Aaronson Lavoie Streitfeld Diaz

Capital Gains, Kids, Common Law!

Rich Streitfeld, CPA — Wed, 04 Mar 2020 14:51:51 +0000

Frequently Asked Tax Questions!

Q: We have been living together for a while. We bicker, are not married. How should we file?
A: Grace and Frankie, interesting question! Only a handful of states, including Rhode Island, still recognize some form of common-law marriage. Thus, if you meet the state requirements you can file a joint return for Rhode Island AND the IRS. There is no simple test for common-law marriage. The guidelines include intent, length of cohabitation and the way you present yourself to the public. (In fact, filing jointly is itself considered evidence of your intent.) While it is a self-assessment, be careful — if you end up divorcing, then the court will examine whether you in fact met the criteria. (Take Note

Q: My son, Amadeus, such a prodigy! Tax benefit for his composition lessons?
A: Why yes, Miss Moztaht. Until your toddler reaches age 13, as long as both you and Mr M each have sufficient “earned income”, you may take a small “child and dependent care credit” for Wolfy’s lessons. Summer day camps count as well You must report the name and EIN/SSN for providers of the services.

Q: Me again. Now Wolfy, he also TAUGHT music lessons. How do I report HIS earnings? Isn’t he still a dependent?
A: If he earned more than $12,200 he must file a tax return — or if he made ANY amount and had $ withheld and you want the money back. YOU should claim him as a dependent AND he must check the box that he is claimed as a dependent on another’s return, on HIS return.

Q: How do I defer capital gains on the sale of my home?
A:TB12, those rules went away for most filers in the 90’s! Since that time, as long as you meet the rules for primary residence and do not exceed $500,000 in profit ($250,000 for single filers), NO WORRIES. Oh — you PAID $20,000,000 for your home? In that case, or if your home is an owner occupied rental contact Rich!

Tax Briefs, Rich’s Pet Peeves A Tale Of Two Sisters

Rich Streitfeld, CPA — Sat, 08 Feb 2020 15:33:22 +0000

Hello Rich,
Happy New Year! Tax season is upon us — okay, ME. Here are some brief suggestions, reminders and cautions. My aspiration for 2020 — not to give up, on my community, country, planet. Best wishes — Rich

Not Every Meal Is Deductible!

Not every meal or beverage you take in during business hours is deductible. If you are not traveling, then every meal must have a business purpose AND shared — with a client, prospect, colleague (or your CPA!). When I see a $5.00 charge for Starbucks every day, I see red flags marching toward my client. (If you are traveling for business overnight you may dine alone and still deduct the meals.)

Not All Donations Must Be In Cash

Your donations of goods — to Goodwill, the landing dock at Savers (beneficiary is Big Brothers/Big Sisters) are deductible, as long as you are able to itemize (see last issue.) This is tricky — you get a slip that gives you a one line summary of what you gave — but what of the value for tax purposes?
Check out this handy guide from the Salvation Army. Of course it cannot be specific to your situation but try to stay reasonable. If Rich deducts $2,500 for a new bedroom set every year or $500 annually for his snazzy art ties it may not pass the smell test. The value is what it would sell for at a thrift store, Charlotte — not what you bought it for! Lots of us shop these places so we already have a sense.

What I Never Hear On Campaign Trails

My quadrennial kvetch. College is exorbitant, whether paid through student loans or from savings. usually a combination. And we are told a college education is the best pathway to earning a decent living. Right?
So look at the meager tax incentives available for higher ed. If you are a single parent with student loans and make over $85,000??, no credit for you. If you are married and together earn over $160,000 — and working overtime to put James and Miranda through university — well, bye bye to any (often minimal), help through the ‘tuition and fees” deduction.

A Tale Of Two Sisters

My favorite photo, in the world. On the right, my Mom, Ruth Streitfeld. To the left, beloved sister Esther Solomon. Taken by her husband Frank (only he survives), circa 1960 @ Jones Beach on Long Island.

Said photo repainted by friend and artist extraordinaire Robin Hogg. What a likeness she evoked! Hanging in my home office, will be on display at next Hope’s Alive Art Parties!

NO TRICK, YOUR TREAT!

