Ask Jill - FAQ's

BUSINESS FAQ's

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Q. Should I buy or lease a vehicle for my business?

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A. There are different factors to consider to determine if an individual should buy or lease a vehicle.

 

Lease vehicles – you can choose between the standard mileage rate or actual expense method. If you choose standard mileage rate in the first year, you must use this method for the life of lease.

 

If you choose actual expense method for a leased vehicle you can deduct the business percentage of your lease payments, fuel, insurance, repairs & maintenance,  and any other business cost for the vehicle

 

Purchase vehicles - you can choose between the standard mileage rate or actual expense method. If you chose standard mileage rate in first year, you can choose to switch to actual method in a later year if more favorable. 

 

Actual expense method – You will depreciate the vehicle and can take same above auto expenses.  For 2024, there are 3 methods of depreciating your new vehicle:

 

For vehicles with Gross Vehicle Weight (GVW) under 6,000 lbs, in first year you could take bonus depreciation on the vehicle of up to 60% of purchase price of the vehicle, with the remaining purchase price being depreciated over the next 4 years. For vehicles with GVW over 6,000 lbs, you can also elect to take Section 179 expense which will permit you to take $30,500 in 2024 and the remaining purchase price would be depreciated over next 4 years (if applicable)

 

You can also elect to opt out of the accelerated depreciation, and take the standard MACRS depreciation over the 5 year useful life.

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The last difference for a purchased vehicle is when you dispose of it, there may be a taxable gain or deductible loss. When you return your leased vehicle, there is no taxable gain or loss.  

 

If you want to get a large deduction in the initial year of the new auto then purchasing is beneficial. If you do not need the large deduction, then it is mostly personal preference on whether you want to buy or lease.

 

Other personal reasons:

 

1. How many miles you drive per year – leased cars are charged extra fee for too many miles driven

2. How long you want to keep your car – do you want to get a new car every 3-4 years

3. How much do you want to spend on your monthly payments – lease payments are usually less

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The IRS increased the Mileage Rate for 2023 to 65.5 cents per mile. 

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Q. What if I purchase an electric vehicle?

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You may qualify for a credit up to $7,500 for vehicles purchased from 2023 to 2032. To qualify, you must buy it for your own use, not resale, use it primarily in the US, your MAGI must not exceed $300,000 for MFJ, $225,000 for HOH and $150,000 for MFS and Single taxpayers. You can use your modified AGI from the year that you take delivery or the year before, whichever is less.

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Q. I want to start a new business, what is my first step?

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A. Check out our new business start up guide! CLICK HERE!

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Q. How do you determine if a worker is an employee or an independent contractor?
 
A. The determination can be complex and depends on the facts and circumstances of each case. The determination is based on whether the person for whom the services are performed has the right to control how the worker performs the services. It's not based merely on how the worker is paid, how often the worker is paid, or whether the work is part-time or full-time.

There are three basic categories of factors that are relevant to determining a worker's classification:

Behavioral control (whether there's a right to direct or control how the worker does the work),
Financial control (whether there's a right to direct or control the business part of the work), and
Relationship of the parties (how the business and worker perceive the relationship).

For more information on employer-employee relationships, refer to Publication 15, (Circular E), Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide. Also, refer to Publication 1779, Independent Contractor or Employee PDF.

If you would like the IRS to determine whether services are performed as an employee or independent contractor, you may submit Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Generally, if you're an independent contractor you're considered self-employed and should report your income (nonemployee compensation) on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). Most self-employed individuals will need to pay self-employment tax (comprised of social security and Medicare taxes) if their income (net earnings from self-employment) is $400 or more. Use Schedule SE (Form 1040), Self-Employment Tax to figure the tax due.

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Generally, there's no tax withholding on income you receive as a self-employed individual as long as you provide your taxpayer identification number (TIN) to the payer. However, you may be subject to the requirement to make quarterly estimated tax payments. If you don't make timely estimated tax payments, the IRS may assess a penalty for an underpayment of estimated tax. For more information on estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax. Unlike independent contractors, employees generally pay income tax and their share of social security and Medicare taxes through payroll deductions (withholding).

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Did you receive an SBA EIDL Loan?

