Understanding Taxes on Real Estate Gains

Let’s say you own real estate that has been held for more than one year and is sold for a taxable gain. Perhaps this gain comes from indirect ownership of real estate via a pass-through entity such as an LLC, partnership or S corporation. You may expect to pay Uncle Sam the standard 15% or 20% federal income tax rate that usually applies to long-term capital gains from assets held for more than one year. However, some real estate gains can be taxed at higher rates due to depreciation deductions. Here’s a rundown of the federal income tax issues that might be involved in real estate gains. Vacant land The current maximum federal long-term capital gain tax rate for a sale of vacant land is 20%. The 20% rate...

IRS Shares Additional Warning Signs of Incorrect Claims for ERTC

As appearing in IR-2024-198 Businesses urged to proactively resolve erroneous claims to avoid penalties, interest, audits As the Internal Revenue Service intensifies work on the Employee Retention Tax Credit (ERTC), the agency today shared five new warning signs being seen on incorrect claims by businesses.   The new list comes from common issues the IRS compliance teams have seen while analyzing and processing ERTC claims. The new items are in addition to seven problem areas the IRS previously highlighted.  The IRS urged businesses with pending claims to carefully review their filings to confirm their eligibility and ensure credits claimed don’t include any of these 12 warning signs or other mistakes. Businesses with these indicators should talk to a trusted tax professional and consider using special ERTC Withdrawal Program that remains available. Business considering...

IRS Resumes Processing of ERTC Claims

As appearing in IR-2024-203 Agency accelerates work on complex credit as more payments move into processing.  Vigilance, monitoring continues on potentially improper claims On 8/8/24, the Internal Revenue Service announced additional actions to help small businesses and prevent improper payments in the Employee Retention Tax Credit (ERTC) program, including accelerating more payments and continuing compliance work on the complex pandemic-era credit that was flooded with claims following misleading marketing.  The IRS is continuing to work denials of improper ERTC claims, intensifying audits and pursuing civil and criminal investigations of potential fraud and abuse. The findings of the IRS review, announced in June, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERTC claims in the current inventory of ERTC claims.  In...

Do You Owe Estimated Taxes? If So, When is the Next One Due?

Federal estimated tax payments are designed to ensure that certain individuals pay their fair share of taxes throughout the year. If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you receive interest, dividends, self-employment income, capital gains, a pension or other income that’s not covered by withholding. Individuals must pay 25% of a “required annual payment” by April 15, June 15, September 15, and January 15 of the following year, to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day. So the third installment for 2024 is due on Monday, September 16 because the...

A Business Valuator is a Must-Have When Filing a Business Interruption Claim

Meteorologists warn that the 2024 hurricane season could break records, possibly surpassing 2020, the worst hurricane season on record. Even if hurricanes aren’t a threat where your business operates, other natural disasters — such as floods, wildfires and tornadoes — could impact your normal operations. Interruptions from these disasters and other crises can cause significant financial losses. Business owners may purchase business interruption insurance to safeguard against potential losses. These policies can allow you to recoup lost profits, repair damaged assets and cover other incremental expenses. When a covered event occurs, it’s important to hire a business valuation professional to explain your coverage and estimate your losses. Understanding your coverage Business interruption insurance is arguably one of the most complicated insurance products on the market today. And most...

The Possible Tax Landscape for Businesses in the Future

Get ready: The upcoming presidential and congressional elections may significantly alter the tax landscape for businesses in the United States. The reason has to do with a tax law that’s scheduled to expire in about 17 months and how politicians in Washington would like to handle it. How we got here The Tax Cuts and Jobs Act (TCJA), which generally took effect in 2018, made extensive changes to small business taxes. Many of its provisions are set to expire on December 31, 2025. As we get closer to the law sunsetting, you may be concerned about the future federal tax bill of your business. The impact isn’t clear because the Democrats and Republicans have different views about how to approach the various provisions in the TCJA. Corporate and pass-through business...

The Tax Implications of Disability Income Benefits

Many Americans receive disability income. Are you one of them, or will you soon be? If so, you may ask: Is the income taxed and if it is, how? It depends on the type of disability benefit and your overall income. The key issue is: Who paid for the benefit? If the income is paid directly to you by your employer, it’s taxable to you just as your ordinary salary would be. (Taxable benefits are also subject to federal income tax withholding. However, depending on the employer’s disability plan, in some cases they aren’t subject to Social Security tax.) Frequently, the payments aren’t made by an employer but by an insurance company under a policy providing disability coverage. In other cases, they’re made under an arrangement having...

Business Website Expenses: How They're Handled for Tax Purposes

Most businesses have websites today. Despite their widespread use, the IRS hasn’t issued formal guidance on when website costs can be deducted. But there are established rules that generally apply to the deductibility of business expenses and provide business taxpayers launching a website with some guidance about proper treatment. In addition, businesses can turn to IRS guidance on software costs. Here are some answers to questions you may have. What are the tax differences between hardware and software? Let’s start with the hardware you may need to operate a website. The costs fall under the standard rules for depreciable equipment. Specifically, for 2024, once these assets are operating, you can deduct 60% of the cost in the first year they’re placed in service. This favorable treatment is allowed...

Assemble a Comprehensive Cybersecurity Plan

Regardless of their size, businesses rely heavily on technology. Although your network and computer-related tools are essential to function, they’re also a potential liability because they can offer cybercriminals access to your company. To protect against this complex and ever-evolving threat, businesses must deploy a comprehensive cybersecurity program. Your arsenal You should already have a cybersecurity software package to protect technology assets. But to provide the best protection from hackers and other fraud perpetrators, arm your business with these seven additional weapons: 1. Strong passwords. Given a choice, most computer users select passwords that are easy to remember and input. But cybercriminals use password-cracking software that can guess simple passwords in almost no time. So require all employees to choose complex passwords that combine upper- and lowercase letters, numbers...

How are Series EE Savings Bonds Taxed?

Savings bonds are purchased by many Americans, often as a way to help fund college or show their patriotism. Series EE bonds, which replaced Series E bonds, were first issued in 1980. From 2001 to 2011, they were designated as “Patriot Bonds” as a way for Americans “to express support for our nation’s anti-terrorism efforts,” according to the U.S. Treasury Department. Perhaps you purchased some Series EE bonds many years ago and put them in a file cabinet or safe deposit box. Or maybe you bought them electronically and don’t think about them often. You may wonder: How is the interest you earn on EE bonds taxed? And if they reach final maturity, what steps do you need to take to ensure there’s no loss of...