Rich Streitfeld, CPA — Fri, 08 Nov 2019 12:03:48 +0000

SUN-SET!

Thinking about going solar? The current, lucrative 30% Federal tax credit will decrease to 26% in 2020 and then to 22% for units “put into service” during 2021. Then ZERO for residential units, and a reduced rate for commercial properties for a couple of years. Even with the credit, it can be an expensive — and time consuming — undertaking. Don’t let this chance “flame out.”

Don’t My Contributions Count Anymore?

Complicated and important question. The federal income tax changes that took effect in 2018 raised the “standard deduction” significantly AND limited the amount of taxes that could be deducted to $10,000. As a result, the vast preponderance of taxpayers now take the standard deduction, ( a fixed amount, based on your filing status) as it is usually more beneficial than the itemized deductions– which include separately stated items like mortgage interest, taxes and contributions. I have noticed the change especially with married homeowners with modest contributions — their donations do not affect their taxes as they used to. Of course, they still “count” for the nonprofit recipients.

Rich CPA Speaks: LLC or S-CORP?

While both structures offer legal protections, there are important distinctions to consider. Yes, I DID show this in the last newsletter, six months ago. As it is creeping up on year-end, I have elected to show it again.

Does my Non-profit or Business Have to Now Pay Tax on Employee Parking?

Adam Diaz — Thu, 06 Jun 2019 16:39:45 +0000

Do you provide free parking for your employees? Thanks to a change made by the Tax Cuts and Jobs Act (TCJA), this may no longer be tax free. Essentially, the TCJA amended Section 274(a)(4) to provide that expenses paid or incurred by employers to provide employee parking are (generally) no longer deductible by for-profit companies. If your organization is a non-profit and provides parking to its employees, it may now need to pay unrelated business income tax (UBIT) on the cost of that parking
benefit and report it on Form 990 –T, Exempt Organization Business Income Tax Return. Here is the detail, but it is confusing and you probably will want to call your ALSD partner or staff member to discuss how this might impact you.

Detail –

IRS Notice 2018-99 provides guidance for determining the nondeductible amount of parking expense, if your organization is a for-profit company, as well as the amount that would increase Unrelated Business Taxable Income (UBTI), if your organization if a non-profit. The appropriate method depends on whether the organization pays a third party for employee parking or if the organization owns or leases a parking facility where its employees park. If an organization pays a third party for employee parking in the third party’s parking lot or garage, the Section 274(a)(4) disallowance (foregone tax deduction for a for-profit company or amount required to be
added to Form 990T as UBTI for a non-profit) generally is calculated as the organization’s total annual cost of the employee parking paid to the third party up to $265 ($260 for 2018) per month per employee. If parking expenses amount to more than $265 per month per employee ($260 for 2018), the excess needs to be included in the employees’ income and would deductible as wages if a for-profit organization. If an organization is a nonprofit organization, then excess would be added to employees’ wages but would not be added to Form 990-T as UBTI. If an organization owns or leases all or a portion of a parking facility for its employees, IRS Notice 2018- 99 proposes a four-step method to determine the amount of UBTI. This may be used as a safe harbor until final guidance is issued.

There have been so far unsuccessful efforts to repeal this. We are following the IRS updates very closely and will keep you posted with more information as it becomes available. Please reach out to us with any questions you may have.

LLC or S-Corp, Which One is Best for Me?

Rich Streitfeld, CPA — Sun, 10 Mar 2019 18:17:08 +0000

NOTE: This article predates the tax law changes that went into effect January 1, 2018. While the structures of the various entities have not changed, there have been important changes to relevant tax rates and deductions.

Originally published on Jun 11, 2014.

My company, ALSD, incorporates businesses and organizes LLC’s. This year Triple Hcame to me for tax preparation, but first I had to unwind the erroneous structure. A very brief summary of the most popular forms of business ownership:

Sole proprietor: You are not incorporated, have no partners, and file Schedule C for self-employed individuals as part of your personal income tax. You can have a “d/b/a” and employees. There is no firewall — if Mel’s Melatonin sole proprietorship is sued for malpractice, Mel’s Bonnet Shores beach cabana is fair game.Single member LLC: Same as above, but limited liability protection . Some states charge annual franchise tax or registration amounts (RI $400 and Mass, yep, $500).S- Corp:: Legal firewall, and major owners are paid primarily through salary; and Mel’s Melatonin, Inc. would file a separate tax return. But as a “pass-through entity” any resulting income or loss is reported on the shareholders’ personal tax returns . There are some significant tax savings available to S-corporations. State fees may apply. I am partial to S-Corps in the right circumstances.