The loan repayment period was extended to begin 30 months from the date you received the funds in your account. To set up your loan payments, View and make your payment in your Borrower loan portal on the SBA Capital Access Financial System (CAFS) Capital Access Financial System (sba.gov). Instructions can be found at www.sba.gov/pay

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Out of State Sales & Sales Tax

Florida, just changed their nexus laws in July 2021 regarding out of state sales tax and every state has different rules regarding the reporting threshold which is either based on Gross Revenues or # of transactions in each state. Here is a link that shows rules for each state: https://www.streamlinedsalestax.org/for-businesses/remote-seller-faqs/remote-seller-state-guidance

 

INDIVIDUAL FAQ's

 

Q. I filed my tax return, now where is my refund?

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A. You can check your IRS refund status @ https://www.irs.gov/refunds

    You will need your SSN of the primary taxpayer, filing status and exact refund amount

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Q. I owe the IRS, but not sure how much and/or I cannot pay in full. What should I do?

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A. You can view your IRS tax account @ https://www.irs.gov/payments/view-your-tax-account

    Once you have your account record, you can pay the balance in full @ https://www.irs.gov/payments/direct-pay

    A apply for an online payment arrangement @ https://www.irs.gov/payments/online-payment-agreement-application

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Q. I received an IRS notice - what now?

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A. Text a copy of the IRS letter (all pages - front and back) to 561-659-1177. We will review and let you know what to do next.

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Q. I received a gift from my parents this year, do I have to pay taxes? 

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A. No. For 2023, the annual gift tax exclusion is $17,000, so if your mom and dad gave you less than $34,000, there is no tax and no reporting requirement. (For 2024, the exclusion is $18,000 per person. If it is over the annual exclusion amount, your parents would need to file a gift tax return with the IRS, but there are no taxes due. As of now, the lifetime gift exclusion is $11.58 million per person.

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Q. Is there an age limit on claiming my child as a dependent?

 

A. To claim your child as your dependent, your child must meet either the qualifying child test or the qualifying relative test:

• To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a "student" younger than 24 years old as of the end of the calendar year.

• There's no age limit if your child is "permanently and totally disabled" or meets the qualifying relative test.

In addition to meeting the qualifying child or qualifying relative test, you can claim that person as a dependent only if these three tests are met:

1. Dependent taxpayer test

2. Citizen or resident test, and

3. Joint return test

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Q. You can withdraw retirement funds without incurring the 10% penalty for early withdrawals made before age 59 ½ if one of the following applies:

A. You leave your job in the calendar year that you will turn 55 or later (or the year you will turn 50 if you are a public safety worker such as a police officer or air traffic controller). You can leave for any reason, including because you were fired, you were laid off, or you quit.
•    You are withdrawing funds only from a 401(k) account offered by your most recent employer. You cannot withdraw money penalty-free from accounts with other past employers, nor can you make penalty-free withdrawals from an IRA, even if you rolled over your 401(k) into one upon leaving your most recent job.​

• Birth or adoption: Distributions up to $5,000 per child for qualified birth or adoption expenses

• Death: After death of the participant/IRA owner

• Disability: Total and permanent disability of the participant

• Domestic abuse victim: to a victim of domestic abuse by spouse or domestic partner up to $10,000 (or 50% of account value)

• Education: Qualified higher education expenses

• Emergency Personal Expense: One distribution per calendar year for personal or family emergency expenses up to $1,000

• First time homebuyer: may withdraw up to $10,000 

• IRS Levy

• To pay health insurance premiums while unemployed

• Terminal illness: distributions made to a terminally ill employee after the date the employee has been certified by a physician as having a termina illness

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Inflation Reduction Act

With up to 87,000 new IRS agents on the way now that the the Inflation Reduction Act is unleashing a Tougher IRS, there’s lots of tax about tax audits. The widely published 87,000 figure appears to come from a 2021 Treasury Department study saying that the IRS could hire about that many with $80 billion of funding. Your audit exposure is at least three years from when you file your return, but you might be a risk for years more. In fact, the time periods can be downright frightening in some cases. Tax lawyers and accountants are used to monitoring the duration of their clients’ audit exposure, and so should you. If you want to watch the calendar until you are clear of audit, in most cases, that will be either three years or six years. But in some cases, even though you filed and thought everything was in order, the statute of limitations never runs. Let’s start with the basic three year rule, but in many cases, IRS can audit six tax years not three. So if you are thinking you only need to look over your shoulder for three years, that isn't always so. For example, the usual three years is doubled to six if you omitted more than 25% of your income. If you overstate your cost basis on something you sell, that counts too. So if it has the effect of understating your income by more than 25%, the IRS gets six years

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What are I-Bonds and is it a good investment for you?

