2021 Last-Minute Year-End Retirement Deductions

The clock continues to tick. Your retirement is one year closer. 

You have time before December 31 to take steps that will help you fund the retirement you desire. 

Take a few minutes to review the four retirement plan tax-reduction strategies in this article. 

You might find several thousand dollars (and maybe much more) in your pocket by taking the actions in this article. But you’ll need to act now to get the cash. 

Big Picture 

Here are the four opportunities we explain in this article: 

  1. Establish your 2021 retirement plan before December 31 so you can make both an employee and an employer contribution.  Yes, you can do this even if you are the sole owner/worker in a proprietorship or a corporation.
  2. Claim up to $15,000 in tax credits by having your business create a retirement plan that covers you and your employees.
  3. Claim up to $1,500 in tax credits by enabling the automatic contribution.
  4. Convert to a Roth IRA. 

1.  Establish Your 2021 Retirement Plan 

First, a question: As you read this, do you have your (or your corporation’s) retirement plan in place? 

If not, and if you have some cash you can put into a retirement plan, get busy and put that retirement plan in place so you can obtain a tax deduction for 2021.

For most defined contribution plans, such as 401(k) plans, you (the owner-employee) are both an employee and the employer, whether you operate as a corporation or as a sole proprietorship. And that’s good because you can make both the employer and the employee contributions, allowing you to put a good chunk of money away. 

In general, your plan document will define when you can make employee or employer contributions that will produce 2021 tax deductions. Make sure you know exactly when you can make both 

· your employer contributions, and

· your employee contributions. 

Example. You operate as a one-owner S corporation and you want an individual 401(k) plan deduction for the 2021calendar year. To obtain the maximum 401(k) deduction for this calendar year, you must have an individual 401(k)plan in place on or before December 31. 

If you have your S corporation 401(k) plan in place on or before December 31, 2021, then you can make your personal employee contribution on or before December 31, 2021. You also can make the employer contribution onor before December 31 or anytime before the 2021 tax return is due, such as on March 15, 2022 (or with extensions, say, on September 15, 2022). 

For more on the 401(k) plan and why it’s terrific for the solo owner/operator of a business, incorporated or not, seeSolo 401(k) Could Be Your Best Retirement Plan Option. 

2. Claim the New, Improved Retirement Plan Start-Up Tax Credit of Up to $15,000 

Two questions: 

1. Are you the sole worker in your business?

2. Is your retirement plan in place as you read this? 

If you can answer no to both questions, consider this: by establishing a new qualified retirement plan (such as a profit-sharing plan, 401(k) plan, or defined benefit pension plan), a SIMPLE IRA plan, or a SEP, you can qualify fora non-refundable tax credit that’s the greater of1 

·  $500 or11/22/21, 1:25 PM 2021 Last-Minute Year-End Retirement Deductions ·

the lesser of (a) $250 multiplied by the number of your non-highly compensated employees who are eligible to participate in the plan, or (b) $5,000. 

The credit is based on your “qualified start-up costs,” which means any ordinary and necessary expenses of an eligible employer that are paid or incurred in connection with 

· the establishment or administration of an eligible employer plan, or

· the retirement-related education of employees with respect to such plan. 

The credit applies to the year of start-up and for the next two years (capped at $5,000 a year, or $15,000maximum). You may deduct any costs in excess of the tax credit as ordinary and necessary expenses. 

You are an employer eligible for the credit if, for the preceding year, 

· you had no more than 100 employees, each with compensation of $5,000 or more, and

· your plan had at least one employee eligible to participate who is not a highly compensated employee. 

The solo business operator with no employees is not eligible for the small business retirement plan start-up credit. 

IRS form. You claim the tax credit on IRS Form 8881. The new credit was enacted for taxable years beginning after December 31, 2019, by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECUREAct).

