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Have you recently started a new business? Or are you contemplating starting one? Launching a new venture is a hectic, exciting time. And as you know, before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away. You should be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.

Key Points on How Expenses Are Handled

When starting or planning a new enterprise, keep these factors in mind:

1. Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
2. Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. We don’t need to tell you that $5,000 doesn’t go far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
3. No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

Examples of Expenses

Start-up expenses generally include all expenses that are incurred to:

• Investigate the creation or acquisition of a business,
• Create a business, or
• Engage in a for-profit activity in anticipation of that activity becoming an active business.

To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example would be the money you spend analyzing potential markets for a new product or service.

To qualify as an “organization expense,” the outlay must be related to the creation of a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing the new business and filing fees paid to the state of incorporation.

An Important Decision

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

If you’re getting a divorce, you know it’s a highly stressful time. But if you’re a business owner, tax issues can complicate matters even more. Your business ownership interest is one of your biggest personal assets and your marital property will include all or part of it.

 

Transferring Property Tax-Free

You can generally divide most assets, including cash and business ownership interests, between you and your soon-to-be ex-spouse without any federal income or gift tax consequences. When an asset falls under this tax-free transfer rule, the spouse who receives the asset takes over its existing tax basis (for tax gain or loss purposes) and its existing holding period (for short-term or long-term holding period purposes).

For example, let’s say that, under the terms of your divorce agreement, you give your house to your spouse in exchange for keeping 100% of the stock in your business. That asset swap would be tax-free. And the existing basis and holding periods for the home and the stock would carry over to the person who receives them.

Tax-free transfers can occur before the divorce or at the time it becomes final. Tax-free treatment also applies to postdivorce transfers so long as they’re made “incident to divorce.” This means transfers that occur within:

• A year after the date the marriage ends, or
• Six years after the date the marriage ends if the transfers are made pursuant to your divorce agreement.

 

Future Tax Implications

Eventually, there will be tax implications for assets received tax-free in a divorce settlement. The ex-spouse who winds up owning an appreciated asset — when the fair market value exceeds the tax basis — generally must recognize taxable gain when it’s sold (unless an exception applies).

What if your ex-spouse receives 49% of your highly appreciated small business stock? Thanks to the tax-free transfer rule, there’s no tax impact when the shares are transferred. Your ex will continue to apply the same tax rules as if you had continued to own the shares, including carryover basis and carryover holding period. When your ex-spouse ultimately sells the shares, he or she will owe any capital gains taxes. You will owe nothing.

Note that the person who winds up owning appreciated assets must pay the built-in tax liability that comes with them. From a net-of-tax perspective, appreciated assets are worth less than an equal amount of cash or other assets that haven’t appreciated. That’s why you should always take taxes into account when negotiating your divorce agreement.

In addition, the IRS now extends the beneficial tax-free transfer rule to ordinary-income assets, not just to capital-gains assets. For example, if you transfer business receivables or inventory to your ex-spouse in divorce, these types of ordinary-income assets can also be transferred tax-free. When the asset is later sold, converted to cash or exercised (in the case of nonqualified stock options), the person who owns the asset at that time must recognize the income and pay the tax liability.

 

Avoid Adverse Tax Consequences

Like many major life events, divorce can have major tax implications. For example, you may receive an unexpected tax bill if you don’t carefully handle the splitting up of qualified retirement plan accounts (such as a 401(k) plan) and IRAs. And if you own a business, the stakes are higher. Your tax advisor can help you minimize the adverse tax consequences of settling your divorce under today’s laws.

Earlier is better when it comes to working on your taxes but many people find preparing their tax return to be stressful and frustrating and wait until the last minute. Complicating matters this year is tax reform and the newly redesigned Form 1040. If you’ve been procrastinating on filing your tax return this year, here are six tips that might help.

1. Don’t Delay.

Resist the temptation to put off your taxes until the very last minute (i.e., April 15). Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error. Getting a head start (even if it is a week or two) will not only keep the process calm but also mean you get your return faster by avoiding the last-minute rush.

2. Gather tax documents and other records in advance.

Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.

3. Double-check your math and verify all Social Security numbers.

These are among the most common errors found on tax returns. Being aware of these errors Taking care and taking steps to avoid making these errors will reduce your chance of hearing from the IRS. Submitting an error-free return will also speed up your tax refund if any.

4. E-file for a faster tax refund.

Taxpayers who e-file and choose direct deposit for their refunds, for example, will get their refunds faster.

5. Don’t Panic if You Can’t Pay.

If you can’t immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee.

6. Request an Extension of Time to File (but make sure you file the extension and pay the amount due on or before the April 15 due date).

