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For many businesses, profits vary from year to year. However, with proper planning, even a bad year can be helpful from a tax perspective. Where business deductions exceed gross income, a taxpayer may have a net operating loss (NOL) that can be used to offset income in another tax year, potentially generating a refund of previously paid taxes.
Who May Use an NOL?
NOLs are available to individual business owners, corporations, estates, and trusts. Partnerships and S corporations do not take NOL deductions, though their partners and shareholders may use “passed through” losses on their own returns.
How Is an NOL Applied?
The general rule is that a taxpayer may carry an NOL back two years and forward 20 years, though certain limited exceptions may apply. For example, an individual with an NOL that was caused by a casualty, theft, or disaster may use a three-year carryback period.
In general, the taxpayer will carry back an NOL to the earliest year it can be used and then carry it forward, year by year, until it is used up. The taxpayer may also elect to forego the two-year carryback and carry the loss forward for the 20-year period. However, the general preference is to use an NOL sooner rather than later because a dollar of tax saved today is generally worth more than a dollar saved in the future.
How Is an NOL Calculated?
Calculations of NOLs can be complicated. For example, a noncorporate taxpayer’s NOL is calculated without regard to any personal exemptions or NOLs from other years, and certain deductions for capital losses and nonbusiness items are limited.
If you are tired of overpaying taxes, call 212-631-0320 and ask for Mark Feinsot.
If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, FBAR violations.
First, it is important to determine if you are required to report your foreign bank account. It comes down to being able to say yes to the following four questions:
- You are now a US citizen or permanent resident or have been in the last six years.
- You have had a foreign bank account for a year or longer since 2008.
- Your balances in all of your foreign accounts exceed $10K
- You have not reported the account through the FBAR paperwork to the IRS.
The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.
This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.
In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.
A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.
A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.
If you are tired of overpaying taxes and would like tax compliance help, call 212-631-0320 and ask for Mark.
Mark E. Feinsot CPA is a highly rated New York City CPA Firm helping high net worth individuals and small business owners minimize their taxes while avoiding costly tax battles with the IRS. We provide additional expertise in dental practice accounting, aviation accounting for private jet owners, and law firm accounting.
Section 179 allows a business to deduct the total cost for qualified leased, financed, or purchased equipment in the year it was purchased instead of depreciating the cost over the life of the equipment. Typically, however, Congress waits until after the first of the year to renew this section which can hurt small business owners and manufacturers as well as farmers, dentists, and medical providers.
Very often, Congress doesn’t get around to renewing tax breaks, such as Section 179, until well after the end of the year. Then they make it retroactive. This creates all sorts of issues for businesses who attempt to plan purchases with tax breaks in mind. Often, small businesses will miss out on the tax altogether.
While tax breaks such as Section 179 are typically renewed each year, it isn’t a given. That means businesses as well as farmers and even those in the medical profession won’t know if they are allowed to deduct $25,000 or $500,000. The final approved amount depends on whether or not the larger deductions are renewed. If not, the limit reverts to the original $25,000.
This can make a buying decisions difficult. For example if a farmer needs to buy a new combine, the farmer is looking at an investment of up to half a million dollars. If Section 179 isn’t renewed at the higher levels, this investment may need to be reconsidered. The same goes for medical or manufacturing equipment.
Still, for a small business, even the limit of $25,000 can make a tremendous difference. As off-the-shelf software also qualifies for this deduction, a small business could update their software to enhance efficiency therefore increasing their bottom line.
Tax planning is a critical component of a successful company. That’s why it is so important for Congress to act quickly and in a timely manner, so small businesses can plan for the next year while they still have the time to implement smart decisions. Small businesses are the backbone of this county and do drive the economy, and Congress shouldn’t forget that.
If you would like to lower your tax burden, call Mark Feinsot at 212-631-0320. Our goal is to lower your overall tax burden legally.
Mark E. Feinsot CPA is a New York City CPA Accounting firm with two midtown Manhattan office locations. We service businesses and high net worth individuals. While we service all types of businesses, we have developed additional expertise in law firm accounting, dental practice accounting, and air transportation accounting.
If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.
According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”
He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”
While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.
Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.
The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.
You may have heard about credit monitoring, but may not be exactly sure what it entails or if it can protect you in there is a data breach or hack that allows your information to fall into the wrong hands.
How Can Credit Monitoring Help You?
Identity theft is one of the great big fears to come out of a data breach or hacking situation. This is where someone else halfway across the country, outside the country, or even in your same state assumes your credit persona and takes out credit in your name.
Unfortunately, these people rarely have the intention of paying for the things they purchase with the good credit you’ve worked so hard to build. This means you’re left holding the bag (or in this case, interest bearing bill) for their high dollar purchases.