Multi-member LLC: Legal firewall, and a separate tax return but different business structure and more flexible rules for ownership –e.g. S-Corps are limited to 100 owners and these must be U.S. citizens. No such restrictions with LLC’s. LLC’s are essentially partnerships but may choose to be taxed as corporations. Confused yet, Mel?!

C- Corporations: As opposed to S-Corps and LLC’s, these are not pass-through entities. Mel’s Melatonin would pay its own taxes. C- Corps are less popular for smaller businesses because of the possibility for double taxation. However there can be distinct benefits for larger entities. Publicly traded entities must be C-Corps and they tend to be the preferred choice if you are looking for venture capital/equity investors.

There is no shortage of advice for Herman, but the adviser needs to understand the client’s real-life operation under a given structure. It’s no use telling Mel to be a corporation if she will not deal with paying herself a formal salary — she’ll end up abusing the structure and making things more complicated and expensive. It won’t help Herman to be an LLC if he co-mingles his personal and business assets and expenses — sorry, all those checks for Junior’s private school you paid out of the business account are strong weapons for an aggrieved party to sue and “pierce the corporate shield”. In other words, the corporate protection you have invested in may not hold up if you use it improperly.Choosing the wrong structure can set you back. Triple H, whose business structure I had to unwind, has $10,000 of annual income and one owner. Established as a corporation, he should have been on salary but was not advised of that. Actually, it would have been far simpler for him to be an LLC. It’s best to understand the implications of each form of ownership before you dive in.

NOTE: Every situation is different and federal and state tax laws are subject to change. This article is presented exclusively for informational purposes and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional. Names may have been changed for illustration purposes.

FAMILY TAX CREDIT

Rich Streitfeld, CPA — Sun, 10 Mar 2019 17:01:22 +0000

HIDDEN CREDIT!

‘I’m only interested in locating wealthy relatives.’

Almost forgotten in the new tax law is an expansion of the Child Tax Credit beyond age 17. Now,you may be eligible for a (nonrefundable) $500 credit for certain dependents who you claim on your tax return. Specifically, any child who meets the dependency tests is eligible if under age 19 or if under age 24 and a full-time student. A disabled child of any age qualifies as do “qualifying relatives” — a very specific term, which includes — of course — unrelated individuals!

HOWEVER, only very specific AND related individuals can be claimed as dependents (and thus be eligible for the new credit WITHOUT living with you the entire year. Others — such as nephews, nieces, friends and strangers who you happen to feed for a year MUST live with you. If you have not yet abandoned me, you can use the IRS’s “interactive tool” (no you cannot talk to it like Siri.)

This credit (credits are dollar for dollar reductions in your tax liability, thus better than deductions, which merely reduce your “taxable income”.) is non-refundable, which means once your tax liability hits zero (if it does!) you are ineligible for the credit. The original Child Tax Credit is partially refundable.

HOWEVER, only very specific AND related individuals can be claimed as dependents (and thus be eligible for the new credit WITHOUT living with you the entire year. Others — such as nephews, nieces, friends and strangers who you happen to feed for a year MUST live with you. If you have not yet abandoned me, you can use the IRS’s “interactive tool” (no you cannot talk to it like Siri.)

This credit (credits are dollar for dollar reductions in your tax liability, thus better than deductions, which merely reduce your “taxable income”.) is non-refundable, which means once your tax liability hits zero (if it does!) you are ineligible for the credit. The original Child Tax Credit is partially refundable.

I Can Deduct That? Cesspools, Subsidies And Summer Camp

Rich Streitfeld, CPA — Fri, 18 Jan 2019 13:15:00 +0000

Happy New Year! With the major changes in the income tax law, I wanted to highlight some existing provisions you might not know about or understand.

