Tax Evasion-What Not to Do

Tax Evasion-What Not to Do. When the federal government couldn’t put together criminal charges on Al Capone, tax evasion brought him down. While he’s probably the most notorious tax evader, plenty of other high-profile tax evaders saw their days in court, too.

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Tax Law-What Not to Do
What Not to Do

Every so often, celebrities will make the headlines for massive tax evasion and tax fraud criminal cases. They often face time in prison and fines running into the tens of millions.

While you may not make gangster or celebrity-level income, choosing to avoid paying your taxes can land you in similar hot water with the IRS. I cannot stress enough that if you choose to “forget” to pay your taxes, the IRS will eventually find you.

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Tax Minimization Methods

Don’t try to ignore or run away from your tax liabilities. Instead, work with a tax professional to use many different tactics to minimize your taxes legally. Here’s just a short list of examples:

1. Municipal Bonds

When you purchase municipal securities you are in effect loaning a state or local government money for capital expenditures, the interest they pay are tax exempt for most taxpayers.

2. Max-out Retirement Accounts and Employee Benefits

Contributing to a workplace 401(k) or 403(b) plan does more than help solidify your nest egg for retirement. As of 2022, you can contribute up to $20,500 ($27,000 for those 50 and older) and reduce your taxable income.

3. Use a Health Savings Plan

If you use a high-deductible health insurance place, you can reduce your taxes with a health savings account (HSA). For 2022, individuals can contribute up to $3,600 a year ($7,300 for families) that are 100% tax deductible.

4. Claim Every Legal Tax Credit

Depending on your situation and income levels, you can claim credits for a lot of different expenses, including:

Earned Income (depending on income levels and number of children)

American Opportunity Tax Credit (during first four years of a student’s postsecondary education)

Saver’s Credit (depending on income levels and retirement contributions)

Child and Dependent Care Credit (depending on income levels and qualified expenses for the care of children and disabled dependents)

Quarterly Tax Payments

If you own a business or have Self-employment income, paying estimated quarterly taxes should become part of your operations. Anyone with rental property income or investments may also need to pay estimated quarterly taxes, even if the employer withholds taxes from their paychecks.

If you wait until the end of the year, you’ll likely have to face a massive bill. Not only that, but you may also face penalties for late payment on those quarterlies. Overestimating or underestimated earnings can get complicated, especially with the IRS wanting specifics forms for different scenarios.

Using Trusted Tax Professionals

All these options come with their own complications, which is why we recommend working with a trusted tax professional. Experts like those in our office can help you stay on the right side of the law. And we’ll ensure you pay the lowest possible taxes for your personal or business income. Additionally, follow along with our Tax Evasion-What Not to Do blog to stay on the up and up.

Schedule a consultation with our office at 724-216-0704 or use our online form.

Will You Find Yourself in a New Tax Bracket in 2023?

Will You Find Yourself in a New Tax Bracket in 2023? A few weeks ago, our friends at the IRS released their tax adjustments for 2023. (Feeling brave? You can check out the full report on their website.) Every year the IRS adjusts the taxable income brackets for inflation. As you can imagine, this year has seen a tremendous bump based on major spike inflation. And likely your income did not receive an equivalent bump, which could impact your current bracket.

Will You Find Yourself in a New Tax Bracket in 2023?
Why Brackets Matter

The IRS doesn’t charge taxpayers a flat rate. Instead, the United States operates on a progressive system using seven brackets, 10%, 12%, 22%, 24%, 32%, 35%, and 37%. People with lower taxable incomes pay lower federal income tax rates. Additionally, those with higher taxable income pay a higher tax rate.

But whichever tax bracket you find yourself in, you don’t pay that percentage on your full taxable income. Instead, the IRS divides your income in chunks and each chunk gets taxed at the corresponding bracket rate. Nerd Wallet does a great job of breaking this down in comparable charts.

When the IRS raises their tax bracket limits, more of your income gets taxed at the lower tax rates. The government designed the annual realignment to avoid “tax bracket creep” where incomes get pushed into higher brackets with inflation.

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What Else Impacts Your Tax Bill?

Tax bracket adjustments aren’t the only thing that help you save money on your taxes. Also, every year, you can save money by taking advantage of applicable tax credits and tax deductions.

Tax credits won’t affect your bracket, but they reduce your taxes owed dollar for dollar. Tax deductions, whether itemized or standard, reduce your overall taxable income. By reducing your taxable income, you could fall into a lower bracket and pay a lower tax rate.