3. Claim the New Automatic Enrollment $500 Tax Credit for Each of Three Years($1,500 Total) 

The SECURE Act added a non-refundable credit of $500 per year for up to three years, beginning with the first taxable year (2020 or later) in which you, as an eligible small employer, include an automatic contribution arrangement in a 401(k) or SIMPLE IRA plan.3 

The new $500 auto-contribution tax credit is in addition to the start-up credit and can apply to both newly created and existing retirement plans.4 Further, you don’t have to spend any money to trigger the credit. You simply need to add the auto-enrollment feature.5 

In its report on this provision, the U.S. House of Representatives Committee on Ways and Means stated:

Studies show that automatic enrollment increases employee participation in section 401(k) and SIMPLE IRA plans, resulting in

higher retirement savings. 

As with the start-up credit above, you are an employer eligible for the credit if, for the preceding year,7 

· you had no more than 100 employees, each with compensation of $5,000 or more, and

· your plan had at least one employee eligible to participate who is not a highly compensated employee. 

The solo business operator with no employees is not eligible for the automatic enrollment credit. 

4. Convert to a Roth IRA 

Consider converting your 401(k) or traditional IRA to a Roth IRA. 

If you make good money on your IRA investments and you won’t need your IRA money during the next five years, the Roth IRA over its lifetime can produce financial results far superior to the traditional retirement plan. 

You first need to answer this question: How much tax will you have to pay now to convert your existing plan to aRoth IRA? With the answer to this, you know how much cash you need on hand to pay those taxes. 

Here are four reasons you should consider converting your retirement plan to a Roth IRA: 

1. You can withdraw the monies you put into your Roth IRA (the contributions) at any time, both tax-free and penalty-free, because you invested previously taxed money into the Roth account.8

2. You can withdraw the money you converted from the traditional plan to the Roth IRA at any time,tax-free. (If you make that conversion withdrawal within five years, however, you pay a 10 percent penalty. Each conversion has its own five-year period.9)

3. When you have your money in a Roth IRA, you pay no tax on qualified withdrawals (earnings), which are distributions taken after age 59 1/2, provided you’ve had your Roth IRA open for at least five years.

4.  Unlike with the traditional IRA, you don’t have to receive required minimum distributions (RMDs)from a Roth IRA when you reach age 72—or to put this another way, you can keep your Roth IRA intact and earning money until you die.

Here are four reasons keeping your money in a traditional retirement plan or IRA (versus the Roth IRA) can cost you: 

1. You’ll generally pay tax and a 10 percent penalty on withdrawals before age 59 1/2.12

2. You could owe big taxes when you withdraw your money from your traditional IRA.

3. Before the SECURE Act, you generally had to start taking RMDs from your traditional IRA or qualified retirement plan in the tax year you turned age 70 1/2.13 Now you can wait until the tax year you turn age 72.14 This change applies to RMDs after December 31, 2019, if you turn age 70 1/2 after that date.15 Once you turn age 72, the law requires you to start taking out money annually—even if you don’t need it or want it.16

4. If you die and leave a traditional IRA to your heirs, they could owe big taxes on the accumulated monies as they take the money from the inherited IRA. 

Make sure you have the cash to pay the tax on the conversion to a Roth IRA. Don’t invade your existing 401(k) or traditional IRA for the cash to pay the taxes, because that is likely to trigger the double whammy of paying both income taxes and the 10 percent penalty on the withdrawal.17 

Planning note 1. If you are going to have a business loss this year, consider converting your traditional IRA to aRoth IRA, as we explain in Five Strategies for Your Business Loss after Tax Reform. 

Planning note 2. For additional insights on the pros and cons of Roth IRAs and traditional IRAs, read Roth IRA versus Traditional IRA: Which Is Better for You? 

Takeaways 

Having a retirement plan is a good money strategy for most business owners because it creates savings that you are unlikely to tap and that enable compound tax-free (Roth) or tax-deferred growth. 

So step one is to get your plan in place before December 31 so you, the business owner, can make both employer and employee contributions. This is true even when you operate as a one-person corporation or proprietorship. 

If you have employees, make sure to take advantage of the tax credits for (a) start-up of the plan and (b)establishing automatic contributions (opt-outs are available, of course). 

Seriously consider converting your existing accumulations to a Roth IRA. The long-term savings here can be huge.Make sure to leave the converted funds in the Roth for at least five years. 