I-Bonds are US Savings bonds issued by the US Treasury. The interest rate is adjusted every 6 months, in May and November. Currently, I-Bonds purchased through November 2022 are paying 9.62% on an annual basis for the first 6 months that they are held. The interest rate will be adjusted in November based on inflation. I-Bonds must be held for a minimum of one year and if redeemed before five years, three months of interest is forfeited. Interest income is subject to federal taxes, unless the bonds are used to pay for qualified education expenses. You can also purchase under your business with the EIN. To learn more, visit: https://www.treasurydirect.gov/indiv/research/indepth/ibon ds/res_ibonds_ibuy.htm

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Is your Money Safe in the Bank? FDIC Insurance limits explained!

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The FDIC covers Checking accounts, Negotiable Order of Withdrawal (NOW) accounts, Savings accounts, Money Market Deposit Accounts (MMDAs), Time deposits such as certificates of deposit (CDs), Cashier's checks, money orders, and other official items issued by a bank

The FDIC does not cover Stock investments, Bond investments, Mutual funds, Life insurance policies, Annuities, Municipal securities, Safe deposit boxes or their contents, U.S. Treasury bills, bonds or notes

FDIC Deposit Insurance Coverage Limits by Account Ownership Category

• Single Accounts (Owned by One Person) $250,000 per owner

• Joint Accounts (Owned by Two or More Persons) $250,000 per co-owner

• Certain Retirement Accounts (Includes IRAs) $250,000 per owner

• Revocable Trust Accounts $250,000 per owner per unique beneficiary

• Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association

• Irrevocable Trust Accounts $250,000 for the noncontingent interest of each unique beneficiary

• Employee Benefit Plan Accounts $250,000 for the noncontingent interest of each plan participant

• Government Accounts $250,000 per official custodian (more coverage available subject to specific conditions)

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Selling your Primary Residence & Tax Implications

The real estate market has been so hot this year and I have been getting a lot of questions regarding the tax implications if you sell your primary residence so thought it was a good topic this week. Taxpayers who are selling their home may qualify to exclude all or part of any gain from the sale from their income when filing their tax return. Here are some things that homeowners should think about when selling a home: Ownership and use To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years. Gains Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000.

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How Social Security is Calculated

I am frequently asked how social security is calculated so I thought this topic would be a good one to feature in this week's Frequency Friday! To qualify for social security benefits, you earn "credits" throughout your working life - up to 4 each year. You need at least 40 credits (10 years of work) to qualify for social security benefits. If you continue to work until Full Retirement Age, you will receive the maximum benefit that you are eligible for based on your earnings history. Your Social security is based on the highest 35 years of earnings. If you have fewer than 35 years of earnings, those years count as $0 and will reduce the monthly benefit amount.. If you are self-employed and file as a sole proprietorship, your earnings for social security purposes is the net income reported on Schedule C of your tax return. If you have an s-corporation, your earnings are based on what you pay yourself in W-2 wages as officer salary. One of the benefits of having the S-corporation is to control the amount of self-employment taxes paid and minimize the tax exposure. Depending on your earning history, it may be beneficial to increase your salary the closer you get to retirement age. If you are divorced and were married for 10 years, you may be able to claim benefits on your ex-spouse's record if their earning history is higher than yours.

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Year of Birth Full Retirement Age 1943-1954 66 1955 -1959 66 + # months 1960 & later 67 If you decide to retire before full retirement age, your SS benefit will be reduced. If you delay benefits past full retirement age, your SS benefits will continue to increase I highly recommend that you create an account on Socialsecurity.gov to view your earnings history. There are also great calculators that will calculate your SS benefits based on what you plan to earn between now and retirement age.. I have found that there is a misconception about how SS benefits are taxed.. If you file as an individual, and your combined income, including SS benefits is between $25,000-$34,000, you will pay income tax on up to 50% of your benefits. If you have more than $34,000, up to 85% of your benefits are taxable. If you file a married filing joint return,, and if you and your spouse have income between $32,,000-$44,000, 50% of your SS is taxable. Over $44,000, 85% is taxable.

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