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Beware of the Tax Aspects of Some Key COVID-19 Programs

Maicher CPA Pllc provides tax preparation services to help businesses and individuals succeed.  COVID-19 has spawned several government programs to relieve financial hardship.  While these programs have been essential for those hit worse by the pandemic, these programs each have their own unique tax consequences.  Maicher’s professionals are staying on top of these developments and can help guide you in reducing unpleasant surprises come tax time. 

What are some of the key programs and their tax consequences? 

  1. The Paycheck Protection Program (PPP).  The PPP is an SBA-backed loan intended to provide cash flow assistance for businesses struggling with the impact of COVID for at least eight weeks.  Depending on the circumstances, the loan is forgivable provided it’s used for business expenses, and predominantly wages.  But beware: while there is no tax on the forgiven loan, the IRS has concluded (at least for now) that a business expense is not deductible if it’s counted toward the forgiveness of the loan.   This means you will lose out on some deductions which would have otherwise reduced taxable income.
  2. The Economic Injury Disaster Loan (EIDL).   EIDL is an SBA loan to address the hardships of businesses due to COVID.  The loan program also includes a straight-out grant (rather than a loan) of up to $10,000.  Since it is a grant, the IRS will likely consider it taxable income.  However, the IRS has not definitively decided this issue and it remains somewhat in flux. 
  3. Stimulus Payments.  Good news here!   According to the IRS: stimulus payments are not subject to taxation, stimulus payments do not reduce tax refunds and they will not impact the taxes paid next year.
  4. Unemployment Benefits.  Unfortunately, unemployment benefits get different tax treatment than stimulus payments.  In short, unemployment benefits are subject to state and federal taxes (though free from Medicare and social security taxes).  You can file a form to have taxes deducted from each benefit payment. If you don’t elect this option, then making estimated payments during the year will likely cut expenses at tax filing.   

Conclusion:   COVID-19 and its relief programs are raising new tax issues, which are still somewhat in flux.  Maicher is well-informed of these evolving issues and can help you minimize taxes and reduce unpleasant surprises at tax time.  Contact Maicher today for an appointment to review your 2020 tax plan.

 

Sources:
“11 Tax Tips For The Unemployed During The COVID-19 Pandemic,” Forbes (August 28, 2020).
IRS Publication – “Tax Benefits for Education: Information Center,” (June 5, 2020).
“Tax-Filing Tips for College Students,” US News & World Report (June 4, 2020).
IRS Publication (Topic No. 456) – “Student Loan Interest Deduction,” (May 28, 2020).

Tax Tips for Students Who Work

Maicher CPA Pllc provides tax preparation services to help businesses and individuals of all ages to succeed.   Many young people have gone back to school and for many of them it also means working to pay those tuition bills.  Despite some common misconceptions, students who generate income have certain tax obligations which need to be addressed.

Students should keep the following pointers in mind:

  1. Withholding and Filing a Tax Return. If you are an employee, your employer withholds tax from your paychecks.   You do not need to file a tax return if your income is less than $12,200.00 but you may still wish to file a return in case you are entitled to a refund because your employer over-withheld.
  2. Self-Employment. Even if you are not an “employee,” earnings doing work for others is taxable.   Record your income and expenses related to your work. You may be able to deduct those costs from your income to reduce your taxes.
  3. Tax Credits. During the first four years of college, you may be entitled to the “American Opportunity Tax Credit, commonly called the AOTC – provided your parents don’t claim you as a dependent on their tax return.   If this $2,500 refundable tax credit brings your taxes owed to zero, you can have up to $1,000 refunded to you. Graduate students may be eligible for even larger tax credits.
  4. Student Loan Interest.  Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year.

Conclusion:   Even students have certain tax issues to consider.  At Maicher CPA Pllc, our tax professionals have provided effective and ethical tax return preparation services for decades to businesses, individuals – and their families.  Contact us today for an appointment.

 

Sources:
IRS Publication – “Tax Benefits for Education: Information Center,” (June 5, 2020).
“Tax-Filing Tips for College Students,” US News & World Report (June 4, 2020).
IRS Publication (Topic No. 456) – “Student Loan Interest Deduction,” (May 28, 2020).

Is Your Tax Return Late?  File As Soon As Possible!

Save Dollars and Worry By Filing As Soon As Possible.

late tax return filing cpa minnesota

Our experienced tax professionals at Maicher CPA Pllc provide tax services to help you succeed.   Failure to timely file federal tax returns can result in interest, penalty fees, and even potential criminal prosecution.  Similar consequences often apply to late-filed state tax returns.   

Here are some helpful tips concerning late federal tax returns:   

  1. Even if you can’t pay the tax, file the return.   Delayed filing is a bad strategy because it can trigger a “failure to file” penalty of 5% for each month the return is late.  Delayed filings also cause the loss of refunds, loss carryforwards, tax credits as well as the receipt of certain government benefits like the recent federal stimulus payments.   Delays also stop the clock running on the statute of limitations for audits, which generally go back three years (though sometimes six years) from the filing date.  
  2. The IRS may abate penalties for a good cause.   Why did you file late?   Illness?  Fire?   Or for some other compelling reason?  Maicher’s experienced tax preparers have the expertise to effectively prepare IRS Form 843, which is otherwise known as the “Claim for Refund and Request for Abatement.”   If the reason for the late filing is good enough, this approach saves big dollars. 
  3. Lastly, use a seasoned tax preparer, like the ones at Maicher, to counsel you on your late filing strategy and to prepare your return to save money and needless grief.      

