Hayden, Narey & Persich
Certified Public Accountants
Hayden, Narey & Persich
Certified Public Accountants
About 830,000 taxpayers are having their tax refunds held up due to the move away from paper checks and Democratic leadership on the House Ways and Means Committee is seeking information on what the IRS is doing to expedite the issuance of those refunds.
About 830,000 taxpayers are having their tax refunds held up due to the move away from paper checks and Democratic leadership on the House Ways and Means Committee is seeking information on what the IRS is doing to expedite the issuance of those refunds.
House Ways and Means Subcommittee on Worker and Family Support Ranking Member Danny Davis (D-Ill.) and Subcommittee on Oversight Ranking Member Terri Sewell (D-Ala.), in a March 9, 2026, letter to IRS Acting Commissioner Scott Bessent, noted that to date 530,000 notices have been sent to individual taxpayers who did not include bank account information on their tax returns and are planning to send another 300,000 notices this week.
“As a result of President Trump’s Executive Order 14247 mandating electronic payments of tax refunds, these taxpayers could face more than a 10-week delay (over 2.5 months) in receiving their refunds by paper check,” the letter states, adding a National Taxpayer Advocate citation stating that more than 10 million individual taxpayers received their refunds by check.
They continued: “Having reviewed the IRS notice and called the IRS phone lines, we learned that there is no simple process for these taxpayers to request an immediate release of their refund by paper check without waiting at least 10 weeks. Effectively, the President, unilaterally through his Executive Order, is causing undue hardship on millions of Americans by delaying their paper refunds for months. This delay is not mandated by the Internal Revenue Code.”
The ranking members ask Bessent a series of questions, including how IRS taxpayers without an online account can apply for a paper check and immediate release of funds; how many notices have been sent and are expected to be released; how many tax payers have exceptions have been successfully filed; and how many paper checks have been mailed to date.
The representatives asked for answers by March 23, 2026.
By Gregory Twachtman, Washington News Editor
The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2026 and the lease inclusion amounts for business vehicles first leased in 2026.
The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2026 and the lease inclusion amounts for business vehicles first leased in 2026.
The luxury car depreciation caps for a passenger car placed in service in 2026 limit annual depreciation deductions to:
The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2026 are:
If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.
The annual cap for this excess depreciation is:
If a vehicle is first leased in 2026, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:
The 2026 lease inclusion tables provide the lease inclusion amounts for each year of the lease.
The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.
The depreciation caps and lease inclusion amounts do not apply to:
So taxpayers who want to avoid these limits should "think big."
The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes.
The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes. Guidance is also provided on the early election or revocation of a controlled foreign corporation (CFC) CFC group election.
A taxpayer’s deduction of business interest expenses paid or incurred for the tax year is generally limited under section 163(j) to the taxpayer’s business interest income for that year and 30 percent of the taxpayer’s adjusted taxable income (ATI). The deduction limit does not apply to certain excepted businesses, including an electing real property trade or business, electing farming business, or regulated utility trade or business.
The election applies to the current tax year and all subsequent tax years. The election is irrevocable but may automatically terminate in certain circumstances. An electing real property trade or business or electing farming business that elects out of the section 163(j) limit must depreciate certain property using alternative depreciation system (ADS) and as a result cannot claim bonus depreciation for that property.
An election to be an excepted trade or business for the section 163(j) business interest limit may be withdrawn for the 2022, 2023, and 2024 tax year. The withdrawal is made by attaching a statement to the taxpayer’s amended income tax return, amended Form 1065 , or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitations per the IRS guidance.
A taxpayer that receives an amended Schedule K-1 as a result of an amended return or Form 1065 should similarly file an amended return, amended Form 1065, or AAR with a similar attached statement. If a taxpayer withdraws an election, the taxpayer will be treated as if the election had never been made.
A taxpayer that is withdrawing an excepted trade or business interest election under section 163(j) must determine its depreciation deduction and basis for the property that is affected by the withdrawn election in accordance with Code Sec. 168. A taxpayer that makes the withdrawals may make a late election under Code Sec. 168(k)(7) to opt certain property out of bonus depreciation on the same amended Federal income tax return, amended Form 1065, or AAR filed for withdrawing the section 163(j) excepted trade or business election.
A taxpayer that is a designated U.S. person may revoke or make a CFC group election without regard to the 60-month limitation of § 1.163(j)-7(e)(5)(ii) for the first specified period of a specified group beginning after December 31, 2024. A taxpayer that chooses to revoke the election or make a new election must follow all procedures specified in the regulation other than the 60-month limit. In addition, the 60-month limitation applies to subsequent specified periods.
Internal Revenue Service CEO Frank Bisignano highlighted the early successes of the tax provisions in the One Big Beautiful Bill Act before the House Ways and Means Committee while defending or deflecting critical commentary from the panel’s Democratic representatives.
Internal Revenue Service CEO Frank Bisignano highlighted the early successes of the tax provisions in the One Big Beautiful Bill Act before the House Ways and Means Committee while defending or deflecting critical commentary from the panel’s Democratic representatives.
