16 May 2024
0

The Tax Advantages of Including Debt in a C Corporation Capital Structure

Roger Rossmeisl, CPA
Small Business Tax Briefs
The Tax Advantages of Including Debt in a C Corporation Capital Structure

Let’s say you plan to use a C corporation to operate a newly acquired business or you have an existing C corporation that needs more capital. You should know that the federal tax code treats corporate debt more favorably than corporate equity. So for shareholders of closely held C corporations, it can be a tax-smart move to include in the corporation’s capital structure: Some third-party debt (owed to outside lenders), and/or Some owner debt. Tax rate considerations Let’s review some basics. The top individual federal income tax rate is currently 37%. The top individual federal rate on net long-term capital gains and qualified dividends is currently 20%. On top of this, higher-income individuals may also owe the 3.8% net investment income tax on all or part of their investment income,...

16 May 2024
0

Pay Attention to the Tax Rules if you Turn a Hobby Into a Business

Roger Rossmeisl, CPA
Individual Tax Briefs
Pay Attention to the Tax Rules if you Turn a Hobby into a Business

Many people dream of turning a hobby into a regular business. Perhaps you enjoy boating and would like to open a charter fishing business. Or maybe you’d like to turn your sewing or photography skills into an income-producing business. You probably won’t have any tax headaches if your new business is profitable over a certain period of time. But what if the new enterprise consistently generates losses (your deductions exceed income) and you claim them on your tax return? You can generally deduct losses for expenses incurred in a bona fide business. However, the IRS may step in and say the venture is a hobby — an activity not engaged in for profit — rather than a business. Then you’ll be unable to deduct losses. By contrast, if...

16 May 2024
0

Growing Your Business With a New Partner: Here Are Some Tax Considerations

Roger Rossmeisl, CPA
Small Business Tax Briefs
Growing Your Business with a New Partner: Here are Some Tax Considerations

There are several financial and legal implications when adding a new partner to a partnership. Here’s an example to illustrate: You and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to the business. Assume that your basis in your partnership interests is sufficient so that the decrease in your portions of the partnership’s liabilities because of the new partner’s entry won’t reduce your basis to zero. More complex than it seems Although adding a new partner may appear to be simple, it’s important to plan the new person’s entry properly to avoid various tax problems. Here are two issues to consider: If there’s a change in the partners’ interests in...

16 May 2024
0

Why Would Your Businesses Want “Know Your Customer” Policies?

Roger Rossmeisl, CPA
Fraud Briefs
Why Would Your Businesses Want "Know Your Customer" Policies?

Financial institutions, investment service companies, insurers and creditors generally are required to implement and follow know-your-customer (KYC) policies as part of a larger anti-money laundering (AML) effort. Although most other nonregulated businesses don’t have a KYC mandate, such procedures can help prevent fraud and significant financial losses from criminal activity, among other benefits. In addition, following KYC principles sends a message to customers, vendors and other stakeholders that you take trust and security seriously. Due diligence requirements As part of their KYC processes, regulated businesses have three duties to perform: customer due diligence, enhanced due diligence and continuous monitoring. In practice, this means they verify customers’ names, addresses and dates of birth and check them against lists of known criminals. In addition, they monitor transaction trends and...

30 Apr 2024
0

How Tesla Cybertruck’s Steer-by-Wire System Works

Roger Rossmeisl, CPA
Automotive, Technology
How Tesla Cybertruck's Steer-by-Wire System Works

As posted to the Munro Live YouTube Channel on 4/24/2024 (Run Time 18 min, 42 sec) Sandy Munro and Armin von Czarnowski demonstrate how steer-by-wire works and examine the components that make it possible in the Cybertruck. Steer-by-wire differs significantly from a normal steering system in that there is no mechanical linkage between the steering wheel and the front wheels. While it may appear perilous to you, it is worth noting that Tesla vehicles are equipped with numerous redundancies. (This is Blog Post #1575) Sandy Munro is an automotive engineer who specializes in machine tools and manufacturing. He joined the Ford Motor Company in 1978 and then started his own consulting company, Munro & Associates, which specializes in lean design, tearing down automotive products to study and suggest improvements and...

