ASK MICKEY CPA, CVA

ASK MICKEY CPA, CVA

Email your question to info@onealcpa.net

August 27th

QUESTION: How does the “No Tax on Tips” work under the Big Beautiful Bill?
ANSWER: The “No Tax on Tips” rule gives workers in tipped jobs a new federal income tax deduction from 2025–2028. Here’s the quick breakdown:
What it is – You can deduct up to $25,000 of tips from your taxable income. This lowers the income tax you owe, but you’ll still pay Social Security and Medicare on tips.
Who qualifies – Employees and self-employed workers in jobs the IRS says “normally get tips” (like servers, bartenders, etc.). You must report tips on your W-2, 1099, or Form 4137.
Income limits – The full deduction is available until your income hits $150K (single) or $300K (married). It phases out completely at $400K single / $550K married.
IRS list – The IRS will publish the official list of tipped occupations by October 2, 2025. For 2025, you can still claim the deduction even before the list is finalized.
Bottom line: If you’re in a qualifying tipped job, you can lower your taxable income by up to $25,000 a year. But payroll taxes, state taxes, and wage reporting stay the same.

August 18th

QUESTION: What changes are in the Big Beautiful Bill for Seniors?
ANSWER: The Key Changes for Seniors are the following:
1. New Senior Tax Deduction
$6,000 deduction per senior (or $12,000 per couple when both spouses are 65+) is available in addition to the standard deduction. This applies for tax years 2025 through 2028.
The deduction phases out for individuals with adjusted gross income (AGI) over $75,000 or joint filers over $150,000.
This measure is expected to eliminate federal income taxes on Social Security for approximately 88% of seniors who qualify.
2. Tax Relief on Social Security Benefits
Starting with the 2026 tax year, seniors under the income thresholds may be completely exempted from taxes on Social Security benefits thanks to this deduction.

3. Healthcare & Supportive Provisions (per one opinion piece)
An opinion article highlights several significant improvements (though it’s important to note these are promotional and may not all yet be enacted):
Expanded Medicare coverage to include dental, vision, and hearing services.
Implementation of a cap on out-of-pocket prescription costs.
Support for home modifications and age-friendly housing to help seniors age in place.
Tax credits, training, and compensation for family caregivers.
Summary:
Change
Description
$6,000 Senior Deduction
Extra tax deduction per senior (expires end of 2028); phases out with income
Social Security Tax Relief
Most qualifying seniors exempted from taxes on Social Security benefits
Healthcare Enhancements
Proposed expansions for dental, vision, hearing, Rx caps, housing support (as per opinion)
While the tax-related benefits—including the senior deduction and relief on Social Security income—are clearly defined and supported by official sources, some of the healthcare and caregiving enhancements stem from advocacy or opinion pieces and may require further confirmation through legislative tracking.

August, 8th, 2025

QUESTION: Can you tell me about the proposed Survivors Assistance for Fear‑free and Easy (SAFE) bill?

ANSWER: Yes, this is an interesting bill as it will allow domestic abuse or spousal abandonment survivors to file as not married.

 What the Bill Would Do:

• Allow certain married individuals—those experiencing domestic abuse or spousal abandonment, and who are living apart from their spouse at year‑end—to file their federal income taxes as unmarried or as “head of household”, rather than as “married filing jointly” or “married filing separately” 
• Such survivors would make this election on their own individual return, and it only applies for that tax year 
• Definitions in the bill are broad:
  • Domestic abuse includes physical, psychological, emotional, sexual, or economic abuse—including efforts to control, isolate, humiliate, intimidate, or undermine independent reasoning 
  • Spousal abandonment applies if the individual is unable to locate their spouse with reasonable diligence 
• Tax preparers would be required to exercise due diligence around eligibility and assist survivors properly 
• The election would not change the legal or tax status of the spouse—they would still file as married if they choose 
• Effective date: applies to any tax year ending after the bill is enacted 

Why It Matters

• Currently, married survivors must choose between filing jointly (which may require contact with an abuser) or filing as married filing separately, which usually results in higher taxes and fewer benefits 
• The SAFE Act would give survivors full autonomy in reopening their tax filing, allowing them access to potentially greater tax credits, deductions, and larger refunds 
• Notable supporters include the American Institute of CPAs (AICPA) and advocacy groups such as the National Domestic Violence Hotline, National Network to End Domestic Violence, Futures Without Violence, and others 

Status & Timeline

• The bill (S. 2129) was introduced in the Senate on June 18, 2025, by Senators John Fetterman (D‑PA), John Cornyn (R‑TX), Catherine Cortez Masto (D‑NV), and Joni Ernst (R‑IA) 
• As of late July 2025, it has not yet been enacted and is still pending before the Senate Finance Committee for consideration and potential markup.
• If passed, the law would apply beginning with tax years ending after the date of enactment

Quick Summary

Feature	Details
Bill Name	Safe Tax Filing Act of 2025 (S. 2129)
Eligibility	Survivors of domestic abuse or spousal abandonment, living apart at year-end
Allowable Filing Status	Single or Head of Household (election-based, one year at a time)
Legal Effect on Spouse	None—spouse’s filing status not affected
Defines	Domestic abuse (broadly), spousal abandonment (not locating spouse)
Preparer Requirement	Due diligence to assist eligible filers
Effective for Tax Year	Taxable years ending after enactment

In Summary

This bipartisan bill seeks to close a critical gap in the tax system by allowing survivors of abuse or abandonment to file independently protecting their safety, promoting fairness, and expanding access to tax benefits. It’s backed by major tax and survivor‑advocacy organizations, and mirrors growing recognition that economic autonomy is key to survivor recovery. As of August 1, 2025, the bill is pending and has not yet passed—but if enacted, its provisions would begin in the next applicable tax year.

July 17th, 2025

QUESTION:  I hear IRS high-income taxpayer audits are in doubt after recent layoffs, is this true?
ANSWER: Yes, that’s accurate. Recent layoffs have cast serious doubt on the IRS’s ability to sustain the ramp-up in audits of high-income individuals.
A Treasury Inspector General (TIGTA) report from July 14, 2025, found that while the IRS had originally planned a significant increase in audits targeting high-income taxpayers—per the 2022 Treasury directive—the agency has since lost roughly 26% of its workforce and about 31% of its revenue agents as of June. These staffing losses come mainly from hiring freezes, deferred resignation programs. Without sufficient revenue agents, the specialized auditors responsible for investigating wealthy taxpayers, many audits could be delayed, closed prematurely, or never initiated . The agency intended to increase enforcement using funds from the Inflation Reduction Act, but following congressional cuts, the IRS’s enforcement budget dropped from $45.6 billion to $3.8 billion.
To summarize:
The IRS aimed to significantly boost audits of high-income earners per its FY 2024 plan.
But staff losses (31% fewer revenue agents) are undermining that objective.
Many enforcement efforts may be delayed, scaled back, or dropped.
So yes, the ability to carry out those targeted audits on high-wealth individuals is now very much in question due to these staffing & budgetary cuts.

July 10th, 2025

QUESTION: How is the new BIG, beautiful bill signed July 4^th going to affect small businesses in particular: sole proprietorships, partnerships, and S corporations?

ANSWER:  How the Bill Helps Small Businesses:

1. Permanent Extension & Expansion of the QBI Deduction
The bill makes the 20% qualified business income (QBI) deduction permanent and increases it to 23%, which benefits roughly 25–26 million small businesses. This helps preserve tax parity between pass‑through firms and C corporations

2. Higher Section 179 “Immediate Expensing” Limit
Under Section 179, small businesses can fully expense qualifying equipment purchases immediately, without depreciation. The cap doubles from $1 million to $2.5 million, and the phase‑out threshold is also increased—and both are indexed for inflation going forward

3. Enhanced R&D Expense Relief
Small businesses with average annual gross receipts under ~$31 million are allowed to retroactively deduct research & development expenses rather than amortizing them over years. This provides major cash‑flow relief and planning certainty

4. Bigger Estate Tax Exemption
The estate tax exemption is raised to $15 million per individual, $30 million for married filers, and made permanent, reducing potential tax burdens on business succession or sales

5. Boosted Employer‑Provided Childcare Credit (45F)
The childcare credit is significantly increased: up to 50% of qualified costs, capped at $600,000 annually for eligible small businesses. That helps support workforce recruitment and retention

6. Tip & Overtime Income Deduction
While principally aimed at workers, the “no tax on tips or overtime” deduction indirectly helps small service businesses by reducing payroll tax liabilities and improving employee net pay

#bigbeautifulbill

7. Broader Support from Business Groups
Trade associations such as NFIB, the U.S. Chamber of Commerce, and key agriculture groups have lauded these provisions, forecasting job creation and higher capital investment across Main Street for small businesses