In his opening statement during the March 4, 2026, hearing, Bisignano noted that the tax benefit to individuals under these provisions is “estimated to be $220 billion,” noting key aspects like the no tax on tips, no tax on overtime, and the Trump accounts helping to pave the way to the benefits.
He also highlighted the growth of 43 percent in usage of online tools, which he said is coinciding with a decrease in demand for phone service.
“Our goal is for taxpayers is our transformational efforts to create a seamless customer experience where taxpayers can interact with the IRS with the same ease they expect from the private sector,” Bisignano told the committee.
Bisignano during the hearing framed AI simply as a tool in the technology toolbox and stated that he didn’t simply want to “modernize” IRS systems because all that does is lead to future obsolescence, but framed information technology upgrades as “transforming” the systems to be able to evolve with technology, which “will increase compliance and increase simplification.”
He was put on the defensive on the subject of audit rates, with questions suggesting that the agency is not doing its job in terms of auditing high income and other wealthy taxpayers, which will lead to a greater tax gap.
Bisignano tried to interject that there was a $2 billion settlement reached but was not given an opportunity to expand upon the circumstances around the recovery, as Rep. Mike Thompson (D-Ca.) noted that “fewer audits of wealthy tax cheats and more scrutiny of working families” doesn’t build “trust among the American taxpayers.”
In answering a separate question regarding audit rates, he pushed back on the increase or decrease in audit rates, testifying that there has never been a standard audit rate that has been proven to be the right number and it could be more or less than where things are at now.
Bisignano defended the cutting of the National Treasury Employees Union contract, stating that by statute, federal employees already have “greater benefits that any union in the world can provide for their people,” including pay, health, and other benefits that are guaranteed by law. “So they are losing nothing,” he said.
He also defended the elimination of the Direct File program, citing its lack of utilization and its costs to operate the program, while promoting Free File as “well-received” and a well-used and trusted program.
Bisignano avoided any discussion regarding the IRS turning over taxpayer information to the Department of Homeland Security without proper authorization, noting that litigation on this issue was still ongoing. He confirmed that so far, no one has been fired or disciplined for this unauthorized information transmission.
He also would not commit to opening any of the closed Taxpayer Assistance Centers, noting that the current centers were experiencing increased activity, although he did add that there were no plans to close any of the existing centers.
Bisignano told the committee that the IRS will be implementing a provision that for tax year 2025, carry forward amounts of the adoption credit for prior years are refundable up to $5,000 per qualifying child, “and the IRS is implementing this policy as expeditiously as possible without disrupting the current filing season.”
He said there is will be information on this published “very soon” and that taxpayers “should continue to claim the credit as directed by the current tax forms and instructions during the tax season, since the IRS is pursuing post-filing remedies to solve this issue.”
By Gregory Twachtman, Washington News Editor
The IRS has finalized regulations to include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the list of “qualified nonpersonal use vehicles” exempt from the IRC §274(d) substantiation requirements. The final rule adopts, with only minor, non-substantive changes, the text of the proposed regulations (NPRM REG-106595- 22) issued on December 3, 2024. The amendments ensure that specially equipped unmarked vehicles are subject to the same tax treatment as other emergency vehicles used by first responders.
The IRS has finalized regulations to include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the list of “qualified nonpersonal use vehicles” exempt from the IRC §274(d) substantiation requirements. The final rule adopts, with only minor, non-substantive changes, the text of the proposed regulations (NPRM REG-106595- 22) issued on December 3, 2024. The amendments ensure that specially equipped unmarked vehicles are subject to the same tax treatment as other emergency vehicles used by first responders.
Qualified Nonpersonal Use Vehicles
IRC §274(d) requires that taxpayers satisfy additional substantiation requirements when claiming certain business deductions including the business use of an automobile or other means of transportation. A qualified nonpersonal use vehicle is any vehicle that, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes. Reg. §1.274-5(k)(2)(ii) provides a list of such vehicles, which includes, in part: ambulances; clearly marked police, fire, public safety officer vehicles; and unmarked police vehicles.
Unmarked Emergency Vehicles
Recently, some municipalities have been providing unmarked vehicles to these first responders as a response to an increase in incidents of vandalism and harassment. These unmarked vehicles are typically equipped with special equipment such as lights and sirens, medical emergency equipment, communication radios, and personal protective equipment. Most fire and emergency response departments retain the title to these unmarked vehicles and have policies that limit the use of the vehicles for personal purposes.
The intent and use of these unmarked vehicles meet the definition of qualified nonpersonal vehicles provided in IRC §274(i). However, prior to the amendments, fire and emergency response departments had to substantiate the time the first responders spent using these unmarked vehicles for work related purposes. Personal use of these vehicles, no matter how minute, was required to be included in that employee’s income.
In addition to adding unmarked rescue to the list of qualified nonpersonal use vehicles provided in Reg. §1.274-5(k)(2)(ii), the amendments add Reg. §1.274-5(k)(7) which provides the definitions for “unmarked firefighter, rescue squad or ambulance crew vehicles”, “firefighter,” and “member of a rescue squad or ambulance crew.”
The amendments apply to tax years beginning on or after the date the final regulations are published in the Federal Register. However, taxpayers may rely on the guidance provided in the proposed regulations until that date.