The Takeaway

Ultimately, you could see your paycheck increase in 2023 from the lower rates. At the same time, you may also find your tax bill at the end of year lower. As a reminder, though, you won’t feel those tax bill breaks until you file your 2023 taxes in April 2024.

Confused or overwhelmed? Relax! Our office provides tax return preparation services for businesses of all sizes and individuals. As we walk you through the process, we make sure you understand every step of the way. Because with our experience, we find every tax deduction we can to ensure you pay the lowest possible tax rate.

See how we can help minimize your tax responsibilities by calling our office at 724-216-5180 or contact us using our online form.

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Avoid Three Common Problems to Minimize Tax Pains

This winter you can avoid three common problems to minimize tax pains that will make tax time easier and quicker. While gorging on your kids’ candy and sipping a pumpkin spice latte, you probably don’t have taxes on your mind. But maybe you should. Individuals and business owners alike handle tax season much better when they prepare. Year over year, we see tax filers ensnared in easily avoidable pitfalls.

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Tax due dates will be here sooner than you think.
1. If You Don’t Have a Record of It, Don’t Try to Claim It

Maybe you legitimately paid for a new business computer but cannot find the receipt. You can always find the sales record somewhere. For example, you can check the card statement you used to purchase the item. Often the store itself can give you a copy of your bill of sale.

BUT don’t attempt to claim the personal laptop you bought for your kid for college. We both know that’s not a business expense. Guess what? The IRS will figure that out, too. Make several little “they’ll never notice” claims and you could expose yourself to costly penalties and undermine your creditability in dealing with the IRS.

Other murky areas that can raise red flags include:

Claiming utility costs for a home office (make sure you do it correctly).

Untraceable income to family members.

Lavish gifts.

Other expenses outsized for the level of income generated by a business.

Our advice: Be honest. That keeps you on the right side of an audit. When you have questions, don’t just guess at the answers or listen to some guy at a bar. Instead, ask a tax professional for advice.

2. I’ll Do It Tomorrow

Even if in school you worked “better under pressure” to study or write a paper, remember, taxes take time. You can’t cram for taxes by waiting until the last possible second.

When you wait until the 11th hour, you risk not having everything you need. Scrambling to organize paperwork the second week of April each year turns into risky business. Murphy’s Law will ensure important receipts will vanish or figures won’t add up correctly.

Our advice: Collate your receipts and record them (manually or automatically with software) throughout the year. Entering receipts periodically decreases the chance of losing important paperwork or gives you time to locate or replace lost items.

Bonus: You increase your chances of maximizing your deductions when you have time to consider all possible deductions thoughtfully.

3. Know What You Owe

Ever hear the expression: “you can’t use ignorance as a defense?” Know the full amount of your tax responsibilities. Many taxpayers find themselves in a bind by not being aware of their financial responsibilities.

Instead, go through everything honestly and find out the full extent of your obligations. If you come up shy, we can work out a plan to sort things out with the IRS. Being blissfully unaware does not exempt you and avoiding it will only make things worse.

Likewise, as we mentioned in previous blogs, if you receive a letter from the IRS, do not ignore it! We cannot stress this enough. Avoiding the letters, won’t make the problem go away. It will sit there and accrue more and more fees.

We have good news! You still have enough time to get things together, and we bet it’ll take less time than you think, too. So, deal with the shoebox under your desk, find a lost receipt, and get your paperwork organized.

You also have time to ask questions about allowable deductions and the best way to attack your unique tax situations. We can help. Our experienced tax professionals have helped hundreds of taxpayers just like you. If you can Avoid Three Common Problems to Minimize Tax Pains life will be easier come tax time! Contact our office at 724-216-5180 or use our online form to learn more.

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Seven Tax Considerations for New Businesses

Seven tax considerations for new businesses is our blog topic this month. Did you start a business in 2021? As we enter tax season, we see a lot of new owners make several common mistakes. Here’s seven tax considerations for new businesses to keep you out of hot water with the IRS.

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Newer business owners need to know small business taxes.
1. Yes, You Have to File Taxes.

Above all, you’ll need to understand how rules changes if you’re new to running a business. As an individual, you only need to file taxes if your gross income exceeds $12,550. That number drops to a net income of $400 as a business owner. You also have to carefully monitor all your income and expenses, much more than as an employee.

2. And Yes, You May Have to Pay Quarterly Estimated Taxes.

When you work for someone else, they take takes out of your paycheck on your behalf. So, when you work for yourself, the IRS expects you to estimate your taxes and submit them quarterly. Failing to do so sets you up for underpayment penalties.

