Tag Archives: Tax Deductions

indianapolils tax attorney

Business Taxpayers: Deduct Tax Program Payments as Business Expenses

indianapolils tax attorney

Do you know payments your business makes under state and local tax credit programs may be tax deductible? The Internal Revenue Service (IRS) has issued a clarification to help business taxpayers understand when and how to deduct these payments on their federal tax returns. Your company could be taking advantage of this money-saving deduction immediately. Learn more about the IRS clarification.

What is the IRS Clarification?

The IRS received many inquiries about this issue and felt it needed more clarity. The clarification doesn’t change any IRS rules – it just provides an explanation, in case businesses are misunderstanding or are unaware of the rules. They explain that the availability of a charitable contribution deduction for contributions to state and local tax credit programs is not affected by a taxpayer’s ability to claim deductions for payments to charities and government entities.

What Does This Mean in Plain Language?

Still confused? Sometimes IRS statements are a bit difficult to comprehend for the average taxpayer, even when they’re trying to provide clarification. In plain language, the clarification means if your business is making payments to organizations – like charities or the government – and receiving tax credits, the payments are likely deductible on your taxes. But it depends on your overall financial situation. To be sure, consult a tax attorney.

Who Qualifies for This Deduction?

Individual taxpayers do not qualify; however, people who run businesses do. And virtually any type of business can qualify, including sole proprietorships, small businesses, big businesses, partnerships and corporations. As long as the expense qualifies under the IRS definition of an “ordinary and necessary business expense,” it can be deducted from your federal taxes.

What Are the Exceptions?

The main exception, which the IRS will always caution taxpayers about, is that you may not qualify for certain deductions if you have failed to pay taxes in the past or your tax payments are overdue. It depends on your exact tax situation. For this reason, it’s crucial to work with a tax attorney who can examine the big picture of your tax status and advise you on whether to claim the deduction.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

pass-through deductions

Small Businesses Using Pass-Through Deduction Need to Take Care

pass-through deductions

Small business owners using the 20% tax break for pass-through entities should pay close attention to a new rule change proposed by the Internal Revenue Service (IRS). The change would end these business income deductions and could impact how your company is structured or spins off new divisions. Learn why you might need to contact a tax attorney urgently and stop using the pass-through deduction for your business.

What is the Pass-Through Deduction?

Currently, a 20% business deduction is allowable for business owners who have a taxable income below $157,500 if single or $315,000 if married. Businesses must also adhere to requirements on how much to pay employees, the amount of property owned and whether it fits into certain special categories. The deduction, introduced in December 2017, is part of the Tax Cuts and Jobs Act, which is intended to support growth and fairness for small business owners. However, the IRS has determined that some business owners are restructuring in order to skirt the rules and qualify when they wouldn’t otherwise. The IRS is seeking to end the pass-through deduction.

Why Does the IRS Say Businesses are Skirting the Rules?

Some business owners have found ways to split their businesses into smaller divisions in order to remain below the taxable income threshold for their primary business, allowing them to qualify for the pass-through deduction. A doctor or lawyer, for example, is in a “specified service” category that usually has a high enough personal income to put them over the limit. They might spin off a portion of their business, like their billing office, into its own entity in what is sometimes called a “crack and pack” strategy.

Is “Crack and Pack” Illegal?

No, it’s not illegal; however, the IRS is aware of crack and pack, and wants to crack down on it. Using this kind of strategy is not the original intent of the Tax Cuts and Jobs Act. If you’re currently using “crack and pack” to take advantage of the 20% deduction, you may want to rethink your strategy. Consult a tax attorney right away to discussion your options. Otherwise, the IRS could decide to make an example of your business, which would be a financial and legal headache. It could also be a public relations disaster. From the public’s perspective, it could seem like you’ve done something wrong, even if you were just using a creative tax strategy.

If the IRS Changes the Rules, What Should I Do?

Assuming the IRS proposal goes through – as most IRS proposals do – the change could take effect immediately and impact how your business should be structured. It might become unnecessary to keep a certain division of your company separate and could even look suspicious to the IRS in the future. Rely on your tax attorney to guide you through the process of examining your company structure and evaluating how you can take a proactive approach to this tax issue.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

business entertainment budget

The Business Lunch Set to Make a Comeback

business entertainment budget

When tax cuts are announced for 2018, the loss of entertainment deductions for businesses seems harmless. What would it matter if companies can no longer treat potential clients to a night on the town for a five-star meal … and deduct it? The truth is more businesses reach out to new clients by taking them to sporting events, concerts or the theater. These types of outings are better for building strong relationships than an expensive meal. Companies large and small purchase suites, box seats or season tickets for entertaining clients and promoting their business. What does losing these deductions mean for you?

Why Did the Government Cut These Deductions?

The 2018 Tax Cuts and Job Act (TCJA) lowers the corporate tax rate from 35% to 21%. With such a large cut, Washington decides entertainment deductions are not needed. In the past, a business could deduct 50% of the cost of a ticket and the meal. Now, they can only deduct part of the price of a prospective client’s hot dog and beer.

Is Losing this Deduction a Big Deal?

It is not a big deal for companies that buy random event tickets. These companies do not rely on these types of deductions to lower taxes. Businesses using these perks as a marketing tool are going to have to change their way of doing business. Instead of attending an event like a baseball game, the company should consider sponsoring a booth at a trade show. These types of business deductions are still valid and can put salespeople in contact with the right decision-makers. However, with fewer tickets sold to businesses fewer fans may be cheering in the stands. Vendors and small companies that count on event revenue may suffer losses.

What Happens If a Business Is Locked into an Entertainment Agreement?

If an organization wants to take clients to watch the Indianapolis Colts from a corporate suite at Lucas Oil Stadium, they will often commit to multi-year deals to get the best price. A company with this kind of commitment will no longer be able to deduct this expense, which can add up to between $50,000 and $100,000. Unfortunately, backing out of a contract may cost more than continuing without the benefit of deductions. Corporations need to look for tax credits in other areas of their business.

Can’t Companies with Long-Term Leases Resell Tickets?

It depends on the contract they sign. For instance, a lease for a suite at AT&T Stadium, where the Dallas Cowboys play, does not allow suite owners to resell season tickets or individual game seats. Some venues do allow businesses to list open event tickets for sale.

How Are Small Businesses Affected?

A small business is likely to buy season tickets to sports team games, musical concerts or theater performances. The loss of entertainment deductions -key to lowering taxes for some businesses- may mean these company perks are likely to get eliminated. Small companies and freelancers often use events to solidify relationships with clients. Some marketing executives fear losing their entertainment deductions means losing a vital opportunity to connect with and nurture potential clients. They need to review their marketing plans and find other ways to meet-n-greet new clients. Since meals are still deductible, the two-hour lunch meeting is sure to make a comeback (call for reservations now).

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.