tax planning - Linkenheimer LLP CPAs & Advisors

Get Ready for Taxes: Get Ready Now To File 2020 Federal Income Tax Returns

The Internal Revenue Service today encouraged taxpayers to take necessary actions this fall to help them file their federal tax returns timely and accurately in 2021, including special steps related to Economic Impact Payments.

This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A special page, updated and available on IRS.gov, outlines steps taxpayers can take now to prepare for the 2021 tax return filing season ahead.

Steps taxpayers can take now to make tax filing easier in 2021

Taxpayers should gather Forms W-2, Wage and Tax Statement, Forms 1099-Misc, Miscellaneous Income, and other income documents to help determine if they’re eligible for deductions or credits. They’ll also need their Notice 1444, Your Economic Impact Payment, to calculate any Recovery Rebate Credit they may be eligible for on their 2020 Federal income tax return.

Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and virtual currencies.

Taxpayers with an Individual Tax Identification Number should ensure it hasn’t expired before they file their 2020 federal tax return. If it has, IRS recommends they […]

By Linkenheimer LLP|2020-11-17T19:58:46+00:00November 17th, 2020|file return, income tax, individuals, irs, tax deadlines, tax planning, w2|0 Comments

Do You Want To Withdraw Cash From Your Closely Held Corporation At A Low Tax Cost?

Owners of closely held corporations are often interested in easily withdrawing money from their businesses at the lowest possible tax cost. The simplest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient, since it’s taxable to you to the extent of your corporation’s “earnings and profits.” And it’s not deductible by the corporation.

Other strategies

Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five strategies to consider:

Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If not, the “debt” repayment may be taxed as a dividend. If you make future cash contributions to the corporation, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.
Compensation. Reasonable compensation that […]

By Linkenheimer LLP|2020-11-10T16:51:20+00:00November 10th, 2020|business, small business, tax, tax implications, tax planning|0 Comments

Why It’s Important To Plan For Income Taxes As Part Of Your Estate Plan

As a result of the current estate tax exemption amount ($11.58 million in 2020), many estates no longer need to be concerned with federal estate tax. Before 2011, a much smaller amount resulted in estate plans attempting to avoid it. Now, because many estates won’t be subject to estate tax, more planning can be devoted to saving income taxes for your heirs.

While saving both income and transfer taxes has always been a goal of estate planning, it was more difficult to succeed at both when the estate and gift tax exemption level was much lower. Here are some strategies to consider.

Plan gifts that use the annual gift tax exclusion. One of the benefits of using the gift tax annual exclusion to make transfers during life is to save estate tax. This is because both the transferred assets and any post-transfer appreciation generated by those assets are removed from the donor’s estate.

As mentioned, estate tax savings […]

By Linkenheimer LLP|2020-09-30T17:05:53+00:00September 30th, 2020|estate, estate tax, tax implications, tax planning|0 Comments

California Tax Updates for 9/24

Post 1:

Changes are being made in how California determines whether a worker is an employee or an independent contractor. Under the CA Labor Code, effective 9/4/2020, a three-part test is required, commonly known as the ABC test, to determine the correct status of workers for purposes of following the Labor Code, the Unemployment Insurance Code and the wage orders of the Industrial Welfare Commission. The amended Labor Code also exempts certain specified occupations and business relationships from the application of the ABC test, in which case, a multifactor test previously adopted by the CA Supreme Court is applied.

Post 2:

California issues a guide that explains taxpayer options for disaster relief. The CA Dept. of Tax and Fee Administration (CDTFA) has issued a three-page brochure, “Disaster Relief Tax Guide,” that provides information on the types of free assistance available from the CDTFA to taxpayers and feepayers when disaster strikes. Other taxing agencies that provide assistance include: the Franchise Tax Board, the Employment […]

By Linkenheimer LLP|2020-09-24T21:23:31+00:00September 24th, 2020|business, ca, CA tax, california, disaster, tax planning|0 Comments

More Parents May Owe “Nanny Tax” This Year, Due To COVID-19

In the COVID-19 era, many parents are hiring nannies and babysitters because their daycare centers and summer camps have closed. This may result in federal “nanny tax” obligations.

Keep in mind that the nanny tax may apply to all household workers, including housekeepers, babysitters, gardeners or others who aren’t independent contractors.

If you employ someone who’s subject to the nanny tax, you aren’t required to withhold federal income taxes from the individual’s pay. You only must withhold if the worker asks you to and you agree. (In that case, ask the nanny to fill out a Form W-4.) However, you may have other withholding and payment obligations.

Withholding FICA and FUTA

You must withhold and pay Social Security and Medicare taxes (FICA) if your nanny earns cash wages of $2,200 or more (excluding food and lodging) during 2020. If you reach the threshold, all of the wages (not just the excess) are subject to FICA.

However, if your nanny is under 18 and childcare isn’t his or her principal occupation, you don’t have […]

By Linkenheimer LLP|2020-09-03T20:02:06+00:00August 11th, 2020|income tax, individuals, planning, tax implications, tax planning|0 Comments