On Friday, September 15, Wheeler Accountants sent representatives to compete in the 12th annual DAM-CANCER Golf Classic in beautiful Sonoma County at the Foxtail Golf Course.
This tournament is hosted by the David Andrew “Pooh” Maddan Foundation (or DAM-CANCER), a 501(c)(3) charitable organization established in honor of Dave Maddan, whose life was cut much too short as a result of complications related to the treatment of osteosarcoma (cancer of the bone). Their mission is to provide financial assistance to young adults diagnosed with cancer and to fund innovative cancer treatments and research.
Nick Satterfield (tax manager) carried the Wheeler team, according to Michael Gurr (partner), and he also won longest drive. Wheeler came in second place overall. Congratulations, team!
In addition to the golf tournament, there was a reception, dinner and exciting auction, including a presentation by our own Matt Wheeler, a co-founder of the DAM-CANCER Foundation.
Questions surrounding the tax treatment of cryptocurrency are complex. According to recent IRS Revenue Ruling 2023-14, the process of verifying ownership of cryptocurrency is called “ staking.” And when a taxpayer has successfully staked his or her units of cryptocurrency, he or she may also receive “ staking rewards” consisting of additional units.
When does the taxpayer have to include those staking rewards in gross income? A cash-basis taxpayer is said to “gain dominion” over staking rewards received when he or she can sell, exchange or dispose of them. In the year that the taxpayer gains dominion over the rewards, the fair market value of the rewards must be included in gross income.
Don’t hesitate to contact us if you have questions.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
Although your business may seem big to you, you may wonder how the government classifies it. A recent report by the Joint Committee on Taxation, a nonpartisan committee of the U.S. Congress, discusses what a “small business” is for tax purposes. As the report states, there’s no one definition of a small business. Instead, different definitions apply depending on the context, various criteria and certain thresholds.
Criteria include a business’s gross assets, gross receipts and its number of shareholders and employees. Even if a criterion such as gross receipts is the same across definitions, different thresholds may apply. Also, for some purposes, the tax code might define a small business in more than one way.
The IRS is continuing to warn businesses about aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC). It has suspended the processing of ERC claims until at least year end because of a spike in the number of fraudulent claims.
The IRS has now issued a series of red flags businesses should bear in mind. Warning signs include:
Unsolicited calls mentioning an “easy application process,”
Claims that a business qualifies for the ERC even before any discussion of the business’s tax situation, and
Large upfront fees and additional fees based on a percentage of the refund claim.
Eligible employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. But there are very specific eligibility requirements; careful review is required to determine eligibility. The IRS recommends businesses work with a trusted tax professional.
Please contact us if you have any questions:
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
Receiving a sudden and sizable influx of cash may seem like a dream come true. It can be, but many people get carried away and end up in worse financial shape. If you’re hit with a financial windfall, here are some points you should know.
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Risky Conditions
You may be tempted to almost immediately make an expensive purchase, such as a luxury car or a vacation home. And friends and family members may expect to share in your bounty, or they may pitch “sure-fire” investment opportunities. Fraudulent charities may also come knocking.
You can avoid these potential pitfalls by stashing your windfall in a bank or money market account as soon as you receive it. Let it sit there until you’ve had some time to think carefully about how to best use the money and you’ve obtained advice from a qualified professional. Waiting at least a month before you touch the money can help prevent impulse buys and other mistakes.
Also, you may owe taxes. Some windfalls, such as lottery winnings and certain legal settlements, are subject to federal tax — as much as 37% federal tax if your windfall pushes you into the top income tax bracket. State and local taxes may apply as well. A tax professional can help you determine what you owe.
Shelter From the Storm
What you eventually decide to do with your windfall will depend on many factors. If you have debt, you’ll probably want to pay it off — especially if it carries a high interest rate and the interest isn’t deductible. Also, establishing or boosting your emergency savings can minimize the need to incur future debt.
Next, consider where you’d like to be five, 10 or 20 years into the future. Develop a plan that will help you move toward your goals — whether that means starting a business, retiring early, or something else. You probably shouldn’t quit your job without having thought it through carefully. Few windfalls are large enough to see you all the way through retirement (depending on your age).Only after those considerations should you contemplate making any major purchases. If using some of the windfall to buy that new car or vacation home now won’t interfere with your financial security and long-term goals, then go for it!
Long-Term Plan
To put a windfall to optimal use, a long-term plan is critical. Contact the office for help assessing the tax and other financial implications of your windfall.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
With so many people working remotely these days, thinking about moving to another state has become common — perhaps for better weather or to be closer to family. Business owners might contemplate selling their business as part of an out-of-state move. Many retirees also look at moving to a state with a lower cost of living to stretch their retirement savings. If you’ve found yourself harboring such notions, be sure to consider taxes before packing up your things.
View from outside a house in a suburb
What Taxes Apply?
It may seem like a no-brainer to simply move to a state with no personal income tax, but you must consider all taxes that can potentially apply to state residents. In addition to income taxes, these may include property taxes, sales taxes, and estate or inheritance taxes.
If the states you’re considering have an income tax, look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.
What Are the Domicile Requirements?
If you make a permanent move to a new state and want to escape taxes in the state you came from, it’s important to establish legal domicile in the new location. Generally, your domicile is a fixed and permanent home location where you plan to return, even after periods of residing elsewhere.
Each state has its own rules regarding domicile. You don’t want to wind up in a worst-case scenario: Two states could claim you owe state income taxes if you established domicile in the new state but didn’t successfully terminate domicile in the old one. Additionally, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state estate tax due.
