tax planning - Linkenheimer LLP CPAs & Advisors

Who Qualifies for “Head of Household” Tax Filing Status?

When you file your tax return, you must check one of the following filing statuses: Single, married filing jointly, married filing separately, head of household or qualifying widow(er). Who qualifies to file a return as a head of household, which is more favorable than single?

To qualify, you must maintain a household, which for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent (unless you only qualify due to the multiple support rules).

A qualifying child?

A child is considered qualifying if he or she:

Lives in your home for more than half the year,
Is your child, stepchild, adopted child, foster child, sibling stepsibling (or a descendant of any of these),
Is under age 19 (or a student under 24), and
Doesn’t provide over half of his or her own support for the year.

If a child’s parents are divorced, the child will qualify if he meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

A person isn’t a “qualifying child” […]

By Linkenheimer LLP|2021-04-06T17:46:42+00:00April 6th, 2021|child, head of household, tax planning|0 Comments

New Things Taxpayers Should Consider As They Get Ready To File Taxes In 2021

When people get ready to file their federal tax return there are new things to consider when it comes to which credits to claim and what deductions to take. These things can affect the size of any refund the taxpayer may receive.

Here are some new key things people should consider when filing their 2020 tax return.

Recovery rebate credit
Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:
• They didn’t receive an Economic Impact Payment in 2020.
• They are single and their payment was less than $1,200.
• They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
• They didn’t receive $500 for each qualifying child.

Refund interest payment
People who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the […]

By Linkenheimer LLP|2020-12-17T21:48:38+00:00December 17th, 2020|irs, tax, tax planning|0 Comments

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