If the clock runs out, you can get an automatic six-month extension bringing the filing date to October 15, 2019. However, the extension itself does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline.

If you run into any problems, have any questions, or need to file an extension, our help is just a phone call away.

It’s a moment when many taxpayers are dread. Each year the IRS mails millions of letters to taxpayers for many reasons. But don’t panic; many of these letters can be dealt with simply and painlessly.

Here are dos and don’ts to follow if you receive correspondence from the IRS or state tax authority:

 

1. Don’t Ignore It

Don’t procrastinate or throw the letter in a drawer, hoping the issue will go away. Each notice deals with a specific issue and includes specific instructions on what to do.

 

2. Don’t Panic

What you need to do is read the letter carefully and take the appropriate action. If you are unsure how to respond, consult with an Enrolled Agent who can represent you to the IRS.

 

3. Do Take Timely Action

Review the correspondence carefully. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Taking action timely could minimize additional interest and penalty charges.

 

4. Do Review the Information

The taxpayer should review the information and compare it with the information or tax returns previously filed.  If you are unsure how to handle the correspondence with the IRS, consult with an Enrolled Agent.

 

5. Be on The Lookout for Scammers

Be on the lookout for scams. If you are at all suspicious – go with your gut – contact an Enrolled Agent who is experienced in reviewing and handling IRS correspondence.

 

Please give this office a call if you have questions related to a correspondence you received from the IRS. Contact us today at admin@fas-accountingsolutions.com or 832-437-0385.

To truly stay ahead of fraudsters, you have to strategize and know what you are up against. It’s tax season and it’s only fitting to know these better: tax fraud schemes.

When your personal information like your name, Social Security number, and your address gets stolen and used to commit tax-related identity theft, that is tax fraud. The IRS has been reporting that there is a rise in these scams via e-mail, text messages, and phone-based fraud. These cases often lead to taxpayers providing tax fraud criminals with personal data without a second thought that could lead to significant financial loss.

Source: https://www.irs.gov/newsroom/irs-sees-surge-in-email-phishing-scams-summit-partners-urge-taxpayers-dont-take-the-bait

Let us introduce you to six common tax fraud schemes:

 

• Phone Fraud

This is a rampant type of tax scam. The scammer will alter their caller ID to mirror an actual call from the IRS, use bogus names, titles, and even IRS employment ID numbers. You will receive a call from them, claiming they represent the IRS. Then, they are likely to demand immediate payment.  If not that, they might say you have a tax refund claimable and attempt to get your critical personal information.

 

• Phishing

Originally stemming from the word ‘fishing’, as the name implies, it is the fraudulent attempt to obtain sensitive information, basically ‘fish’ for them, such as your Social Security number or bank account details by disguising as a trustworthy entity in electronic communication. Often, these malicious e-mails will claim to address tax issues such as being entitled to a tax refund and must click on a link to access your information and claim your refund; your bank account or credit card has been compromised but the problem can be fixed if you click to another website; or make you pay for your tax obligation by clicking on another link.

 

• Social Security Identity Theft

The IRS also reports that identity theft via Social Security theft is gradually increasing. This occurs when a tax fraudster steals a Social Security number (SSN), by any means, and then files a bogus tax return using those SSNs. The taxpayer unaware of the crime until he or she files a tax return and is told by the IRS that somebody else has already filed a tax return using his or her name, and has already collected the refund. This takes months to correct the problem.

 

• Fake IRS Agent ‘At Home’ Visits

IRS tax scammers come up with lots of new ways to scam you for your money. Usually targeting elderly taxpayers, they will knock on your door, inform you of a discrepancy on your tax return, and demand you to pay for that discrepancy right then and there. To take their believability up a notch, they will likely have a phony IRS card or credentials that look all too real.

Source: https://www.irs.gov/newsroom/how-to-know-its-really-the-irs-calling-or-knocking-on-your-door

 

• Tax Preparer Fraud

This type of tax fraud scheme involves contact from purported tax preparers looking for information or asking you to update your tax or financial records. They will ask you to follow through on their requests, which is usually a piece of critical personal information. They may also accept money for handling your tax return, and then magically disappear after April 15. Often, the fraudster is long gone by the time your data has been compromised.

 

• Promises to Boost Tax Refund Claims

The IRS states that these fraudsters use flyers, advertisements, phony storefronts, and even word of mouth that promises inflated tax refunds. They will ask you to sign a blank return in the promise that you will receive a huge refund.

These tax fraud schemes are truly sketchy. But with this listing along with their common scenarios, I hope you become aware of this before it happens to you. The secret to not being tricked by fraudsters is getting to know them better.

If you need more information regarding these tax fraud schemes, contact us today at admin@fas-accountingsolutions.com or 832-437-0385.