McCrate, DeLaet & Co., CPA's

Let’s say you plan to use a C corporation to operate a newly acquired business or you have an existing C corp that needs more capital. Be aware that the federal tax code treats corporate debt more favorably than corporate equity. So for shareholders of closely held C corps, it can be a tax-smart move to include in the corporation’s capital structure some third-party debt (owed to outside lenders) and/or some owner debt. The reasons have to do with the income tax rate, the capital gains / dividend tax rate and the double taxation that occurs when a corporation pays tax on its profits and shareholders pay tax again when the profits are distributed as dividends. Contact us about your situation.

Wedding season is here. That’s generally a happy time involving gifts, cake and endless details. The last thing on your mind may be taxes but the IRS wants to remind newlyweds of a few important steps. Next year, you’ll be filing your first tax return as a married person and that could affect the amount of taxes you should be having withheld from your paycheck. You can use the IRS Withholding Estimator tool to check. Also, give your employer a new Form W-4 with your new information. If there’s a name change, report it to the Social Security Administration. Report an address change to the IRS and U.S. Postal Service to avoid delay of any tax refund. Here’s more: https://bit.ly/3w6dsvx

May 17 is an important upcoming deadline for the 1 million people who didn’t file their 2020 federal tax returns and are due a refund. Indeed, that’s the filing deadline to claim an estimated more than $1 billion in tax refunds that the IRS says remain available. There’s no penalty for failing to file if a refund is due. However, a return claiming a refund must be filed within three years of its due date for a refund to be allowed. After the expiration of the three-year period, the refund statute generally prevents the issuance of a refund check and the application of any credit to other tax years that are underpaid. Contact us for more information or visit: https://bit.ly/3wwnbv2

The IRS is reminding taxpayers that with peak periods for natural disasters approaching, this is an ideal time to review and protect important tax and financial information as part of a disaster emergency plan. Indeed, May is National Wildfire Awareness Month, and the week of May 5 begins National Hurricane Preparedness Week. Start by keeping original documents such as tax returns, Social Security cards, marriage certificates and birth certificates in a waterproof container in a safe space. Also consider digitally scanning these documents and storing the files on a portable flash drive for easy portability. For additional tips: https://bit.ly/4b1hHYc

During National Small Business Week (April 28 – May 4), the IRS will highlight numerous resources available to help small business owners and entrepreneurs learn and understand their tax responsibilities. Indeed, there are several tax-related issues to consider. For example, one of the first steps when starting a small business is acquiring an employer identification number (EIN). It’s a permanent form of identification that, in many cases, must be used for filing a tax return and can be used for various business needs such as opening bank accounts. Businesses can get an EIN online at IRS.gov, and it’s free. For additional information from the IRS: https://bit.ly/44nnbu8

The tax filing deadline has passed for most of us, but not for all. For example, the IRS is reminding tax-exempt entities that they must file their 2023 returns by May 15. Those who can’t meet that deadline may seek a six-month extension. Many of the Form 990 series returns and Form 4720 (for private foundations) must be filed electronically. The IRS also reminds tax-exempt groups that they must guard their exempt status by following tax law and IRS regulations, or risk losing their ability to receive tax-deductible donations. One of the ways an organization can lose its tax-favored status is by serving private interests rather than public. Here’s more from the IRS: https://bit.ly/3Lr0Vrg

If you’re buying a new home, you may have considered keeping your current home and renting it out. This carries potential tax benefits and pitfalls. You’re generally treated as a landlord once you begin renting your home. That means you must report rental income on your tax return, but are entitled to deductions for utilities, incidental repairs, depreciation and other expenses. However, you could forfeit a big tax break if you sell the home at a profit. You can generally escape tax on up to $250,000 ($500,000 for married joint filers) of gain on the sale of a principal home. But to qualify, you must use the home as your principal residence for at least two of the five years before the sale.

After filing a 2023 tax return, keep these three issues in mind: 1) You can check on your refund by going to irs.gov. Click on “Get your refund status.” 2) Some tax records can now be thrown out. You should generally save statements, receipts, etc., for three years after filing. However, keep your actual returns indefinitely. There are exceptions to the general three-year rule. 3) If you forgot something, you can file an amended tax return. In general, you can file Form 1040-X to claim a refund within three years after the date you filed the original return or within two years of the date you paid the tax, whichever is later. If you have questions, contact us.

Receiving a letter from the IRS may make you go weak in the knees. Don’t panic, but do read the letter, the tax agency says. The IRS may simply have a question about your return or inform you of a change to your account or the letter may request payment. Don’t ignore it. Instead, read it carefully, right away. Most IRS communication deals with a specific issue and prompt action could minimize any extra charges. Contact us with questions. If you owe more tax and you’re struggling to pay it, several options are available. Only reply if the letter instructs you to do so. If you dispute the IRS findings, the letter will likely instruct you how to proceed. Here’s more: https://bit.ly/4d3BTdD

If your business doesn’t already have a retirement plan, it might be a good time to take the plunge. If you’re self-employed and set up a SEP-IRA, you can contribute up to 20% of self-employment earnings, with a maximum contribution of $69,000 for 2024 (up from $66,000 for 2023). If you’re employed by your own corporation, up to 25% of your salary can be contributed to your account, with a maximum contribution of $69,000 for 2024. If you’re in the 32% federal income tax bracket, making a maximum contribution could cut your federal tax bill for 2024 by $22,080 (32% × $69,000). In addition to a SEP, there are other retirement plan options. We can provide information on the best one for you.