June, 18th 2025

QUESTION: How is AI changing how we prepare our taxes?
ANSWER: AI is transforming how we do our taxes in several significant ways, making the process faster, smarter, and more accessible.
Here are the key changes:
1. Automated Tax Preparation
AI-driven platforms (like TurboTax, H&R Block, and newer startups) can:
Ask you simple questions and automatically populate tax forms.
Import data from W-2s, 1099s, bank statements, and even crypto wallets.
Flag missing or inconsistent information in real time.
2. Personalized Tax Advice
AI can now:
Recommend deductions and credits based on your unique profile (e.g., self-employed, parent, veteran, etc.).
Suggest whether to itemize or take the standard deduction.
Run simulations to see how different filing strategies (like Married Filing Jointly vs. Separately) affect your refund or liability.
3. Audit Risk Reduction
Some platforms use AI to:
Analyze your return for red flags that trigger IRS audits.
Check your return against thousands of past IRS rulings and audit cases.
Offer “audit defense” suggestions to reduce your risk.
4. Real-Time Tax Planning
Advanced tools (used by CPAs and businesses) allow:
Year-round planning instead of once-a-year scrambling.
Scenario modeling (e.g., “What if I buy a rental property?” or “Should I switch to an S-Corp?”).
Integrated planning with payroll, retirement, and investments.
5. Chatbots and Virtual Tax Advisors
AI chatbots (like Ask Mickey or TurboTax’s live support) can:
Answer common tax questions 24/7.
Help users navigate complex rules without needing a CPA.
Guide users to human support when needed.
6. Small Business + Gig Economy Support
AI tools help entrepreneurs and gig workers:
Track income and expenses automatically through bank feeds.
Categorize deductions with minimal effort.
Generate quarterly tax estimates and send reminders to pay.
Final Thought:
While AI makes taxes easier and smarter, it’s not a total replacement for human expertise—especially for complex cases. But for most individuals and small businesses, it’s a game-changer.
Thomas “Mickey” O’Neal Natalie O’Neal Seth Blakeney hashtag#AI hashtag#taxpreparation hashtag#taxes hashtag#taxes2025 hashtag#tax hashtag#taxaccountant hashtag#cpafirm hashtag#cpa

June 5th, 2025

QUESTION: What is the difference between an Audit and a Valuation?

ANSWER: An audit and a valuation are two distinct types of financial services, each serving different purposes:

Audit

Purpose: To provide assurance that financial statements are accurate and comply with accounting standards.

Performed by: Certified Public Accountants (CPAs) or accounting firms.

Key Features:

• Involves reviewing a company’s financial records, internal controls, and accounting practices.
• The goal is to issue an opinion on whether the financial statements are presented fairly.
• Often required by banks, investors, or regulators (e.g., nonprofits, public companies).

Example Use Case: A nonprofit undergoing its first annual financial audit to comply with donor or grant requirements.

Valuation

Purpose: To determine the economic value of a business, asset, or equity interest.

Performed by: Valuation analysts, CPAs with valuation credentials (e.g., CVA, ABV), or financial experts.

Key Features:

• Uses financial models, industry data, and market comparisons.
• Can be for entire businesses or just specific assets (like goodwill or intellectual property).
• Typically used for buy/sell agreements, mergers, estate planning, or litigation.

Example Use Case: A business owner seeking to sell their company needs a formal valuation to determine a fair asking price.

Summary:

Feature	Audit	Valuation
Goal	Verify financial statement accuracy	Estimate value of a business or asset
Output	Auditor’s opinion	Valuation report
Focus	Historical accuracy	Present and future economic worth
Used For	Compliance, lending, governance	Sale, litigation, estate, strategic planning
Regulated?	Yes, by audit standards (e.g., GAAS)	Less strictly regulated, but standards exist

May 28, 2025

QUESTION: How do tariffs affect small businesses?

ANSWER: Tariffs can significantly impact small businesses, both directly and indirectly. Here’s a breakdown of the key effects:

1. Increased Costs of Imported Goods

• Direct importers: If a small business imports raw materials, parts, or finished goods, tariffs raise the cost of those imports.
• Suppliers: Even if not importing directly, small businesses often feel the ripple effect through higher prices from suppliers.

2. Reduced Profit Margins

• To stay competitive, small businesses may absorb higher costs rather than pass them on to customers—squeezing margins.

Higher Prices for Consumers

• Alternatively, if costs are passed through, customers see higher prices, which can reduce demand or drive them to larger, cheaper competitors.

Supply Chain Disruption

• Tariffs can force small businesses to find new suppliers, often at short notice and higher cost, disrupting operations and planning.

Less Competitive Globally

• If competitors abroad or larger domestic firms have better access to non-tariffed goods, small businesses may lose market share locally and internationally.

Uncertainty and Planning Challenges

• Trade wars and sudden tariff changes create unpredictability, making it difficult for small businesses to budget, plan inventory, or invest in growth.

Administrative Burden

• Complying with new tariff rules can increase paperwork and complexity in customs processing, especially for companies without in-house legal or logistics teams.

Example:

A small furniture maker that imports wood from overseas may face a 25% tariff. That increase either gets passed to customers (making the products less attractive) or eats into profits (limiting the ability to hire, market, or expand).

Final Thought:

While some small businesses in protected industries may benefit in the short term (e.g., domestic steel producers), most experience tariffs as a cost, not a protection—especially those relying on global supply chains.

May 22, 2025

QUESTION: When does a business need a valuation?
ANSWER: Your business may need a valuation in several situations, depending on legal, financial, or strategic needs. Here are the most common times a business should get a valuation:
1. Buying or Selling a Business
To set or evaluate a fair price during a sale or acquisition.
Essential for negotiations with potential buyers or investors.
2. Bringing in Investors or Partners
Investors typically require an independent valuation to determine how much equity their capital will buy.
New partners may need it to agree on buy-in value.
3. Exit or Succession Planning
To plan a retirement or ownership transition.
Helps in creating a buy-sell agreement or setting terms for heirs.
4. Divorce or Legal Disputes
Courts may require a valuation for asset division during a divorce.
Business disputes, shareholder splits, or lawsuits may also require one.
5. Estate, Gift, or Tax Planning
The IRS requires a defensible business valuation for estate or gift tax reporting.
Useful for succession planning and minimizing estate tax liability.
6. Securing Financing
Banks or lenders may require a valuation before approving large loans.
Also used in SBA loans or refinancing.
7. Employee Stock Ownership Plans (ESOPs)
Required annually to determine the share price for ESOP participants.
Must follow Department of Labor guidelines.
8. Strategic Planning or Internal Review
To measure business performance and set benchmarks.
Helps understand the drivers of value for future growth.

May 21st, 2025

QUESTION: I just bought a small boat, is there a way to write it off for my personal or business taxes? If so how?
ANSWER: Congrats on the boat! Whether or not you can write off your new boat depends entirely on how it’s used, and whether you can justify its connection to business or income generation. Here’s a breakdown of possibilities:
If Used for Business (Potentially Deductible):
1. Business Asset Deduction
If your boat is used exclusively for business (e.g., charters, tours, fishing guides, etc.), you may be able to:
Depreciate it over its useful life under Section 179 or bonus depreciation rules.
Deduct operating costs (fuel, insurance, docking fees, maintenance).
Requirements:
Business must be legitimate, and the boat must be ordinary and necessary for that business.
You’ll need to track all expenses and usage.
2. Client Entertainment (Limited)
Post-2018 tax law changes eliminated entertainment deductions, but if you can prove the boat is used primarily for business discussions or meetings, you may deduct:
50% of meals consumed during the event (if business is discussed).
No deduction for the entertainment portion (i.e., cruising just for fun).
💡 Best practice: Document who was on the boat, business discussed, and purpose of the meeting.
If Used for Personal Use (Not Deductible)
If the boat is used for recreation or personal purposes, you cannot write it off, no deduction for purchase, fuel, maintenance, or insurance.
Exception: Second Home Deduction
If your boat has:
Sleeping quarters,
A kitchen, and
A bathroom,
…you may be able to treat it as a second home and deduct interest on a boat loan (similar to a mortgage interest deduction), assuming you itemize deductions.
Hybrid Use?
If the boat is used partially for business and partially for personal, you’ll need to:
Track % of business use
Only deduct that percentage of expenses (must be well-documented)
Next Steps
Talk to a tax professional to see what applies to your situation.
Keep detailed records: date, use, who was aboard, what was discussed, receipts.
Consider forming an LLC or S-Corp if you’re planning to use the boat regularly for income-producing purposes.

May 15th, 2025

QUESTION: Is there a way to lower the federal taxes we pay?
ANSWER: Yes, there are several legal strategies individuals and businesses can use to lower their federal tax liability. Here’s a list of common methods:
For Individuals:
1. Maximize Tax-Advantaged Accounts
401(k), 403(b), or Traditional IRA: Contributions reduce your taxable income.
2. Health Savings Account (HSA): Triple tax advantage (deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses).
3. Flexible Spending Accounts (FSA): Use pre-tax dollars for healthcare or dependent care.
4. Claim All Eligible Deductions
Standard Deduction: For 2024, it’s $14,600 (single) or $29,200 (married filing jointly).
Itemized Deductions: Mortgage interest, state/local taxes (SALT cap is $10,000), charitable donations, medical expenses (if they exceed 7.5% of AGI).
5. Take Advantage of Credits
Child Tax Credit, Earned Income Tax Credit (EITC), Education Credits (AOTC, LLC): These reduce tax liability dollar for dollar.
6. Harvest Capital Losses
Offset capital gains with capital losses (up to $3,000 against ordinary income annually).
7. Change Filing Status
Some taxpayers benefit from filing married jointly or head of household to access better tax brackets or larger deductions.
8. Adjust Withholding
Make sure you’re not overpaying throughout the year — adjust your W-4 with your employer if needed.
For Small Business Owners / Self-Employed:
Business Deductions
1. Write off qualified business expenses: home office, vehicle mileage, travel, meals, equipment, advertising, etc.
Section 179 and Bonus Depreciation
2. Deduct the full cost of qualifying equipment or software in the year it’s purchased.
S-Corp Election (vs. Sole Prop/LLC)
3. Pay yourself a “reasonable salary” and take the rest as distributions — this may reduce self-employment taxes.
4. Hire Family Members
Legitimately employ your spouse or children — reduces overall family tax burden.
5. Retirement Contributions
SEP IRA, Solo 401(k), or SIMPLE IRA contributions are tax-deductible.
6. Deduct Health Insurance Premiums
If self-employed and not eligible for an employer’s plan.
***Important Notes:
Tax planning should be proactive, ideally before the end of the year.
Always document everything — especially for deductions and business expenses.