The first step to establishing domicile is to buy or lease a home in the new state and, generally, to sell your previous home (or rent it out at market rates to an unrelated party). Then, change your mailing address on bank and investment accounts, insurance policies and other important documents. Getting a driver’s license in the new state and registering your vehicle there also helps. So does registering to vote there and becoming involved with local organizations and activities. Be sure to take these and other steps as soon as possible after moving.
Keep in mind that there may be rules about the number of days spent in the state. So, you may have to do more than take the steps above to show that you’re domiciled in the new state.
How Might State Taxes Affect a Business Sale?
Business owners tend to focus on the federal tax implications of a sale, while they may ignore state taxes. Now that federal tax rates are lower than they’ve been in the past, state taxes may take on added significance. If you’re contemplating relocating or retiring to another state, it may make sense to consider moving before you sell the business — especially if the new state has low, or even no, income tax.
To successfully negotiate the sale of a business, it’s critical to understand all the tax implications. Armed with this knowledge, you can assess the impact that moving to another state would have on your net proceeds from the sale and whether it would be better to sell the business before or after you move.
Need Help?
When looking into whether the grass is greener in another state, do some research and contact the office for help avoiding unpleasant tax surprises.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
The pandemic changed the landscape of work for a lot of people, including the numerous business owners who began running their businesses from their homes. Many are still working from their home offices, whether full-time or on a hybrid basis. If you’re self-employed and run your business from home, or perform certain functions there, you might be able to claim deductions for home office expenses against your business income.
How to Qualify
In general, self-employed taxpayers qualify for home office deductions if part of their home is used “ regularly and exclusively” as the principal place of business.
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:
You physically meet with patients, clients or customers on your premises, or
You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.
Keep in mind the requirement that the space be used exclusively for business. For example, if your home office is also a guest bedroom, you can’t deduct the entire space as a home office expense. But if you use the desk area of the room exclusively for business, you can deduct that portion of the room, as long as you otherwise qualify.
Expenses You Can Deduct
Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:
Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,
A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs and insurance, and
Depreciation.
But keeping track of actual expenses can take time, and it requires organized recordkeeping.
The Simpler Method
Fortunately, there’s a simplified method: You can deduct $5 for each square foot of home office space, up to $1,500.The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for bigger deductions using the actual expense method. So tracking your actual expenses can be worth it.
When claiming home office deductions, you’re not stuck with a particular method. For instance, you might have chosen the actual expense method when you filed your 2022 return, but then use the simplified method when you file your 2023 return next year, and the following year switch back to the actual expense method. The choice is yours.
More Considerations
The amount of your deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may apply. But eligible home office expenses that can’t be deducted because of these limitations can be carried forward and may be able to be deducted in later years.
Also be aware that, if you sell a home on which you claimed home office deductions, there may be tax implications. Contact us for more information.
A Valuable Deduction
You might be wondering why only business owners and the self-employed have been addressed here. Unfortunately, the Tax Cuts and Jobs Act suspended home office deductions from 2018 through 2025 for employees, even if you’re currently working from home because your employer doesn’t provide office space.
But the home office deduction can be valuable to those who’re eligible for it. We can help you determine if you’re eligible and the best method for claiming the deduction in your situation.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
On August 10th, the Wheeler team took a day off before the busy tax season to gather as a company for a Collaborative Day. This is a day in which most employees come in to the office and re-connect with co-workers in person. Those that work remotely in other states or a city farther away from the firm were able to join online. While some staff faced the camera for our revamped website (coming soon!), others met to discuss various topics about the firm.
We started off the day by getting our carbs in with donuts and bagels and then we broke off by management levels. Each management level (staff, supervisors, managers, and partners) had their own meetings to discuss workflow, deadlines, and firm logistics. We then had our first Partner Panel Session moderated by our two Tax Supervisors, Yesica Morales and Kevin Huang.
During the panel, three of our partners, Dahleet Dittmer, CPA, Vanessa Mun, CPA, and Matt Wheeler, CPA, openly discussed their journey to becoming Partners, the responsibilities as Partners, and even addressed any and all questions from our Wheeler team. This fun and informative session gave us all a small glimpse of life as a Partner at Wheeler.
We ended our day with Departmental meetings to discuss goals, concerns, and upcoming events for each department.
Collaboration is a key aspect of running an accounting firm, and although we put the tax deadline on hold for just one day, we know days like this will help our firm maximize productivity going forward.
Overall, it was a productive day and we cannot wait until our next Collaborative Day in December. For now, we are back to our desks tackling the tax deadlines!
The IRS is warning taxpayers about emails and text messages that promise refunds and credits, but that actually result in identity theft. Many current schemes involve the third Economic Impact Payment (originally made in 2021). Messages may also reference the Employee Retention Credit, assert that the taxpayer is owed a refund or say there’s problem with a return that must be fixed. They encourage recipients to click links that download malware.
The fake messages usually contain misspellings and typos and come from a suspicious-looking email address. If you receive one like this, don’t click on anything! Report it to phishing@irs.gov.
What does it mean if a business receives a Notice CP2100 or CP2100A from the IRS? These notices tell recipients that the Form 1099 information returns they’ve submitted contain missing or incorrect Taxpayer Identification Numbers, names or both.
To respond, payers need to compare accounts listed on the notice with their own records and make corrections, if necessary. They may also need to amend backup withholding for payments made to payees. Typically, the IRS sends these notices twice a year, in April and in either September or October. As always, you should promptly respond to any IRS communication. Contact the office with questions.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