3. Claim Start Up Costs.

Even if you run your business from your kitchen table, it cost money to get set up. You can deduct anything you needed to pay to get up and running, including research and training (Subject to a $5K Limitation ). You can claim everything from marketing, website creation, office furniture and supplies, vehicle costs, and more.

4. The IRS Sees You As ‘Fresh Meat.’

Unfortunately, having your own business raises all sorts of interest from the IRS. Getting audited isn’t the end of the world, IF you’ve carefully followed directions on expenses and deductions with receipts. Keeping up with all the changes year to year can get overwhelming. And if you make a mistake, it can get expensive really quick.

5. Don’t Mix Business and Personal Finances.

If you’ve just started out, you may not have thought about having a separate business checking account yet. But this is one of the first things you should do as a new business owner. Even if you barely edge over that $400 net income line, have a separate account for business income and expenses. This makes things easier to separate for filing purposes and cleaner during any audits.

6. Self-Employed? Don’t Expect a Refund.

Most employees look forward to late spring every year when they receive a windfall as part of their tax return. We’ll leave for another conversation as to why you should minimize tax refunds that basically serve as free loans for the government. Most small businesses serve as a pass-through entity for the owner’s income. Owners pay taxes on that income as part of their individual taxes without any withholdings to absorb the additional taxes. ​

7. Learn from this Return.

Even with a tax specialist helping you, expect a few lessons on how to improve next year. Look closely at your return. Go over it with a tax expert and make sure you understand any penalties or additional deductions for next year. We like to say it’s not rocket science. But, when you’re just starting out, it can really feel like it!

Did you start a business in 2021? If you feel unsure on what to organize or how to get started, relax! We hope that our Seven Tax Considerations for New Businesses blog helped a little.

Still confused? Our, our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.

7. Learn from this Return Even with a tax specialist helping you, expect a few lessons on how to improve next year. Look closely at your return. Go over it with a tax expert and make sure you understand any penalties or additional deductions for next year. We like to say it’s not rocket science, but when you’re just starting out, it can really feel like it! Did you start a business in 2021 ? If you feel unsure on what to organize or how to get started, relax! O ur experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.

Prepare for the Inevitable Upcoming Tax Season

Every year right between Christmas and New Year’s people start dreading tax season. That shoe box or receipt drawer may not close all the way anymore. Maybe you just found the statement for quarterly tax estimates (from June) in another pile of papers. Likewise, maybe your resolution list from January 2021 just resurfaced that included “stay on top of taxes” on the list. You already know that when you prepare for the inevitable upcoming tax season, it will suck so much less. So, let’s get started!

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Get Out Ahead of Crunch Time

Rather than pouring yourself another cup of cheer and making tax preparations next year’s problem, face it head on. You can pour that cup of cheer if you’d like. However, digging in now will make Future You so much less stressed come tax time.

Picture yourself the evening of April 14, 2022, what do you see yourself doing? Do you see yourself furiously adding up totals? Trying to find random tax documentations? Or would you rather have plans to join your buddies for a well-deserved thirsty Thursday at the local watering hole?

Get Organized

Most tax experts will say it matters less how you organize your paperwork but more that you actually do it. So long as you have materials in order so that you can produce documentation requested for tax purposes, you’re good. You will save money in preparation fees.

If you don’t currently have a system or experience exasperated looks from your tax professional each year, ask yourself why. Perhaps your current system or lack thereof could use a tune up? Rely on the advice of experts on how to create or improve on your current techniques. You’ll make everyone’s lives easier.

Check Your Information

Double check that all your information on file with the IRS is correct, including direct deposit information for refunds. Even something as simple as an address change can get forgotten during a busy year.

Closely examine everything from dependent information to retirement and investment accounts to income streams. This year remember to check Economic Impact Payments and Child Tax Credit Updates, too, if applicable. Spotting differences now can avoid potential problems after filing.

Ask Questions and Get Clarifications Early

Do some early research to see if you need to file differently or can add new deductions. Whether you work with an accountant or use a self-service tax filing tool, ask follow-up questions from the experts.

Get clarification on changes in tax deductions early in the season so you have time to do something about them. Finding out about a new deduction does no good if you didn’t save the proof necessary to claim it.

Nervous about this upcoming tax season? How will you prepare for the inevitable upcoming tax season? Relax! Our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. We help our clients avoid legal issues with their taxes while providing peace of mind. Complete our online form or call us today at 724-216-5180 to learn more.

