Make Your Voice Heard – The IRS Taxpayer Advocate Service

Make Your Voice Heard – The IRS Taxpayer Advocate Service

by | Apr 27, 2022 | Business Tax, Expat Tax, Individual Tax

Working with the IRS on a complicated tax issue may not be the easiest thing in the world. Fortunately, some help within the organization is available to the public. The IRS Taxpayer Advocate Service (TAS) is an independent organization within the IRS that works as the “voice of the taxpayer” in the IRS. Generally, they ensure taxpayers are treated fairly and that all of their rights are understood when dealing with the IRS. Additionally, TAS recommends larger process changes to the IRS and Congress to help the IRS better serve taxpayers and improve efficiency.

Taxpayer Bill of Rights

The Taxpayer Bill of Rights sets the bar in how the IRS and its employees must work with taxpayers. Not technically new, the Taxpayer Bill of Rights as it currently stands is codified from a mix of the Internal Revenue Code, IRS administrative policies, and other laws & regulations. They are:

  • The right to be informed
  • The right to quality service
  • The right to pay no more than the correct amount of tax
  • The right to challenge the IRS’s position and be heard
  • The right to appeal to an IRS decision in an independent forum
  • The right to finality
  • The right to privacy
  • The right to confidentiality
  • The right to retain representation
  • The right to a fair and just tax system

Check out our article that goes into more depth about these rights.

TAS At Your Service

Individual taxpayers experiencing issues with the IRS or feel they have been treated unfairly are able to reach out the Taxpayer Advocate Service for help. A taxpayer advocate will work with the taxpayer to resolve their issues with the IRS. Additionally, TAS provides various resources on their website to help taxpayers understand their rights and how TAS can assist them.

Quality service to taxpayers/clients is a priority all tax and accounting professionals strive towards. Spotlighting available services such as TAS for those who may need assistance is something we at MiklosCPA believe is part of our goal to demonstrate that #AccountingIsAwesome for our clients and readers. We help our clients meet their accounting and tax needs so that they can achieve their business dreams and ambitions. Want to learn how our services can help your business? Let’s chat. Also, please check out our social media pages for additional tax tidbits and other useful good-to-know pieces.

In for the Long Haul – The Retirement Plan Startup Cost Tax Credit

In for the Long Haul – The Retirement Plan Startup Cost Tax Credit

by | Dec 28, 2021 | Business Tax

Starting a small business comes with many advantages to get off the ground, including access to certain deductions and tax credits that may not be available to larger businesses or organizations. The Retirement Plan Startup Cost Tax Credit allows qualified small businesses to claim up to $5,000, for 3 years, of the ordinary & necessary costs of starting SEP, SIMPLE IRAs, or other qualified retirement plans for their employees.

Qualified Employers

In order to qualify as an employer, your business must meet the following criteria:

  • Retain 100 or fewer employees that have received at least $5,000 in compensation from the preceding year.
  • Had at least one plan participant who was a non-highly compensated employee (NHCE).
  • In the 3 years prior to eligibility, the employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by the employer or a member of a controlled group that includes the employer.

Taking Credit

The Retirement Plan Startup Cost Tax credit is claimed by completing Form 8881 and submitting with the business tax return. The credit is worth 50% of your eligible startup costs up to the greater of:

  • $500 OR
  • The lesser of
    • $250 multiplied by each non-highly compensated employee eligible to participate in the plan OR
    • $5,000

The credit can be claimed for all ordinary & necessary costs to set up and administer the plan and to educate your employees about the plan. The first 3 years the plan goes into effect are eligible for the credit and your business may choose to start claiming the credit in a tax year prior to when the plan becomes effective. However, you cannot deduct startup costs and claim the credit for the same expenses.

Setting up a retirement savings plan for employees can help budding businesses retain their employees over the long haul. Small business owners already have enough on their plate in getting their new business started! Having an additional help with the tax and accounting concerns takes some of those stresses of the plates of owners. MiklosCPA has helped many small and emerging businesses with their tax and accounting needs and helping their owners meet their business dreams and goals. Interested in knowing how we can help your business? Give us a call. In the meantime, let’s stay in touch and follow our social media accounts for more “good to know” articles and tax tidbits.