Proposed regulations under Code Sec. 530A, providing guidance on making an election to open a Trump account, and under Code Sec. 6434, relating to the Trump account contribution pilot program, have been issued. Comments are requested and should be submitted via the Federal eRulemaking Portal (indicate IRS and REG-117270-25 for comments related to Code Sec. 530A or IRS and REG-117002-25 for comments related to Code Sec. 6434). The proposed regulations are proposed to apply on or after January 1, 2026.
Proposed regulations under Code Sec. 530A, providing guidance on making an election to open a Trump account, and under Code Sec. 6434, relating to the Trump account contribution pilot program, have been issued. Comments are requested and should be submitted via the Federal eRulemaking Portal (indicate IRS and REG-117270-25 for comments related to Code Sec. 530A or IRS and REG-117002-25 for comments related to Code Sec. 6434). The proposed regulations are proposed to apply on or after January 1, 2026.
Code Sec. 530A, as added by the One Big Beautiful Bill Act (P.L. 119-21) provides for the creation of a Trump account for an eligible individual. A Trump account is subject to certain special rules that do not apply to other types of individual retirement accounts during the growth period, which is the period that begins when an initial Trump account is established and ends on December 31st of the year in which the account beneficiary of the initial Trump account reaches the age of 17. Proposed regulations on the special rules that apply during and after the growth period are reserved and will be proposed at a later date.
In addition, Code Sec. 6434 was added, which provides for a one-time $1,000 pilot program contribution to the Trump account of an eligible child with respect to whom an election is made. The qualifications to be an eligible child are less restrictive than those to be an eligible individual. Finally, Code Sec. 128 allows for employer contributions to a Trump account of an employee or a dependent of an employee. These contributions must be made in accordance with the rules of a Code Sec. 128(c) Trump account contribution program. Guidance on this section is expected to be released in the future.
A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. An individual can only have one Trump account containing funds in existence at a time. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A (b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.
An election to open an account can be made by either an authorized individual or by the Secretary. If a pilot program contribution election is made at the same as the election to open the initial account, the authorized individual would be the individual authorized to make (and making) the pilot program contribution election. If a pilot contribution program election is not being made, Prop. Reg. §1.530A-1(c)(1)(i)(B) provides an ordering rule to determine who the authorized individual is. In order of priority, the authorized individual would be a legal guardian, parent, adult sibling, or grandparent of the eligible individual. The election to open an initial Trump account is made on or before December 31st of the calendar year in which the eligible individual attains age 18. The election is made on Form 4547 or through an electronic application or webpage made available by the Secretary.
A pilot program election with respect to an eligible child must be made by a pilot program-electing individual so that the Secretary can make the $1,000 pilot program contribution into the Trump account of en eligible child. An eligible child is a pilot program-electing individual's anticipated qualifying child, as defined in Code Sec. 152(c), for the tax year of the pilot program-electing individual in which the pilot program election is made; is born in 2025, 2026, 2027, or 2028; is a U.S. citizen; has been issued a social security number; and with respect to which no prior pilot program election has been made by any individual and processed by the Secretary.
A pilot program election is made with respect to the eligible child's "special taxable year" (defined in Prop. Reg. §301.6434-1(c)(1)), instead of with respect to any calendar based tax year for the eligible child's federal income tax liability. Once an election is processed, the eligible child is treated as making a $1,000 payment against a federal income tax liability for the eligible child's special taxable year, resulting in a $1,000 overpayment. The overpayment is then refunded by the Secretary as a pilot program contribution to the eligible child's Trump account. The overpayment is not refunded unless the eligible child has an established Trump account.
An election may be made on the day that a child becomes eligible, and the last day to make the election is December 31st of the calendar year in which the eligible child attains age 17. In addition, only the first pilot program contribution election processed by the IRS will result in a $1,000 contribution to the eligible child's Trump account. The pilot program contribution election is made on Form 4547.
Proposed Regulations, NPRM REG-117270-25
Proposed Regulations, NPRM REG-117002-25
The IRS expects to delay the applicability date of proposed regulations on required minimum distributions (RMDs) until the distribution calendar year that would begin 6 months after the date the regulations are finalized. Specifically, the announcement relates to proposed amendments of Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23 .
The IRS expects to delay the applicability date of proposed regulations on required minimum distributions (RMDs) until the distribution calendar year that would begin 6 months after the date the regulations are finalized. Specifically, the announcement relates to proposed amendments of Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23 .
Prior to this announcement, provisions under NPRM REG–103529–23 (2024) were proposed to apply for determining RMDs for calendar years beginning on or after January 1, 2025. This ensured the provisions would begin to apply at the same time as final regulations under T.D. 10001 (2024).
Following a request for comments, concerns included difficulty to implement many provisions of future final regulations in a timely manner if the January 1, 2025, applicability date were to be retained in future final regulations.
The IRS expects future final regulations that would amend Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23, to apply to determine RMDs for the distribution calendar year that would begin no earlier than six months after the date that any future final regulations would be issued in the Federal Register. For periods before the applicability date of such future final regulations, taxpayers must continue to apply a reasonable, good-faith interpretation.
