Posted on June 14, 2023 in Small Business Taxes

Closing a business can be a difficult decision. Despite a business owner's best efforts, a company may be unsuccessful, and it may be necessary to terminate operations and dissolve the business entity. However, wrapping up business operations can be a daunting task that will require careful planning and execution. Tax issues can be some of the most crucial aspects of closing a business, and business owners will need to understand the tax implications that may affect them in these situations.

Filing Final Tax Returns and Other Forms

Business owners or partners will need to make sure all delinquent tax returns for a business have been filed, and they will also need to file a tax return for the year in which the business ceased operations. Any taxes that are owed must be paid. Depending on the way the business was structured, different types of forms may need to be filed with the IRS. In addition to income tax return forms, a business owner may need to report sales of business property, and asset acquisition statements may be required if the business was sold to a new owner. For corporations, a Corporate Dissolution or Liquidation form must be filed with the IRS. When filing a state tax return with the California Franchise Tax Board, it must be marked as a final return, and the business must cease all business operations before the end of that tax year.

Continue Reading ››

 Posted on May 23, 2023 in Taxation Law

The IRS regularly reviews the documentation filed by individual taxpayers, businesses, and organizations, and it has identified numerous ways that taxpayers may engage in tax avoidance or tax evasion. The "abusive tax schemes" that are recognized by the IRS may lead to tax audits, and a taxpayer that has failed to pay taxes as required or meet other requirements for reporting information to the IRS may be subject to penalties. One abusive tax scheme recently highlighted by the IRS involves micro-captive transactions, and companies that engage in these types of transactions will need to be aware of what requirements may apply to them and how they can avoid potential penalties.

What Are Micro-Captive Transactions?

In some cases, businesses may establish "captive" insurance companies that are owned and operated by the parties who are insured by these companies. This can be an effective way to ensure that a company has appropriate insurance coverage to address unique issues, and it can provide other benefits as well. However, the IRS has identified certain types of captive insurance companies as "micro-captives" that may be used to reduce the amount of taxes a business may be required to pay.

Continue Reading ››

 Posted on May 16, 2023 in Taxation Law

There are numerous different types of tax credits and deductions that may be available to small business owners, and these can be essential methods of minimizing a business's tax burden and ensuring that a company can continue operating successfully. Business owners should be aware of the types of employment tax credits they may be able to use, as well as the potential penalties they could face if they do not claim these credits correctly. One concern that has risen recently is related to the Employee Retention Credit (ERC), which has been highlighted by the IRS as a potential avenue for tax scams.

What Is the Employee Retention Credit?

During the COVID-19 pandemic, a variety of measures was put in place to provide assistance for businesses that were forced to shut down or experienced other issues that led to losses of revenue. One of these was the Employee Retention Credit, which was a payroll tax credit that was available in the tax years of 2020 and 2021. It allowed employers to receive a credit for a percentage of qualified wages paid to employees, with a maximum credit of $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021.

Continue Reading ››

 Posted on May 15, 2023 in Taxation Law

As part of the ongoing efforts to address global climate change, the U.S. government has taken steps to promote the use of clean energy in a number of ways. This includes offering tax credits and deductions for small businesses that take steps to cut energy costs and reduce reliance on fossil fuels. By investing in energy efficiency, small business owners may be able to realize significant savings by reducing their expenses and lowering their tax bills.

Types of Clean Energy Credits and Deductions

There are several options that may be available for small businesses that make the shift toward clean energy, including:

• Solar energy tax credits - Businesses that purchase new solar energy systems have two options for receiving tax credits. The investment tax credit (ITC) will reduce a business's federal tax liability in the year in which a new solar power system is installed, while the production tax credit (PTC) will provide ongoing credits based on the electricity generated by a solar power system within the first 10 years of operation. The ITC provides a credit of 30 percent of the amount spent on systems such as solar panels, inverters, transformers, circuit breaks, and energy storage devices, and it may be the preferred option for smaller-scale solar power projects. The PTC provides a tax credit of 2.75 cents per kilowatt-hour of electricity generated in a tax year, and it may provide more tax savings in situations involving large-scale projects that will generate a significant amount of electricity over several years. Both the ITC and PTC will be available for systems that began operating in 2022 or later, as long as construction begins prior to 2033.

  Continue Reading ››

 Posted on April 26, 2023 in Taxation Law

Taxpayers may own multiple types of assets, including digital assets that can come in a variety of different forms. Over the past few years, many transactions have been conducted involving NFTs. An NFT ("non-fungible token") is a unique digital ID that is attached to a collectible item. NFTs use the same blockchain technology as cryptocurrency, providing a record of ownership that cannot be copied or falsified. They can grant ownership of assets such as digital images, videos, items in video games, or pieces of virtual real estate in the "metaverse," and they can also certify ownership of physical assets such as artwork.

While NFTs, cryptocurrency, and other digital assets are relatively new, they represent significant investments for many people, and they can have high values. Because more and more transactions involving NFTs are being conducted, the IRS has taken steps to ensure that these transactions are taxed correctly. Recently, it issued guidance on how taxes may apply to NFTs that are acquired by retirement accounts.