Credit monitoring is a valuable tool that can help you become aware of fraudulent accounts that have been opened in your name, as well as loans that may have been taken out using your Social Security number.
Credit monitoring looks for these suspicious activities as they are happening. It notifies you immediately so that you can take action at the first sign of trouble, rather than only finding out after serious damage has been done to your reputation, credit rating, and, possibly, to your financial security.
What Does Credit Monitoring Involve?
Depending on the service you subscribe to, credit monitoring can include a wide range of features. These are some you might want to make sure are included in the credit monitoring services you choose to protect your identity from harm.
- Daily monitoring of credit reports.
- Daily scanning for unauthorized use of your Social Security Number.
- Protection for lost or stolen wallets.
- Nationwide alerts for change of address notifications in the event that someone changes your address.
Credit monitoring is a proactive step you can take to protect your financial interests from identity thieves. You should review your credit reports often in order to look for suspicious activities that might indicate identity theft. Report anything suspicious right away in order to reduce your risks and, in a worst case scenario, limit the scale of the damage.
Cost segregation is the process of identifying your assets and classifying those assets correctly for the purpose of paying federal taxes. In this process, personal assets that are mixed with real property assets are separated out, so all assets can be depreciated properly and potentially increase your bottom line.
Cost Segregation Studies
A cost segregation study is performed to determine which assets can be claimed as personal property instead of real property. These items usually include indirect construction costs, non-structural elements of buildings, and exterior land improvements.
By separating these assets, they can be depreciated over a shorter term which will reduce your current income tax liabilities and increase cash flow. This decreased depreciation period is typically between five and fifteen years instead of the twenty-seven and a half to thirty-nine years for non-residential real property.
For example, items such as carpeting, wall paper, parts of the electrical system, and even sidewalks and landscaping all qualify for the shorter depreciation periods.
Eligibility and Advantages of Cost Segregation
To be eligible for cost segregation, a building must have been purchased, remodeled, or constructed since 1987. This method of tax reduction is best used on new construction, but it can be used retroactively on older buildings as well.
Beyond the benefits of reduced tax liability and increased cash flow, a cost segregation study will provide your business with an audit trail of all costs and asset classifications. This will help put to rest any unwanted inquiry from the IRS in its early stages. Finally, during this process, you may identify possible ways to reduce your real estate tax liabilities as well.
While there are some costs associated with performing a cost segregation study, as long as the assets in question are valued over $200K, it’s worth the time and expense to complete the study and categorize these assets correctly.
Mark Feinsot CPA seeks to minimize your tax liability legally and cost segregation is just one tool to accomplish this task. If you are tired of overpaying taxes, call 212-631-0320 and ask for Mark.
Feinsot CPA services all types of businesses and high net worth individuals. For additional expertise, we have concentrations in high net worth accounting and tax, aviation, law firms and dental practices.
A corporate inversion, simply put, is a method corporations use to reduce their tax responsibilities. While this loophole may present a sound tax solution for the corporation in question, it has a direct impact on tax revenue collected by the United States government, as well as on competition between companies.
A corporate inversion takes place when a U.S. corporation renounces it’s citizenship by merging with a smaller company in a foreign country. This country typically has a more favorable corporate tax structure as well as tax rules that allow the U.S. corporation to reduce its tax burden.
Once the corporation merges with the foreign entity, it declares the new country as its place of residency. At that point, the United States can no longer impose or collect taxes on the corporation for future or past income. While this may be a positive situation for the company, it does has a negative effect as it reduces tax revenue for the U.S. as well as creates an atmosphere of unbalanced competition between corporations that have transacted an inversion and those that have not.
Over the last decade, corporate migration has increased to the point that now only one-tenth of total tax revenues collected come from corporations. That’s down from one-third in the 1950s. In fact, in the past ten years, a total of 47 U.S. corporations have performed corporate inversions and changed their legal residences to countries outside of the United States.
While it stands to reason that a corporation should do all it can to reduce its tax burden, and it could even argue that doing so is its fiduciary responsibility to its shareholders, this particular tax loophole is stripping tax revenues from the U.S. government at an unsustainable rate.
In addition it is also pitting the corporations that have made an inversion against the corporations that have not creating a toxic business environment which is why this is one loophole that needs to be fixed.
Mark Feinsot, CPA is a New York City CPA Accounting firm with offices on West 57th Street (Garment District) and West 32nd Street (Broadway, near Empire State Building). Our firm works with all types of small businesses and high net worth individuals. If you are searching for a new accountant to minimize your tax obligations, call us at 212-631-8320 and ask for Mark.