Tax & Accounting Q&A – Standard or Itemized Deduction for Income Taxes?

Tax & Accounting Q&A – Standard or Itemized Deduction for Income Taxes?

by | Nov 23, 2021 | Individual Tax

Recently, I caught up with an old friend over a casual lunch that mostly gravitated around recalling shared stories from college and updates on our current work lives. Naturally, the subject of taxes came up and his ears perked up. “So, my wife and I have been keeping track of our donations this year because we’ve heard it can help lower our taxes. Does it help?”  Most people versed in tax may be tempted to drop the convenient tax answer “It depends” and leave it at that point. Of course, as an old friend of his, I opted to elaborate how itemized deductions and the standard deduction work. “So which one is better? The standard deduction or itemized deductions?” At that point, I was put into a checkmate and had to serve up that answer. “It depends. Every person’s situation may be different.”

Deductions in the Income Tax Formula

Deductions are important in the income tax formula. It factors into your Adjusted Gross Income (AGI), determines what income tax bracket you will fall under, and ultimately how much you owe in taxes. Taxpayers may claim either the standard deduction or itemized deductions on their income tax return.  You cannot claim both.

As the name implies, the standard deduction is standard across the board for filers and adjusts each year to inflation. Currently, the standard deduction (2021) is set at $12,550 (single), $25,100 (married filing jointly). It easily fits into your income tax calculation without additional work.

 Itemized Deductions in Brief

Itemized deductions are a bit more complex. Filers must submit the Schedule A with their Form 1040 income tax return. Several qualified expenses are available for taxpayers to claim as itemized deductions, such as medical expenses, charitable donations, and state taxes paid. Additional documentation and calculations are often needed when including itemized deductions. However, the biggest caveat is that in order to claim itemized deductions, the total of claimed deductible expenses must EXCEED the standard deduction.

Standard vs Itemized: Head to Head

In short, itemized deductions may not be very beneficial to filers who do not have too many qualified expenses. Let’s take an example:

Mr. & Mrs. Lee are a retired couple living on a fixed income of about $70,000 a year. They report on their 2021 Schedule A the following: charitable contributions of $4,500, qualified medical expenses deduction of $6,500, home mortgage interest of $1,200, and the State & Local Tax (SALT) deduction of $500. Summed up, they report $12,700 of itemized deductions on Schedule A. Unfortunately this isn’t enough to exceed the current standard deduction of $25,100 and they decide to just claim the standard deduction.

Filers with many qualified expenses tend to benefit more from itemized deductible expenses by exceeding the standard deduction, potentially moving them into lower tax brackets if planned accordingly. Of course this means incurring those many qualifying deductible expenses, so in some ways it may be better for others to not absorb those expenses at all and just go with the standard deduction when filing a return.

Overall, whether a taxpayer should claim standard or itemized deduction inevitably returns to the classic answer, “it depends.” Situations may be unique, and factoring any related business expenses for those who own small businesses can complicate their personal income taxes further. Consulting with trusted resources may help, such as us here at MiklosCPA. We are a California-based CPA firm helping emerging business owners with their business and personal income tax & accounting needs. Let’s chat so we can learn how our services meet your needs. Also, follow us on our social media pages for additional “good to know” articles and other tax tidbits.

Rules for Rentals – Splitting Property Residential & Rental Use

Rules for Rentals – Splitting Property Residential & Rental Use

by | Oct 29, 2021 | Business Tax, Individual Tax

Homeowners who make their property available for rental can make some extra income in addition to being able to deduct certain expenses. However, owners should be careful to know that not meeting certain requirements of personal use may require owners to treat their residential property as a rental property for tax purposes.

There’s no place like Dwelling Unit

Tax parlance often refers to homes, apartments, condos, and similar residences as “dwelling units.” Your personal dwelling unit is considered your residence if you use it for personal purposes during the year for more than the greater of:

  • 14 days OR
  • 10% of the total days rented out to others for a fair rental price.

