Your Business Tax Information at Your Fingertips

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The IRS Business Tax Account provides information to sole proprietors, partners of partnerships, and shareholders of S corporations and C corporations. Eligible business taxpayers who set up an account can use the hub to make electronic payments, schedule or cancel future payments and access other tools. They can also view their current balances, payment history, other business tax records, and digital copies of select IRS notices.

A newly added Income Verification Express Service enables lenders to easily access the income records of a business borrower, provided the taxpayer has authorized access. Here’s more: https://www.irs.gov/businesses/business-tax-account

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The Tax Side of Gambling

Gambling Dice

Whether you’re a casual or professional gambler, your winnings are taxable. However, the Treasury Inspector General for Tax Administration reports that gambling income is vastly underreported. Failing to report winnings accurately can lead to back taxes, interest and penalties. Here’s what you need to know to stay compliant and potentially minimize your tax liability.

Reporting of Winnings

Federal law requires reporting all gambling winnings, cash or prizes (such as from casinos, lotteries, raffles, horse racing and online betting) at fair market value. Certain winnings are subject to federal tax withholding, reducing your risk of interest and penalties.

If winnings exceed certain thresholds (for example, $1,200 for slots, $5,000 for poker), the gambling establishment must issue Form W-2G to you and the IRS. Even if you don’t receive a Form W-2G, you’re still required to report gambling income.

Amateur or Professional?

If you’re an amateur, you’ll report your gambling income on Form 1040, Schedule 1. You can claim gambling losses as itemized deductions, but only up to the amount of your gambling winnings.

If you gamble as a profession, the tax rules are a little different because your gambling activities are treated as a business. To qualify as a professional gambler, you must demonstrate that gambling is your primary source of income and that you engage in it with continuity and regularity. Contact the office for more information on the tax rules for professional gamblers.

Staying Compliant

Tax compliance isn’t tricky, but it’s important. Here are some tips:

Log your gambling activities.

Include details such as:

  • Dates and locations of when and where you gambled,
  • Types of wagers, and
  • Amounts won and lost.

A log ensures that you accurately report winnings and helps you claim deductible losses when applicable. Having this substantiation can also be beneficial if you’re audited. Remember that a log kept contemporaneously generally holds more weight with the IRS than one constructed later.

Maintain a file of gambling-related receipts, statements and other documentation.

Thorough documentation is critical, especially if you’ll be deducting gambling losses or if you’re a gambling professional and will be claiming gambling-related business expenses.

Adjust tax withholding or estimated tax payments if needed.

Remember that income taxes must be paid annually via withholding or estimated payments. If the tax you owe on the April 15 filing deadline exceeds what you paid during the tax year through withholding and estimated payments, you might be subject to interest and penalties.

A Risky Bet

The tax rules for gambling income can be confusing. However, failing to report winnings is a risky bet that can result in back taxes, interest and penalties. Contact the office for help.

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Stuck in the Middle: The Sandwich Generation

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The term “sandwich generation” was coined to describe baby boomers caught between caring for their aging parents and their children. Today, it most commonly applies to Generation Xers and older Millennials. If you’re caught in the middle, it might be time for honest discussions about pressing issues such as funding children’s higher education and paying for a parent’s long-term care.

Start with the “bottom” of the sandwich: your children. What’s appropriate to share with them depends on their age. However, by high school, you should be talking about their post-graduation plans and how much you can offer for college or other financial needs.

The “top” half of the sandwich can be more challenging. Depending on their health status, finances and other factors, your parents may not welcome your involvement in their decision-making. They might minimize or dismiss your concerns and be highly resistant. Initiate a frank family meeting with your parents, siblings and their spouses, if appropriate. Many issues can be sensitive, and emotions may run high, so be prepared. One session may not be enough to accomplish your objectives. Feel free to contact your Wheeler preparer for advice about what to focus on.