Did You Know?

The change in the itemized/standard deductions in no way affects your ability to claim business or rental deductions.

If you receive health insurance subsidies through Obamacare, you will receive Form 1095-A, used to reconcile the subsidies to your actual taxable income. You may pay more or less tax as a result. This is NOT affected by Congress’ elimination of the individual mandate, which takes effect in 2019

If you file a Rhode Island return and contributed to the State’s 529 College Savings Plan, you are eligible for a deduction from income of up to $500 or $1000 (depending on your filing status) when you file the RI return

Many businesses are not aware of the Research and Development tax credit, available both federally and in many states (including Rhode Island and Mass). Not your garden variety credit.E-mail me early to explore.
Cesspool overflowing? If you live in Mass, you may qualify for up to $15,000 in state credits ($1,500/ year) for repair of failed systems.
If you paid for your child(ren) age 13 or under to attend day camp or after school activities, you may qualify for the Child and Dependent Care Credit.

Will My Contributions Still Count? Tax Change Delights Part II

Rich Streitfeld, CPA — Wed, 12 Dec 2018 16:01:11 +0000

This issue of Dispatches discusses the impact the new tax law has on charitable contributions. I hope it is useful to you.

What’s Changed

The tax law that took effect this year nearly doubled the standard deduction, making it likely that only about 10% of taxpayers will now be itemizing deductions. Therefore, unless your state and local taxes (capped at $10,000), mortgage interest, contributions and other deductions exceed $24,000 (married filing joint), $18,000 (head of household) or $12,000 (single) you will be among the estimated 90% of taxpayers who now claim the standard deduction.

Will My Contribution Still Be Deductible?

Your donation of cash, stock or other property is still eligible for deduction if made to a qualified charitable organization (501-c-3). However, if your standard deduction exceeds all of your itemized deductions (including contributions) then you are not realizing a tax deduction from your charitable contributions. Many tax exempt organizations are concerned that fewer people will donate because they will not be reaping a direct tax benefit.Some advisors have recommended combining a couple of years’ donations into one, in an effort to exceed the standard deduction for that particular year, and still help the charity.

Using Donated Stock As A Strategy

If you have “losers” in your investment portfolio, you can sell them, take a capital loss (capped at $3,000 per year) and donate the proceeds to charity and use the contribution to increase your deduction (if you itemize). Conversely, you can donate “winners” to charity, avoid capital gains taxes and again increase your deduction (if you itemize.)

Just Passing Through Edition Tax Change Delights Part I

Rich Streitfeld, CPA — Mon, 26 Nov 2018 15:45:54 +0000

The tax law that went into effect 1/1/18 contains a major new business deduction (“199-A”) for self-employed folks and pass-through entities. The broad strokes are clear, the details are mind-boggling. Highlights:

Applies to sole proprietors, S-Corps, partnerships…
The net income of the business subject to tax at the individual owner level is reduced by 20%. So for S-Corps, partnerships and the like the deduction is taken not by the business but passed through to the shareholders or members.
That deduction is taken “below the line” of adjusted gross income; therefore it does not reduce self-employment tax.income; therefore it does not reduce self-employment tax.
Deduction phases out between $157,500 and $207,500 (single ) and between $315,000 and $415,000 (married filing joint) for owners and members of traditional service businesses like accountants, attorneys, consultants, financial service professionals and physicians and other specified professions. Again, these limitations kick in on the individual tax return level.

For non-service businesses (as well as engineers and architects, even though they are service businesses), the “pass-through” recipients of the deduction are entitled to the full deduction up to $157,500/$315,000 as described above. Beyond those thresholds their ability to take the deduction is based on a complex formula related to wages paid to employees and depreciable assets owned by the business.
“Section 199-A” applies to federal income tax. Whether it applies to your state income tax depends on your specific state’s income tax provisions.
Rental income may qualify for the deduction, subject to the limitations discussed in #5 above, as well as other specific provisions beyond the scope of this article.
Deduction was promoted as a boon to small business, but apparently some higher income taxpayers will also benefit.
More complexities will apply!

Contact your tax professional for a more detailed analysis of how this complicated provision will impact your specific situation.