Source: 1 IRC Section 45E.
2 Pub. L. No. 116-94, Section 104.
3 Notice 2020-68.
4 IRC Section 45T.
5 Notice 2020-68.
6 H. Rpt. 116–65, p. 51.
7 Ibid. We note that IRC Section 45T does not include the language about one employee who is not highly compensated, but the legislative history has Sections45E and 45T in the same section, as you see on p 50 of the House report. To us, this brings the same language to bear—making us believe you need that one employee in addition to yourself to qualify for this tax credit.
8 Reg. Section 1.408A-6, Q&A-9.
9 Reg. Section 1.408A-6, Q&A-5.
10 IRC Section 408A(d)(2)(A).
11 IRC Section 408A(c)(5).
12 IRC Sections 408(d)(1); 72(t).
13 Pub. L. No. 116-94, Section 114.
14 Ibid.
15 Pub. L. No. 116-94, Section 114(d).
16 IRC Section 408(a)(6).
17 IRC Sections 408(d)(1); 72(t).

Want to know more?  Have some tax questions of your own?  Get in touch with us and we’ll guide you thru the tax and accounting process.

14 + 12 =

Lock Down Vehicle Deductions with a Home Office

  4   NOVEMBER, 2017 Lock Down Vehicle Deductions with a Home Office The IRS gives you two possible strategies for turning otherwise personal mileage into business mileage: Going to a temporary work location Establishing an office in the home as a principal...

Using Children’s IRAs to Pay for College

12 NOVEMBER, 2017 Using Children’s IRAs to Pay for College If your child has earned income (maybe from working in your business), you may want to consider establishing an IRA for your child. The IRA funds can, in turn, be used to help pay your child’s college...

Update: 2018 Health Insurance for S Corporation Owners

17 NOVEMBER, 2017 Update: 2018 Health Insurance for S Corporation Owners S corporations continue to enjoy good news in 2018 when it comes to health insurance, and this also applies to 2017 taxes. You first have to thank the 21st Century Cures Act for: Reinstating and...

Create Cash by Using Antiques in Your Business

22 NOVEMBER, 2017 Create Cash by Using Antiques in Your Business Let’s say you narrowed the purchase of your business desk to either an antique or a regular desk. Each desk sells for $5,000. Which desk gives you the best possible business result? The answer is the...

Cashing Out Real Estate Profits without Section 1031

Cashing Out Real Estate Profits without Section 1031 Paying taxes on the sale of your real estate is voluntary. You do not need to volunteer. Whenever you can, avoid the outright taxable cash sale of investment property. To avoid taxes while you build your portfolio...

Tax Reform and Rental Real Estate Deductions

DECEMBER, 2017 Tax Reform and Rental Real Estate Deductions Two scary words in tax reform are “fairness” and “simplification.” In most cases, this combination raises your taxes and makes the law more complex.  As you likely know, tax reform is in the air again, and it...

Rental Property as a Business Yields Big Benefits

DECEMBER, 2017 Rental Property as a Business Yields Big Benefits If your rental property activity meets the definition of a trade or business activity, then your rentals produce the best possible tax benefits. In general, you report your rental properties on Schedule...

Home Office with More Than One Business

Home Office with More Than One Business The office-in-the-home deduction produces good to excellent tax savings by turning personal house expenses into business deductions. Additionally, it enables you to deduct big vehicle expenses by eliminating nondeductible...

Tax Reform Creates Taxes on Employee Fringe Benefit for Bicycles

Tax Reform Creates Taxes on Employee Fringe Benefit for Bicycles Tax reform created taxes on the employee fringe benefit for bicycles. You could (and can) deduct your costs for reimbursing employees for their qualified bicycle transportation costs. But tax reform now...

Tax Reform Provides New 20% Deduction

The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.

How the 20% Deduction Works for a Specified Service Provider

How the 20% Deduction Works for a Specified Service Provider As previously discussed, the 20 percent tax deduction under new 2018 tax code Section 199A is a very nice tax break for business owners, except for owners with high income who also fall into the out-of-favor...

Phaseout for New 20% Deduction

  Phase-out for New 20% Deduction If your pass-through business is an in-favor business and it qualifies for tax reform’s new 20 percent tax deduction on qualified business income, you benefit at all times, including being above, below, or in the expanded wage...