The IRS has issued a waiver for individuals who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in certain foreign countries prevented them from fulfilling the requirements for the 2025 tax year. Qualified individuals may elect to exclude from gross income their foreign earned income and to exclude or deduct the housing cost amount.
The IRS has issued a waiver for individuals who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in certain foreign countries prevented them from fulfilling the requirements for the 2025 tax year. Qualified individuals may elect to exclude from gross income their foreign earned income and to exclude or deduct the housing cost amount.
The IRS, in consultation with the Secretary of State, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the following countries, effective from the dates specified: (1) Haiti – January 1, 2025; (2) Ukraine – January 1, 2025; (3) Democratic Republic of the Congo – January 28, 2025; (4) South Sudan – March 7, 2025; (5) Iraq – June 11, 2025; (6) Lebanon – June 22, 2025; and (7) Mali – October 30, 2025. An individual who left any of these countries on or after the respective dates will be treated as a qualified individual for the period during which the individual was a bona fide resident of, or was present in, the country. To qualify for relief, an individual must establish that, but for these adverse conditions, they would have met the requirements of Code Sec. 911(d)(1). Additionally, the waiver does not apply to individuals who first established residency or were physically present in any of these countries after the respective dates listed above. Taxpayers seeking guidance on how to claim this exclusion or file an amended return should refer to the Foreign Earned Income Exclusion section at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion or contact a local IRS office.
Q. I've just started my own business and am having a hard time deciding whether I should buy or lease the equipment I need before I open my doors. What are some of the things I should consider when making this decision?
Q. I've just started my own business and am having a hard time deciding whether I should buy or lease the equipment I need before I open my doors. What are some of the things I should consider when making this decision?
A. Deciding whether to buy or lease business property is just one of the many tough decisions facing the small business owner. Unfortunately, there's not a quick answer and, since every business has different fact patterns, each business owner will need to assess every type of business property separately and consider many different factors to make a decision that is right for his or her particular circumstances.
While there are advantages and disadvantages to both buying and leasing business property, the business owner should carefully consider the following questions before making a final decision either way:
How's your cash flow? If you are just starting a business, cash may be tight and a hefty down payment on a piece of equipment may bust your budget. In that case, since equipment leases rarely require down payments, leasing may be a good choice for you. One of the biggest advantages of leasing is that you generally gain the use of the asset with a much smaller initial cash expenditure than would be required if you purchased it.
How's your credit? Loans to new small businesses are hard to come by so if you're a fairly new business, leasing may be your only option outside of getting a personal loan. As a new business, you will definitely have an easier time getting a company to lease equipment to you than finding someone to extend you credit to make the purchase. However, if you have time to search for credit well in advance of needing the equipment, you may want to purchase the equipment to begin establishing a credit history for your company.
How long will you use it? A general rule of thumb is that leasing is very cost-effective for items like autos, computers and other equipment that decrease in value over time and will be used for about five years or less. On the other hand, if you are considering business property that you intend to use more than five years or that will appreciate over time, the overall cost of leasing will usually exceed the cost of buying it outright in the first place.
What's your tax situation? Don't forget that your tax return will be affected by your decision to lease or buy. If you purchase an asset, it is depreciated over its useful life. If you lease an asset, the tax treatment will depend on what type of lease is involved. There are two basic types of leases: finance and true. Finance leases are handled similarly to a purchase and work best for companies that intend to keep the property at the end of the lease. Payments on true leases, on the other hand, are deductible in full in the year paid.
The answers to each question above need to be considered not individually, but as a group, since many factors must be weighed before a decision is made. Buying or leasing equipment can have a significant effect on your tax situation and the rules related to accounting for leases are very technical. Please contact our office before you make any decisions regarding your business equipment.
Q. Our daughter is entering college and we're considering seeking financial aid to help with tuition expenses. My spouse and I have always made the maximum contributions to our IRA accounts. Will our IRA accounts effect our child's ability to get financial aid for college costs? Should we hold off on this year's IRA contributions?
Q. Our daughter is entering college and we're considering seeking financial aid to help with tuition expenses. My spouse and I have always made the maximum contributions to our IRA accounts. Will our IRA accounts effect our child's ability to get financial aid for college costs? Should we hold off on this year's IRA contributions?
A. Go ahead and make the contributions. The child's parents' retirement assets are not taken into consideration when determining eligibility for many forms of financial aid. Therefore, neither of your regular or Roth IRA accounts should affect your child's ability to obtain federal financial aid. Please note, though, that an educational IRA established for your child would be considered an asset of your child for these purposes. Since the parents' taxable income is a main consideration when applying for financial aid, you should plan to keep your taxable income at a minimum in those years when your child is just about to enter college if you would like to obtain federal aid. Contact the college's financial aid center for more details and guidelines.
In addition, Taxpayer Relief Act of 1997 added a provision that provides penalty-free treatment for all IRA distributions made after December 31, 1997 if the taxpayer uses the amounts to pay qualified higher education expenses (including graduate level courses). This special treatment applies to all qualified expenses of the taxpayer, the taxpayer's spouse, or any child, or grandchild of the individual or the individual's spouse. "Qualified expenses" include tuition, fees, books, supplies, equipment required for enrollment or attendance, and room and board at a post-secondary educational institution.
