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Good Records Are The Key To Tax Deductions And Trouble-Free IRS Audits

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If you operate a small business, or you’re starting a new one, you probably know you need to keep records of your income and expenses. In particular, you should carefully record your expenses in order to claim the full amount of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns if you’re ever audited by the IRS or state tax agencies.

Certain types of expenses, such as automobile, travel, meals and office-at-home expenses, require special attention because they’re subject to special recordkeeping requirements or limitations on deductibility.

It’s interesting to note that there’s not one way to keep business records. In its publication “Starting a Business and Keeping Records,” the IRS states: “Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses.”

That being […]

By |June 16th, 2020|audit, business, irs|0 Comments

California Tax Updates for June 12

Sales tax. Papers on the office table.

Update1:

Business owners in some California counties may file their business property statements electronically, due to the COVID-19 pandemic. The CA State Board of Equalization (SBE) informed county assessors that they could choose to accept electronically filed business property statements, if assessors submit proper procedures to the SBE for approval. The SBE strongly encourages each County Assessor to accept electronic filing in light of Governor Gavin Newsom’s stay-at-home order issued March 19, 2020. Contact your Linkenheimer CPA with questions about filing in your county.

Update 2:

New sales and use tax changes take effect soon in California. Effective July 1, 2020, the tax rate changes apply only within indicated city limits, said the CA Dept. of Tax and Fee Administration (CDTFA). The tax rates, tax codes and acronyms will be available to view and download on July 1, 2020, on the CDTFA website. Rates are organized into two categories: 1. District tax rate increasing, subdivided […]

By |June 12th, 2020|ca, CA tax, New Tax Laws|0 Comments

Seniors: Can You Deduct Medicare Premiums?

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If you’re age 65 and older, and you have basic Medicare insurance, you may need to pay additional premiums to get the level of coverage you want. The premiums can be costly, especially if you’re married and both you and your spouse are paying them. But there may be a silver lining: You may qualify for a tax break for paying the premiums.

Tax deductions for Medicare premiums

You can combine premiums for Medicare health insurance with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Many people no longer itemize

Qualifying for […]

By |June 12th, 2020|medical deduction|0 Comments

PPP Flexibility Act Eases Rules For Borrowers Coping With COVID-19

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As you may recall, the Small Business Administration (SBA) launched the Paycheck Protection Program (PPP) back in April to help companies reeling from the economic impact of the COVID-19 pandemic. Created under a provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the PPP is available to U.S. businesses with fewer than 500 employees.

In its initial incarnation, the PPP offered eligible participants loans determined by eight weeks of previously established average payroll. If the recipient maintained its workforce, up to 100% of the loan was forgivable if the loan proceeds were used to cover payroll expenses, certain employee health care benefits, mortgage interest, rent, utilities and interest on any other existing debt during the “covered period” — that is, for eight weeks after loan origination.

On June 5, the president signed into law the PPP Flexibility Act. The new law makes a variety of important adjustments that ease the rules for borrowers. Highlights include:

Extension of covered period.

By |June 10th, 2020|business, New Tax Laws|0 Comments

Rioting Damage At Your Business? You May Be Able To Claim Casualty Loss Deductions

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The recent riots around the country have resulted in many storefronts, office buildings and business properties being destroyed. In the case of stores or other businesses with inventory, some of these businesses lost products after looters ransacked their property. Windows were smashed, property was vandalized, and some buildings were burned to the ground. This damage was especially devastating because businesses were reopening after the COVID-19 pandemic eased.

A commercial insurance property policy should generally cover some, or all, of the losses. (You may also have a business interruption policy that covers losses for the time you need to close or limit hours due to rioting and vandalism.) But a business may also be able to claim casualty property loss or theft deductions on its tax return. Here’s how a loss is figured for tax purposes:

Your adjusted basis in the property
MINUS
Any salvage value
MINUS
Any insurance or other reimbursement you receive (or expect to receive).