Continue Reading ››

 Posted on April 14, 2023 in Taxation Law

In our increasingly digital world, there are numerous different types of assets that people may own, and determining how these assets may be taxed can often be confusing. Non-fungible tokens, or NFTs, are one type of asset that has raised questions in recent years. These digital tokens use blockchain technology similar to cryptocurrency to create unique digital identifiers for certain types of assets. As with some other types of digital assets, the way the IRS taxes NFTs has not yet been fully settled. However, the IRS has recently provided guidance on this issue, indicating that NFTs may be treated similarly to other types of collectibles under the tax laws.

Capital Gains Taxes and NFTs

NFTs use distributed ledger technology (commonly known as the "blockchain") to establish ownership of certain types of assets or to provide certifications of authenticity. A person who owns an NFT will have certain rights with respect to digital assets, which may include images and videos, music, trading cards, items used in video games, or pieces of virtual real estate in online communities. While capital gains taxes may apply when NFTs are sold or transferred to others, the specific tax rates may depend on whether they may be classified as collectibles.

Continue Reading ››

 Posted on April 06, 2023 in Taxation Law

U.S. taxpayers who own foreign assets and investments often face confusion about their requirements when filing taxes and reporting information to the IRS. In general, taxpayers must file a Foreign Bank and Financial Account Report (FBAR) on an annual basis, and they must include information about all accounts or other assets owned outside the United States. Failure to file FBARs can result in steep penalties. Until recently, there was some confusion about how penalties were applied in certain situations. However, a recent Supreme Court ruling has cleared up this issue and provided some understanding of the potential penalties in certain cases.

Bittner v. United States

In the case of Bittner v. United States, the defendant was charged with failing to report foreign accounts to the IRS between 2007 and 2011. The question was whether the penalties that would apply should be based on the number of reports that were not filed or the number of accounts that were not reported. A maximum $10,000 penalty may be applied for each violation, and initially, the IRS imposed a total penalty of $2.72 million based on the number of accounts that were not reported between 2007 and 2011. The defendant challenged this decision, and the fine was reduced to $50,000, or $10,000 for each year that he did not report his assets correctly. An appeals court reversed the ruling, and the defendant then appealed the case to the Supreme Court.

Continue Reading ››

 Posted on March 28, 2023 in Taxation Law

The rise of virtual currencies such as Bitcoin and Ethereum has created a new world of digital assets, which have become increasingly popular with investors in recent years. But while there are numerous potential benefits of investing in cryptocurrency, the tax laws that apply to owning, selling, or trading these assets can sometimes be unclear for many. During the 2023 tax season, taxpayers may be wondering how their cryptocurrency or other digital asset investments will be addressed on their tax returns. Fortunately, the IRS has provided guidance on these issues, ensuring that crypto earnings can be reported correctly while maintaining compliance with IRS regulations.

Reporting Digital Assets on Tax Returns

For tax year 2021, a question was added to the 1040 tax return form asking taxpayers if they received, sold, or exchanged cryptocurrency during that year. This question has been included on tax returns for 2022 as well, although it has been updated to refer to "digital assets." According to the IRS, digital assets include cryptocurrencies and virtual currencies that can be converted to money or other assets, as well as "stablecoins," which are cryptocurrencies that have been tied to the value of other commodities or financial instruments in order to avoid fluctuations in value. Digital assets also include non-fungible tokens (NFTs).

Continue Reading ››

 Posted on March 20, 2023 in Taxation Law

The Foreign Bank and Financial Account Report, which is usually referred to as the FBAR, is an important tax filing requirement for U.S. citizens and residents who have foreign financial accounts. If you fail to file an FBAR when required, this can result in hefty fines and penalties from the IRS. Missing the deadline can lead to serious consequences, and taxpayers will need to understand the available options in these situations.

Understanding FBAR Requirements

The FBAR filing requirement applies to taxpayers who have a financial interest in or signature authority over one or more accounts at a foreign financial institution outside the United States. If the aggregate value of all foreign accounts owned by a taxpayer exceeds $10,000 at any point during a tax year, an FBAR must be filed. Eligible taxpayers include individual U.S. citizens or residents of the United States, as well as LLCs, business partnerships, trusts, and estates. Foreign accounts that must be reported include bank accounts, retirement accounts, brokerage accounts, as well as accounts for trading in precious metals or gems and other types of foreign financial assets.

Continue Reading ››

 Posted on March 06, 2023 in Taxation Law

 Retirement accounts such as 401Ks and IRAs are a great way to save for the future and help protect your financial security. When you contribute money to these accounts, it grows over time, and in most cases, you will not have to pay taxes until you withdraw the funds. This can provide tremendous benefits, such as tax-free compounding of your investments and significant savings when you retire. However, there may be times when you may need to access money in retirement accounts early due to unforeseen circumstances or emergencies. Early withdrawals can result in significant penalties, and taxes will typically apply. Fortunately, with the recent passage of the SECURE 2.0 Act, some exceptions have been made that allow individuals to make withdrawals from their retirement accounts without incurring excise taxes or penalties in certain circumstances.

Continue Reading ››