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Updated Guide to Robust Depreciation Write-offs for Your Business

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Tax-saving benefits are generally available when your business puts newly acquired qualifying assets into service. Under Section 179 of the tax code, companies can take substantial depreciation deductions, subject to various limits adjusted annually for inflation.

Another potential write-off is for first-year bonus depreciation. Like the Sec. 179 deduction, bonus depreciation is subject to limits that change annually. But the limits are going down rather than up. And under the Tax Cuts and Jobs Act, bonus depreciation is scheduled to disappear after 2026.

Basics You Need to Know

Most tangible depreciable assets, such as equipment, furniture and fixtures, computer hardware, and some software, qualify for the Sec.179 deduction in the year you purchase and place them in service. Vehicles also qualify, but they’re subject to additional limitations.

For tax years beginning in 2025, the Sec. 179 deduction maxes out at $1.25 million and begins to phase out when total qualifying assets exceed $3.13 million (up from $1.22 million and $3.05 million, respectively, for 2024).

For qualifying assets placed in service in 2025, first-year bonus depreciation drops to 40% (from 60% in 2024). This figure is scheduled to drop to 20% for 2026 and to be eliminated in 2027. However, Congress may restore it to 100% before then.

How Income Affects Your Deduction

Under tax law, a Sec. 179 deduction can’t result in an overall business taxable loss. So, the deduction is limited to your net aggregate taxable income from all your companies. This includes wages and other compensation, your net business income, net proceeds from selling business assets, and possibly net rental income.

If the business income limitation reduces your Sec. 179 deduction, you can carry forward the disallowed amount or use first-year bonus depreciation. Unlike Sec. 179, bonus depreciation isn’t subject to dollar limits or phaseouts.

Sec. 179 Deductions, First-Year Bonus Depreciation or Both?

You may still be undecided about the best tax-saving strategy for assets you purchased and placed in service in 2024. Here’s an example that combines two methods:

In 2024, a calendar-tax-year C corporation purchased and placed in service $500,000 of assets that qualify for the Sec. 179 deduction and first-year bonus depreciation. However, due to the taxable income limitation, the company’s Sec. 179 deduction is limited to $300,000, which can be claimed on the corporation’s federal income tax return.

The company can deduct 60% of the remaining $200,000 using first-year bonus depreciation ($500,000 minus $300,000). So, the write-offs for the year include 1) a Sec. 179 deduction of $300,000 and 2) $120,000 of bonus depreciation (60% of $200,000). Thus, the company achieves $420,000 in write-offs on its 2024 tax return, leaving only $80,000 to depreciate in future tax years. (Note: If the business income limitation didn’t apply, the company could have written off the entire amount under the Sec. 179 deduction rules because its asset additions were below the phaseout threshold.)

Don’t Go It Alone

Depending on the details, you may have a robust depreciation deduction for 2024 and possibly depreciation to carry forward in 2025. However, maximizing the benefits of both depreciation methods can be complex. And it might adversely affect your company’s eligibility for certain other deductions, such as the Section 199A qualified business income deduction for eligible pass-through businesses. So, don’t go it alone.

Contact the office for help devising the optimal tax strategy for your business and staying atop the latest tax law developments.

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Don’t Move … Until You’ve Considered the Tax Implications

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With so many people working remotely, it’s become more common to think about moving to another state, perhaps for better weather, to be closer to family or to reduce living expenses. Retirees also look at out-of-state moves for many of the same reasons. If you’re thinking about such a move, consider the tax implications before packing up your things.

There’s More to Consider than Income Tax

Moving to a state with no personal income tax may seem like a no-brainer, but you must consider all taxes that can apply to 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 the types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. Some states offer tax breaks for pension payments, retirement plan distributions and Social Security benefits.

Ready, Set, Home!

If you move permanently to a new state and want to escape taxes in the state you came from, it’s essential to establish a legal domicile in the new location. Generally, your domicile is your fixed and permanent principal residence and where you plan to return, even after periods of living 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 a domicile in a new state but didn’t successfully terminate the domicile in an old one. Additionally, if you die without clearly establishing domicile in one state, both the old and new states may claim that your estate owes income taxes and any state estate tax.