Preserve the Deduction with an S Corporation

Will your business operation create the 20 percent tax deduction for you? If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of the business entity may produce the tax savings you are looking for.

Tax Reform Cuts Deductions for Employee Meals to 50 Percent

Tax Reform Cuts Deductions for Employee Meals to 50 Percent Tax reform (Public Law 115-97) includes winners and losers.  Employers who for their convenience provided business meals for their employees are losers—50% losers to start and then total losers later. Meal...

Tax Reform Destroys Entertainment Deductions for Businesses

Tax Reform Destroys Entertainment Deductions for Businesses First, lawmakers reduced the directly related and associated entertainment deductions to 80 percent with the 1986 Tax Reform Act. Later, in 1993, they reduced that 80 percent to 50 percent.   And now, with...

Tax Reform Allows 100 Percent Deductions for Presentation Expenses

Tax Reform Allows 100 Percent Deductions for Presentation Expenses Tax reform did much damage to tax deductions for business entertainment and meal expenses. But meals served at business presentations survived the entertainment and prospect and client meal...

Tax Reform Allows Bigger Vehicle Deductions

Tax Reform Allows Bigger Vehicle Deductions Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars. The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than...

Tax Reform Creates Desire for the C Corporation

Tax Reform Creates Desire for the C Corporation When you first see that 21 percent tax rate for the C corporation, you have to think that this could be the choice of entity for your business operation. Further, when you find yourself in the out-of- favor group for the...

Does Tax Reform Dislike Your Reputation or Skill?

Does Tax Reform Dislike Your Reputation or Skill? Here’s a troubling thought. Did lawmakers put you in the out-of-favor tax group that denies you the 20 percent Section 199A deduction because: your business makes too much money, and it does so thanks to the reputation...

Tax Reform Update on Business Meals with Clients and Prospects

Tax Reform Update on Business Meals with Clients and Prospects Here’s the updated strategy:  Deduct your client and business meals as if tax reform never took place. Wow. Is this aggressive? Not if the IRS comes out with regulations that follow a model set by the...

Divorce? Alimony? Tax Reform Says Get Divorced Now—Don’t Wait!

Divorce? Alimony? Tax Reform Says Get Divorced Now—Don’t Wait Tax reform changes the alimony game. This may or may not have any relevance to you, but if it does, you will want to move quickly. The Tax Cuts and Jobs Act (TCJA) eliminates tax deductions for alimony...

Tax Reform: Planning for Your New 20 Percent Deduction

Tax Reform: Planning for Your New 20 Percent Deduction As you likely know by now, the Tax Cuts and Jobs Act created a 20 percent tax deduction under new tax code Section 199A. The question for you: Will you reap any benefits from this new deduction? And the second...

Avoid Being an IRS Target When Your Business Loses Money

Avoid Being an IRS Target When Your Business Loses Money If you operate what you think is a business, but that business loses money, it may not be a business at all under the tax code. Such a money-losing activity can look like a tax shelter to the IRS, and that...

How to Deduct Your Legal Fees after Tax Reform

How to Deduct Your Legal Fees after Tax Reform The Tax Cuts and Jobs Act (TCJA), known as tax reform, made it more difficult for you to deduct your legal fees. The new tax reform law suspended (killed is a better word) your legal fees as 2 percent miscellaneous...

Your Personal Home Is Not Your Tax Home

Your Personal Home Is Not Your Tax Home The fact that your personal home is not your tax home is one income tax issue. Here’s another: Business travel is different from business transportation. Your tax deductions, tax strategies, and tax records hinge on the...

Reduce Self-Employment Taxes by Renting from Your Spouse

Reduce Self-Employment Taxes by Renting from Your Spouse As a sole proprietor, you know that the 15.3 percent self-employment tax can eat up your profits in a nhurry.  You may be able to use a simple strategy to ease this tax burden. If you own an office building or...

Hiring Your Children to Work on Your Rental Properties

Hiring Your Children to Work on Your Rental Properties Have you considered hiring your children to work on your rental properties? If so, were you concerned when you did not see a line item for wages on Schedule E of your Form 1040? Don’t let that bother you. The IRS...