Personal purposes includes personal use by the owner or others (such as relatives) who own interest in the property. Fair rental price means generally the amount of rent a person not related to the taxpayer would be willing to pay for renting similar property in the area. It should be noted that days spent maintaining or repairing the property does not count towards the personal purposes portion of the test. Not meeting the criteria above means the property is considered a rental property and personal property deductions become unavailable.

 

Allot a lot of time

If your personal residence is used for both rental and personal purposes and meets the above criteria, you must divide your expenses between the allotted rental and personal use days. Rental expense deductions are limited to the gross rental income. Excess rental expenses may be carried forward to the following year. Additionally, some personal expenses related to the property may be deducted on your Schedule A form, such as mortgage interest and property tax expenses.

A special rule exists that if you rent out your personal residence for less than 15 days during the year, you do not need to report the rental income and do not deduct any related rental expenses.

 

Making your personal property available for rental can be a nice additional stream of income. However, the rules surrounding rental income and properties can quickly get complicated. Owners may face complex issues that require a pair of professional eyes to analyze. Well, “look” no further than us here at MiklosCPA. We are a California-based CPA firm that helps clients, often owners of small businesses in various industries. Give us a call to learn about how we can help you and your business! Also, don’t forget to check out our social media pages for assorted “good-to-know” tax tidbits!

Semi-Independent Working Life – Statutory Employees

Semi-Independent Working Life – Statutory Employees

by | Sep 23, 2021 | Business Tax, Individual Tax

Many businesses owners are familiar with independent contractors and employees carrying out the work needed for their business. Whether if it’s one-time projects or steady, consistent operations, businesses rely on both kinds of workers to get the job done. An interesting and uncommon category of employees who walk the line between the standard employee and independent contractor is the statutory employee. Employees by “statute”, employers do not have to withhold federal income tax on these employees. The statutory employee may also have access to additional tax deduction benefits individually. However, the worker must meet finely-specified criteria to be considered statutory employees.

Statutory Employee Categories

Laid out in Publication 15-A,  statutory employee status applies if it falls within 4 distinct categories and also meets the 3 conditions in regards to social security & Medicare taxes.

The 4 categories of employees that may be considered statutory employees are:

  • Drivers who distribute beverages or grocery products, or drivers who pick up and deliver laundry, if the driver is an agent paid on commission.
  • Full time life insurance sales agents whose principal business activity is selling life insurance or annuity contracts or both, primarily for one company.
  • Individuals who works at home on materials or goods supplied by an employer and must be returned or to a designated person, if furnishing specifications for the work to be done
  • Full-time traveling salesperson who works on an employer’s behalf and orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, and similar establishments. Goods must be sold for resale or supplies for the buyer’s business operations and must be the salesperson’s principal business activity.

Payroll Tax Considerations

FICA taxes, aka SS & medicare taxes, must be withheld if all 3 conditions apply for the aforementioned categories of statutory employees:

  • Service contract states or implies that substantially all services are to be performed personally by the statutory employee
  • The employee does not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation like a car or truck)
  • Services are performed on a continuing basis for the employer

FUTA taxes also apply to the business if the employee is considered as a statutory employee. However, it is worth noting federal income tax is not withheld for statutory employees, so businesses may find some advantage in not having to withhold for income tax from statutory employees. Statutory employees receive a W-2 form and are noted as “statutory employee” in check box 13. Additionally the statutory has access to using Schedule C and its wider array of deductions, as opposed to schedule A like most individual tax filers as well as not being subject to the 2% AGI threshold of Schedule A.

 

Statutory employees are unique cases that can come up in running a business. Having a knowledgeable team to understand and address these situations help free up owners to their main goal, growing their business! MiklosCPA strives to be that team and has helped many small and emerging businesses with their accounting and tax needs. Schedule a call with us to learn how we may help your business. Also, check us out on our social media pages for additional tax tidbits and interesting info.

 

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