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 for which: 75 percent or more of its gross income for the tax year is from passive income,…
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Tax Time Bomb: Passive Foreign Investment Companies
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. When you buy real property, you typically break it into two assets for depreciation purposes: land, which is non-depreciable; and building (residential…
Tax Implications of Goodwill
Here’s a primer to help you avoid confusion about goodwill: As the seller, you have self-created goodwill when the total sales price of your business exceeds the fair market value of its assets, both tangible and intangible. You have acquired goodwill when you purchase the assets of another company for more than the value of…
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 gives you the tax reform road map on how to do this. Of course, to make this happen, you need to…
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 for supper money is subject to a 50 percent cut for amounts paid during tax years 2018 through 2025. The regulations…
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 are good news. Here are some highlights: Technical Termination Rule Repealed (Good) Under prior law, a partnership or an LLC treated as…
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 exclusion works today. You must divide your period of home ownership into two categories—qualified and nonqualified use: Qualified use means the time…
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 don’t have a log for mileage, what is the IRS examiner…
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 to you: Your spouse’s income is free from self-employment tax. You and your spouse both still qualify for the new pass-through…
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 need the property, of course). As in years past, the Section 179 deduction is available for both new…
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 regulations to put the kibosh on your state’s creative plans. Unless federal lawmakers change their minds, your federal deductions for state income…
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 through October, Edward Andrews lived in Lynnfield, Massachusetts, where he owned and operated Andrews Gunite…
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 primarily for the benefit of your employees—other than employees who are officers, shareholders, or…
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 in its instructions explains that wages and other ordinary and necessary business expenses of…
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 following federal income tax–defined terms: Personal home Tax home Business travel Business transportation We know you don’t have an…
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 hurry. You may be able to use a simple strategy to ease this tax burden. If you own an office building or other assets, you can set up a rental arrangement with your spouse that could…
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 itemized deductions for tax years 2018 through 2025. This means you need to look for…
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 question: If your chance of qualifying for the 20 percent tax deduction looks bleak, what…
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 substantially increases your chances of an IRS audit. The tax code contains a business…
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 payments that are required under post-2018 divorce agreements. More specifically, the TCJA’s new denial of alimony tax…