Author Archives: c22511910

How to Use Your Accountant to Get More Profitable Legal Contracts

legal contract cpa services minneapolisAt Maicher CPA Pllc we provide a full range of accounting and tax services to help clients reduce taxes.    Every legal contract and business deal has underlying tax consequences. Often, they are overlooked unless a tax advisor is proactively involved.    We help our clients reduce taxes before agreements are signed.  

What are some examples of how Maicher CPA can often get you more favorable tax treatment?

  1. If you will be the recipient of payments, sometimes it makes more tax sense to have installment payments spread over different tax years.   On the other hand, if you are the payor then it might make sense to concentrate payments in a specific tax year where deductions might be more beneficial.
  2. There may be transactions that can be characterized, partially or entirely, as capital gain transactions (taxed at lower rates) rather than ordinary income transactions (taxed at higher rates).   It is helpful to clarify these issues before the contract is signed. 
  3. If you are selling or buying a business, how the price is allocated among various assets can have enormous tax consequences.   For instance, payments you receive for personal goodwill may be taxed at the lower capital gain rate while payments you receive for other assets may be taxed at the higher income tax rate.  Therefore, it’s important that the purchase agreement addresses how the price is allocated because it can have enormous effects on how much tax is paid.   
  4. Lastly, in order to evaluate a contract’s real economic benefit, it is always helpful to have up-front tax advice before the contract is signed.   

Take-away:     Every legal contract has tax consequences.  Don’t assume your lawyer has necessarily considered them.   At Maicher CPA Pllc, we advise you about the taxes you face and ways to often minimize them before you sign a contract.     Contact us today for an appointment.   

 

Sources:
“Sale of Business,” – IRS Publication (Dec. 20, 2019).
“A Comprehensive Guide To Due Diligence Issues In Mergers And Acquisitions,” Forbes (Mar. 27, 2019).

Purchasing Real Estate – A Business Opportunity Worth Considering

real estate income net worth minnesotaAt Maicher CPA Pllc many of our clients often purchase real estate to increase income and net worth.  There are numerous ways to invest in real estate without buying anything “big” nor necessarily investing large amounts of cash.  Imagine the potential cash flow of owning rental homes, even modest ones.   Or perhaps buying a duplex and residing in one portion while renting out the other.   Or owning a modest office condominium to rent to a solid business tenant or two.   Continue reading

Why Is “Marginal Tax Rate” Important to You?

Maicher CPA Pllc provide a full range of tax services to help businesses and individuals succeed.   There are some key tax terms everyone should know. “Marginal Tax Rate” is one of them because it will help you to properly adjust your withholding taxes, or your tax estimates if you’re self- employed.

What Is Marginal Tax Rate?

Marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation taxes people based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners.

Under a marginal tax rate, taxpayers are usually divided into tax brackets or ranges, which determine the rate applied to the taxpayer’s taxable income — which means income after deductions and exemptions.  As income increases, what is earned will be taxed at a higher rate than the first dollar earned. 

What Are the Marginal Rates for the 2019 Tax Year?

The new rates, which relate to the tax return you’ll file, for instance, as a “married person filing jointly” in 2019, are: 10 percent on the first $19,400 of taxable income, 12 percent on $19,401 to $78,950 of taxable income, 22 percent on $78,951 to $168,400 of taxable income, 24 percent on $168,401 to $321,450 of taxable income, 32 percent on $321,451 to $408,200 of taxable income, 35 percent on $408,201 to $612,350 of taxable income and 37 percent on  $612,351 of taxable income and above. These brackets are modified for taxpayers with different filing statuses (e.g. single filers vs. married filers).

Takeaway: Knowing your marginal rates helps you make better decisions about the amount of withholding taxes and estimated payments applicable to you. At Maicher CPA Pllc, our professionals provide pro-active and cost-effective tax planning and tax return preparation services to individuals and businesses. Contact us today for an appointment to discuss your marginal rate and its impact on your tax planning.  

Sources:

“SOI Tax Stats – Individual Statistical Tables by Tax Rate and Income Percentile,” IRS Publication (June 2019).

“The New 2019 Federal Income Tax Brackets and Rates,” Forbes (Dec. 5, 2018).

“Making Sense of Income and Tax Terms,” Forbes (Nov 13, 2012).

Tax Benefits of Renting Your Residence

Maicher CPA Pllc provide a full range of tax services to help businesses and individuals succeed.   Reducing your tax bill by maximizing deductions is always one of our objectives. Reducing your tax bill by maximizing deductions is always one of our objectives.  Unfortunately, The Tax Cuts and Jobs Act has reduced several of the usual tax deductions of homeownership, including capping: the deduction for state/local property taxes to $10,000 and the deduction of interest on mortgages up to $750,000 on homes purchased between 2018 and 2025.   The good news: as a homeowner, you can still gain certain tax benefits by renting out your residence for as little as 15 days annually. 