We've all heard the basic financial planning strategy "pay yourself first" but paying yourself first doesn't simply mean stashing money into your savings account - debt reduction and retirement plan participation also qualify. Paying yourself today can result in a more comfortable and prosperous future for you and your family.
We've all heard the basic financial planning strategy "pay yourself first" but paying yourself first doesn't simply mean stashing money into your savings account - debt reduction and retirement plan participation also qualify. Paying yourself today can result in a more comfortable and prosperous future for you and your family.
Here are some easy ways to "pay yourself first":
Pay off your credit card debt and student loans. Paying off your debt will probably give you one of the highest returns for your money compared to any investments, and it is guaranteed! If you are carrying a $1,000 debt at 17 percent, by paying it off, you will get a comparable 17 percent return.
Pay a little extra on your monthly mortgage. By paying just $20 to $50 extra per month on your mortgage payment, you can not only shave months or even years of payments off your loan, you can also save a substantial amount of money on interest. Contact your lender regarding the easiest way to do this.
Pay off your car loan. Just because you have a five-year loan, doesn't necessarily mean you have to take five years to pay it off. Check your agreement for any prepayment clauses, and if you have the extra cash, consider paying it off sooner.
Sign up for the 401(k) plan at work. If your company offers a 401(k) plan and you can afford it, contribute up to your company's matching point to maximize your dollars. This can be a great way to save and can decrease your taxes at the same time. Be sure to read and understand all plan material, especially matters related to investment options and any penalties for early withdrawals.
Have money automatically deposited into your savings account. You won't miss it and you will be surprised at how quickly it accumulates. Put aside as much as you can each pay period and don't touch it. Consider it a present to yourself.
If you would like more information, as always, we are here to help you set up a realistic financial plan. Feel free to contact us for more savings ideas.
As you open the doors of your new business, the last thing on your mind may be the potential for loss of profits through employee oversight or theft - especially if you are the only employee. However, setting up some basic internal controls to guard against future loss before you hire others can save you headaches in the future.
As you open the doors of your new business, the last thing on your mind may be the potential for loss of profits through employee oversight or theft - especially if you are the only employee. However, setting up some basic internal controls to guard against future loss before you hire others can save you headaches in the future.
Soon after you start making money and the world realizes that they cannot live without your goods or service, you will probably need to hire employees. Although necessary for your growing company, hiring employees increases your risk of loss through errors, oversights and theft.
Implementing internal controls to help you monitor your business can decrease the need for constant supervision of your employees. Internal controls are checks and balances to prevent fraud, limit financial losses and reduce errors or oversights by employees. For example, the most basic internal control concept requires that certain tasks be handled by different people. This process, called "separation of duties", can greatly decrease the probability of loss.
The following basic internal control checklist includes suggestions that, once implemented, can help you and your employees avoid concerns about fraud or theft in the workplace:
Have one person open the mail and list all the checks on the deposit slip while another enters cash receipts in your financial records. Make sure someone who does not handle the checkbook or purchasing is in charge of payments to suppliers and vendors. Have your bank reconciliation done by someone who does not have access to daily checkbook transactions. Make sure that you approve all vendors and that you count all goods received. Check all orders to make sure they are correct and of the quality you intended. Sign each check and review the invoice, delivery receipt and purchase order.As your company grows, you may want to become less and less involved with the day-to-day operations of the business. The internal controls you put into place now will help keep the profits up, the losses down, and help you sleep better at night. If you need any assistance with setting up internal controls for you business, please feel free to contact our office.
You're 57 years old and as part of an early retirement package, you've just been offered a large cash bonus and salary continuation, along with a lump sum payment from the company retirement plan and continuing medical benefits. Is this a dream come true or a potential financial nightmare?
You're 57 years old and as part of an early retirement package, you've just been offered a large cash bonus and salary continuation, along with a lump sum payment from the company retirement plan and continuing medical benefits. Is this a dream come true or a potential financial nightmare?
Corporate downsizing is a fact of life for America's workforce. As companies look to reduce their payroll, many older employees are offered early retirement packages. When faced with the possibility of early retirement, many factors must be considered in order to make an informed decision.
Can you really afford to retire?
If your retirement package is offered to you 10 years before you had planned to retire, you may have to find another job or start your own business in order to make ends meet. In general, you will need between 70 and 80 percent of your pre-retirement salary to maintain your present standard of living once you retire. This can be achieved through a combination of your company pension, Social Security benefits and any other sources of continuing income that you may have. If your health is good and you would like to continue to work elsewhere, maintaining your current lifestyle after early retirement may be possible. You would need to have other sufficient financial resources to draw upon.
Will early retirement negatively affect your long-term retirement benefits?
In many cases, accepting an early retirement package can mean sacrificing some pension benefits. This is because these benefits are usually based on a formula that considers how many years on the job you have and your salary in the last few years of employment. To make your early retirement package more appealing, some employers add years to your age or time on the job when making the calculation. It's important to get educated on how your employer deals with this potentially costly issue.
Is this the best package you can get?
