Axley & Rode, LLP

As you’re aware, certain employers are required to report information related to their employees’ health coverage. Does your business have to comply, and if so, what must be done? Basic rules Certain employers with 50 or more full-time employees (called “applicable large employers” or ALEs) must use Forms 1094-C and 1095-C to report the information about offers of health coverage and enrollment in health coverage for their employees. Specifically, an ALE uses Form 1094-C to report summary information for each employee and to transmit Forms 1095-C to the IRS. A separate Form 1095-C is used to report information about each employee. In addition, Forms 1094-C and 1095-C are used to determine whether an employer owes payments under the employer shared responsibility provisions (sometimes referred to as the “employer mandate”). Under the mandate, an employer can be subject to a penalty if it doe...

When a married couple files a joint tax return, each spouse is “jointly and severally” liable for the full amount of tax on the couple’s combined income. Therefore, the IRS can come after either spouse to collect the entire tax — not just the part that’s attributed to one spouse or the other. This includes any tax deficiency that the IRS assesses after an audit, as well as any penalties and interest. (However, the civil fraud penalty can be imposed only on spouses who’ve actually committed fraud.) Innocent spouse relief In some cases, spouses are eligible for “innocent spouse relief.” This generally involves individuals who were unaware of a tax understatement that was attributable to the other spouse. To qualify, you must show not only that you didn’t know about the understatement, but that there was nothing that should have made you suspicious. In addition, the circumstances must make it ...

If you’re a business owner working from home or an entrepreneur with a home-based side gig, you may qualify for valuable home office deductions. But not everyone who works from home gets the tax break. Employees who work remotely can’t deduct home office expenses under current federal tax law. To qualify for a deduction, you must use at least part of your home regularly and exclusively as either: Your principal place of business, or A place to meet with customers, clients or patients in the normal course of business. In addition, you may be able to claim deductions for maintaining a separate structure — such as a garage — where you store products or tools used solely for business purposes. Notably, “regular and exclusive” use means you must consistently use a specific identifiable area in your home for business. However, incidental or oc...

The Inflation Reduction Act (IRA) includes a wide range of tax incentives aimed at combating the dire effects of climate change. One of the provisions receiving considerable attention from consumers is the expansion of the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC Section 30D), now known as the Clean Vehicle Credit. While the expanded credit seems promising, questions have arisen about just how immediate its impact will be. Here’s what you need to know about the credit if you’re thinking about purchasing an electric vehicle (EV). The credit in a nutshell The Qualified Plug-in Electric Drive Motor Vehicle Credit has been around since 2008. For passenger vehicles and light trucks acquired after December 31, 2009, the credit starts at $2,500. Vehicles with battery capacities rated at five kilowatt hours qualify for an additional $417, plus an additional $417...

In Revenue Procedure 2022-34, the IRS recently announced an important indexing adjustment related to the Affordable Care Act (ACA). That makes now a good time to review whether your organization is an applicable large employer (ALE) under the ACA and, if so, whether the health care coverage you offer employees will still be considered “affordable” next year. Affordability and minimum value An employer’s size, for ACA purposes, is determined in any given year by its number of employees in the previous year. Generally, if your organization had 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is an individual who provides, on average, at least 30 hours of service per week. Under the ACA, what happens if an ALE doesn’t offer minimum essential coverage that’s affordable and ...

These days, most businesses have websites. But surprisingly, the IRS hasn’t issued formal guidance on when website costs can be deducted. Fortunately, established rules that generally apply to the deductibility of business costs provide business taxpayers launching a website with some guidance as to the proper treatment of the costs. Plus, businesses can turn to IRS guidance that applies to software costs. Hardware versus 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, once these assets are operating, you can deduct 100% of the cost in the first year they’re placed in service (before 2023). This favorable treatment is allowed under the 100% first-year bonus depreciation break. Note: The bonus depreciation rate will begin to be phased down for property placed in service after calendar year 2022. ...