April 30th, 2025

QUESTION: I heard that the IRS is cutting 40% of its workers, is this true?
ANSWER: Yes, it’s true—the Internal Revenue Service (IRS) is planning to reduce its workforce by up to 40%. This significant downsizing is part of a broader federal workforce reduction initiative under President Trump’s administration, spearheaded by the Department of Government Efficiency (DOGE.)
According to an internal memo obtained by Federal News Network, the IRS wants to decrease its staff from approximately 102,000 employees to between 60,000 and 70,000. The reduction will occur in two phases, with the first phase targeting significant cuts in departments such as the Taxpayer Experience Office, Transformation Strategy Office, Online Services Office, and the Office of Civil Rights. These offices are slated for consolidation in the second phase of the workforce reduction plan. ​
The downsizing strategy includes a combination of layoffs and voluntary buyouts. Reports indicate that approximately 22,000 employees have accepted deferred resignation buyouts, and around 7,000 probationary employees were terminated earlier this year. The IRS has begun issuing Reduction in Force (RIF) notices, although some delays have occurred due to technical issues. It will be interesting to see how this all plays out.

ASK MICKEY CPA, CVA

April 24th, 2025

QUESTION: I’m married – is it best to file my taxes jointly or separately?
ANSWER: Great question! If you’re married, you generally have two filing options: Married Filing Jointly (MFJ) or Married Filing Separately (MFS).
Here’s a quick breakdown to help you decide:
Why Most Couples File Jointly:
1. Higher standard deduction ($29,200 in 2024 for MFJ vs. $14,600 each if MFS)
2. More tax credits available (like the Earned Income Credit, Child Tax Credit, education credits)
3. Usually lower overall tax rate
4. Simpler filing process (especially if you share finances)
Reasons You Might File Separately:
You want to separate liability for tax, especially if one spouse has issues like:
1. Owing back taxes
2. Legal or credit issues
3. One spouse has significant medical expenses, miscellaneous deductions, or unreimbursed work expenses, and a low income (deductions are % of income)
4. You’re in the process of divorce or separation
5. Downsides of Filing Separately
Lose or limit many credits and deductions
6. Can result in higher overall tax
Both spouses must itemize, or both must take the standard deduction—you can’t mix
Tip:
Sometimes, it’s worth running the numbers both ways (MFJ vs. MFS) to see which is better for your specific situation—especially if you’re in a unique financial position or undergoing life changes.

March 24th, 2025
QUESTION: There are a lot of misconceptions in tax planning this year. What are a few of them?
ANSWER: You’re absolutely right—here are two are common misconceptions in tax planning. Let’s break them down:
1. Misclassification of Real Estate Professionals & Family Members as Independent Contractors
Real Estate Professional Status (REPS): Many assume that simply owning long-term rental properties qualifies them as a real estate professional under IRS rules. However, to qualify for REPS, a taxpayer must materially participate and meet the 750-hour rule, among other criteria. Misclassifying yourself can lead to IRS audits and disallowance of deductions.
Family Members as Independent Contractors: Some believe hiring family members (e.g., spouse, children) as independent contractors is an easy way to shift income or claim tax deductions. However, the IRS scrutinizes this practice heavily. The relationship must be bona fide, and the work must be legitimate and necessary. If improperly classified, the IRS may reclassify them as employees, leading to payroll tax liabilities and penalties.
2. Misuse of Charitable Remainder Unitrusts (CRUTs)
CRUTs and Charitable Deductions: Some promoters suggest that a Charitable Remainder Unitrust (CRUT) can provide massive charitable deductions while avoiding strict compliance. However, the IRS has specific regulations on valuation, payout percentages, and audit compliance.
Deductions Are Limited: The charitable deduction is not simply the full value of the assets placed into the trust—it’s based on the present value of the remainder interest left to charity, which is calculated using IRS actuarial tables.
IRS Scrutiny: CRUTs have been flagged in abusive tax shelters, and failure to follow strict compliance rules can lead to deduction denials, penalties, and potential audits.

March 13, 2025

QUESTION: A friend mentioned he had to do a superseding tax return, what is it exactly?
ANSWER: The concept of a superseding return has existed since 1934. Let’s face it: the preparation & filing of tax returns are a process filled with pitfalls that can be construed incorrectly, resulting in an error in the return.

What do you do about it if you become aware of a required change in a tax return that has already been filed?

Filing a superseded return implies correcting the error and filing it before the due date or extended due date rather than ignoring it or filing an amended return after it has passed.

Filing a superseding tax return offers several advantages:

1. Correction of Errors: It allows taxpayers to correct errors or omissions on the originally filed return, including making or changing binding elections, revoking an election that is otherwise irrevocable, or fixing an error identified during the filing period.
2. Avoidance of Penalties: Taxpayers can avoid failure-to-file penalties associated with specific information returns. For example, if an S Corp fails to include a required form with its original return, submitting a superseding return with the missing form can be filed on time.
3. Considered as Original Return: A superseding return is treated as the taxpayer’s original return for the tax year, meaning it can replace any return previously filed during the filing period and is considered the taxpayer’s return for that year. For example, the superseding return will be the return of record for computing estimated tax penalties.
4. Flexibility with Elections: It allows binding elections to be made or changed.
5. Statute of Limitations: Filing a superseding return does not affect the statute of limitations for assessment & collection. The statute of limitations generally runs from the date the original return was filed, not the superseding return. This means that the IRS has the same amount of time to audit the return as it would have had if the original return had been correct.
6. Legal Status: A superseding return is treated as the taxpayer’s original return for all purposes. This means that the corrections or changes made in the superseding return are incorporated into the taxpayer’s record as part of the original filing. This can be particularly important for maintaining consistency in tax records & avoiding confusion in future tax years.
7. Flexibility: Taxpayers can file multiple superseding returns within the filing period, including extensions. This allows for ongoing adjustments as new information becomes available or as additional errors are discovered

In summary, filing a superseding tax return allows taxpayers to correct errors, avoid penalties, & make necessary changes to their tax filings within the original filing period, ensuring compliance with tax regulations.

#supersedingtaxreturn #taxreturn #taxes

March 7, 2025

QUESTION: What are the tax benefits of life insurance and what are the risks?
ANSWER: Life insurance can offer several tax benefits, but it also comes with certain risks. Tax advantages & potential risks associated with life insurance are:
1. Tax Benefits of Life Insurance
Tax-Free Death Benefit
The death benefit paid to your beneficiaries is generally income tax-free. This is one of the most significant tax advantages of life insurance.
Tax-Deferred Cash Value Growth (Permanent Life Ins.)
With whole life, universal life, or variable life policies, the cash value component grows tax-deferred. You don’t pay taxes on gains as long as they remain in the policy.
2. Tax-Free Access to Cash Value
You can access the cash value through policy loans or withdrawals:
Policy Loans: Loans against your cash value are generally not taxed as long as the policy remains in force.
Withdrawals: You can withdraw an amount up to what you’ve paid in premiums (basis) without paying taxes. Withdrawals above the basis may be taxable.
3. Estate Tax Benefits
If properly structured (e.g., owned by an irrevocable life insurance trust), the death benefit may avoid estate taxes.
Dividends (for Participating Policies)
Dividends received from a mutual insurance company policy are generally not taxable as income, as they are considered a return of premium.
4. Living Benefits (Accelerated Death Benefits)
Many policies offer the option to access the death benefit early if diagnosed with a terminal illness, often tax-free.

Risks & Potential Tax Disadvantages
1. Modified Endowment Contract (MEC)
If a policy becomes a MEC, loans & withdrawals are taxed on a LIFO (Last-In-First-Out) basis:
Gains are withdrawn first & are taxable as ordinary income.
A 10% penalty tax may apply if you’re under 59½.
Surrender of Policy
If you surrender a policy, any cash value above the total premiums paid is taxable as ordinary income.
2. Policy Loans Risks
Unpaid loans reduce the death benefit & can cause the policy to lapse.
If a policy lapses with an outstanding loan, the loan amount above the premiums paid becomes taxable income.
High Premium Costs
Permanent life ins. policies tend to have high premiums, which might not be tax-deductible for individuals.
3. Employer-Paid Premiums (for Group Life Ins.)
For employer-provided life ins. above $50,000, the cost of coverage may be taxable to the employee as imputed income.
Estate Tax Inclusion
If you retain ownership of the policy, the death benefit may be included in your taxable estate.
4. Complexity & Fees
Permanent policies come with high fees & complexity, which can offset some tax advantages if not managed well
*Summary:
Life Ins. offers valuable tax benefits, particularly with tax-free death benefits & tax-deferred growth.
Risks include potential tax liabilities with MECs, surrendering policies, & unpaid loans, along w. high costs & complexity.