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Making Charitable Donations Part of Your Estate Plan

As you create an estate plan ( yes, you need one ), consider how your assets will be divided upon your death. Most people don’t consider charitable donations as a way to minimize estate/inheritance taxes. However, did you know that making charitable donations part of your estate plan could lessen the tax burden for your heirs? Read on to learn more.

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Why Designate Charitable Donations in Estate Plans?

For example, some people decide they don’t want to leave all their assets to their children or other beneficiaries. Likewise, others don’t have beneficiaries to leave their assets to but want to ensure their estate contributes to a lasting legacy.

For anyone passionate about a specific cause, making charitable donations part of your estate plan may be the right choice for you. Leaving funds or other assets to a designated charity could make the most impact. Tax-exempt charities are set up to maximize the effectiveness of gifts they receive, planned or otherwise.

Any funds given to a recognized public charity are not taxable. While this may decrease the overall amount any named beneficiaries receive, most people appreciate the sentiment during their grieving period. Making charitable donations part of your estate plan may be a good choice.

What Charities Count?

Any charity recognized by the IRS as a 501(c)(3) can receive tax-exempt donations as part of an estate plan. These include charitable organizations, churches and religious organizations, private foundations, and other non-profits.

In addition, depending on the size of your gift, you should contact the charity to inform them of your plans. They may need time to prepare for a large gift (over $10,000). They can also provide basic information to list in the estate plan to streamline the process. If you do name other beneficiaries in your estate plan, you should probably let them know your plans, too. This can minimize hurt feelings and contested wills upon your death.

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How to Get Started.

There are a number of ways to plan gift to charities, foundations, or others as part of your estate plan. Estate/inheritance tax rules seem to change every year. So, your estate attorney can work with your designated charities to determine which options make the most sense for everyone. By making your wishes clear in your estate plan, you leave little room for misinterpretation. You can minimize additional work for your heirs and maximize their tax benefits while supporting organizations important to you.

In conclusion, are you not sure how to name a charity in your estate plan? RELAX! Our estate planning experts can walk you through options. Each will fit your unique circumstances. We help with will preparation, trust creation and administration, probate administration, and more. Call us today at 724-216-5180 or complete the online form to schedule a free consultation.

Considerations when Setting up a Business

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A strange thing happened as part of the global pandemic and economic crises. Many people, especially if laid off or furloughed, are having “COVID epiphanies.” No longer interested in working for someone else, they’ve decided to go into business for themselves. Congratulations if you’re one of them! You may only plan to run a part-time business as a side hustle for now. However, there are many considerations when setting up a business. 

No two businesses are the same. I encourage you reach out to an experienced business attorney before making any decisions. Different structures offer different sets of pros and cons. Below is a very brief description of a few areas to consider. 

Ease of Establishing

The size and structure you select determines how easily a business becomes a legal entity. Usually businesses start small, helping guide which structures to consider. 

Sole proprietorship’s simple business structure offers easy entry into owning a business, making it the most common small business structure. The sole prop basically acts as an extension of the person.

Partnerships operate much the same way as sole props with owners sharing responsibility.

Limited liability corporations (LLCs) require a bit more work to set up. But they minimize risk while offering flexible management. Most small businesses fall into these categories. 

However, structures also exist for larger entities, including Chapter C and Subchapter S corporations. Here, shareholders exchange money, property, or both for the corporation’s capital stock.

Tax Implications

Tax implications may hold more overall weight than how hard it is to form an organization. 

Owned and operated by one person, the sole prop takes total responsibility for the business’s debt and taxes. LLCs may offer lower risks with less complex taxes than corporations. A C corporation is separate, paying taxes and passing on profits to shareholders.

For more than 35 years, we have guided business owners through decisions involving nearly every type of business. Our past clients include sole props, partners, LLCs, and Chapter C and Subchapter S corporations. Each decision comes from many smaller choices. These choices include business control, asset protection, tax rates, and other matters.

Interested in learning how to turn your COVID epiphany into a proper business? We can walk through considerations when setting up a business with you. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form.

How Will Your Business Benefit from the SECURE Act?

In the twilight of 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act that took effect January 1, 2020. So, how will your business benefit from the SECURE Act?

At its core, the SECURE Act means to encourage increased retirement savings. And it provides a number of paths for individuals to do so. It has pushed back timelines for contribution and required distributions. Now, part-time employees can participate in employer 401(k) plans if they meet certain stipulations. And it includes a host of other enhanced saving opportunities.