Losses that qualify

A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. It includes natural disasters, such as hurricanes and earthquakes, and man-made events, such as vandalism and terrorist attacks. […]

By |June 8th, 2020|business, liability|0 Comments

Veterans In California Get Increased Exemptions

Pair of combat boots and military helmet on wooden background, close up

Veterans in California get increased exemptions. The CA State Board of Equalization (SBE) has announced increases in both the property exemption amounts and the household income limit for the disabled veterans’ exemption for 2021. For the 2021 assessment year the exemption amounts are $147,535 for the basic exemption, and $221,304 for the low-income exemption (these amounts for the 2020 assessment year are $143,273 and $214,910, respectively). Also, the household income limit for those claiming the low-income exemption is $66,251 (up from $64,337 for 2020). Contact your Linkenheimer CPA with questions.

By |June 3rd, 2020|New Tax Laws|0 Comments

A Nonworking Spouse Can Still Have An IRA

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It’s often difficult for married couples to save as much as they need for retirement when one spouse doesn’t work outside the home — perhaps so that spouse can take care of children or elderly parents. In general, an IRA contribution is allowed only if a taxpayer has compensation. However, an exception involves a “spousal” IRA. It allows a contribution to be made for a nonworking spouse.

Under the spousal IRA rules, the amount that a married couple can contribute to an IRA for a nonworking spouse in 2020 is $6,000, which is the same limit that applies for the working spouse.

Two main benefits

As you may be aware, IRAs offer two types of benefits for taxpayers who make contributions to them.

  1. Contributions of up to $6,000 a year to an IRA may be tax deductible.
  2. The earnings on funds within the IRA are not taxed until withdrawn. (Alternatively, you may make contributions to a Roth IRA. There’s no deduction for Roth IRA contributions, but, if certain requirements are met, distributions are tax-free.)

As long as the couple together has at least $12,000 of earned income, $6,000 can be contributed to an IRA for each, for […]

By |June 2nd, 2020|contributions, ira, retirement|0 Comments

Business Meal Deductions: The Current Rules Amid Proposed Changes

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Restaurants and entertainment venues have been hard hit by the novel coronavirus (COVID-19) pandemic. One of the tax breaks that President Trump has proposed to help them is an increase in the amount that can be deducted for business meals and entertainment.

It’s unclear whether Congress would go along with enhanced business meal and entertainment deductions. But in the meantime, let’s review the current rules.

Before the pandemic hit, many businesses spent money “wining and dining” current or potential customers, vendors and employees. The rules for deducting these expenses changed under the Tax Cuts and Jobs Act (TCJA), but you can still claim some valuable write-offs. And keep in mind that deductions are available for business meal takeout and delivery.

One of the biggest changes is that you can no longer deduct most business-related entertainment expenses. Beginning in 2018, the TCJA disallows deductions for entertainment expenses, including those for sports events, theater productions, golf outings and fishing trips.

50% meal deductions

Currently, you can deduct 50% of the cost of food and beverages for meals conducted with business associates. However, you need to follow three basic rules in order to prove that your expenses are business […]

By |June 1st, 2020|business, deduction, deductions, irs|0 Comments

Student Loan Interest: Can You Deduct It On Your Tax Return?

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The economic impact of the novel coronavirus (COVID-19) is unprecedented and many taxpayers with student loans have been hard hit.

The Coronavirus Aid, Relief and Economic Security (CARES) Act contains some assistance to borrowers with federal student loans. Notably, federal loans were automatically placed in an administrative forbearance, which allows borrowers to temporarily stop making monthly payments. This payment suspension is scheduled to last until September 30, 2020.

Tax deduction rules

Despite the suspension, borrowers can still make payments if they choose. And borrowers in good standing made payments earlier in the year and will likely make them later in 2020. So can you deduct the student loan interest on your tax return?

The answer is yes, depending on your income and subject to certain limits. The maximum amount of student loan interest you can deduct each year is $2,500. The deduction is phased out if your adjusted gross income (AGI) exceeds certain […]

IRS Releases 2021 Amounts For Health Savings Accounts

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The IRS recently released the 2021 inflation-adjusted amounts for Health Savings Accounts (HSAs).

HSA basics

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

In general, a high deductible health plan (HDHP) is a plan that has an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot exceed $5,000 for self-only coverage, and $10,000 for family coverage.

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation adjustments for 2021 contributions

In Revenue Procedure 2020-32, […]

By |May 27th, 2020|hsa, irs, New Tax Laws|0 Comments