February, 20th 2025

QUESTION: When is the new compliance deadline? And why was it changed?

ANSWER:  The Financial Crimes Enforcement Network (FinCEN) has reinstated the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA), setting a new compliance deadline of March 21, 2025.

This new deadline follows a February 18, 2025, decision by the U.S. District Court for the Eastern District of Texas, which lifted a previous injunction that had halted enforcement of the BOI reporting requirements. In response, FinCEN extended the original deadline by 30 days to accommodate affected entities.

Key points to remember:

• New Deadline: Most reporting companies are required to submit their initial, updated, or corrected BOI reports by March 21, 2025.
• Exceptions: Companies with previously assigned deadlines beyond March 21, 2025, such as those qualifying for disaster relief extensions, should adhere to their original, later deadlines.
• Potential Further Extensions: FinCEN has indicated the possibility of additional deadline modifications, especially for entities posing lower national security risks. The agency will give options to reduce the reporting burden on small businesses & other low-risk entities.

Additionally, legislative efforts are underway to further extend the BOI reporting deadline. Congress recently passed the “Protect Small Business from Excessive Paperwork Act,” proposing to move the deadline to January 1, 2026. This bill is currently under consideration by the Senate.

Given the evolving nature of these requirements, companies should stay informed about potential changes to ensure timely and accurate compliance

#BOI #CTA #FinCEN

February, 14th, 2025

QUESTION: How can tariffs affect the American taxpayer?

ANSWER: Tariffs can affect American taxpayers in several ways, often indirectly through higher prices and economic shifts. Here’s a breakdown of their impact:

1. Higher Prices for Consumers

• When tariffs are placed on imported goods, foreign manufacturers often pass the extra costs to U.S. businesses and consumers.
• This means everyday products—like electronics, automobiles, clothing, and food—can become more expensive.

2. Increased Costs for Businesses

• U.S. businesses that rely on imported materials (like steel and aluminum for manufacturing) pay more, which can lead to job cuts, lower wages, or price hikes.
• Some businesses may struggle to remain competitive against companies in countries without similar tariffs.

3. Retaliatory Tariffs on U.S. Exports

• Other countries often respond with their own tariffs on American products, making it harder for U.S. farmers, manufacturers, and exporters to sell goods abroad.
• This can hurt industries like agriculture (soybeans, pork, dairy), automobiles, and aerospace.

4. Reduced Economic Growth

• Tariffs can slow down economic growth by reducing trade, increasing costs for businesses, and limiting consumer purchasing power.
• If businesses cut back on hiring or investments, it can lead to a slowdown in job creation.

5. Taxpayer Burden Through Subsidies

• When tariffs hurt industries like agriculture, the government often provides subsidies to offset the losses (e.g., aid packages for farmers affected by trade wars).
• These subsidies are funded by taxpayers, effectively making them pay twice—once through higher prices and again through government spending.

6. Tariff Revenue to the Government

• The U.S. government collects revenue from tariffs, but this is often outweighed by the broader economic costs.
• While some argue tariffs help domestic industries by discouraging imports, the overall effect is usually higher costs for consumers and businesses.

In short, while tariffs are designed to protect domestic industries, they often lead to increased costs for American taxpayers through higher prices, economic disruptions, and government spending on subsidies. #tariffs #tariff #ustariffs

February, 4, 2025

QUESTION: What are the best & worst states for sales tax?
ANSWER: When considering the best & worst states for sales tax, we typically look at state-level sales tax rates, local sales taxes, and overall tax burden. Here’s a breakdown:

Best States (Lowest Sales Tax)
These states either have no state sales tax or very low sales tax rates:
Delaware – 0% (No state or local sales tax)
Montana – 0% (No state sales tax; some localities impose minor resort taxes)
New Hampshire – 0% (No state or local sales tax)
Oregon – 0% (No state or local sales tax)
Alaska – 0% state sales tax, but some localities impose up to 7.5%

Worst States (Highest Sales Tax)
These states have high state tax rates combined with local sales taxes, making the overall burden higher:
California – 7.25% state tax + local rates = average 8.82% (highest in the U.S.)
Tennessee – 7% state tax + local rates = average 9.55%
Louisiana – 4.45% state tax + local rates = average 9.55%
Arkansas – 6.5% state tax + local rates = average 9.46%
Washington – 6.5% state tax + local rates = average 9.23%

NOTE: The state sales tax rate in Texas is 6.25%. However, local jurisdictions (cities, counties, transit authorities, and special purpose districts) can add up to 2%, making the maximum total sales tax rate in Texas 8.25%.

Considerations for Businesses & Consumers
If you own a business, lower sales tax states like Delaware, Oregon, or Montana may be attractive for reducing costs.
If you’re selling online, economic nexus laws might still require you to collect sales tax in certain states, even if your business is based in a no-sales-tax state.
Consumers in high-tax states like California & Tennessee pay significantly more on purchases.
Trends:
Increased audit activity
States know what to look for
Targeted audits – technology, hospitals, energy, manufacturing
Focus on Nexus for internet-based sales

January, 23, 2025

QUESTION: What are the new tax laws if any, under the new Trump Administration?

ANSWER: As of January 21, 2025, under President Donald Trump’s administration, several significant tax policy changes have been proposed.

Extension of the Tax Cuts and Jobs Act (TCJA): The TCJA, enacted in 2017, introduced substantial tax cuts for individuals and corporations. Many of its provisions are set to expire after 2025. President Trump has advocated for making these tax cuts permanent, aiming to maintain lower individual income tax rates, an increased standard deduction, and reduced corporate tax rates. However, extending these cuts is projected to add approximately $4.6 trillion to the national deficit over the next decade.

Corporate Tax Rate Reduction: Discussions are underway to further reduce the corporate tax rate from the current 21% to 20% for all corporations, with a potential decrease to 15% for companies manufacturing products within the United States. This initiative aims to incentivize domestic production and job creation.

Abolishment of Taxes on Social Security Benefits: President Trump has proposed eliminating federal income taxes on Social Security benefits. Currently, up to 85% of these benefits can be taxable, depending on the recipient’s income. While this change would provide financial relief to retirees, it could also impact the funding of the Social Security program.

Introduction of New Tariffs: Effective February 1, 2025, a 25% tariff on goods imported from Canada and Mexico has been announced. This measure is intended to boost domestic manufacturing and generate revenue through the newly established External Revenue Service. However, it may lead to increased prices for American consumers on products such as electronics and apparel.

Potential Cuts to Medicaid and Medicare: To offset the cost of new tax cuts and to make the 2017 tax cuts permanent, there are proposals to reduce funding for Medicaid, Medicare, and the Affordable Care Act by over $5 trillion. These cuts could significantly affect the U.S. healthcare system and Americans’ access to services, particularly impacting public hospital operators and insurers contracting with states.

These developments reflect the administration’s focus on tax reduction and trade reform, aiming to stimulate economic growth and prioritize domestic industries. However, they also raise concerns about potential increases in the national deficit and the broader economic impact on consumers and public services.

January, 14th

QUESTION: Who can qualify for Hurricane Beryl relief, and when is the payment deadline?
ANSWER: The IRS has extended various federal tax filing and payment deadlines to February 3, 2025, for individuals and businesses in 67 Texas counties affected by Hurricane Beryl, which began on July 5, 2024.
This extension applies to several tax obligations, including:
2023 Federal Tax Returns: Taxpayers with valid extensions for their 2023 returns now have until February 3, 2025, to file. However, any payments related to these returns were due on April 15, 2024, and are not eligible for this extension.
Quarterly Estimated Tax Payments: Payments originally due on September 16, 2024, and January 15, 2025, are now due by February 3, 2025.
Quarterly Payroll and Excise Tax Returns: Returns normally due on July 31 and October 31, 2024, and January 31, 2025, are also extended to February 3, 2025.
Additionally, penalties for failing to make payroll and excise tax deposits due between July 5, 2024, and July 22, 2024, will be abated if the deposits were made by July 22, 2024.
The affected counties include Galveston County, where League City is located.
Taxpayers in these areas do not need to take any action to receive this relief; it is applied automatically based on IRS records.
For uninsured or unreimbursed disaster-related losses, affected taxpayers have the option to claim them on either their 2023 or 2024 federal income tax return.
When claiming such losses, be sure to write the FEMA declaration number—4798-DR—on any return.

