sole owners of a partnership.

Corporations are not parents. They do not qualify for this exemption from payroll taxes. Even so, corporate hires of the owner’s children usually produce good tax benefits.

In summary, all business owners can achieve tax benefits by hiring their children, regardless of the type of business entity.

Thinking about hiring your child? Give us a call at (610) 863-8347 today for a free consultation!

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Big Deductions for Temporary Work Assignments

You may already know you can deduct your away-from-home overnight travel expenses. However, what tax rules do you need to know if you want to travel, or need to travel, to an out-of-town business location for an extended period?

First, your travel to and expenses of living in this out-of-town location are deductible only if this is a temporary work location, which the IRS defines as a location where you expect to spend less than one year.

Second, you have to travel away from your tax home. Your tax home is not your personal home. Your tax home is the location of your principal place of business.

You can run into these rules when you create a second business location in a second state.

For example, a business owner who has an operation in Wisconsin creates a second business location in Florida. One of the two locations is going to be the principal place of business. Traveling to and living in the second location is going to create tax deductions for travel.

If you meet the requirements listed above, you can deduct all of your out-of-town travel expenses to the extent they were not reimbursed by your employer.

Have questions? Give us a call at (610) 863-8347 today for a free consultation!

Stay tuned for more tax tips from Corvino and Verwys.