Newsletter Topics

Offer in Compromise (OIC)

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An Offer in Compromise (OIC) is an offer by you to settle the tax debt for less than what you owe.
Two payment options:
  •      Lump Sum Cash is 20% upfront with balance over five or fewer payments within 5 months of the day your offer is accepted.
  •      Periodic Payment requires first payment with offer and balance in monthly payments over 6-24 months.
Look at IRS.gov for Form 656, instructions and eligibility.
There is an online IRS tool to pre-qualify.....https://irs.treasury.gov/oic_pre_qualifier/
 
That link is helpful but not always 100% correct.  We've had clients not qualify who were subsequently accepted.

Qualified Disaster Payments to Employees During COVID-19

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§139 of the Internal Revenue Code (the “Code and if you ever tried to read it you will know why they call it Code)”) excludes from a taxpayer’s gross income certain payments to individuals to reimburse or pay for expenses related to a qualified disaster. CONVID-19 is considered a Qualified Disaster in all states....

A “qualified disaster relief payment” is defined by §139(b) of the Code to include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.  Qualified disaster relief payments do not include qualified wages paid by an employer, even those that are paid when an employee is not providing services.

We interpret these expenses to be things like... the purchase of masks, hand sanitizers, computers so you work online or receive education online and probably many others we have not thought of.  The employer can deduct and pay this to employees with no tax consequences to the employee.

Thank you to Attorney Jon Alper www.AlperLaw.com  for the heads up on this.

 

CAPITAL LEASE v TRUE LEASE

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There are two kind of leases.

 

Let’s say you “lease” a copier for three years. Sales tax is paid (per Florida lease rules) and at the end of the three years you can buy it for one dollar. That is called a CAPITAL LEASE. It is really just another form of financing. In that case you set up the ASSET and LIABILITY using an imputed interest rate. You bought it so you can depreciate it.

 

The other lease is the one mostly used on vehicles. You pay a monthly “lease” (including Florida sales tax). You have agreed in advance to the option to purchase the vehicle at an agreed upon fair market value at the end of the lease. That is a “TRUE LEASE”. You don’t really have ownership until you purchase it.  In this case you can expense the entire monthly lease payment.  You don't own it.

Mileage Deduction 2020

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The 2020 standard mileage rate for business driving falls to 57.5¢ a mile.

The mileage allowance for medical travel and military moves declines to 17¢ a mile

in 2020. But the charitable driving rate stays put at 14¢ a mile. It’s fixed by law.

Why does the 1040 reflect a different figure than the K-1?

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Sometimes the loss on the K-1 is not totally deducted on the 1040 due to basis limitation…. And the unused basis limitation is carried forward in those computations. 

 

i.e.   You put $10k into new business.

               

The business has a loss of $12k on the first K-1

 

                BUT the 1040 will only show up to $10k being deducted (can only deduct up to the skin you have in the game).

               

                Year 2 we have gain of $50k and do not take any distributions.

 

                $50k is on the K-1 but the 1040 now reflects $48k ($50k profit this year plus we now have basis so can deduct prior year unused loss)

               

                Distributions would reduce the basis.  If the basis is reduced to below zero due to distributions,

                those distribuitons are considered to be a taxable dividendD