Tax Planning for Snowbirds

Tax Planning for Snowbirds You can plan your tax-deductible business life to avoid cold winters and hot summers. Spend a moment examining the following four short paragraphs that contain the basic facts from the Andrews case. For six months of the year, from May...

Tax Reform Destroyed State and Local Tax Deductions—Fight Back

Tax Reform Destroyed State and Local Tax Deductions—Fight Back Tax reform put the screws to your state and local income tax deductions, capping them at $10,000. Many states disliked that and have been putting together workarounds. But now the IRS is creating...

IRS Rules for Deducting Your Business Gym

IRS Rules for Deducting Your Business Gym If you have been thinking about the fitness of your employees and the possibility of a gym or other athletic facility, then you need to know the tax rules.  To be tax deductible, your gym or other athletic facility must be...

Reduce Your Taxes by Making Your Spouse a Business Partner

Reduce Your Taxes by Making Your Spouse a Business Partner Tax reform changed the rules of the game when choosing your best tax structure. In looking over the possibilities, a properly structured spousal partnership could be your best choice. Here are the tax benefits...

Tax Reform Expands Your Section 179 Deduction Privilege

Tax Reform Expands Your Section 179 Deduction Privilege The new and improved Section 179 deduction gives you more ways to take advantage of immediate tax deductions. It’s somewhat like having a flexible tax shelter in your back pocket for when you need it (and also...

How the 90-Day Mileage Log Rule Works for You

How the 90-Day Mileage Log Rule Works for You Often in an IRS audit, the examiner will ask for your mileage log at the beginning of the audit. If you do not have a mileage log, then you are in danger of losing more than just vehicle deductions. Think about it. If you...

Will Renting Your Home Destroy Your $250,000 Exclusion?

Will Renting Your Home Destroy Your $250,000 Exclusion? The days when you could convert your rental property or vacation home to a principal residence and then use the full $250,000/$500,000 home-sale exclusion to avoid taxes are gone. Here’s how the $250,000/$500,000...

Be Alert to the TCJA Tax Reform Attack on IRA Recharacterizations

Be Alert to the TCJA Tax Reform Attack on IRA Recharacterizations When you convert your existing traditional IRA into a Roth IRA and then reverse the transaction by switching the account back to traditional IRA status, the reversal is called a recharacterization in...

Tax Reform Changes Affecting Partnerships and LLCs and Their Owners

Tax Reform Changes Affecting Partnerships and LLCs and Their Owners The Tax Cuts and Jobs Act (TCJA) includes several changes that affect partnerships and their partners, and LLCs that are treated as partnerships for tax purposes and their members. Most of the changes...

Changes to Your Tax-Free Supper Money

The Tax Cuts and Jobs Act (TCJA) Changes to Your Tax-Free Supper Money Here’s how the TCJA applied its tax reform to your supper money meal allowances. Before tax reform, you deducted 100 percent of the supper money cost. Now, because of tax reform, your tax deduction...

Convert Your Personal Vehicle to Business and Deduct up to 100 Percent

Convert Your Personal Vehicle to Business and Deduct up to 100 Percent You probably like your personal vehicle just as it is. But wouldn’t you like it far better if it were producing tax deductions? Perhaps big deductions, immediately. And the Tax Cuts and Jobs Act...

How Cost Segregation Can Turn Your Rental into a Cash Cow

How Cost Segregation Can Turn Your Rental into a Cash Cow Cost segregation breaks your real property into its components, some of which you can depreciate much faster than the typical 27.5 years for a residential rental or 39 years for nonresidential real estate....

Retirement Plan and IRA Rollover Advice

Retirement Plan and IRA Rollover Advice When moving your retirement money to an IRA, you should follow this one rule of thumb. If you fail to follow the rule we’re about to reveal, you can face two big problems: First, your check will be shorted by 20 percent. Second,...

Tax Time Bomb: Passive Foreign Investment Companies

Tax Time Bomb: Passive Foreign Investment Companies Passive foreign investment companies, or PFICs, are subject to some of the most complex provisions of the tax law. You may own one and not even know it. A passive foreign investment company is any foreign corporation...

