Donald Trump is the President-Elect of the United States and with the House and Senate controlled by the Republican party there’s a good chance we may see some reform in the tax code. Based on some of the policy proposals that have been floated here is what we think will happen:​A Flattening of the Individual Income TaxThe current tax code is comprised of 7 tax brackets ranging from 10% to 39.6%. We would expect to see the top rate reduced back to 35% and the number of brackets reduced to 3 or 4. It has also been discussed that the standard deduction would be raised as well (currently $12,600 for Married Filing Jointly). Not much would change for those at the lower ends of the tax brackets, but we don’t think they’ll lose any ground either. It is difficult to cut taxes at those levels, because they are already at a minimum. Upper middle- and the upper class would see their taxes reduced the most. A Repeal of the Alternative Minimum Tax (AMT)The AMT was originally proposed as as a means of getting the "fair share" from those few tax payers that were able to mitigate their tax consequence through [...]

Over the past years, it seems the IRS is placing more emphasis on ensuring businesses are complying with the 1099 reporting requirements. The belief is that by encouraging compliance at the business level, that the problem of unreported income will gradually diminish.​The biggest change that we have seen is the IRS now asks 2 questions on business tax returns and Schedule C’s for the self-employed: Were you required to issue any 1099’s?If so, did you issue those 1099’s? We believe that the answer, for most companies, should be "yes" on both counts.So w​ho needs to receive a 1099? In short, any unincorporated service provider that you pay more than $600. The people that you would most likely issue a 1099 would be your landlord, attorney, accountant, cleaning service, landscaping service, etc. You do not have to issue a 1099 to people that you purchase goods from - only services. You do not have to issue a 1099 to corporations. So, purchases from places like Costco, Best Buy, Target, etc. are not subject to this reporting. The best thing you can do to track this is to have any service provider complete a Form W-9 (found on the homepage of irs.gov) [...]

Quite a few of our clients are dentists and many have started to use technology that allows them to manufacture their own crowns - as oppose to sending the impressions out to a lab. For the dentists who use this in-house "manufacturing," it begs the question of whether or not they should receive the Section 199 Deduction ("Manufacturers Deduction") when determining their tax liability. ​ The DeductionTo begin, Section 199 allows a deduction of 9% of the manufacturing profit that a business generates. If your entire business is manufacturing, it’s pretty easy to calculate as you would simply take 9% of your net income. If you are a dentist, it gets a bit more difficult. The controversy is in calculating how much income a dentist derives from the manufacturing Should they use the full cost of a crown or should they use the price that they used to get crowns for from a lab? This is a major issue because a dentist may charge $1,000 for a crown, but a lab may only charge $250 for "manufacturing" it. The difference in price is to compensate the dentist for their technical skills to install the crown. The current IRS law allows [...]

In what has been a unique presidential campaign, we have received the first surprise of October. The New York Times received copies of Donald Trump’s tax returns from 1995, which showed he had a loss of $916,000,000 due to the failures of two casinos and one hotel. While the loss was huge (or "yuge") and possibly would call in to question his competence as a business person, some are wrongly angered by Trump's legitimate use of tax law.​Due to the large loss, Trump was able to carry forward the losses to reduces his taxable income in future years. Many have suggested this indicates that the system is rigged for wealthy people or that Trump has not paid income taxes in a long-time due to this loss.I’m an agnostic on this election and may not even cast a vote for President, but I do think its a disservice to draw incorrect conclusions about the tax code and subsequently form opinions based on wrong information. So hopefully this clears up some questions people may have. If you run a business and it loses money, this creates a Net Operating Loss (NOL). That loss can either be carried back 3 years to offset [...]

As we near the 4th quarter, we enter that time of year when equipment reps will extol the virtues of Section 179 of the tax code to entice you to buy equipment. I’ve seen some literature that makes Section 179 look like it’s a one-time savings that you need to take now or risk losing it. At best, some of the opinions and information can be misleading; at worst, flat-out wrong and damaging. Below is a quick review of Section 179 and the implications of its uses. What is Section 179?This is part of the Internal Revenue Code that allows for immediate expensing of capital purchases like equipment instead of deducting them over their useful lives (normally 5 or 7 years for equipment). Back when I started in 1997 the deduction was a mere $17,500, but has since grown to $500,000 per year. Recently, the $500,000 deduction was made permanent after a few years of “will they or won’t they” allow the deduction to go back down to $25,000. This means that you can make purchases of up to $500,000 a year and immediately expense the cost to directly reduce taxable income.​In a vacuum, Section 179 is a good thing. [...]

In reviewing a new client’s tax situation, I had the unpleasant task of informing them that the losses they were incurring would not be deductible. In setting up their business they decided to become a S-Corporation because they had heard, through message boards, that was the best way to go. It’s hard to argue because, for many of our established clients, the S-Corporation is the most tax efficient option. However, if you are just starting a business or you just purchased one, it may make sense to wait before you make the election. Here’s why: Losses Might Not Be DeductibleIn order to deduct losses in a business you typically have to have two things: You must be active in the businessYou must have basis to take the loss Most business owners will meet the “active in business” requirement, but the basis requirement can be a stumbling block. Basis is created by two events. First, the business has to have previously taxed income. Second, the owner has to have money at risk. One of the strange rules of a S-Corporation is that loans obtained through a bank or outside party do not create at-risk basis. Sure, you’ve got money at risk, [...]