What is the reason behind the company offering you an early retirement package? Is it possible that you may get a larger payoff or more benefits if you were to wait six months or a year? Or do you risk losing your job as part of a larger layoff? Is your company hiring or downsizing? Evaluate the company's motivation for offering you an early retirement plan as part of your decision process to avoid regrets later.
Are you ready to retire?
For some people, going to the office every day gives them a sense of purpose and structure in their life. Once you retire, your familiar daily routine is gone and you must find ways to fill your days. Some people flourish with the extra time now available to pursue their other interests and hobbies such as travel, exercise, or charitable work. For others, though, the loss of routine and structure in their lives can be devastating. If you do not plan to continue working, make sure that you are prepared to change your daily routine when considering early retirement.
Before you decide whether or not to accept an early retirement package, please feel free to contact our office. We would be happy to assist you as you explore your options.
The benefits of owning a vacation home can go beyond rest and relaxation. Understanding the special rules related to the tax treatment of vacation homes can not only help you with your tax planning, but may also help you plan your vacation.
The benefits of owning a vacation home can go beyond rest and relaxation. Understanding the special rules related to the tax treatment of vacation homes cannot only help you with your tax planning, but may also help you plan your vacation.
For tax purposes, vacation homes are treated as either rental properties or personal residences. How your vacation home is treated depends on many factors, such as how often you use the home yourself, how often you rent it out and how long it sits vacant. Here are some general guidelines related to the tax treatment of vacation homes.
Treated as Rental Property
Your home will fall under the tax rules for rental properties rather than for personal residences if you rent it out for more than 14 days a year, and if your personal use doesn't exceed (1) 14 days or (2) 10% of the rental days, whichever is greater.
Example - You rent your beach cottage for 240 days and vacation 23 days. Your home will be treated as a rental property. If you had vacationed for 1 more day (for a total of 24 days), though, your home would be back under the personal residence rules.
Income: Generally, rental income should be fully included in gross income. However, there is an exception. If the property qualifies as a residence and is rented for fewer than 15 days during the year, the rental income does not need to be included in your gross income.
Expenses: Interest, property taxes and operating expenses should all be allocated based on the total number of days the house was used. The taxes and interest allocated to personal use are not deductible as a direct offset against rental income. In the example above, the total number of days used is 263, so the split would be 23/263 for personal use and 240/263 for rental.
Any net loss generated will be subject to the passive activity loss rules. In general, passive losses are deductible only to the extent of passive income from other sources (such as rental properties that produce income) but if your modified adjusted gross income falls below a certain amount, you may write off up to $25,000 of passive-rental real estate losses if you "actively participate". "Active participation" can be achieved by simply making the day-to-day property management decisions. Unused passive losses may be carried over to future years
Planning Note: If your personal use does exceed the greater of (1) 14 days, or (2) 10% of rental days, the special vacation home rules apply. This means you drop back into the personal residence treatment, which allows you to deduct the interest and taxes and usually wipe out your rental income with deductible operating expenses. This is explained in greater detail below.
Treated as Personal Residence
If you use your vacation home for both rental and a significant amount of personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. Remember that personal use includes use by family members and others paying less than market rental rates. Days you spend working substantially full time repairing and maintaining your property are not counted as personal use days, even if family members use the property for recreational purposes on those days.
Rented 15 days or more. If you rent out your home more than 14 days a year and have personal use of more than (1) 14 days or (2) 10% of the rental days, whichever is greater, your home will be treated as a personal residence.
Income: You must include all of your rental receipts in your gross income. Again, however, if the property qualifies as a residence and is rented for fewer than 15 days, the rental income does not need to be included in your gross income.
Expenses:
Interest and Taxes: Mortgage interest and property taxes must be allocated between rental and personal use. Personal use for this allocation includes days the home was left vacant.
Example: You rent your mountain cabin for 4 months, have personal use for 3 months, and it sits empty for 5 months. The amount of interest and taxes allocated to rental use would be 33% (4 months/12 months) and since vacant time is considered personal use, you would allocate 67% (8 months/12 months) to personal use. The rental portion of interest and taxes would be included on Schedule E and the personal part would be claimed as itemized deductions on Schedule A.
Operating Expenses: Rental income should first be reduced by the interest and tax expenses allocated to the rental portion (33% in our example above). After that allocation is made, you can deduct a percentage of operating expenses (maintenance, utilities, association fees, insurance and depreciation) to the extent of any rental income remaining. When calculating the allocation percentage for operating expenses, vacancy days are not included. Any disallowed rental expenses are carried forward to future years.
Planning Note: It would be wise to try to balance rental and personal use so that rental income is "zeroed" out since, even though losses may be carried forward, they still risk going used. Mortgage interest should be fully deductible on Schedule A as a second residence. If more than two homes are owned, choose the vacation home with the biggest loan as the second residence. Property taxes are always deductible no matter how many homes are owned.
Rented fewer than 15 days. If you have the opportunity to rent your home out for a short period of time (< 15 days), you will not have to worry about the tax consequences. This rental period is "ignored" for tax purposes and the house would be treated purely like a personal residence with no tricky allocation methods required.
