Lock Down Vehicle Deductions with a Home Office

The IRS gives you two possible strategies for turning otherwise personal mileage into business mileage:

1. Going to a temporary work location
2. Establishing an office in the home as a principal office

The temporary work location strategy contains some real unknowns, such as what is technically considered a temporary work location and whether the work performed at that location is for one year or less.

These unknowns make it difficult or impossible to use your facts and circumstances to produce your desired business-mileage results. The easy solution is the office in the home as a principal office.

The first reason this type of home office is an easy solution is that the rules are crystal clear, making compliance easy. The second reason is that with this office you know that all trips from home for this trade or business are business trips, including the trip from your home to your regular office outside the home.


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

Tax Reform and Rental Real Estate

Two scary words in tax reform are “fairness” and “simplification”. In most cases, this combination raises your taxes and makes the law more complex.

As you likely know, tax reform has occurred again, and it brings its share of good and bad news. But for your rental real estate loss deductions, the good news is that the reform does not alter the beneficial strategies here.

In general, rental properties are passive activities subject to the dreaded passive-loss rules. IRS regulations contain six non-rental exceptions to the definition of rentals. In most cases, the non-rental exceptions are businesses for tax purposes. To deduct losses of any of the six exceptions, you simply need to materially participate in the activity.

Feel free to contact us to discuss these strategies and how they may provide you big deductions. Give us a call at (610) 863-8347 today for a free consultation!

Organizing Your Tax Documents

Creating Order Out of Chaos

As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year? Here are some tips.

1. Keep it all in one place. It seems obvious, but how often have you found yourself going through piles of paper looking for that elusive 1099 or 1095 form, business expenses, stock sales report, or charitable deduction receipt? If you only do one thing, this is it!

2. Time to sort. Now that everything is all together, best practice is to sort your information into the same categories used in your tax return as shown below:

• Income: wages (W-2s), alimony, interest income (1099-INT), dividend income (1099-DIV), business income (1099-MISC, K-1s), winnings (W-2G/1099G), Social Security, investments (1099-B), IRA/pension distributions (1099-R)
• Income Adjustments: student loan interest, tuition & fees deductions, alimony paid, educator expenses, moving expenses, IRA contributions, HSA/MSA contributions
• Itemized Deductions: taxes paid, medical/dental expenses, charitable contributions, interest expense (1098), investor/other expenses, gambling losses, casualty/theft losses, unreimbursed employee expenses
• Credit Information: child & dependent care expense, adoption expenses, education expenses, other credit-related expense

*For education credits, it is wise to acquire a transcript from the college that will detail all of the expenses paid, which is likely more than is on your 1098-T.

• Business/Rental: income, expenses, bookkeeping information, etc. 

*Real Estate Agents: Call our office for a special organizer for your income and expenses! 

3. "Not sure" pile. There may be things you receive that you are not certain about needing for tax filing purposes. These items should be gathered in one place and brought in with all of your tax information.

4. Sum it up. Once the information has been categorized, create a summary of the information. This summary can be a printed copy of an organizer or it could be a simple recap you create. This summary could also keep your fee down as we won't have to organize and summarize each category for your return. 

5. Is something missing? Pull out last year’s tax return or the organizer we mailed to you and create a list of things you needed last year. Use this as a checklist against this year’s information. While this process will not identify new items, it will help identify missing items that qualified in prior years.

6. Finalize required documentation. Certain deductions require substantiation and/or logs to qualify your expense. Common areas that require this are business mileage, charitable mileage, medical mileage, moving mileage, non-cash charitable contributions, meals and entertainment, and certain business expenses. These logs should be maintained throughout the year, but now is a good time to make sure the logs are complete and ready to go for tax filing.

It is very easy to overlook something given the lengthy list of taxable income items, deductions and credits. By following these tips you can greatly reduce that risk.

Need help organizing your information or want one of our special organizers, call (610) 863-8347 for your free consultation and/or organizer! 

Using your Child's IRA to Pay for College

If your child has earned income (maybe from working in your business), you may want to consider establishing an IRA for your child. The IRA funds can, in turn, be used to help pay your child’s college expenses. When your child withdraws money from an IRA, tax law imposes taxes on the withdrawals, but no 10 percent penalty applies when the money is used to pay for qualified higher education expenses.

The big hurdle to avoid is the kiddie tax. IRA withdrawals are subject to the kiddie tax rules. Under these rules, an under-age-24-student pays taxes on unearned income at the parents’ high tax rate when the child’s unearned income is more than $2,100 and the child’s earned income is not more than half of his or her support. This makes the kiddie tax a true destruction force when it comes to saving for college. Your children need your help to avoid the dreaded kiddie tax.

Most minor children do not earn enough to need the tax deduction that the traditional IRA offers. This makes the Roth IRA a great vehicle for the working child’s college planning because the withdrawals of contributions are free of both penalties and taxes when used for qualified higher education.

If you have children who fit this profile, make sure your children start making their Roth IRA contributions at a young age and earn a good rate of return on the investments.

The Roth IRA habitually proves superior for the child’s college funding when compared with the traditional IRA. With the traditional IRA, the child gets a deduction while in a low tax bracket but, because of the kiddie tax, pays taxes in the parents’ high tax bracket upon withdrawal for college. This is a bad deal.

Another point of consideration is that the IRA and other retirement assets of both the parents and the children are not counted as assets available for education on the FAFSA or CSS profile applications for financial aid.