What are some tax benefits? 

1.) Deducting Property Taxes.   If you rent out your residence for at least 15 days a year, you can take a deduction on rental income.  For example: Suppose you pay $3,000 per month in property tax, or $36,000 yearly, exceeding the $10,000 ceiling.   One way to reduce this problem is to rent your residence out for three months which will allow you to deduct 25% of your property tax, or $9,000 plus you can still deduct $10,000 in property tax, free and clear.

2.) Deducting Mortgage Interest on Your “Rental.”  While a non-rental residence is subject to the $750,000 mortgage interest ceiling, a rental residence is not subject to that ceiling.  The mortgage on your residence can be several million and you can still deduct all interest on it. Suppose you live in your residence for part of the year and rent it out for the rest?  You can get a tax benefit. Say you purchase a home for $1 million in 2019 and pay 5% interest on a 30-year loan. That means you pay $50,000 annually in interest. You can deduct 75% of that, as a resident.  If you rent out the residence for three months, then a quarter of that interest, or $12,500, is deductible.  

3.) Deducting Other Expenses. You can deduct the costs of certain materials, supplies, repairs, and maintenance made to your rental property to keep your property in good operating condition.

Takeaway: Subject to certain rules, as a homeowner, you can gain certain tax benefits by renting out your residence. At Maicher CPA Pllc, our professionals provide effective and ethical tax return preparation services to individuals and businesses.  Contact us today for an appointment.  

Sources: 

“Know the Tax Facts About Renting Out Residential Property,” IRS Publication.  (Updated August 2019).  

“Topic No. 415 Renting Residential and Vacation Property,” IRS Publication.  (Updated August 2019). 

“How To Get Good Tax Breaks By Renting Out Your House,” Forbes.  (Mar 27, 2019).

Travel – What Can You Deduct?

Maicher CPA Pllc provides a full range of tax services to help businesses and individuals succeed.   Reducing your tax bill by maximizing deductions is always one of our objectives. Certain travel expenses are deductible.   But considering summertime is here, you may wish to mix a beach day in with your business symposium and yet deduct some or all of the trip’s expenses.  What are the rules? Here is some helpful guidance to keep the IRS off your back. 

1. General Rule.   The general rule is that business travel expenses are potentially deductible if the travel is within the United States and the expenses are “ordinary and necessary” and directly related to the business. (Stricter rules apply to foreign travel.).  Keep in mind that only business owners and self-employed persons may deduct travel expenses.  

2. Primary Reason.  Transportation costs to and from the location of your business activity may be 100% deductible if the primary reason for the trip is business rather than pleasure. On the other hand, if vacation is the primary reason for travel, generally no travel costs are deductible.  The number of days spent on business vs. pleasure is the key factor in determining whether the primary reason for travel is business.   Happily, travel days count as business days, as do weekends and holidays — if they fall between days devoted to business and it would be impractical to return home.  Generally, a trip’s primary reason should be considered as business if business days exceed personal days.

3. Examples of Deductible Expenses.  Deductible travel expenses include travel to and from your departure airport, airfare (even first-class tickets), baggage fees, tips, cabs, and similar expenses.  At the destination, out-of-pocket expenses for “business days” are fully deductible. Examples of these expenses include lodging, meals (up to 50%), seminar and convention fees, and cab fare.  Expenses for personal days aren’t deductible. Expenses for accompanying family members are non-deductible unless they are employees or their presence is for a valid business reason. 

4. Burden of Proof.   Taxpayers have the burden to prove the trip’s business purpose.   Documentation is critical. Keep receipts and a daily diary of your activities identifying who you were with and the purpose of the meeting. 

Conclusion:   Subject to certain rules, you can mix some personal pleasure into a business trip and still have substantial deductions. At Maicher CPA Pllc, our professionals provide effective and ethical tax return preparation services to individuals and businesses.  Contact us today for an appointment.  

Sources:

Topic Number 511 – Business Travel Expenses (IRS Pub. Mar. 2019).

IRS Publication 463 (2018).

“Can I Deduct That As A Business Expense?” Forbes (2019). 

Tax Tips for Students 

frau liegt mit laptop auf dem fußboden in ihrer wohnung

Our experienced accountants and other professionals at Maicher CPA Pllc provide a full range of tax preparation services to help businesses and individuals succeed.   Summer jobs are here and students, just like their parents, have certain obligations. Some guidance can help save money and avoid troubles down the road.

Continue reading

Want to Maximize Your Buy-Out as a Business Owner?

Sound Accounting and Tax Advice Is Critical

Want to maximize what you get when you sell your business?  Do you have a written succession plan? When is the last time you met with your accountant to discuss it?   Our experienced business accountants at Maicher CPA Pllc can help you create and execute a plan to maximize your buy-out and minimize your tax bill.

Continue reading