The simplest and most obvious way to establish domicile is to buy or lease a home in a new state and sell your previous home (or rent it out at market rates to an unrelated party). Then, change your mailing address on insurance policies and other essential documents. Also, get a driver’s license in the new state and register your vehicle there. Take these steps as soon as possible after moving.

Check It Out Before You Decide

Don’t move to another state without first looking into the tax consequences. If one of your prime motivators for the move is to save taxes, research whether the grass is truly greener in the other state by factoring in more than just income taxes. Contact the office for help avoiding unpleasant surprises.

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Feeling Charitable? Be Sure You Can Substantiate Your Gifts

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As the end of the year approaches, many people give more thought to supporting charities they favor. To avoid losing valuable charitable deductions if you itemize, you’ll need specific documentation, depending on the type and size of your gift. Here’s a breakdown of the rules:

Cash gifts under $250

A canceled check, bank statement or credit card statement will do. Or ask the charity for a receipt or “other reliable written record” that provides the organization’s name, the date and the amount of the gift.

Cash gifts of $250 or more

You’ll need a contemporaneous written acknowledgment from the charity stating the amount of the gift. That means you received the acknowledgment before the earlier of your tax return due date (including extensions) or the date you file your return. If you make multiple separate gifts to the same charity of less than $250 each (monthly contributions, for example) that total $250 or more for the year, you can still follow the substantiation rules for cash gifts under $250.

Noncash gifts under $250

Get a receipt showing the charity’s name, the date and location of the donation, and a description of the property.

Noncash gifts of $250 or more

Obtain a contemporaneous written acknowledgment from the charity that contains the information required for cash gifts, plus a description of the property.

Noncash gifts of more than $500

In addition to the above, keep records showing the date you acquired the property, how you acquired it and your adjusted basis in it. Also, file Form 8283.

Noncash gifts of more than $5,000 ($10,000 for closely held stock)

In addition to the above, obtain a qualified appraisal and include an appraisal summary, signed by the appraiser and the charity, with your return. (No appraisal is required for publicly traded securities.)

Noncash gifts of more than $500,000 ($20,000 for art)

In addition to the above, include a copy of the signed appraisal, not just a summary, with your return.

Finally, if you received anything in exchange for your donation, such as a book for making an online donation or food and drink at a fundraising event, ask the charity for the fair market value of the item(s). You’ll need to subtract it from your charitable deduction.

Saving taxes isn’t the primary motivator for charitable donations, but it may affect the amount you can afford to give. Substantiate your donations to ensure you receive the deductions you deserve.

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The U.S. Election Outcome Likely to Have Major Impact on Taxes

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Having won control of the White House, the Senate and the House of Representatives, Republicans will have the opportunity to move forward their vision for federal taxes. What might this mean?

First, many provisions in President-Elect Donald Trump’s signature tax legislation from his first time in the White House, the Tax Cuts and Jobs Act (TCJA), are scheduled to expire at the end of 2025. Now, there’s a better chance that most provisions will be extended.

Second, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:

Business Taxes

Numerous tax law changes have been discussed that would affect businesses, including changes affecting:

Corporate income tax rates:

The president-elect has suggested decreasing the current rate of 21% to 20%, and to 15% for corporations that manufacture products in the United States.

Research and development (R&D) expenses:

Proposals include expanding or revising R&D credits and removing mandatory capitalization and amortization of R&D expenditures. The latter would allow immediate R&D deductions in the year expenses are incurred.

Sec. 199A qualified business income (QBI) deduction:

This 20% deduction for certain income of sole proprietors and pass-through entities is set to expire at the end of 2025. There’s a good chance it will be extended or made permanent.

Bonus depreciation:

This deduction is currently at 60% and set to drop to 40% for 2025 and 20% for 2026, then disappear. One proposal would reinstate this to 100%.

Individual Taxes

Potential tax law changes are also on the horizon for individual taxpayers, such as related to the following:

Expiring provisions of the TCJA:

Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.

