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TAX TALK: Tax Implications of Working from Home and Collecting Unemployment

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 21, 2020 9:20:00 AM

COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information about two common situations.

Working from Home

Many employees have been told not to come into their workplaces due to the pandemic. If you’re an employee who telecommutes and communicates with your employer mainly by telephone, videoconferencing, and email, you should know about the strict rules that govern whether you can deduct your home office expenses.

Unfortunately, employee home office expenses aren’t currently deductible, even if your employer requires you to work from home. Employee business expense deductions (including the expenses an employee incurs to maintain a home office) are miscellaneous itemized deductions and are disallowed from 2018 through 2025 under the Tax Cuts and Jobs Act.

However, if you’re self-employed and work out of an office in your home, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules.

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Topics: TAX TALK

TAX TALK: Questions and Concerns About Deferring Employees’ Social Security Taxes

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 14, 2020 9:20:00 AM

The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations. The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.)

Deferral Basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.

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Topics: TAX TALK

TAX TALK: Back-to-School Tax Breaks

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 8, 2020 11:27:36 AM

Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person, or under a hybrid schedule. In any event, parents may be eligible for certain tax breaks to help defray the cost of education.

Here is a summary of some of the tax breaks available for education.

  1. Higher Education Tax Credits. Generally, you may be able to claim either one of two tax credits for higher education expenses — but not both.
    • With the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 from your tax bill 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. No credit is allowed if your modified adjusted gross income (MAGI) is over $90,000 ($180,000 for joint filers).
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Topics: TAX TALK

TAX TALK: Will You Have to Pay Tax on Your Social Security Benefits?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 31, 2020 9:20:00 AM

If you’re getting close to retirement, you may wonder: Are my Social Security benefits going to be taxed? And if so, how much will you have to pay?

It depends on your other income. If you’re taxed, between 50% and 85% of your benefits could be taxed. (This doesn’t mean you pay 85% of your benefits back to the government in taxes. It merely means that you’d include 85% of them in your income subject to your regular tax rates.)

Crunch the Numbers

To determine how much of your benefits are taxed, first determine your other income, including certain items otherwise excluded for tax purposes (for example, tax-exempt interest). Add to that the income of your spouse, if you file joint tax returns. To this, add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your total income plus half of your benefits. Now apply the following rules:

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Topics: TAX TALK

TAX TALK: Can’t Pay Taxes? What’s Next?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 24, 2020 9:20:25 AM

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time? Here’s a look at the options.

Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.

Common Penalties

The “failure to file” penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The “failure to pay” penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalties can reach 47.5% over time in addition to any interest.

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Topics: TAX TALK

TAX TALK: Possible Tax Consequences of PPP Loans

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 17, 2020 9:20:00 AM

If your business was fortunate enough to get a Paycheck Protection Program (PPP) loan taken out in connection with the COVID-19 crisis, you should be aware of the potential tax implications.

PPP Basics

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which was enacted on March 27, 2020, is designed to provide financial assistance to Americans suffering during the COVID-19 pandemic. The CARES Act authorized up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP. In April, Congress authorized additional PPP funding and it’s possible more relief could be part of another stimulus law.

The PPP allows qualifying small businesses and other organizations to receive loans with an interest rate of 1%. PPP loan proceeds must be used by the business on certain eligible expenses. The PPP allows the interest and principal on the PPP loan to be entirely forgiven if the business spends the loan proceeds on these expense items within a designated period of time and uses a certain percentage of the PPP loan proceeds on payroll expenses.

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Topics: TAX TALK

TAX TALK: Tax Implications of Employer-provided Life Insurance

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 10, 2020 9:32:14 AM

Does your employer provide you with group term life insurance? If so, and if the coverage is higher than $50,000, this employee benefit may create undesirable income tax consequences for you.

Phantom Income

The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. In other words, it’s “phantom income.”

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Topics: TAX TALK

TAX TALK: Scholarships: Tax-free or Taxable?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 3, 2020 9:20:00 AM

COVID-19 is changing the landscape for many schools this fall. But many children and young adults are going back, even if it’s just for online learning, and some parents will be facing tuition bills. If your child has been awarded a scholarship, that’s cause for celebration! But be aware that there may be tax implications.

Scholarships (and fellowships) are generally tax-free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the individual or reduces tuition.

Tuition and Related Expenses

However, for a scholarship to be tax-free, certain conditions must be satisfied.

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Topics: TAX TALK

TAX TALK: Inheriting Property? Take Advantage of a Stepped-up Basis

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 27, 2020 9:20:00 AM

If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes.

Fair Market Value Rules

Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, for example, if your grandfather bought ABC Corp. stock in 1935 for $500 and it’s worth $5 million at his death, the basis is stepped up to $5 million in the hands of your grandfather’s heirs — and all of that gain escapes federal income tax forever.

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Topics: TAX TALK

TAX TALK: Businesses: Ready for Form 1099-NEC?

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 20, 2020 9:20:00 AM

There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation. Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.

Why the new form?

Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.

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Topics: TAX TALK

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