December 18th

QUESTION: What are the significant tax legislations for 2025?
ANSWER: As of December 2024, with President-elect Donald Trump set to assume office in January 2025 & Republicans holding majorities in both the House & Senate, significant tax legislation is anticipated in the coming year.
Key aspects of the expected tax agenda include:
Extension of the Tax Cuts and Jobs Act (TCJA) Provisions
Many provisions of the TCJA, enacted in 2017, are scheduled to expire at the end of 2025. The Republican majority is expected to prioritize extending or making these tax cuts permanent. This includes maintaining lower individual income tax rates, preserving the increased standard deduction, & retaining the expanded child tax credit. Extending these provisions is projected to cost approximately $4.6 trillion over ten years.
Corporate Tax Rate Reduction
President-elect Trump has proposed lowering the corporate tax rate from the current 21% to 15%, favoring domestic manufacturing. This reduction aims to stimulate economic growth & job creation. However, such a cut could significantly impact federal revenue, with estimates suggesting a cost of $3.8 trillion over 10 years when combined with other proposed taxes.
State & Local Tax (SALT) Deduction Cap Adjustment
The current $10,000 cap on SALT deductions has been a point of contention, especially in high-tax states. There is discussion about raising this cap to $20,000 or eliminating it. However, concerns persist that such changes may primarily benefit higher-income households & could reduce federal revenue.
Elimination of Taxes on Tips & Overtime
Proposals have been made to eliminate federal income taxes on tips & overtime pay, aiming to increase take-home pay for workers in industries like hospitality & retail. While this could benefit many workers, it may also lead to complexities in tax administration & potential revenue losses.
Implementation Timeline & Legislative Process
With unified control of the executive & legislative branches, Republicans are expected to utilize the budget reconciliation process to pass tax legislation, allowing them to bypass the Senate filibuster and pass bills with a simple majority. This process will begin early in 2025, with major tax bills enacted by mid to late 2025.
Considerations for Tax Planning
Given the potential for significant tax changes, individuals & businesses should:
Monitor Legislative Developments: Stay informed about proposed tax laws & their progress through Congress.
Consult Tax Professionals: Seek advice to understand how changes may impact personal & business finances.
Evaluate Timing of Income & Deductions: Consider strategies such as deferring income or accelerating deductions, depending on any changes in tax rates & laws.
It’s important to note that while these proposals are likely to be prioritized, the legislative process may lead to modifications.

December 17th, 2024

QUESTION: Is there such a thing as Christmas Tax?
ANSWER: “Christmas tax” is not an official or widely recognized tax term. However, it could refer to several concepts, depending on the context:
1. Holiday Expenses: People often jokingly refer to the extra financial burden of holiday spending—on gifts, decorations, food, and travel—as a “Christmas tax.” It highlights the high costs associated with celebrating the season.
2. Seasonal Tax Policies: In some countries or local jurisdictions, governments may introduce or adjust taxes around the holiday season to fund special programs, regulate seasonal goods (like Christmas trees or festive items), or encourage specific economic activities.
3. Sales Tax on Holiday Items: Some refer to the sales tax applied to holiday purchases as a “Christmas tax,” especially if seasonal items like decorations or festive foods are taxed.
4. Charitable Donations: Many people increase charitable donations during the holiday season, and while these aren’t taxes, some may think of them as a “Christmas tax” in a metaphorical sense. These donations often result in tax deductions.

December 6, 2024

QUESTION: What is the Voluntary Sales Tax Disclosure?
ANSWER: The Voluntary Sales Tax Disclosure refers to programs or initiatives that encourage businesses, particularly retailers, to disclose and remit previously uncollected sales taxes in exchange for certain benefits like penalty waivers, interest reductions, or immunity from prosecution. These programs can be mutually beneficial for states and businesses:
How It Works:
State’s Perspective:
States offer a voluntary disclosure agreement (VDA) program to incentivize businesses to come forward and pay sales taxes they owe but have not collected or remitted. In return, states may:
1. Waive penalties.
Reduce or eliminate interest on unpaid taxes.
Limit the look-back period for tax liability (e.g., 3 years instead of 7).
Retailers’ Perspective:
Retailers can avoid harsh penalties and potential legal actions by voluntarily disclosing and settling their tax liabilities. This also allows them to achieve compliance moving forward, reducing future risks.
2. Benefits for States:
Revenue Boost:
States recover unpaid sales tax revenues that might otherwise remain uncollected.
Cost Efficiency:
It’s often more cost-effective to incentivize voluntary compliance than to pursue audits and litigation.
Encourages Compliance:
These programs encourage broader participation and create a culture of compliance among businesses.
3. Benefits for Retailers:
Avoidance of Severe Penalties:
By coming forward voluntarily, businesses avoid penalties that can be significant if non-compliance is discovered during an audit.
4. Limited Liability:
States often limit the look-back period, reducing the overall tax burden.
Certainty Moving Forward:
Businesses achieve a clean slate and can operate with a clear understanding of their tax obligations.
Potential Challenges:
1. Public Perception:
Critics might argue that these programs allow businesses to escape full accountability.
2. Complexity:
Navigating disclosure agreements and accurately calculating back taxes can be challenging for retailers.
3. Limited Participation:
Not all businesses may be willing to participate, especially if they believe the risk of detection is low.
*Conclusion:
Voluntary sales tax disclosure programs are a win-win for states and retailers. They enable states to recover lost revenues while allowing businesses to regularize their tax obligations without facing severe consequences. These programs, when implemented effectively, can bolster compliance, and reduce the administrative burden on tax authorities.

November 18th, 2024

QUESTION: What are some end of the year tax saving options ?
ANSWER: As the end of 2024 approaches, it’s an opportune time to implement tax-saving strategies to optimize your financial situation. Here are several options to consider:
1. Maximize Contributions to Tax-Advantaged Accounts
Retirement Accounts: Contribute up to $23,000 to your 401(k) or similar employer-sponsored plans for 2024. If you’re 50 or older, you can make additional catch-up contributions.
Individual Retirement Accounts (IRAs): You can contribute up to $7,000 to an IRA for tax year 2024, with an additional $1,000 catch-up contribution if you’re 50+. You have until April 15, 2025, for IRA contributions.
Health Savings Accounts (HSAs): If you have a high-deductible health plan, you can contribute up to $4,150 for self-only coverage & $8,300 for family coverage in 2024, with an additional $1,000 catch-up contribution if you’re 55+. HSAs offer triple tax advantages: contributions are tax-deductible, growth is tax-free, & withdrawals for qualified medical expenses are tax-free.
2. Engage in Tax-Loss Harvesting
Offset capital gains by selling investments that have declined in value. This strategy allows you to use losses to offset gains & up to $3,000 of ordinary income, with any excess losses carried forward to future years. Be mindful of the IRS wash-sale rule, which disallows a loss deduction if you repurchase the same or substantially identical security within 30 days.
3. Consider Roth IRA Conversions
Converting a IRA to a Roth IRA can be advantageous, especially if you anticipate being in a higher tax bracket in the future. While the conversion is taxable, future withdrawals from the Roth IRA are tax-free. This strategy is particularly timely before potential tax rate increases after 2025.
4. Make Charitable Contributions
Donations to qualified charities can be deducted if you itemize your deductions. Consider “bunching” donations by combining multiple years’ worth of contributions into one year to exceed the standard deduction threshold, maximizing your tax benefit.
5. Utilize the Annual Gift Tax Exclusion
You can gift up to $18,000 per recipient in 2024 without incurring gift tax. This strategy can help reduce your taxable estate & provide financial support to family members.
6. Review Required Minimum Distributions (RMDs)
If you’re 73 or older, ensure you’ve taken your RMDs from retirement accounts by Dec. 31 to avoid penalties.
7. Evaluate Energy-Efficient Home Improvements
The Inflation Reduction Act offers tax credits for energy-efficient home improvements, such as solar installations & energy-efficient windows.
8. Assess Your Tax Withholding
Use the IRS Tax Withholding Estimator to ensure you’ve paid enough taxes throughout the year. Adjusting your withholding or making est. tax payments before year-end can help avoid underpayment penalties.

November 12th, 2024

QUESTION What can I do to help reduce my small businesses taxes?

ANSWER: Reducing your small business’s tax liability involves strategic planning and taking advantage of available deductions and credits. Here are several strategies to consider:

1. Utilize Startup Deductions: If your business is new, you can deduct up to $5,000 in startup costs and $5,000 in organizational expenses, provided your total startup costs are under $50,000. This can include expenses like legal fees, market research, and employee training.
2. Maximize Retirement Contributions: Contributing to retirement plans such as a 401(k) or SEP IRA can reduce taxable income. For instance, in 2024, you can contribute up to $23,000 to a 401(k), or $30,500 if you’re 50 or older.
3. Claim the Home Office Deduction: If you use a portion of your home exclusively for business, you may be eligible for a home office deduction. This can include a portion of your mortgage interest, utilities, and insurance.
4. Deduct Business Vehicle Expenses: Expenses related to vehicles used for business purposes can be deducted. You can choose between deducting actual expenses (like gas and maintenance) or using the standard mileage rate, which is 58.5 cents per mile for 2022.
5. Leverage Section 179 and Bonus Depreciation: These provisions allow you to deduct the full cost of qualifying equipment and software purchased or financed during the tax year, up to certain limits. This can significantly reduce taxable income in the year of purchase.
6. Hire Family Members: Employing family members can provide tax benefits. For example, wages paid to your children under 18 are not subject to Social Security and Medicare taxes if your business is a sole proprietorship or a partnership where both partners are parents of the child.
7. Offer Employee Benefits: Providing benefits such as health insurance and retirement plans can be tax-deductible and also help attract and retain employees.
8. Choose the Right Business Structure: The legal structure of your business (e.g., LLC, S-Corp) affects taxation. An S-Corp, for instance, can help reduce self-employment taxes by allowing you to pay yourself a reasonable salary and receive the remaining income as distributions, which may not be subject to self-employment tax.
9. Keep Detailed Records: Maintaining accurate and thorough records of all business expenses ensures you can substantiate deductions and credits claimed, reducing the risk of issues during an audit.
10. Consult a Tax Professional: Tax laws are complex and frequently change. A tax professional can provide personalized advice and ensure you’re taking full advantage of all available tax-saving opportunities.