How to Find Your Section 199A Deduction with Multiple Businesses

How to Find Your Section 199A Deduction with Multiple Businesses If at all possible, you want to qualify for the 20 percent tax deduction offered by new tax code Section 199A to proprietorships, partnerships, and S corporations (pass-through entities). Basic...

Help Employees Cover Medical Expenses with a QSEHRA

Help Employees Cover Medical Expenses with a QSEHRA If you are a small employer (fewer than 50 employees), you should consider the qualified small-employer health reimbursement account (QSEHRA) as a good way to help your employees with their medical expenses. If the...

Does Your Rental Qualify for a 199A Deduction?

Does Your Rental Qualify for a 199A Deduction? The IRS, in its new proposed Section 199A regulations, defines when a rental property qualifies for the 20 percent tax deduction under new tax code Section 199A. One part of the good news on this clarification is that it...

New IRS 199A Regulations Benefit Out-of-Favor Service Businesses

New IRS 199A Regulations Benefit Out-of-Favor Service Businesses If you operate an out-of-favor business (known in the law as a “specified service trade or business”) and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your...

Take Money Out of Your IRA at Any Age Penalty-Free

Take Money Out of Your IRA at Any Age Penalty-Free You probably think you can’t take money out of your IRAs before age 59 1/2 unless you meet a narrow exception to the unpleasant 10 percent penalty on early distributions. But that’s not true. We have a variety of...

Drive Time Increases Odds of Deducting Rental Property Losses

Drive Time Increases Odds of Deducting Rental Property Losses Your rental properties provide tax shelter when you can deduct your losses against your other income. One step to deducting the losses is to pass the tax code’s 750-hour test. And one step to finding the...

Changes to Net Operating Losses After Tax Reform

Changes to Net Operating Losses After Tax Reform Tax reform made many good changes in the tax law for the small-business owner. But the changes to the net operating loss (NOL) deduction rules are not in the good-changes category. They are designed to hurt you and put...

IRS Says TCJA Allows Client and Prospect Business Meal Deductions

IRS Says TCJA Allows Client and Prospect Business Meal Deductions In Notice 2018-76, the IRS states that client and prospect business meals continue as tax deductions under the Tax Cuts and Jobs Act. This is very good news indeed. Under this new IRS guidance, you may...

Tax Reform and the Cannabis Industry

Tax Reform and the Cannabis Industry You won’t get a Section 199A tax deduction for your cannabis business. But some of the other tax reform changes may make the C corporation a more attractive choice of entity than before.Let’s look at an example. Say the cannabis...

Defining “Real Estate Investor” and “Real Estate Dealer”

Defining “Real Estate Investor” and “Real Estate Dealer” The first good news is that you can be both real estate investor and real estate dealer with respect to your real estate portfolio. The next good news is that you are in control, and by knowing just a few rules...

Avoid the 1099 Prepaid-Rent Mismatch

Avoid the 1099 Prepaid-Rent Mismatch Two questions:Did you prepay your 2019 rent so that you have a big 2018 tax deduction?How do you identify in your accounting records the monies you put on your IRS Form 1099-MISC for the business rent payments to your landlord? For...

Answers to Common Section 199A Questions

Answers to Common Section 199A Questions For most small businesses and the self-employed, the 20 percent tax deduction from new tax code Section 199A is the most valuable deduction to come out of the Tax Cuts and Jobs Act.The Section 199A tax deduction is complicated,...

Avoiding the Kiddie Tax after Tax Reform

Avoiding the Kiddie Tax after Tax Reform If your family has trouble with the kiddie tax, you face some new wrinkles for tax years 2018 through 2025 thanks to the Tax Cuts and Jobs Act (TCJA) tax reform. This is one of the many areas where tax planning can pay off. For...

Tax Reform’s New Qualified Opportunity Funds

Tax Reform’s New Qualified Opportunity Funds Qualified opportunity funds are a new tax-planning strategy created by the Tax Cuts and Jobs Act tax reform. The new funds have the ability to defer current-year capital gains, eliminate some of them later, and then on the...