Income: You do not include any of the rental income in gross income.
Expenses: Interest and taxes are claimed on Schedule A. You can not write off any operating expenses (maintenance, utilities, etc...) attributable to the rental period.
Planning Note: Take advantage of this "tax-free" income if you get the chance. Short-term rentals during major events (such as the Olympics) can be a windfall.
Limited liability companies (LLCs) remain one of the most popular choice of business forms in the U.S. today. This form of business entity is a hybrid that features the best characteristics of other forms of business entities, making it a good choice for both new and existing businesses and their owners.
Limited liability companies (LLCs) remain one of the most popular choice of business forms in the U.S. today. This form of business entity is a hybrid that features the best characteristics of other forms of business entities, making it a good choice for both new and existing businesses and their owners.
An LLC is a legal entity existing separately from its owners that has certain characteristics of both a corporation (limited liability) and a partnership (pass-through taxation). An LLC is created when articles of organization (or the equivalent under each state rules) are filed with the proper state authority, and all fees are paid. An operating agreement detailing the terms agreed to by the members usually accompanies the articles of organization.
Choosing the LLC as a Business Entity
Choosing the form of business entity for a new company is one of the first decisions that a new business owner will have to make. Here's how LLCs compare to other forms of entities:
C Corporation: Both C corporations and LLCs share the favorable limited liability feature and lack of restrictions on number of shareholders. Unlike LLCs, C corporations are subject to double taxation for federal tax purposes - once at the corporate level and the again at the shareholder level. C corporations do not have the ability to make special allocations amongst the shareholders like LLCs.
S Corporation: Both S corporations and LLCs permit pass-through taxation. However, unlike an S corporation, an LLC is not limited to the number or kind of members it can have, potentially giving it greater access to capital. LLCs are also not restricted to a single class of stock, resulting in greater flexibility in the allocation of gains, losses, deductions and credits. And for estate planning purposes, LLCs are a much more flexible tool than S corporations
Partnership: Partnerships, like LLCs, are "pass-through" entities that avoid double taxation. The greatest difference between a partnership and an LLC is that members of LLCs can participate in management without being subject to personal liability, unlike general partners in a partnership.
Sole Proprietorship: Companies that operate as sole proprietors report their income and expenses on Schedule C of Form 1040. Unlike LLCs, sole proprietors' personal liability is unlimited and ownership is limited to one owner. And while generally all of the earnings of a sole proprietorship are subject to self-employment taxes, some LLC members may avoid self-employment taxes under certain circumstances
Tax Consequences of Conversion to an LLC
In most cases, changing your company's form of business to an LLC will be a tax-free transaction. However, there are a few cases where careful consideration of the tax consequences should be analyzed prior to conversion. Here are some general guidelines regarding the tax effects of converting an existing entity to an LLC:
C Corporation to an LLC: Unfortunately, this transaction most likely will be considered a liquidation of the corporation and the formation of a new LLC for federal tax purposes. This type of conversion can result in major tax consequences for the corporation as well as the shareholders and should be considered very carefully.
S Corporation to an LLC: If the corporation was never a C corporation, or wasn't a C corporation within the last 10 years, in most cases, this conversion should be tax-free at the corporate level. However, the tax consequences of such a conversion may be different for the S corporation's shareholders. Since the S corporation is a flow-through entity, and has only one level of tax at the shareholder level, any gain incurred at the corporate level passes through to the shareholders. If, at the time of conversion, the fair market value of the S corporation's assets exceeds their tax basis, the corporation's shareholders may be liable for individual income taxes. Thus, any gain incurred at the corporate level from the appreciation of assets passes through to the S corporation's shareholders when the S corporation transfers assets to the LLC.
Partnership to LLC: This conversion should be tax-free and the new LLC would be treated as a continuation of the partnership.
Sole proprietorship to an LLC: This conversion is another example of a tax-free conversion to an LLC.
While considering the potential tax consequences of conversion is important, keep in mind how your change in entity will also affect the non-tax elements of your business operations. How will a conversion to an LLC effect existing agreements with suppliers, creditors, and financial institutions?
Taxation of LLCs and "Check-the-Box" Regulations
Before federal "check-the-box" regulations were enacted at the end of 1996, it wasn't easy for LLCs to be classified as a partnership for tax purposes. However, the "check-the-box" regulations eliminated many of the difficulties of obtaining partnership tax treatment for an LLC. Under the check-the-box rules, most LLCs with two or more members would receive partnership status, thus avoiding taxation at the entity level as an "association taxed as a corporation."
If an LLC has more than 2 members, it will automatically be classified as a partnership for federal tax purposes. If the LLC has only one member, it will automatically be classified as a sole proprietor and would report all income and expenses on Form 1040, Schedule C. LLCs wishing to change the automatic classification must file Form 8832, Entity Classification Election.
Keep in mind that state tax laws related to LLCs may differ from federal tax laws and should be addressed when considering the LLC as the form of business entity for your business.
Since the information provided is general in nature and may not apply to your specific circumstances, please contact the office for more information or further clarification.
Maintaining good financial records is an important part of running a successful business. Not only will good records help you identify strengths and weaknesses in your business' operations, but they will also help out tremendously if the IRS comes knocking on your door.
