Ag FinTax

 How do you avoid losing money by making the wrong choice? Here’s one way to see the issue: Say you have seven employees who now work at least two days a week from home because of COVID-19. To facilitate this working at both the office and the home, you purchased seven laptop computers at a cost of $2,179 each. You have five choices for deducting the computers: De minimis expensing Bonus depreciation Section 179 expensing Modified accelerated cost recovery system (MACRS) depreciation Straight-line depreciation You have four things to consider: What is the maximum you can deduct this year, and what if you want to deduct less? How does this affect your Section 199A deduction if you operate as a proprietorship, a partnership, or an S corporation? (C corporations don’t qualify for the Section 199A deduction. If you operate as an LLC, you are one of the four taxable entities just mentioned.) If you file as a proprietorship on Schedule C of your Form 1040, is there a self-employment tax ...

Are you thinking about starting a new business? If so, congratulations. We know it can, and probably will, be an exciting ride. But like many other exciting rides starting or buying your own business can be fraught with dangers, not the least of which are potential tax pitfalls. In one recent case, a decorated ex–Air Force pilot sought to start an aviation business. She hoped to offer aerial land surveys, photography, and flight charters, along with the provision of aviation safety consulting. She traveled the country looking to buy an airplane, which she eventually did. Unfortunately, she never got past the preparatory stage and, without clients, gross receipts, or service contracts, the court ruled she was not entitled to deduct any of her expenses.  You can avoid this woman’s tragic consequences and write off all of your costs, including those “thinking about it” costs. But since this is tax law, you face some tricky rules that can prove costly, as they did for our pilot. In thi...

Suppose you just received that lovely letter from the IRS telling you that you are the subject of an IRS audit. What one record receives special attention? What one record can create a nightmare for you? What one record makes the IRS suspect that you are the keeper of lousy records? Think of the record people most hate keeping. That’s the one we are talking about. You have probably guessed what that record might be. Red-Flag Record for the IRS Examiner Once your audit examination begins, the examiner likes to see this record. If the record is missing or lacking, the IRS examiner knows that your other records probably are lacking, too. This record—the one you probably hate keeping—is the mileage log on your vehicle or vehicles. The IRS notes that a taxpayer’s failure to keep a mileage log on vehicles indicates that the activity under examination is not being conducted in a businesslike manner. The Courts Crush Taxpayers Who Fail to Keep an Adequate Mileage Log In Martin, the IRS disallo...

With the COVID-19 pandemic still going on, you may be spending more time working from your home office. You may have taken some extra rooms for your business use. Is that okay? Section 280A(c) states that you may claim a home office based on the portion of the dwelling that you use exclusively and regularly for business. Thus, the law dictates no specific number of rooms or particulars regarding the size of the office. The courts make this rule clear, as you can see in the Mills (less than one room) and Hefti (lots of rooms) cases described below. The Mills Case Albert Victor Mills maintained an office in his apartment from which he conducted his rental property management business. The apartment was small, totaling only 422 square feet. In the office area of the apartment where Mr. Mills had his desk, he also kept tools, equipment, paint supplies, and a filing cabinet. Although Mr. Mills conducted business-related work in the bedroom and living room areas of the apartment, he claimed ...

Do you operate your business as an S or a C corporation? Do you drive a vehicle titled in your personal name for corporate business? Beware. The Tax Cuts and Jobs Act (TCJA) changed the rules for tax years 2018-2025. Before the TCJA, you had to pay attention to the use of your personal vehicle for corporate business in order to avoid losing deductions to the 2 percent miscellaneous itemized deduction rule and the alternative minimum tax. But now, because of the TCJA, you face a narrow road during tax years 2018-2025 if you want tax benefits for the corporate business use of your personal vehicle. Big Picture:  1. The personal vehicle used for corporate business is a business vehicle to the extent of corporate use. 2. If you don’t want to lose your rightful tax benefits from your business use, your corporation must reimburse you for your business use. 3. Your corporation may reimburse you using the IRS standard mileage rate or actual expenses. 4. When you trade in or sell the vehicl...

 Cash is king, especially during the worst recession since the 1930s. The hugely popular federal Paycheck Protection Program (PPP) that paid forgivable loans to millions of businesses ended on August 8. PPP loans could return in revamped form if Congress passes a new stimulus bill. But another source of relatively cheap money is available right now: the Economic Injury Disaster Loan (EIDL) program administered by the Small Business Administration (SBA). You can apply for an EIDL even if you have already obtained a PPP loan. But you may not use an EIDL to pay the same payroll costs or other expenses you pay with a PPP loan. If PPP loans were the lending equivalent of a Tesla, EIDLs are more like a Toyota Corolla: kind of boring and old fashioned, but they’ll get you there. EIDLs have been around since 1953 to help businesses deal with economic losses caused by local disasters such as hurricanes, fires, and tornados. When Congress enacted the CARES Act, it made EIDLs available to bus...

  1. Good Faith at the Time: Question:  What are your thoughts on the repercussions for business owners who acted in good faith based on the information available at the time and are now left to do things that may be more questionable to earn Payroll Protection Program (PPP) loan forgiveness? Answer:  First, with good faith, there’s no fraud issue as there is no fraud intent. Second, lenders and individuals had to scramble for a good two months or more before guidance was clarified, so many of the PPP loan application forms were murky (and some still are). Obtaining the loan based on the guidance that existed at the time of your loan application and approval is a nonissue. Further, during the early process, lenders used (and in some cases, still use) their own formulas to determine the loan amounts. As to taking “questionable” actions to earn forgiveness, if you follow the forgiveness applications, you are doing nothing questionable. And that’s what you should do: follow ...

  Government to Landlords: Drop Dead! During this COVID-19 pandemic, landlords have two big possible problems: 1.     Tenants who can’t pay the rent. 2.     Tax losses that they can’t deduct. The Federal Moratorium on Residential Evictions ·           The CDC order is effective September 4, 2020, through December 31, 2020. ·           The CDC order bars residential landlords from evicting tenants for non-payment of rent if a tenant’s estimated 2020 income is no more than $99,000 (single) or $198,000 (married, filing jointly). ·           The CDC order applies to all types of residential rentals: houses, duplexes, apartment buildings, mobile homes, and mobile home spaces. ·           The CDC order does not apply to commercial properties, including motels and hote...