Individual taxable income:

The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.

Child tax incentives:

President-Elect Trump has voiced support for increasing the current cap on the Child Tax Credit ($2,000 per qualifying child), but no formal policy proposal has been made.

Electric-Vehicle Credit:

The president-elect has said informally that he would consider eliminating the electric-vehicle credit. If you’re thinking about purchasing an electric vehicle, you may want to do so by the end of 2024 just in case the credit is eliminated for 2025.

Housing incentives:

President-Elect Trump has alluded to possible tax incentives for first-time homebuyers but no specific proposals relating to tax incentives for housing. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations, opening parts of federal lands to new home construction. It also proposes tax incentives for first-time homebuyers.

Tariffs

The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10% to 20% on most imported goods, a 60% tariff on imports from China and a 100% tariff on vehicles imported from Mexico.

How Will You Be Affected?

Which extensions and proposals become law will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. Republicans don’t have wide margins in the Senate or House, which could make it challenging to get certain tax law changes passed that aren’t universally popular with Republicans. If you have questions about how you might be affected by potential tax law changes, please contact the office.

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Unlocking Tax Savings: The Benefits of a Cost Segregation Study

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A cost segregation study allows a business property owner to accelerate depreciation deductions. That, in turn, enables the owner to reduce current taxable income and increase cash flow.

A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. It then allows the personal property to be reclassified for tax purposes and deducted over a much shorter depreciation period. This strategy has been consistently upheld in the courts.

Fundamentals of Depreciation

Business buildings generally have a 39-year depreciation period. Typically, companies depreciate a building’s structural components (such as walls, windows, HVAC systems, plumbing and wiring) along with the building. Personal property (such as equipment, machinery, furniture and fixtures) is eligible for accelerated depreciation, usually over five or seven years.

Often, businesses allocate all, or most, of their buildings’ acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be “part of a building” may, in fact, be personal property. Examples include removable wall and floor coverings, removable partitions, awnings, canopies, window treatments and signs.

Shine a Light on Outdoor Savings

Rules for outdoor lighting, parking lots, landscaping and fencing are tricky but can still lead to current tax deductions in certain situations. These expenditures are generally treated as capital improvements, subject to the 15-year depreciation rule. For instance, if you replace your business lighting to upgrade it or provide greater security at night, it qualifies as a deductible capital improvement. Similarly, landscaping projects designed to boost your curb appeal or provide environmental benefits are considered capital improvements.

On the other hand, routine maintenance (such as the costs of mowing and watering the lawn surrounding your business building) typically fall into the category of deductible business expenses, just like minor repairs.

Worth Checking Out

Although the relative costs and benefits of a cost segregation study will depend on your particular facts and circumstances, it can be a valuable investment.

And, under the Tax Cuts and Jobs Act, the potential benefits of a cost segregation study may be even greater than they were years ago because of enhancements to certain depreciation-related tax breaks.

Contact the office for further details.

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Don’t Miss This Important Deadline: Required Minimum Distributions

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If you’re subject to required minimum distributions (RMDs), you must take your 2024 RMD by Dec. 31 to avoid penalties. RMDs are mandatory withdrawals from retirement plans such as 401(k)s, IRAs, SIMPLE IRAs and SEPs. Roth accounts aren’t subject to RMDs during the owners’ lifetimes. RMDs are taxable income subject to ordinary-income tax (not long-term capital gains) rates.

Previous tax law required RMDs to begin at age 72 and imposed a penalty of 50% on missed withdrawals. The SECURE 2.0 Act raised the age to 73 and lowered the penalty to 25% (or 10% if corrected within two years). Younger taxpayers can be subject to RMDs if they inherited a retirement account. Contact the office as soon as possible for help calculating the correct amount for your RMDs.

Here’s more from the IRS: IRS reminds those aged 73 and older to make required withdrawals from IRAs and retirement plans by Dec. 31; notes changes in the law for 2023 | Internal Revenue Service

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