Nuts with Taxes: Recent Episodes
Stephen B. Jordan
The Child Tax Credit (CTC) is designed to give an income boost to parents or guardians of children and other dependents. It only applies to dependents who are younger than 17 as of the last day of the tax year.
The CTC is worth up to $2,000 per dependent, but your income level determines exactly much you can get. You need to have earned at least $2,500 to qualify for the CTC. The CTC is reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds a threshold amount ($400,000 for a joint return or $200,000 for any other filing status).
The $500 Credit for Other Dependents (aka “Family Tax Credit”) was signed into law as part of the 2017 Tax Cuts and Jobs Act and is in effect for tax years 2018 through 2025.
The credit allows taxpayers a credit for certain dependents that don't qualify for the Child Tax Credit, such as qualifying children age 17 or older, adult dependents, and dependents who have an ITIN.
To be eligible for this credit, the person(s) being claimed must fit the definition of a qualifying child or a qualifying relative and be a dependent.
How §530 Protection Works: §530 safe harbor provisions allow protection from liability or payment if the person or business can show a good faith effort to comply with the law. Typically, this means compliance with three specific requirements. §530 Relief lists three requirements for receiving a "safe harbor" exemption. All three must be present:
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Consistently prepared 1099-MISC forms, each year, for all the workers in this case (Reporting Consistency).
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Treated all similar workers as independent contractors (Substantive Consistency)
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Can show treating the workers as independent contractors is an industry-standard (Reasonable Basis)
Shareholder Basis is next. When you take money out of an S-Corp, it should always be accounted for as either S-Corp distributions or dividends (like Proprietor’s Drawing), salaries-to-officers, commissions, bonuses, or loans.
Marriage changes a lot of things and taxes are on that list. Newlyweds should be cognizant of how their new filing status, Married-filing-Joint, affects their tax situation. Here is a checklist of items for newly married couples to review?
S-Corporations are corporations electing to pass corporate income, losses, deductions, and credits through to their shareholders (via Form K-1) for federal tax purposes. Shareholders of S-Corps report the flow-through of income and losses on their personal tax returns (Form 1040) and are assessed tax at their individual income tax rates. This allows S-Corp’s to avoid double taxation on their corporate income.
A Backdoor Roth IRA is a way for people with high income to sidestep the Roth's income limits. Basically, you invest non-deductible money in a Traditional IRA, convert the account to a Roth IRA, pay any tax on the Traditional IRA earnings and you are done.
A company's Balance Sheet and Income Statement are linked through Net Income for the period, and any subsequent increase, or decrease, in Owner Equity that results. Accountants refer to the Income Statement accounts (such as; Revenues, Expenses, gains, losses) as "Temporary accounts", because their balances will be closed and transferred to the Owner's Equity (i.e. Capital) account at the end of the year.
As a responsible employer, it’s important to prepare and issue 1099's to recipients, and file them with the Service without delay.
Tax rules related to disposition of property, §1231: whether it is ordinary or capital, as well as, how to figure, treat & report a gain or loss.
Congress approved depreciation and expensing rules for property used in business, to stimulate the economy by encouraging business owners to buy new assets.
§168 requires depreciation to be calculated using the appropriate Method, Recovery Period and Convention. These are defined in §168(b) - (d).
Hiring a contract worker may save a business money on payroll taxes, health benefits, paid vacation, sick time and other employee benefits, but there are limitations on hiring a contract worker over an hourly or salaried employee, and vice versa.
The Service closely monitors businesses to be sure they are properly classifying workers as independent contractors when they should be employees?
The Service has an open invitation to audit individuals, who are overly aggressive with tax deductions and credits?
If you have a choice, and are in good health, think seriously about waiting as long as you can to take your benefits (but no later than age 70)?
When selling your primary residence, you may qualify to exclude all or part of any gain on the sale, under §121.
Clear answers on facts and circumstances, and understanding how the Court decides the “Right to Control” in the means of achieving desired results?
It's a controversy, because IRS has access to the backup files, including periods not under audit?