Have a question about your child's IRA? Give us a call at (610) 863-8347 today!

New Tax Reform for 2018

Individual Tax Changes in New Tax Reform Legislation

Just before the holidays, Congress passed the "Tax Cuts and Jobs Act," a sweeping piece of tax reform legislation which was signed into law on December 22, 2017. This email provides a quick breakdown of some of the biggest changes upcoming for individual taxpayers for the year **2018**.

• Standard Deduction Increase. For tax years beginning after December 31, 2017 and before January 1, 2026, the standard deduction increases to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers.  

• Personal Exemptions Eliminated. Personal Tax exemptions which previously were subtracted from a taxpayer's adjusted gross income to determine their taxable income are reduced to zero.

• Child Tax Credit Increased. The amount a taxpayer can claim as a per-qualifying-child tax credit doubles to $2,000 per child under the age of 17. Additionally, the phase out income levels increase to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers.)

• State and Local Tax Deduction Limited. An itemized deduction for taxes paid state and local taxing authorities and real estate taxes are limited to $10,000. 

• Mortgage and Home Equity Indebtedness Interest Deduction Limited. The deduction for interest on home equity indebtedness is effectively gone and the deduction for mortgage interest decreases to the interest paid on a mortgage up to $750,000. 

• Medical Expense Deduction Threshold Temporarily Reduced. The threshold for the deduction which allows for expenses paid during the tax year for the medical care of the taxpayer, or their spouse, and/or their dependent(s) which are not reimbursed by insurance or an employer is temporarily reduced from 10% to 7.5%. 

• Miscellaneous Itemized Deductions Eliminated. Previously, taxpayers could deduct certain miscellaneous itemized deductions if they exceeded, in aggregate, 2% of the taxpayer's adjusted gross income. The new tax bill removes these deductions. 

• Overall Limitation on Itemized Deductions Suspended. Higher-income taxpayers who itemize their deductions previously were subject to a limitation on those deductions, reducing the allowable amount by 3% for adjusted gross income exceeding the threshold. This limitation on itemized deductions will now be eliminated and higher itemized deductions can be deducted. 

These are just some of the highlights of the new tax bill. If you have any questions regarding this new legislation and how it will affect you, give us a call at (610)863-8347 for a free consultation.

Important Dates for 2018 Tax Filing Season

2018 Tax Filing Season Important Dates

Monday, January 29, 2018:  The IRS will begin accepting tax returns.

* NOTE: The IRS cannot issue a refund due to Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) until mid-February. The IRS expects the earliest these refunds to be available in taxpayer bank accounts is February 27, 2018.

Thursday, March 15, 2018: S Corporation and Partnership returns are due.

Tuesday, April 17, 2018: Individual (1040) and C Corporations returns are due.

We are accepting appointments now and look forward to seeing you!
Call (610) 863-8347 for an appointment today! 

Update: 2018 Health Insurance for S Corporation Owners

S corporations continue to enjoy good news in 2018 when it comes to health insurance, and this also applies to 2017 taxes.

You first have to thank the 21st Century Cures Act for:

• Reinstating and extending IRS Notice 2015-17 to eliminate the $100-a-day penalty 

• Creating the qualified small employer health reimbursement account (QSEHRA) that works well if there are employees in the corporation

The good news is, the old rules still apply as we write this, and we don’t expect any changes in 2018. Under these rules, the S corporation first establishes a health insurance plan for the owner in one of two ways:

• Choice 1. The S corporation makes the premium payments for the accident and health insurance policy covering the owner-employee who has more than 2 percent ownership (and his or her spouse or dependents, if applicable).

• Choice 2. The owner-employee makes the premium payments to the insurance company and furnishes proof of the premium payments to the S corporation, which in turn reimburses the owner-employee for the premium payments.

Step 1 —getting the cost of the insurance on the S corporation’s books.

In Step 2, the S corporation has to include the health insurance premiums on the owner-employee’s W-2 form. The income is not subject to payroll taxes (Social Security and Medicare).

In Step 3, the owner-employee then claims the health insurance deduction on page 1 of Form 1040, providing he or she otherwise qualifies for the page 1 deduction.


Have questions about Health Insurance or Taxes for S Corporation Owners?

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

Stay tuned for more tax tips from Corvino and Verwys.

Buying a Business with a Co-owner

Buying a Business with Co-Owners? 

You Need a Buy-Sell Agreement!

If you are buying a business that will include more than one co-owner, you need a buy-sell agreement. You have multiple reasons to put a buy-sell agreement in place and not one reason not to have a buy-sell agreement.

A well-drafted agreement can do these valuable things for you:

•      Transform your business ownership interest into a more liquid asset
• Prevent unwanted ownership changes
• Save taxes and avoid hassles with the IRS

There are two types of buy-sell agreements: (1) cross-purchase agreements and (2) redemption agreements (sometimes called liquidation agreements).

When you enter into a cross-purchase agreement, it’s a contract between you and the other co-owners. Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the remaining co-owners when a triggering event occurs, such as death or disability.

When you enter into a redemption agreement, it’s a contract between the business entity itself and its co-owners (including you). Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the entity when a triggering event occurs.

If you are buying a business that will include more than one co-owner, give us a call at 

(610) 863-8347 today for a free consultation! 

Stay tuned for more tax tips from Corvino and Verwys.