Maintaining good financial records is an important part of running a successful business. Not only will good records help you identify strengths and weaknesses in your business' operations, but they will also help out tremendously if the IRS comes knocking on your door.
The IRS requires that business owners keep adequate books and records and that they be available when needed for the administration of any provision of the Internal Revenue Code (i.e., an audit). Here are some basic guidelines:
Copies of tax returns. You must keep records that support each item of income or deduction on a business return until the statute of limitations for that return expires. In general, the statute of limitations is three years after the date on which the return was filed. Because the IRS may go back as far as six years to audit a tax return when a substantial understatement of income is suspected, it may be prudent to keep records for at least six years. In cases of suspected tax fraud or if a return is never filed, the statute of limitations never expires.
Employment taxes. Chances are that if you have employees, you've accumulated a great deal of paperwork over the years. The IRS isn't looking to give you a break either: you are required to keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. These records include payroll tax returns and employee time documentation.
Business assets. Records relating to business assets should be kept until the statute of limitations expires for the year in which you dispose of the asset in a taxable disposition. Original acquisition documentation, (e.g. receipts, escrow statements) should be kept to compute any depreciation, amortization, or depletion deduction, and to later determine your cost basis for computing gain or loss when you sell or otherwise dispose of the asset. If your business has leased property that qualifies as a capital lease, you should retain the underlying lease agreement in case the IRS ever questions the nature of the lease.
For property received in a nontaxable exchange, additional documentation must be kept. With this type of transaction, your cost basis in the new property is the same as the cost basis of the property you disposed of, increased by the money you paid. You must keep the records on the old property, as well as on the new property, until the statute of limitations expires for the year in which you dispose of the new property in a taxable disposition.
Inventories. If your business maintains inventory, your recordkeeping requirements are even more arduous. The use of special inventory valuation methods (e.g. LIFO and UNICAP) may prolong the record retention period. For example, if you use the last-in, first-out (LIFO) method of accounting for inventory, you will need to maintain the records necessary to substantiate all costs since the first year you used LIFO.
Specific Computerized Systems Requirements
If your company has modified, or is considering modifying its computer, recordkeeping and/or imaging systems, it is essential that you take the IRS's recently updated recordkeeping requirements into consideration.
If you use a computerized system, you must be able to produce sufficient legible records to support and verify amounts shown on your business tax return and determine your correct tax liability. To meet this qualification, the machine-sensible records must reconcile with your books and business tax return. These records must provide enough detail to identify the underlying source documents. You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system.
Some additional advice: when your records are no longer needed for tax purposes, think twice before discarding them; they may still be needed for other nontax purposes. Besides the wealth of information good records provide for business planning purposes, insurance companies and/or creditors may have different record retention requirements than the IRS.
After your tax returns have been filed, several questions arise: What do you do with the stack of paperwork? What should you keep? What should you throw away? Will you ever need any of these documents again? Fortunately, recent tax provisions have made it easier for you to part with some of your tax-related clutter.
After your tax returns have been filed, several questions arise: What do you do with the stack of paperwork? What should you keep? What should you throw away? Will you ever need any of these documents again? Fortunately, recent tax provisions have made it easier for you to part with some of your tax-related clutter.
The IRS Restructuring and Reform Act of 1998 created quite a stir when it shifted the "burden of proof" from the taxpayer to the IRS. Although it would appear that this would translate into less of a headache for taxpayers (from a recordkeeping standpoint at least), it doesn't let us off of the hook entirely. Keeping good records is still the best defense against any future questions that the IRS may bring up. Here are some basic guidelines for you to follow as you sift through your tax and financial records:
Copies of returns. Your returns (and all supporting documentation) should be kept until the expiration of the statute of limitations for that tax year, which in most cases is three years after the date on which the return was filed. It's recommended that you keep your tax records for six years, since in some cases where a substantial understatement of income exists, the IRS may go back as far as six years to audit a tax return. In cases of suspected tax fraud or if you never file a return at all, the statute of limitations never expires.
Personal residence. With tax provisions allowing couples to generally take the first $500,000 of profits from the sale of their home tax-free, some people may think this is a good time to purge all of those escrow documents and improvement records. And for most people it is true that you only need to keep papers that document how much you paid for the house, the cost of any major improvements, and any depreciation taken over the years. But before you light a match to the rest of the heap, you need to consider the possibility of the following scenarios:
Individual Retirement Accounts. Roth IRA and education IRAs require varying degrees of recordkeeping:
Investments. Brokerage firm statements, stock purchase and sales confirmations, and dividend reinvestment statements are examples of documents you should keep to verify the cost basis in your securities. If you have securities that you acquired from an inheritance or a gift, it is important to keep documentation of your cost basis. For gifts, this would include any records that support the cost basis of the securities when they were held by the person who gave you the gift. For inherited securities, you will want a copy of any estate or trust returns that were filed.
Keep in mind that there are also many nontax reasons to keep tax and financial records, such as for insurance, home/personal loan, or financial planning purposes. The decision to keep financial records should be made after all factors, including nontax factors, have been considered.