Sinopoli & Sinopoli CPAs PC

Business owners know employee health care benefits are expensive. Therefore, your business may want to provide some of these benefits through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs are a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. An eligible employee must be covered by a high deductible health plan. For 2020 and 2021, a high deductible health plan has an annual deductible of at least $1,400 for self-only coverage, or $2,800 for family coverage. For 2020, an individual can contribute $3,550 in ($7,100 for a family) to an HSA. This is increasing to $3,600 and $7,200, respectively, for 2021.

Are you thinking about selling stock at a loss to offset gains that have been realized during 2020? If so, it’s important not to run afoul of the wash sale rule. Under this rule, if you sell stock or securities for a loss and buy substantially identical stock or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes. The rule is designed to prevent taxpayers from using the tax benefit of a loss without parting with ownership in a significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent buying the stock back before it’s even sold. We can answer any questions you may have.

Owners of closely held corporations often want to withdraw money from their businesses at a low tax cost. The simplest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient, since it’s taxable to you to the extent of your corporation’s earnings and profits. And it’s not deductible by the corporation. But there are alternatives that may allow you to withdraw cash and avoid dividend treatment. For example, you might be able to receive capital repayments, or obtain reasonable compensation for you, as well as certain fringe benefits. Contact us if you’d like to discuss these or other ideas to tax-efficiently get cash out of your corporation.

IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is selected. But with proper preparation and planning, you should fare well. But it helps to know what might catch the attention of the IRS. For example, some audit red flags are unusually high deductions, major inconsistencies between previous years’ tax returns and the current one, profit margins and expenses markedly different from those of similar businesses. The IRS normally has three years within which to conduct an audit. If the IRS selects you for an audit, we can help you understand the issues, gather the needed documents and respond to the inquiries effectively.

You may wonder if and how disability income is taxed. It depends on who paid for the benefit. If the income is paid directly to you by an employer, it’s taxable to you as ordinary salary would be. (Taxable benefits are also subject to federal tax withholding, although they may not be subject to Social Security tax.) Sometimes, payments aren’t made by an employer but by an insurance company under a policy providing disability coverage or other insurance. In this case, the tax treatment depends on who paid for the coverage. If an employer paid, the income is taxed to you just as if paid directly to you by the employer. But if it’s a policy you paid for, the payments you receive aren’t taxable.

Unfortunately, COVID-19 has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability for what’s known as the Trust Fund Recovery Penalty. There may be other responsibilities. Contact us to discuss these issues and to get answers to any questions.

In some cases, investors have related expenses, such as the cost of subscriptions to financial periodicals and clerical expenses. Are they tax deductible? Currently, they’re only deductible if you can show that your investment activities rise to the level of carrying on a trade or business. In that case, you may be considered a trader, rather than an investor. A trader is entitled to deduct investment-related expenses as business expenses. A trader is also entitled to deduct home-office expenses if the home office is used exclusively on a regular basis as the trader’s principal place of business. However, be aware that trader status is difficult to achieve. Contact us with questions.

Do you buy or lease computer software to use in your business? Do you develop software for use in your business, or for sale or lease to others? You should be aware there are complex rules that may apply to determine the tax treatment of the expenses. The rules depend on whether the software is purchased, leased or developed by your business. For example, you must deduct amounts you pay to rent leased software in the tax year they’re paid, if you’re a cash-method taxpayer, or the tax year for which the rentals are accrued, if you’re an accrual-method taxpayer. We can assist you in applying the tax rules for treating computer software costs in the way that is most advantageous for you.

COVID-19 has resulted in many changes in our lives, and some of them have tax implications. For example, many employers have required employees to work from home. Unfortunately, employee business expense deductions (including expenses to maintain a home office) are disallowed from 2018 through 2025. However, if you’re self-employed and work from a home office, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules. Another tax-related situation involves people who are laid off and collecting unemployment benefits. Be aware that these benefits are taxable and must be reported on federal income tax returns for the tax year received.

The business use of websites is widespread. But determining the proper tax treatment for the costs involved in developing a website can be difficult. The IRS hasn’t yet released formal guidance on when website costs can be deducted, so you must apply existing guidance that’s available on other costs to the issue of website development costs. The exact treatment of website design costs depends on whether they’re software or hardware and whether they’re part of a start-up business. If you hire third parties to set up and run your website, payments are currently deductible as ordinary and necessary business expenses. Contact us if you have questions or want to plan for website costs.

Here are a few key tax-related deadlines for businesses and other employers during Quarter 4 of 2020. OCT. 15: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2019 income tax return. NOV. 2: Report income tax withholding and FICA taxes for Q3 2020 (unless you’re eligible for a Nov. 10 deadline because you deposited on time (and in full) all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2020 estimated income taxes. Contact us for more about the filing requirements and to ensure you’re meeting all applicable deadlines.

Despite the pandemic, the National Association of Realtors reports that existing home sales and prices are up nationwide, compared with last year. If you’re a homebuyer, you may wonder if you can deduct mortgage points paid on your behalf by the seller. Yes, you can, subject to some important limitations. For example, the rule allowing a deduction for seller-paid points doesn’t apply to points that are allocated to the part of a mortgage above $750,000 ($375,000 for marrieds filing separately) for tax years 2018 through 2025 (above $1 million for tax years before 2018 and after 2025). It also doesn’t apply to points on a loan used to improve (rather than buy) a home and in other situations.

The IRS has issued guidance to employers about the presidential action to allow employers to defer certain payroll taxes. Notice 2020-65 was issued to implement President Trump’s executive memo signed Aug. 8. The deferral involves wages or compensation paid to an employee beginning Sept. 1, 2020, and ending Dec. 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or an equivalent amount in other pay periods. The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning Jan. 1, 2021, and ending April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021.

Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person or a combination. In any event, parents may be eligible for certain tax breaks to help defray the cost of education. For example, with the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 for each full-time college or grad school student. This applies to qualified expenses including tuition, room and board, books and computer equipment and other supplies. But the credit is phased out for moderate-to-upper income taxpayers. This is only one of the tax breaks available for education. Contact us for assistance in your situation.

If you’re getting close to retirement, you may wonder: Will my Social Security benefits be taxed? It depends on your other income. If you’re taxed, up to 85% of your payments could be hit with federal income tax. If you file a joint tax return and your provisional income, plus half your Social Security benefits, isn’t above $32,000 ($25,000 if unmarried), none of your benefits will be taxed. If it falls above those amounts, you must report a certain percentage of your benefits as income. If you know your Social Security benefits will be taxed, you can arrange to have the tax withheld from the payments. Otherwise, you may have to make estimated tax payments. Contact us for more information.

You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide variety of qualifying property. There are some important points to be aware of when it comes to this powerful tax-saving tool. For example, bonus depreciation is available for new and most used property. And it’s scheduled to phase out. Under current law, 100% bonus depreciation will generally be phased out in steps. An 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Asset depreciation can be a complex area of tax law. Contact us with questions about your situation.

The CARES Act made changes to excess business losses that affect those who hold an interest in a business (or may do so in the future). This includes changes that are retroactive and there may be opportunities to file amended tax returns. The CARES Act made several retroactive corrections to the excess business loss rules as they were originally stated in the 2017 Tax Cuts and Jobs Act. Most importantly, the law clarified that deductions, gross income or gain attributable to employment aren’t taken into account in calculating an excess business loss. This means that excess business losses can’t shelter either net taxable investment income or net taxable employment income.