November 7th, 2024

QUESTION: What are the due dates for Estimated Tax Payments for a Fiscal Year for a Corporate Taxpayer? And how do I avoid late payment penalties?
ANSWER: First, a C- Corporation can have a fiscal year other than December 31. Typical year ends are March, June, September, October, or November. Management Service organizations organized as C Corporations usually have September, October, or November fiscal year ends.
A little-known fact is that the IRS and the EFTPS payment systems differ in identifying tax years when a fiscal year end is involved. This can cause havoc in applying estimated tax payments to tax years and result in significant late payment penalties and interest if these differences are not considered.
The IRS identifies the tax year based on the year in which the fiscal year begins.
The EFTPS payment system identifies the tax year based on when the fiscal tax period ends.
For instance, the tax return to be filed for the fiscal year ending October 31, 2024, is for its 2023 tax years.
Estimated tax payments must be made on the 15th day of the corporation tax year’s 4th, sixth, ninth, and twelfth months. For an October Fiscal year-end corporation, those dates are:

Following the above example for a corporation with October 31, 2024, fiscal year (2023 tax year), its required payment dates are:

Quarterly Payment #1. February 15, 2024
Quarterly Payment #2 April 15, 2024
Quarterly Payment #3 July 15, 2024
Quarterly Payment #4 October 15, 2024

Those estimated tax payments through the EFTPS system should be coded as 2024 payments, even though they will be reflected as tax payments on the corporation’s 2023 corporate tax return.
It’s not logical, and it differs from the definition of fiscal tax years in the instruction for the 1120 U.S. Corporation Income tax returns, but it’s true.
It’s almost as if they have different tax period definitions to ensure folks code the wrong tax year when making payments so they can assess late filing penalties and interest.

October 29th, 2024

QUESTION: How can I expense a business-related vacation?
ANSWER: To expense a business-related vacation, you need to make sure the trip has a primary business purpose & carefully document the expenses. Here’s a breakdown of how to expense it legitimately:
1. Define the Business Purpose: The IRS allows deductions for travel primarily for business. Make sure there’s a valid, documented business reason, like a meeting with clients, attending a conference, or scouting new opportunities.
2. Document the Trip:
Keep a record of the dates, itinerary, and agenda of business activities.
Collect documentation for business meetings or events, like conference tickets or an invitation from a client.
Maintain detailed notes of meetings, including the topics discussed and the business objectives.
3. Separate Personal & Business Expenses:
Only expenses for business activities are deductible. This includes travel, lodging, meals (at 50%), and other business-related costs for the business days of your trip.
Any personal activities (such as sightseeing) should not be included in your deductions, nor should any additional days purely for personal leisure.
4. Travel Days:
Travel expenses are deductible if the trip is primarily for business, even if you add some personal days.
For instance, if you attend a three-day conference but stay for a seven-day vacation, expenses related to travel and the business days are deductible, while personal days are not.
5. Keep Receipts:
Collect receipts for everything, including airfare, hotel stays, meals, and transportation.
Ideally, use a business credit card for all business-related expenses to simplify record-keeping.
6. Per Diem Allowances:
You may use the per diem method (a daily rate for lodging, meals, and incidental expenses) if it simplifies your accounting.
Per diem rates are set by the IRS and depend on the destination.

October 24th, 2024

QUESTION: Has the IRS adjusted tax amounts for inflation for 2025?

ANSWER: Yes, the IRS has released inflation adjustments for the 2025 tax year. Key changes include adjustments to tax brackets, standard deductions, and other tax-related provisions:

1. Tax Brackets: The seven federal income tax rates remain the same (10%, 12%, 22%, 24%, 32%, 35%, and 37%), but the income thresholds for these rates have been adjusted to account for inflation. For instance, the 10% bracket will now apply to income up to $11,925 for single filers (up from $11,600 in 2024) and $23,850 for married couples filing jointly.
2. Standard Deduction: The standard deduction has increased for 2025:
   • Single filers & married individuals filing separately can claim $15,000 (up from $14,600).
   • Heads of households can claim $22,500 (up from $21,650).
   • Married couples filing jointly can claim $30,000 (up from $29,200)​.
3. Earned Income Tax Credit (EITC): The maximum EITC for families with three or more qualifying children will rise to $8,046 in 2025, reflecting a slight increase from 2024.
4. Alternative Minimum Tax (AMT): The exemption amount for the AMT will also be adjusted, with married couples filing jointly seeing an increase to $137,000 & unmarried individuals having an exemption of $88,100.​

These adjustments aim to prevent “bracket creep,” where taxpayers end up in higher tax brackets due to inflation, without a real increase in their purchasing power. The changes will apply to tax returns filed in 2026.

October 22, 2024

QUESTION: I’m starting my own business what are the biggest expenses?
ANSWER: 1. Operational Expenses
Rent or Lease: Costs of leasing office space, retail space, or equipment.
Utilities: Electricity, water, internet, & phone services.
Supplies: Office supplies, cleaning supplies, & other consumables.
2. Employee-Related Expenses
Salaries and Wages: Payment to employees for their work.
Payroll Taxes: Employer’s share of Social Security, Medicare, & unemployment taxes.
Employee Benefits: Health insurance, retirement contributions, & other perks.
3. Cost of Goods Sold (COGS)
Raw Materials: Materials used to create products.
Direct Labor: Labor costs directly tied to producing goods.
Manufacturing Supplies: Tools, parts, & supplies used in production.
4. Professional Services
Legal Fees: Costs for legal advice, contracts, & compliance.
Accounting and Bookkeeping: Fees for managing finances and taxes.
Consulting: Fees for hiring experts to advise on business strategies.
5. Marketing & Advertising
Advertising: Online ads, print ads, billboards, etc.
Promotional Materials: Brochures, business cards, & merchandise.
Online Marketing: Website hosting, email marketing, & social media ads.
6. Technology & Software
Software Subscriptions: CRM, project management, & accounting software.
IT Services: Maintenance & technical support.
Website Development: Design, development, & maintenance costs.
7. Travel and Entertainment
Business Travel: Airfare, hotel stays, & car rentals for business trips.
Meals and Entertainment: Client meetings, business lunches, & events.
Mileage: Expenses for business use of personal vehicles.
8. Insurance
General Liability Insurance: Protection against lawsuits or claims.
Professional Liability Insurance: Coverage for errors or negligence.
Workers’ Compensation: Insurance for employee injuries on the job.
9. Loan & Interest Payments
Interest on Loans: Payments for business loans or lines of credit.
Credit Card Fees: Interest & transaction fees for business credit cards.
10. Depreciation & Amortization
Depreciation: Allocation of the cost of physical assets over their useful life.
Amortization: Gradual write-off of intangible assets.
*These expenses can vary based on the industry, business size, & specific operations.

October 21, 2024

QUESTION: What are the main tax changes for 2024?
ANSWER: For 2024, several changes to federal tax laws have been implemented, mainly due to annual inflation adjustments.
Here are the key updates:
1. Income Tax Brackets: While the tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) remain unchanged, the income thresholds have been adjusted. For example, the 22% bracket now applies to individual incomes from $47,150 to $100,525 and joint filers from $94,300 to $201,050. These adjustments help prevent taxpayers from being pushed into higher tax brackets solely due to cost-of-living increases​

2. Standard Deduction: The standard deduction has increased. For married couples filing jointly, it’s now $29,200, up by $1,500 from 2023. Single filers can claim $14,600, and heads of households get $21,900, both with similar increments from last year​
​
3. Retirement Contribution Limits: The maximum contribution limit for 401(k) plans has risen to $23,000, up from $22,500 in 2023. IRA contribution limits have also increased to $7,000 from $6,500​
​
4. Gift Tax Exclusion: The annual gift tax exclusion amount has been raised to $18,000 for 2024, up from $17,000​
.
These adjustments aim to accommodate inflation, allowing more room for tax savings. Additionally, eligibility thresholds for certain tax credits and deductions, such as IRA contributions and the Saver’s Credit, have also been adjusted upwards, which may benefit taxpayers across different income levels​.

