Tax Planning

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Starting any business has risk, and most businesses take time to become profitable. Unfortunately, the IRS sees multiple years of losses from a business as a red-flag that usually results in further scrutiny. That scrutiny can result in disallowance of legitimate business losses and potential penalties for the underreporting. However, with the proper documentation and testimony, legitimate losses over multiple years can be taken and upheld. A recent Tax Court case on a miniature donkey businesses, Huff v. Comm’r, T.C. Memo 2021-140, outlines the factors needed to defend multiple years of losses in a business.…

Vintage composition of handwriting, quill pen and ink. Selective focus on ink and pen. Text is from Shakespeare's Sonnet 18. (Vintage composition of handwriting, quill pen and ink. Selective focus on ink and pen. Text is from Shakespeare's Sonnet 18.,In Shakespeare, an English King blames the loss of an important battle on his lack of a horse:  “A horse, a horse, my kingdom for a horse!”[1]

In real life (and especially, it seems, in tax law) it is more like to be the lack of a timely piece of paper that causes the taxpayer to lose.

In the course of administering a trust, it sometimes happens that mistakes are made that require correction.  For example, distributions may be made that are not in accordance with the provisions of a trust: payments to the wrong beneficiaries, or in the wrong amounts or for the wrong purposes.  A similar situation may arise when a trust instrument requires the trustee not to make any disposition of certain “legacy” assets, and the trustee erroneously sells them anyhow.

In such situations, the way to “undo” the transactions is for the parties to reverse the erroneous transaction by returning the distributions made in error.  When the year of distribution is a closed tax year and the act of correction is made in a later year, it is important to make sure that the distribution that is returned is treated as a tax-deductible expense, thus offsetting the taxable receipt of the erroneous distribution in the prior tax year.…

Wooden drawer is open.

There is a wealth of information available from the IRS that is not generally made available to the public.  Most of this information can be obtained by asking.  This information includes files the IRS assembles about a taxpayer, and various training manuals used by the IRS to train its employees.  In addition to training given to its employees, the IRS, like most professional organizations, conducts continuing education on an annual basis for its various divisions.  Most of the training manuals and annual training materials are available to the practitioner pursuant to the Freedom of Information Act (FOIA).

The new Biden administration is clearly signaling that renewable energy will be a key focus of its plan going forward. For example, the Biden administration has set a goal to deploy 30 gigawatts of offshore wind generation capacity by the year 2030. Therefore, it can be expected that tax advisors will be seeing more questions…

Close-up Of A Pink Piggybank With Eyeglasses And Calculator On Wooden DeskSeveral abusive tax shelters in the 1970s and 1980s caused Congress to enact rules to prevent taxpayers from deducting losses when a taxpayer doesn’t materially participate in the activity.  These passive loss rules apply to individuals (including partners and S Corp shareholders), trusts, estates, personal service corporations and sometimes closely held corporations. In short, these rules are a wide net that catches a lot of businesses and can impact a lot of taxpayers.  If an activity is determined to be a passive activity it may not only effect the losses claimed but could trigger a 3.8 percent increase from the net investment income tax. Knowing the passive activity rules, and how they apply, can help avoid a dispute or streamline arguments if the IRS questions business activities.  …

Expensive laboratory tests and analyzes. From pipette drops feces with symbol of money dollars into test tube.“No problem can withstand the assault of sustained thinking.”

— Voltaire

Businesses are started with good ideas and a lot of hard work. Companies are sustained by applying that same hard work to the challenges and problems they face along the way.  The Internal Revenue Code benefits businesses for dedicating funds to the pursuit of new and improved business components. Section 41 of the Internal Revenue Code provides a tax credit of 20 percent of a taxpayer’s Qualified Research Expenses (QREs) over a base amount related to previous research expenses.  Essentially, it rewards taxpayers for increasing the amount of money they spend on research and development to improve of develop new business components that will benefit the economy and their customers. However, as with any tax benefit, there are strings attached.  In order to qualify, taxpayers must meet a four part test and certain identified expenses don’t count. Also, the IRS has scrutinized these credit claims regularly during audit and, if necessary, forced taxpayers into court to defend their claims. Preparation and documentation is key to surviving IRS scrutiny and, if necessary, prevailing in any subsequent litigation.…

green palm trees covered with snow in unusually cold winterWhen Texas froze in February, I learned a couple of things: i) snow storms have names, and ii) people in my neighborhood aren’t great at covering plants. Those poor sago palms never had a chance.

Compared to the damages to homes and burst pipes throughout the state, clearing out the flower beds after Winter Storm Uri may be just a minor inconvenience, but there was a lot of dead foliage that needed to be replaced and removed all over Texas. Taxpayers should remember that those storm-induced landscaping expenses could qualify for a casualty loss deduction on their income tax returns. Because special tax rules apply to federally declared disaster area losses, potential deductions for property owners include the cost of removing the damaged plants, measures taken to preserve the shrubbery and any replanting costs necessary to restore the property to its approximate value before the casualty.…

USA patriotic American flag muscular arm flex adorned in red, white and blue stars and stripes, huge bicep, very cool symbol of fitness, pride, strength and motivation. Isolated vector illustration for easy editing.The battle outside ragin’

Will soon shake your windows

And rattle your walls

For the times they are a-changin’

-Bob Dylan

A change in presidential administrations brings with it the uncertainty of what the political, legal and tax landscape will look like in the future. Statements from the Commissioner of the Internal Revenue Service and the President of the United States are starting to provide clarity of what things will look like going forward.  Here’s what we know and what you, as a taxpayer, should be thinking about as you adjust your financial planning.…

Video archives concept.What do professional athletes, punk artwork and digital kittens have in common?  They are all part of the expansion of valuable collectible assets using cryptocurrency and blockchain technology.  You can collect digital items for your favorite baseball and basketball players and then sell them in online exchanges.  You can also collect and “breed” your own designer CryptoKitties or purchase a digitally created punk portrait using blockchain technology. Investing in valuable collectibles can be both fun and lucrative. There are now thousands of buyers of these new digital collectibles and transactions involve millions of dollars worth of cryptocurrency.   The current leader in digital collectibles is NBA Top Shots with an active marketplace where the highest asking prices are hundreds of thousands of dollars. What are the tax consequences of these new assets?  Here are some concepts to consider if you have collectible assets, digital or otherwise.…

Magnifying glass in front of an open newspaper with paper houses. Concept of rent, search, purchase real estate.Even if you are not a tax professional, many people have heard of a 1031 exchange or like-kind exchange. This tax deferral provision has been a permanent part of the Internal Revenue Code for a long time. Usually, if a taxpayer swaps an asset for another asset it is usually a taxable sale.  However, if the exchange comes within Section 1031, then it can generate no tax or limited tax due.  Essentially, a taxpayer can change their investment without, according to the IRS, cashing out or recognizing capital gain.…