The Inflation Reduction Act (IRA), signed into law by President Biden on August 16, contains many provisions related to climate, energy and taxes. There has been a lot of media coverage about the law’s impact on large corporations. For example, the IRA contains a new 15% alternative minimum tax on large, profitable corporations. And the law adds a 1% excise tax on stock buybacks of more than $1 million by publicly traded U.S. corporations. But there are also provisions that provide tax relief for small businesses. Here are two: A payroll tax credit for research Under current law, qualified small businesses can elect to claim a portion of their research credit as a payroll tax credit against their employer Social Security tax liability, rather than against their income tax liability. This became effective for tax years that begin after December 31, 2015. Qualified small businesses that ...

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 or other income. Here are the applicable rules for paying estimated tax without triggering the penalty for underpayment. When are the payments due? 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 2022 is due on Wednesday, September 15. Payments are made using Form 1040-ES. How much should you pay? The required annual payment for most individuals is the lower of 90% of the tax shown on th...

While the recently announced student loan debt relief has captured numerous headlines, it’s estimated that another federal relief program announced on the same day will provide more than $1.2 billion in tax refunds or credits. Specifically, IRS Notice 2022-36 extends penalty relief to both individuals and businesses who missed the filing deadlines for certain 2019 and/or 2020 tax and information returns. The relief covers many of the most commonly filed forms. Broad relief for late taxpayers The intent behind the penalty relief is two-fold: 1) to help taxpayers negatively affected by the COVID-19 pandemic, and 2) to allow the IRS to focus on processing backlogged tax returns and taxpayer correspondence. As recently as late May 2022, the IRS had a backlog of more than 21 million unprocessed paper returns. The goal is for the IRS to return to normal operations for the 2023 filin...

Many employers offer health care plans and other benefits that fall under the purview of the Employee Retirement Income Security Act (ERISA). A recent federal court decision serves as a reminder that employers need to know their legal rights and limits regarding employee terminations and ERISA-protected benefits. Plaintiff’s argument In Kairys v. S. Pines Trucking, Inc. , a former employee brought a discrimination case contending, among other things, that he was terminated in retaliation for substantial medical expense claims and anticipated future use of his employer’s self-insured ERISA health plan. The plaintiff argued that his employer violated Section 510 of ERISA, which makes it unlawful to: Discharge, fine, suspend, expel, discipline or discriminate against a participant for exercising a right to which the participant...

When you filed your federal tax return this year, were you surprised to find you owed money? You might want to change your withholding so that this doesn’t happen again next year. You might even want to adjust your withholding if you got a big refund. Receiving a tax refund essentially means you’re giving the government an interest-free loan. Adjust if necessary Taxpayers should periodically review their tax situations and adjust withholding, if appropriate. The IRS has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized deductions, the child credit, the dependent credit and the repeal of dependent exemptions. You can access the IRS calculator here: https://bit.ly/33iBcZV Life changes There are some situations when you should...

The U.S. Senate and House of Representatives have passed the Inflation Reduction Act (IRA) and President Biden signed the bill into law. The IRA includes significant provisions related to climate change, health care, and, of course, taxes. The IRA also addresses the federal budget deficit. According to the Congressional Budget Office (CBO), the IRA is projected to reduce the deficit by around $90 billion over the next 10 years. Although the IRA falls far short of Biden’s originally proposed $2 trillion Build Back Better Act, the $430 billion package nonetheless is a sprawling piece of legislation bound to affect most Americans over time. Here’s an overview of some of what the bill includes. Significant tax provisions For starters, how is the federal government going to pay for all of it? Not surprisingly, new taxes are part of the equation (along with savings from, for example, lowe...

When you take withdrawals from your traditional IRA, you probably know that they’re taxable. But there may be a penalty tax on early withdrawals depending on how old you are when you take them and what you do with the money. Important: Once you reach a certain age, you must start taking required minimum distributions from your traditional IRAs to avoid a different tax penalty. Previously, the required beginning date (RBD) was April 1 of the year after the year in which you turn 70½. However, a 2019 law changed the RBD to 72 for individuals who reach age 70½ after 2019. But what if you want to take an “early” withdrawal, defined as one taken before age 59½? You’ll be hit with a 10% penalty tax unless an exception applies. This 10% early withdrawal penalty tax is on top of the regular income tax you’ll owe on the distribution. Exceptions to the gen...