October 16th, 2024

QUESTION: How do rich people avoid paying some taxes?
ANSWER: High-net-worth indiv. use various strategies to legally reduce their tax liabilities. Some common methods used by wealthy people to avoid paying more taxes:
1. Tax-Advantaged Investments
Municipal Bonds: The interest income from municipal bonds is often exempt from federal & sometimes state taxes.
Qualified Dividends & Long-Term Capital Gains: These are taxed at lower rates (0%, 15%, or 20%) as to ordinary income.
2. Tax Deferral
401(k) & IRAs: Wealthy people max out contributions to retirement accounts, deferring taxes until they withdraw it during retirement.
Deferred Compensation Plans: Executives often defer portions of their salaries into future years when they anticipate lower income, deferring tax liability.
3. Capital Gains Instead of Salary
Many wealthy indiv’s, especially CEOs & founders, take minimal salaries & receive compensation via stock options or equity, which are taxed at lower capital gains rate when sold.
4. Real Estate & Depreciation
Wealthy indiv’s invest in real estate & take advantage of depreciation, a non-cash expense that reduces taxable income. Using 1031 exchanges, to defer capital gains taxes when they sell one property & reinvest in another.
5. Charitable Donations
Large donations to charity reduce taxable income. Donations of appreciated assets (stocks) allow indiv’s to avoid paying capital gains taxes on those assets while claiming a charitable deduction.
6. Trusts & Estate Planning
Trusts, such as Grantor Retained Annuity Trusts (GRATs), help reduce estate & gift taxes while transferring wealth to heirs. Wealthy indiv’s also use dynasty trusts to transfer wealth across generations with minimal tax consequences.
7. Offshore Accounts
While illegal tax evasion is different, some wealthy indiv’s set up offshore accounts in tax havens to shelter income from U.S. taxation. Tax deferral or reduction is possible if the income is not repatriated to the U.S.
8. Pass-Through Business Entities
Many wealthy indiv’s structure their businesses as S-Corps, LLCs, or partnerships, allowing business income to “pass through” to their personal taxes, which helps avoid the double taxation with C-Corps.
They may also take advantage of the Qualified Business Income (QBI) deduction, which can reduce taxable income by up to 20% for certain businesses.
9. Carried Interest
Hedge fund & private equity managers often receive compensation in the form of carried interest, which is taxed at capital gains rates (up to 20%) rather than ordinary income tax rates, which are higher.
10. Wealth Preservation Vehicles
Family Limited Partnerships (FLPs) allow the wealthy to transfer assets to heirs with minimal estate & gift taxes, while retaining control over the assets.
Life insurance is often used for estate planning to pass wealth to heirs without being subject to estate taxes.

October 15th, 2024

QUESTION: I need help settling my tax debt, would an “Offer in Compromise” work for me?
ANSWER: An Offer in Compromise (OIC) is a program offered by the IRS that allows eligible taxpayers to settle their tax debt for less than the full amount they owe. It is intended for individuals or businesses that are unable to pay their tax liability in full & can demonstrate that paying the entire amount would cause significant financial hardship.
The IRS will consider an OIC based on 3 main criteria:
Doubt as to Liability: The taxpayer disputes the amount or existence of the tax debt.
Doubt as to Collectability: Assets & income are less than the total amount of tax owed, meaning they are unlikely to ever be able to fully pay the debt.
Effective Tax Administration: Even if you, the taxpayer has the means to pay the full amount, doing so would create an undue economic hardship or be unfair due to special circumstances.
To qualify for an OIC, you must:
Submit financial information to the IRS using Form 433-A (individuals) or Form 433-B (businesses).
Provide a non-refundable application fee (unless qualifying for a low-income exception).
Make an initial payment based on the offer they are submitting.
If the IRS accepts the offer, comply with all tax laws moving forward & make the payments as agreed. If the offer is rejected, you can appeal within 30 days of receiving the rejection notice.
The OIC process can be lengthy & requires a thorough review of the taxpayer’s financial situation, but it can provide significant relief for those who qualify.

October 10th, 2024

QUESTION: What is your best tax advice for the upcoming year?
ANSWER: The best tax advice often revolves around proactive planning, maximizing deductions, & staying organized.
Top tips:
1. Plan Ahead
Consult a Tax Professional: Regularly work with a CPA or tax advisor, especially if you’re a business owner. They can help with year-round tax planning, not just at tax time.
Understand Your Filing Status: Choose the right structure for your business (S-Corp, C-Corp, LLC, etc.) to minimize tax liabilities.
2. Take Advantage of Tax Deductions & Credits
Business Deductions: Keep track of all allowable business expenses—office supplies, mileage, travel, & meals related to business can all be deductible.
Education & Training: Tax deductions are available for courses, seminars, & other professional dev. opportunities.
Retirement Contributions: Max out contributions to retirement accounts like 401(k)s or IRAs, which can provide tax-deferred or tax-free growth.
Home Office Deduction: If you work from home, you may be eligible for home office deductions. Be sure to calculate the % of your home used for business.
3. Stay Organized
Keep Receipts & Records: Maintain detailed records of your income & expenses throughout the year. Use software or apps to track expenses & mileage.
Separate Business & Personal Finances: Small business owners, ensure your finances are separate from personal to avoid IRS scrutiny.
4. Tax-Advantaged Accounts
Health Savings Account (HSA): If eligible, allow tax-free contributions for medical expenses.
529 Plans: If you’re saving for a child’s education, 529 plans allow you to grow funds tax-free for education expenses.
5. Watch Out for Tax Law Changes
Tax laws can change annually, & staying updated on those changes can help you avoid penalties or miss out on opportunities to save.
6. Quarterly Estimated Taxes
If you’re self-employed or receive non-salary income, pay quarterly estimated taxes to avoid underpayment penalties.
7. Depreciation
For large equipment or property purchases, take advantage of depreciation deductions, especially through Section 179 or bonus depreciation rules.
8. Consider Timing for Income & Expenses
Defer income or accelerate deductions when possible to reduce taxable income in a given year. This can help minimize tax liabilities.
9. Charitable Donations
Contributions to qualified charitable organizations can provide tax deductions. Be sure to get proper documentation for any donation.
10. File & Pay Taxes on Time
Avoid penalties by filing your returns on time & paying taxes when they are due. If you can’t pay, set up a payment plan with the IRS.
Bonus: Be Prepared for an Audit
Keep accurate records & be honest with your deductions & claims. If audited, having organized and truthful records will make the process smoother.
These strategies can help minimize tax burdens & avoid issues with the IRS.
hashtag#taxtips hashtag#taxes2024 hashtag#taxprepayer hashtag#taxaccountant Thomas M. “Mickey” O’Neal, CPA Natalie O’Neal

October 2nd, 2024

QUESTION: What are the hardest tax forms to fill out?
ANSWER: The difficulty of a tax form can vary based on an individual’s or business’s financial situation, but some of the most challenging and complex forms include:
1. Form 1040 (U.S. Individual Income Tax Return) & Schedules
While this is a standard form for individuals, it can become difficult when additional schedules are needed (like Schedule C for self-employment, Schedule D for capital gains, and Schedule E for rental income or pass-through business income).
2. Form 1065 (Partnership Tax Return)
For partnerships, the Form 1065 is notoriously complex because it involves reporting each partner’s share of income, deductions, and credits, often requiring detailed bookkeeping and coordination between partners.
3. Form 1120 (C Corporation Tax Return)
This form can be quite complex due to the need for corporate-level accounting, reconciliation of book income to taxable income, and various deductions and credits that need to be properly allocated.
4. Form 1120S (S Corporation Tax Return)
Though similar to Form 1120, Form 1120S requires reporting income, deductions, and credits for S Corporations. Calculating each shareholder’s share of income and credits and properly completing the Schedule K-1 can be challenging.
5. Form 990 (Return of Organization Exempt from Income Tax)
Nonprofits and tax-exempt organizations use Form 990, which is detailed and requires comprehensive reporting of the organization’s financial activities, governance policies, and compliance with IRS rules.
6. Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
Any transactions with foreign trusts or gifts from foreign persons must be reported here, and it comes with steep penalties for errors. The instructions are complex, and it requires a good understanding of international tax laws.
7. Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations)
This form is required for U.S. citizens and residents who own part of a foreign corporation. The rules around ownership and control, as well as the extensive reporting requirements, make this form particularly challenging.
For many individuals and businesses, filling out these forms might necessitate professional tax preparation assistance due to their complexity and the potential consequences of mistakes.

September 26th, 2024

QUESTION: Any upcoming deadlines for the ERC?
ANSWER: The Employee Retention Credit (ERC) is a refundable tax credit introduced under the CARES Act in 2020 to encourage businesses to retain employees during the COVID-19 pandemic. The credit provides financial relief by allowing eligible employers to claim a percentage of qualified wages they paid to employees during periods of significant business disruption.
Deadline for ERC Claims
*The original deadline to claim ERC was tied to payroll tax filings, but businesses can still apply for ERC retroactively by filing amended payroll tax returns.
*Employers typically have 3 years from the original filing deadline to submit an amended return, meaning ERC claims for 2020 and 2021 can still be filed as of now.
*The IRS is reminding tax pros and employers that the window for voluntarily disclosing incorrect ERC claims is Nov. 22.
Claim Process:
To claim the ERC, employers need to fill out Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return) to amend their original tax filings for the relevant quarters.
The specific due date for submitting an ERC claim depends on when the employer filed their original returns for the relevant period.
hashtag#erc hashtag#employeeretentioncredit hashtag#taxcredit hashtag#taxreturn hashtag#taxclaim hashtag#taxcredit hashtag#taxcredits hashtag#caresact hashtag#ercclaims hashtag#tax hashtag#taxes hashtag#tax2024 hashtag#taxaccountant

September 19th, 2024

QUESTION: Would the Fed lowering interest rates affect our taxes?
ANSWER: When the Federal Reserve lowers interest rates, it can indirectly affect taxes in several ways:
1. Economic Growth and Income:
Increased Income: Lower interest rates generally encourage borrowing and spending by both businesses and consumers. As businesses expand, it can lead to higher incomes for individuals, which might result in higher income taxes if personal earnings rise significantly.
Business Profits: For small business owners, lower rates can reduce borrowing costs, potentially boosting profits. Higher profits could mean an increase in taxable income.
2. Investment and Capital Gains:
Stock Market: Lower interest rates often lead to higher stock market returns. If you sell investments for a profit, you’ll face capital gains taxes. Depending on how long you held the investment (short-term vs. long-term), this can affect the amount of tax owed.
Property Investments: Lower interest rates might also make it more attractive to invest in real estate. Increased property values can lead to higher property taxes and potential capital gains taxes when selling a property.
3. Debt and Interest Deductions:
Interest Expense: For businesses, lower interest rates mean less interest paid on loans, reducing the interest deductions on business taxes. However, overall lower interest expenses can increase taxable income.
Mortgage Deductions: On a personal level, if you refinance a mortgage at a lower rate, the interest portion of your mortgage payments decreases, potentially reducing mortgage interest deductions on your tax return.
4. Government Revenue:
When the economy grows due to lower interest rates, government tax revenues can increase through higher income, sales, and corporate taxes. This can affect government policies, including tax rates and credits.
While the direct effect on taxes might be subtle, the indirect impacts through changes in income, investment, and spending can influence how much tax individuals and businesses owe.