30 Apr 2024
0

Treasury Has Issued Auto Dealers >$580 Million in Advance EV Tax Rebates This Year

Roger Rossmeisl, CPA
Automotive, Individual Tax Briefs
Treasury Has Issued Auto Dealers >$580 Million in Advance EV Tax Rebates This Year

According to the Treasury, the US government has provided auto dealers with >$580 million in advance payments for consumer electric vehicle (EV) tax credits since 1/1/2024. Before 2024, American car purchasers were only eligible for the new electric vehicle (EV) credit of up to $7,500 or the $4,000 credit for used EVs when they submitted their tax returns in the subsequent year. Commencing on January 1, consumers have the ability to transfer the credits to a car dealer during the transaction, so reducing the purchase price. This year, the IRS has received almost 100,000 reports on the sale of electric vehicles. A total of 85,000 time of sale tax reports were filed for new electric vehicles (EVs), and more than 90% of these reports included requests for advance...

30 Apr 2024
0

Taxes When You Sell an Appreciated Vacation Home

Roger Rossmeisl, CPA
Individual Tax Briefs
Taxes When You Sell an Appreciated Vacation Home

Vacation homes in upscale areas may be worth way more than owners paid for them. That’s great, but what about taxes? Here are three scenarios to illustrate the federal income tax issues you face when selling an appreciated vacation home. Scenario 1: You’ve never used the home as your primary residence In this case, the home sale gain exclusion tax break (up to $250,000 or $500,000 for a married couple) is unavailable. Your vacation home sale profit will be treated as a capital gain. If you’ve owned the property for more than one year, the gain will be taxed at no more than the 20% maximum federal rate on long-term capital gains (LTCGs), plus the net investment income tax (NIIT), if applicable. However, the 20% rate only applies...

30 Apr 2024
0

Challenges of Valuing Family-Owned Businesses

Roger Rossmeisl, CPA
Valuation Briefs
Challenges of Valuing Family-Owned Businesses

Working together can bring out the best — and worst — in families. Here are some issues business valuation experts consider when appraising these entities. Family members on the payroll Family-owned businesses aren’t usually run like large public companies. For starters, “family business” and “nepotism” often go hand in hand. Some business owners hire family members because they’re perceived as more trustworthy, while many hire them out of obligation or to satisfy a desire to pass the business on to their offspring. When valuing family-owned entities, valuators must objectively consider whether family members are qualified for their positions and whether their compensation is reasonable. In some cases, management of a hypothetical buyer might want to consolidate family members’ positions and use fewer people to perform their duties. As...

30 Apr 2024
0

When Partners Pay Expenses Related to the Business

Roger Rossmeisl, CPA
Small Business Tax Briefs
When Partners Pay Expenses Related to the Business

It’s not unusual for a partner to incur expenses related to the partnership’s business. This is especially likely to occur in service partnerships such as an architecture or law firm. For example, partners in service partnerships may incur entertainment expenses in developing new client relationships. They may also incur expenses for: transportation to get to and from client meetings, professional publications, continuing education and home office. What’s the tax treatment of such expenses? Here are the answers. Reimbursable or not As long as the expenses are the type a partner is expected to pay without reimbursement under the partnership agreement or firm policy (written or unwritten), the partner can deduct the expenses on Schedule E of Form 1040. Conversely, a partner can’t deduct expenses if the partnership would have...

28 Apr 2024
0

Watch Out for “Income in Respect of a Decedent” Issues When Receiving an Inheritance

Roger Rossmeisl, CPA
Individual Tax Briefs
Watch Out for "Income in Respect of a Decedent" Issues When Receiving an Inheritance

Most people are genuinely appreciative of inheritances, and who wouldn’t enjoy some unexpected money? But in some cases, it may turn out to be too good to be true. While most inherited property is tax-free to the recipient, this isn’t always the case with property that’s considered income in respect of a decedent (IRD). If you have large balances in an IRA or other retirement account — or inherit such assets — IRD may be a significant estate planning issue. How it works IRD is income that the deceased was entitled to, but hadn’t yet received, at the time of his or her death. It’s included in the deceased’s estate for estate tax purposes, but not reported on his or her final income tax return, which includes...

ROGER ROSSMEISL, CPA

Kho & Patel CPAs
160 E. Arrow Highway
San Dimas, CA 91773

(714) 325-0442
roger@khopatel.com

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