IRS Issues Final Section 199A Regulations and Defines QBI

IRS Issues Final Section 199A Regulations and Defines QBI Your ownership of a pass-through trade or business can generate a Section 199A tax deduction of up to 20 percent of your qualified business income (QBI). The C corporation does not generate this deduction, but...

IRS Clarifies Net Capital Gains in Final 199A Regulations

IRS Clarifies Net Capital Gains in Final 199A Regulations New tax code Section 199A can give you a tax deduction of up to 20 percent of your taxable income reduced by net capital gains. In new final regulations, the IRS has provided clarity on the capital gains...

IRS Creates a New “Safe Harbor” for Section 199A Rental Properties

IRS Creates a New “Safe Harbor” for Section 199A Rental Properties The Section 199A 20 percent tax deduction is a gift from lawmakers—literally. You don’t earn this deduction; it’s simply there for you if you qualify. Under the trade or business rule, your rental...

IRS Updates Defined Wages for New Section 199A Tax Deductions

IRS Clarifies Net Capital Gains in Final 199A Regulations Your Section 199A tax deduction will benefit from your business’s W-2 wages paid to you and your employees if you are married and filing jointly and your taxable income is over $315,000 and less than...

Good News: Most Rentals Likely Qualify as Section 199A Businesses

Good News: Most Rentals Likely Qualify as Section 199A Businesses The Tax Cuts and Jobs Act tax reform added new tax code Section 199A, which created a 20 percent tax deduction possibility for you if your rental property (a) has profits and (b) can qualify as a trade...

How to Reimburse Medicare When You Have Fewer Than 20 Employees

How to Reimburse Medicare When You Have Fewer Than 20 Employees The Affordable Care Act’s $100-a-day penalty for improper medical reimbursements likely has your attention. And it should. But you can find many reimbursements that are allowed without penalty, including...

What Can I Do If My K-1 Omits 199A Information?

What Can I Do If My K-1 Omits 199A Information? Tax reform’s Section 199A deduction often confuses small-business owners and tax professionals alike. It’s quite possible you’ll get a Schedule K-1 from a business that omits the information you need to calculate your...

Terminating Your S Corporation Election

Terminating Your S Corporation ElectionTax reform may have you thinking of changing your S corporation to a C corporation, partnership, or sole proprietorship. With such a switch, you need to consider: How do I terminate the S corporation election correctly? What are...

Backdoor Roth IRA Opportunities Still Available After TCJA

TCJA Tax Reform Sticks It to Business Start-Ups That Lose Money Good news. The Tax Cuts and Jobs Act (TCJA) didnot harm the backdoor Roth strategy. As you likely know, the Roth IRA is a terrific wayto grow your wealth with a minimum tax downsidebecause you pay the...

Combine Home Sale with the 1031 Exchange

Combine Home Sale with the 1031 ExchangeYou don’t often get the opportunity to even consider making a tax-saving double play. But your personal residence combined with a desire for a rental property can provide just such an opportunity.  The tax-saving strategy is to...

Know These Tax Rules If Your Average Rental Is Seven Days or Less

If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes.

Can the IRS Require Odometer Readings with the Mileage Rate?

Do you claim your business miles at the IRS optional rate? If so, imagine you are now being audited by the IRS for your business mileage. The IRS has requested odometer readings for your vehicle. You might wonder if the IRS can do this…

New Individual Coverage HRA Allows You to Reimburse Employees for Health Insurance

New Individual Coverage HRA Allows You to Reimburse Employees for Health InsuranceThe new Individual Coverage HRA (ICHRA) lets you help employees with their health care costs without fear of ACA penalties. Starting January 1, 2020, employers can offer this new ICHRA....

How to Deduct Assisted Living and Nursing Home Bills

How to Deduct Assisted Living and Nursing Home Bills” Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care. If you could deduct these expenses, you’d substantially reduce your income tax...

Tax Issues of Converting Your Residence into a Rental Property

Tax Issues of Converting Your Residence into a Rental Property The simple maneuver of converting your personal residence to a rental property brings with it many tax rules, mostly good when you know how they work. The first question that arises when you convert a...