Small Business Retirement Plan Tax Credits

While the majority of Americans save for retirement through a work-based plan, employees at small businesses largely could not. Nearly 75 percent of workers at companies with fewer than 100 employees could participate in an employer plan in 2017. Small business owners have rightfully cited startup costs and administrative burdens as hurdles to offering plans. 

To address these issues, one less publicized provision of the SECURE Act is a massive increase in the small business tax credit. This credit covers the costs of the first three years an employer offers a workplace retirement plan. Originally, the tax credit covered $500 a year for up to three years. However, the new provision now allows up to $5,000 a year (for a total of up to $15,000 over three years). There are also increased credits available for employers who require their workers to automatically enroll in their company’s retirement plans. 

Multiple Employer Plans for Retirement

Perhaps most importantly though, a part of the SECURE Act now allows small business owners the ability to band together to create Multiple Employer Plans (MEPs). MEPs pool small business resources to offer workplace retirement plans easier to administer. They are also more cost effective for their owners. This also includes an annuity option for existing retirement plans, which previously could only be taken as a lump sum for taxation purposes.

Why does this matter? If you want to attract the highest quality employees for your open positions, you must offer plans that increase the allure of working for you. A 2019 study by the Society for Human Resource Management, ranked retirement benefits second in importance (after health care). This accounted for all the benefits that employers offer. 

The new law comes with a variety of updates and procedures. We can help you realign your business practices today to start capitalizing on its benefits. Whether you’re a small business owner or an employee contributing to a work-based plan, we can help. 

Want to learn more on how these and other portions of the SECURE Act affect your taxes? Contact our office at 724-216-5180 or use our online form to schedule a consultation.

Ready to Sell Your Company in 2020? Read this First

a photo of a business for sale

Congratulations! You made a decision to pass your company’s legacy onto someone else. Perhaps a child or a likeminded stranger will take the reins, leaving you free ride off into the sunset of retirement. Or onto your next business venture. 

Of course, the IRS will tax you on the profit you make from the sale. As you prepare for this transition, minimize your tax responsibilities by considering a number of implications. Without proper guidance, you could end up paying nearly half of your sales price in taxes. 

Tax Rates

Different tax rates apply depending on whether proceeds of the sale are taxed as ordinary income or capital gains. When you sell a business, you want to maximize the amount of sold assets categorized as capital gain. Buyers, for their own taxes, prefer to allocate as much of the contract sales price as ordinary income to the seller.  

Like most business deals, subtle negotiating happens between the parties over the ratio of capital gains versus ordinary income. Usually, this results in a settlement that makes neither party happy, but both can live with.

Additional intricacies to consider include whether the sale is an all-cash deal or requires payment installments. Also consider whether you the sale includes assets or stocks. Finally, determined if the sale can be treated as a tax-free corporation (if between two corporations). 

Prepare before Negotiations

Before you begin negotiations to sell your company, contact a law firm that specializes in tax law. I have provided tax services to businesses and individuals for many years, including advising on timing and characterizations of transactions. . Beforehand, I worked as a licensed certified public accountant and earned a master’s in taxation. Contact our office at 724-216-5180 or use our online form to see how we can help you.

Reporting Foreign Bank Accounts Isn’t a Choice

A photo of the US Tax Guide Book

Maybe you binge-watched too many seasons of Miami Vice. Maybe you have a friend at work who gave you poor advice. Maybe a less-than-scrupulous preparer suggested you forget to mention it in your returns. Or possibly you just weren’t sure if you had to file reports.

But, here you are. The owner of a foreign bank account that you have not reported to the Internal Revenue Service. Although previously certain accounts were exempt, with the adoption of the Fair and Accurate Credit Transactions Act (FACTA), every American with direct or indirect ownership or control over a foreign financial account must report those accounts to the U.S. Treasury Department. 

Coinciding with the April 15 tax return deadline, owners of foreign accounts must remit a Foreign Bank and Financial Accounts Report for the previous calendar year. 

If the IRS finds out about a foreign account that you have willfully not reported this becomes a very serious problem that could result in penalties in the hundreds of thousands of dollars and even prison time.

If you’re finding yourself in this situation and you’re ready to voluntarily disclose your accounts, there are a few legal options to get you on the right side of your past mistakes. While you’re still likely to experience financial pain, you need someone with experience on your side to help minimize the damage.

We can help. The best time to deal with these situations is now. With decades of experience helping tax payers settle their debts with the IRS, we can help you navigate these tricky times. To review your options, call us at 724-216-0704 or email us at john@jacochranlaw.com.