Conclusion:   July 15 has passed and if you missed the filing deadline, do not compound the problem with needless interest, penalty charges, and other negative consequences.   Make an appointment today to meet with one of Maicher’s tax professionals to get your return done so you can put the worries and expenses behind you.   

Sources:
IRS Publication: “Audits,” (July 31, 2020).
IRS Publication: “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges,” (July 1, 2020).
IRS Publication: “About Form 843, Claim for Refund and Request for Abatement,” (July 1, 2020).
“Tax Return Extensions: 8 Key Things To Know In 2020,” Forbes (July 8, 2020).

Independent Financial Audits – Critically Important to Your Business

independent business audit minnesotaWhen was your last independent financial audit?  Why are such audits important to your business? The experienced accountants and other professionals at Maicher CPA Pllc provide a full range of audit services to help your business succeed.

What are independent financial audits?  

First, the word “independent” generally means an audit done by a party (e.g. certified public accountant) who is external to your business (i.e. does not have ownership in or an operational role in your business, among other conditions).   Second, “financial audits” are objective evaluations of your company’s financial reports and financial reporting processes to ensure accuracy.  An audit usually involves four phases: (a) plan and design of the audit approach, (b) performing a test of controls and substantive test of transactions, (c) performing analytical procedures and tests of details of balance, and (d) completing the audit and issuing an audit report.  In general, these steps require the auditor to: examine source documents, obtain third party confirmations, conduct physical inspections, and test internal controls, among other things.  

Why are independent audits so important?

First, the audit aims to ensure that your business is tax compliant with respect to IRS rules and regulations.  An independent auditing firm can evaluate your business without the fear of repercussions if it discovers a deficiency.   On the other hand, an internal auditor (e.g. your in-house bookkeeper) may face personal blame for a deficiency and therefore be inclined to sweep a problem under the rug which almost always compounds it.   Second, an independent audit provides added credibility to your financial statements enhancing your ability to obtain loans and investment capital. Third, certain types of customers, including governmental agencies, may require an independent audit in order to do business with you.  Fourth, to the extent your company has a 401(k) plan and other benefit/retirement plans, an independent audit may be required. Fifth, your internal documents, including buy-sell agreements and other succession documents, often use independent audits to calculate stock values. Sixth, independent audits help guard against fraud, embezzlement and other misappropriation committed by company insiders who can be very skilled in covering-up wrongdoing. 

If you are a business owner, there are probably several reasons why you would benefit from a professionally prepared, independent audit.  Call Maicher CPA at 612-839-1483 to discuss your audit needs.   

 

Sources:
“3 Times Your Business Should Call In The Experts For Audits,” Forbes (April 20, 2019).
“Looking To Borrow? You May Need An Audit, Review Or Compilation,” Forbes  (Nov 26, 2016). 

MONEY SAVING TIPS FOR TAX RETURNS

At Maicher CPA Pllc, our tax preparation professionals are committed to minimizing your taxable income and preparing tax returns which reduce the risk of audits.   There are several proactive things you can do as a client to promote these objectives:  

  1. Review Your W-2s and 1099s.   W-2/1099s reports are usually received by employees/contractors by the end of January.  Review these reports because sometimes they overstate/understate income or otherwise misreport withholdings.  In the event of an error, promptly contact your employer to correct the error.   
  2. Retain Proof of Common Deductible Expenses.  Common deductions with applicable 2019 dollar limits include:  (a) home mortgage interest (i.e. the interest on a loan used to buy, build or improve your home) applies to loans of up to $750,000 for married taxpayers filing jointly and $375,000 for married taxpayers filing separately, (b) IRA contributions up to $6,000 ($7,000 for age 50 or older), and (c)  state/local taxes up to a combined total of $10,000 ($5,000 for married taxpayers filing separately). To make sure these deductions aren’t missed, keep documents showing the contribution such as canceled checks and/or account statements. 
  3. Dependent Children.  In 2019, the child tax credit is $2,000 per qualifying child and is refundable up to $1,400.  Be sure to provide us with the social security number of all dependent children.
  4. Charitable Donations.  You may deduct certain qualifying charitable donations.   Be sure to provide us with the related receipts, canceled checks, and similar documentation.
  5. Business Expenses.   If you purchased an item needed for your job and your employer does not reimburse you for that expense, the item may be deductible.  Further, if you are self-employed, many items used to conduct your business may also be deductibles such as computers, office furniture, marketing/advertising expenses, and mileage (58 cents/mi.).  Keep receipts and related documents concerning the above purchases. 

Maicher CPA Pllc prepares tax returns focused on minimizing your tax liabilities.   As the July 15 tax due date rapidly approaches, call us to prepare your return, or perhaps to file your extension request. 

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).