September 18th, 2024

QUESTION: I’m starting my own business & not sure if I should file as a C-Corp or S-Corp? Any advice you can give me?
ANSWER: Choosing between a C-Corp and an S-Corp depends on several factors, including your business goals, the number of shareholders, tax considerations, & your future for the business. Here’s a breakdown to help you decide:
C-Corporation (C-Corp):
1. Taxation: May face “double taxation,” where the corporation pays taxes on its income, and shareholders also pay taxes on any dividends they receive.
2. Shareholders: There are no restrictions on the number of shareholders or their residency. This can be advantageous if you plan to have many investors or if you’re looking for venture capital funding.
3. Stock Classes: Can have multiple classes of stock, which provides flexibility in structuring investments.
4. Retained Earnings: Can retain earnings within the company, which can be used for reinvestment without additional taxation.
5. Earnings: Not subject to self-employment taxes.

S-Corporation (S-Corp):

1. Taxation: Have pass-through taxation, meaning the business itself isn’t taxed. Instead, profits & losses are reported on the owners’ personal tax returns. This avoids the double taxation issue with C-Corps.
2. Shareholders: Limited to 100 shareholders, and all must be U.S. citizens or residents. This can be a limiting factor if you plan to have international investors or many shareholders.
3. Stock Classes: Can only have one class of stock, which might be restrictive if you want to issue different types of equity.
4. Self-Employment Taxes: Owners who work for the business must pay themselves a “reasonable salary,” which is subject to payroll taxes, while additional profits can be taken as dividends, potentially reducing self-employment taxes.
NOTE: Please be sure to watch out for that last item. Many unreputable tax advisors will elect S Status & not pay any salary to avoid all Social Security & Medicare taxes. That technique is not allowed & is not prudent.
The IRS requires you to pay yourself a reasonable salary, as mentioned under item 4. Likewise, if you did not pay Social Security or Medicare taxes, you may not have those benefits available to you when you retire.
*Key Considerations:
Business Size and Growth Plans: If you plan to scale quickly or seek venture capital funding, a C-Corp may be better due to fewer restrictions on shareholders & stock classes.
Tax Implications: S-Corp can provide tax advantages, particularly if your business income will allow you to save on self-employment taxes.
Administrative Complexity: Both entities require formalities like board meetings & maintaining corporate minutes, but C-Corps often have more complex compliance requirements.

September, 9th, 2024

QUESTION: I filled my tax return on April 15th and haven’t received my check, why are the returns taking so long?
ANSWER: There are several possible reasons why your tax return might be delayed. Here are some common causes:
1. Errors or Incomplete Information: If your return has any mistakes, such as incorrect Social Security numbers, math errors, or missing forms, the IRS may take longer to process it.
2. Amended Returns or Special Situations: If you filed an amended return or have a more complex tax situation (e.g., claiming specific credits, such as the Earned Income Tax Credit or Child Tax Credit), it may require additional review.
3. Filing Method: If you filed a paper return rather than electronically, it takes longer for the IRS to process. Electronic filing is usually faster.
4. Verification Processes: The IRS may need to verify your identity or check certain details on your return. This could be due to fraud prevention measures or random selection for audit.
5. Refund Offset: Your refund might have been applied to unpaid federal or state taxes, child support, or other debts. If so, the IRS would send you a notice explaining why your refund was reduced.
6. IRS Backlogs: The IRS has experienced backlogs in recent years, especially during the COVID-19 pandemic. Staffing shortages, increased workloads, or system delays could be contributing to longer processing times.
7. Direct Deposit vs. Check: If you’re expecting a check instead of direct deposit, that may also slow things down.
*You can check the status of your refund through the IRS’s “Where’s My Refund?” tool on their website or by calling their automated refund hotline.

September 4th, 2024

QUESTION: I’m starting my own business and not sure if I should file as a C-Corp or S-Corp? Any advice you can give me?
ANSWER: Choosing between a C-Corp or an S-Corp depends on several factors, including your business goals, the number of shareholders, tax considerations, and your future for the business. Here’s a breakdown to help you decide:
C-Corporation (C-Corp):
1. Taxation: C-Corps face “double taxation,” where the corporation pays taxes on its income, and shareholders also pay taxes on any dividends they receive.
2. Shareholders: There are no restrictions on the number of shareholders or their residency. This can be advantageous if you plan to have many investors or if you’re looking for venture capital funding.
3. Stock Classes: C-Corps can have multiple classes of stock, which provides flexibility in structuring investments.
4. Retained Earnings: C-Corps can retain earnings within the company, which can be used for reinvestment without additional taxation.
S-Corporation (S-Corp):
1. Taxation: S-Corps have pass-through taxation, meaning the business itself isn’t taxed. Instead, profits and losses are reported on the owners’ personal tax returns. This avoids the double taxation issue seen with C-Corps.
2. Shareholders: S-Corps are limited to 100 shareholders, and all must be U.S. citizens or residents. This can be a limiting factor if you plan to have international investors or many shareholders.
3. Stock Classes: S-Corps can only have one class of stock, which might be restrictive if you want to issue different types of equity.
4. Self-Employment Taxes: S-Corp owners who work for the business must pay themselves a “reasonable salary,” which is subject to payroll taxes, while additional profits can be taken as dividends, potentially reducing self-employment taxes.
5. Tax Implications: An S-Corp can provide tax advantages, particularly if your business income will allow you to save on self-employment taxes.
Administrative Complexity: Both entities require formalities like board meetings and maintaining corporate minutes, but C-Corps often have more complex compliance requirements.
*Key Considerations:
Business Size and Growth Plans: If you plan to scale quickly or seek venture capital funding, a C-Corp may be better due to fewer restrictions on shareholders & stock classes.

September, 3rd, 2024

QUESTION: What is the tax relief for Hurricane Beryl?
ANSWER:
For victims of Hurricane Beryl in Texas, tax relief is typically provided by the IRS and state authorities to assist those affected by natural disasters. While specific details about tax relief for Hurricane Beryl might vary depending on the exact circumstances and time of the event, here are some general forms of tax relief that are often available:
1. Extended Deadlines
The IRS usually extends tax filing and payment deadlines for affected individuals and businesses. This extension can apply to filing federal tax returns, paying taxes, and making estimated tax payments.
2. Casualty Loss Deductions
Taxpayers in disaster areas may be eligible to claim casualty loss deductions on their federal income tax returns. This allows them to deduct the cost of property damage not covered by insurance or other reimbursements.
3. Access to Retirement Funds
Individuals affected by a natural disaster may be allowed to access their retirement funds without the usual penalties. There may also be provisions for taking loans from retirement accounts.
4. Employer Relief
Employers in disaster areas might receive relief regarding payroll taxes or be eligible for employment-related credits if they continue to pay employees despite operational interruptions.
5. Replacement of Lost Documents
The IRS can help victims get copies of past tax returns or other related documents that might have been lost or damaged.
6. Relief for Specific Taxes
Relief may be available for other types of taxes, such as estate or gift taxes, depending on specific circumstances.
7. State-Specific Relief
Texas might provide additional state-level tax relief measures, such as property tax deferrals, rebates, or exemptions for affected property owners.

August, 29th, 2024

QUESTION: Is there a maximum tax I can write off for a home mortgage?
ANSWER: Yes, there is a limit to the amount of mortgage interest you can deduct on your taxes, which depends on when you took out the mortgage and the amount of the loan.
1. Current Limits on Mortgage Interest Deduction
Mortgages Taken Out After December 15, 2017: For mortgages taken out after December 15, 2017, you can deduct interest on the first $750,000 ($375,000 if married filing separately) of mortgage debt used to buy, build, or improve your home.
2. Mortgages Taken Out Before December 15, 2017: For mortgages taken out before this date, you can deduct interest on the first $1 million ($500,000 if married filing separately) of mortgage debt.
*Additional Considerations
Home Equity Loans: Interest on home equity loans or lines of credit is deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. The total of all loans, including the original mortgage, must not exceed the limits mentioned above.
Itemizing Deductions: You must itemize your deductions on Schedule A of Form 1040 to claim a mortgage interest deduction.
Primary and Secondary Homes: The mortgage interest deduction can apply to interest paid on both primary and secondary homes, subject to the combined mortgage limit.

ASK MICKEY, CPA, CVA Tax Fraud is Everywhere