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Tax Savings Tips: April 2023

  Know the $75 Rule for Business Expenses   The $75 rule applies to certain business expenses where you do not need a receipt. But we emphasize that this rule does not apply to all tax deductions.   Many taxpayers mistakenly apply the $75 rule to all their tax deductions, which can result in a significant loss of deductions and penalties. We encourage you to know the $75 rule and its limitations to avoid potential negative consequences.   IRS Reg. Section 1.274-5(c)(2)(iii) contains the $75 rule, and Notice 95-50 provides a clear explanation of what it applies to. The rule applies to business travel expenses, vehicle expenses, and gifts that cost less than $75. But remember that the $25 limit on deductions for business gifts applies, meaning the practical limit is $25.   It’s worth noting that your bank and credit card statements do not provide sufficient proof of expenses for tax purposes. You need to have both the receipt (proof of what you purchased) and the canceled
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Tax Savings Tips: March 2023

  Holding Real Property in a Corporation: Good or Bad Idea?   As the real estate market has cooled off in many parts of the country, investing in property may seem wise in the long run. But taxes can be a significant concern. Owning real estate in a C corporation may not be wise when considering taxes because it puts you at risk of being double-taxed. This means that if you sell the property and make a profit, the gain may be subject to taxation twice—once at the corporate level and again at the shareholder level when the corporation pays out profits to shareholders as dividends. The Tax Cuts and Jobs Act reduced the double taxation threat, but with our current federal debt, you face the risk that lawmakers will hike the corporate tax rates and possibly also tax dividends at higher ordinary income rates. To avoid this threat, I usually recommend using a single-member LLC or revocable trust to hold real property. A disregarded single-member LLC delivers super-simple tax trea
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Tax Savings Tips: February 2023

  2023 Health Insurance for S Corporation Owners: An Update   Here’s an update on the latest developments in 2023 health insurance for S corporation owners. As a more-than-2-percent S corporation owner, you are entitled to some good news when it comes to your health insurance. To ensure that your health insurance deductions are in order, and to avoid the $100-a-day penalties for violating the rules of the Affordable Care Act (ACA), you should take the following steps: 1.       Get the cost of the health insurance on the S corporation’s books, either by making the premium payments directly or through reimbursement. 2.       Ensure that the S corporation includes the health insurance premiums on the owner-employee’s W-2 form, including the additional compensation in box 1 but not in boxes 3 or 5. 3.       If you are an owner-employee with more than 2 percent ownership, claim the health insurance deduction as “self-employed health insurance” on line 17 of Schedule 1 of Form 10
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