Congress Reinstates Expired Tax Provisions

The big five tax breaks that most likely impact your
Form 1040

Eight Changes in the SECURE Act You Need to Know

Eight Changes in the SECURE Act You Need to Know As has become usual practice, Congress passed some meaningful tax legislation as it recessed for the holidays. In one of the new meaningful laws, enacted on December 20, you will find the Setting Every Community Up for...

Kiddie Tax Changes

On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire.

Solo 401(k) Could Be Your Best Retirement Plan Option

Solo 401(k) Could Be YourBest Retirement Plan Option Have you procrastinated about setting up a tax-advantaged retirement plan for your small business? If the answer is yes, you are not alone. Still, this is not a good situation. You are paying income taxes that could...

What are My Self-Employed Tax Obligations?

What are My Self-Employed Tax Obligations? As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a...

New Stimulus Law Grants Eight Tax Breaks for 1040 Filers

New Stimulus Law Grants Eight Tax Breaks for 1040 Filers  The new, massive stimulus bill enacted into law on December 27, 2020, contains eight new tax breaks designed to help the non-business taxpayer. None of these tax breaks are earthshaking by themselves, but...

2020 Year-End Tax Strategies for Marriage, Kids, and Family

2020 Last-Minute Year-End Tax Strategies for Marriage, Kids, and FamilyIf you have children under the age of 18 and you file your business tax return as a proprietorship or partnership, you can find big savings in the work your children do for your business. And if...

Starting a New Business? Get Up to $100,000 in Tax-Free Money

Starting a New Business? Get Up to $100,000 in Tax-Free MoneyYou likely already know that the employee retention credit (ERC) is a good deal—if you qualify.  Now, thanks to the recently enacted American Rescue Plan Act of 2021 (ARPA), you can qualify for up to...

Tax Code Offset Game

2020 Last-Minute Year-End Tax Strategies for Tax Code OffsetWhen you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2020 income taxes.  The tax code contains the basic rules...

“Deduct 100 Percent of Your Business Meals under New Rules”

Deduct 100 Percent of Your Business Meals under New RulesNow, thanks to a new law enacted December 27, 2020, new IRS regulations, and a new IRS notice (yep, all three are new), you have fresh opportunities for writing off 100 percent of your business meals. For 2021...

Last Minute 2020 Biz Deductions

The purpose of this post is to get the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.
Here are seven powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.

Last Minute Year End Deductions for Married or Divorced people – Tax Strategies – Kiddie Tax

Last Minute Year End Deductions for Married or Divorced people – Tax Strategies – Kiddie Tax –
If you are thinking of getting married or divorced, you need to consider December 31, 2020, in your tax planning.

Here’s another planning question: Do you give money to family or friends (other than your children, who are subject to the kiddie tax)? If so, you need to consider the zero-taxes planning strategy.
#taxplanning #CPA #businessaccountant

Do you need more 2020 tax deductions?

Do you need more 2020 tax deductions?

Tax Implications of Investing in Precious Metal Assets

These days, some IRA owners and investors may be worried about being overexposed to equities. That could be you.
But the safest fixed income investments (CDs, Treasuries, and money-market funds) are still paying microscopic interest rates.
For example, when this was written, the 10-year Treasury was yielding about 1.92 percent. Ugh!
Meanwhile, the pandemic might or might not be coming to an end, the economy might or might not be okay, and inflation might or might not be controlled. Who knows?
In this uncertain environment, investing some of your IRA money in gold or other precious metals such as silver and platinum may be worth considering. Ditto for holding some precious metal assets in taxable form. This article explains the federal income tax implications. Here goes.

Health Savings Accounts: The Ultimate Retirement Account

Health Savings Accounts: The Ultimate Retirement Account Looking to save for retirement? The first account you should open and fund is not an IRA (regular or Roth) or 401(k). If you qualify, your first retirement account should be a Health Savings Account (HSA). Don’t...

Is a Property Fix-up and Sale an Investor or a Dealer Property?

Is a Property Fix-up and Sale an Investor or a Dealer Property? Background I’m an independent computer consultant who nets $100,000 from my proprietorship. I bought a house in March 2019, fixed it up, and sold it in April 2020 at a net profit of $85,000. I bought...