Are you in the early stages of divorce? In addition to the tough personal issues that you’re dealing with, several tax concerns need to be addressed to ensure that taxes are kept to a minimum and that important tax-related decisions are properly made. Here are five issues to consider if you’re in the process of getting a divorce. Alimony or support payments. For alimony under divorce or separation agreements that are executed after 2018, there’s no deduction for alimony and separation support payments for the spouse making them. And the alimony payments aren’t included in the gross income of the spouse receiving them. (The rules are different for divorce or separation agreements executed before 2019.) Child support. No matter when the divorce or separation instrument is executed, child support payments aren’t dedu...

A business or individual might be able to dispose of appreciated real property without being taxed on the gain by exchanging it rather than selling it. You can defer tax on your gain through a “like-kind” or Section 1031 exchange. A like-kind exchange is a swap of real property held for investment or for productive use in your trade or business for like-kind investment real property or business real property. For these purposes, “like-kind” is very broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale. If you’re unsure whether the property involved in your exchange is eligible for a like-kind exchange, contact us to discuss the matter. Here’s how the tax rules work If it’s a straight asset-for-asset exchange, you won’t h...

Sadly, many businesses have been forced to shut down recently due to the pandemic and the economy. If this is your situation, we can assist you, including taking care of the various tax responsibilities that must be met. Of course, a business must file a final income tax return and some other related forms for the year it closes its doors. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements. Sole proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax. Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final re...

Many wonder how they can save taxes by transferring assets into their children’s names. This tax strategy is called income shifting. It seeks to take income out of your higher tax bracket and place it in the lower tax brackets of your children. While some tax savings are available through this approach, the “kiddie tax” rules impose substantial limitations if: The child hasn’t reached age 18 before the close of the tax year, or The child’s earned income doesn’t exceed half of his or her support, and the child is age 18 or is a full-time student age 19 to 23. The kiddie tax rules apply to your children who are under the cutoff age(s) described above and who have more than a certain amount of unearned (investment) income for the tax year — $2,300 for 2022. While some tax savings on up to this amount can still be achieved by shifting income to children under the cutoff ag...

Although merger and acquisition activity has been down in 2022, according to various reports, there are still companies being bought and sold. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law. Stocks vs. assets From a tax standpoint, a transaction can basically be structured in two ways: 1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes. The current 21% corporate federal income tax rate makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income than it would ha...

Does your organization offer a 401(k) plan to its employees? This is a common fringe benefit for the rank and file. However, some employers might want to take their benefits packages to the next level by offering special options to key employees. In such cases, a nonqualified deferred compensation (NQDC) plan could fit the bill. Qualified vs. nonqualified When understanding the concept of an NQDC plan, first know the difference between a qualified and nonqualified plan. Under a qualified plan, so long as the employer follows various tax law requirements, its contributions are deductible, and payments to participants are guaranteed. A 401(k) is a type of qualified deferred compensation plan. With a nonqualified plan, participants rely on the employer’s promise to pay out the benefits at a specified date — but there are no guarantees. Participants run the risk th...

Sales and registrations of electric vehicles (EVs) have increased dramatically in the U.S. in 2022, according to several sources. However, while they’re still a small percentage of the cars on the road today, they’re increasing in popularity all the time. You may be eligible for a federal tax break if you buy one. The tax code provides credit to purchasers of qualifying plug-in electric drive motor vehicles, including passenger vehicles and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that can’t exceed $5,000. Therefore, the maximum credit allowed for a qualifying EV is $7,500. Be aware that not all EVs are eligible for the tax break, as described below. The EV definition For purposes of the tax credit, a qualifying vehicle is defined as one with four wheels that’s propelled to a significant extent by an electric motor, which draws electricity ...