Tax Tips

Failing to file your taxes for several years can feel overwhelming. Whether you missed deadlines due to life circumstances, a misunderstanding of tax obligations, inability to pay your tax liability or simply procrastination, you may be worried about the consequences of not filing. You should be, because the IRS takes a dim view of tax evasion for any reason. But there’s good news, too. You don’t have to flee the country or look over your shoulder for the rest of your life. It’s always possible to resolve the issue and get back on track. 

Understanding the Consequences of Failing to File

Once you start thinking about getting back on track, make haste to do it. Right now. Contact your CPA to start the process, because if the IRS catches up with you beforehand, you may have a hard time. Well, you will have a hard time. People have even gone to jail for not paying taxes. But let’s not think about that right now.

Accumulated Penalties and Interest

When you don’t file, the IRS may charge a failure-to-file penalty. This penalty typically starts at 5% of the unpaid taxes for each month your return is late, with a maximum penalty of 25%. As if that wasn’t enough to ruin your day, interest accrues on unpaid taxes from the time they are due until the full amount is paid. 

Loss of Refunds

If you're owed a refund but fail to file your return within three years, the IRS may not issue the refund. This means you could lose out on money that is rightfully yours. Filing late can still allow you to claim your refund, but only within that three-year window. This may sound like some kind of punishment your parents might have doled out for coming in late after a night out, but really, three years is kind of reasonable. 

IRS Enforcement Actions

The IRS has various tools at its disposal to collect unpaid taxes. If you haven’t filed in several years, they could take enforcement actions such as placing a lien on your property, garnishing your wages, or even levying your bank accounts. In extreme cases, criminal charges can be filed, though this is rare and typically reserved for individuals who willfully evade taxes.

Step 1: Gather Your Documents

The first step in getting back on track is to gather all the necessary documents to file your tax returns for the missing years. This might take some time, because you’ll need records of your income, including W-2s, 1099s, and any other sources of income during those years. Additionally, make sure to collect documentation for any deductions, credits, or expenses you can claim, such as mortgage interest statements, receipts for charitable donations, and medical bills.

You may have to get creative with this process, thinking about where you can access all those records. But if you don’t have all the paperwork, the IRS may help you retrieve some of this information. You can request a transcript of your earnings from the IRS, which includes wage and income information that the IRS received from your employers and other income sources. 

Step 2: File for Each Missing Year

The next step is to prepare and file your tax returns for each missing year. It’s a good idea to consult your CPA at this stage, as they can help ensure accuracy and identify any deductions or credits you may have overlooked. 

If you're unable to pay the full amount owed right away, file the returns anyway. Filing your returns stops the failure-to-file penalties from growing. 

Step 3: Communicate with the IRS

Reaching out shows the IRS that you are serious about resolving the issue and can help you avoid more severe enforcement actions. If you owe back taxes and can't afford to pay them all at once, there are several options available:

Payment Plans

The IRS offers installment agreements that allow you to pay your tax debt over time. You can apply for a short-term payment plan (up to 180 days) or a long-term payment plan (monthly payments). These plans come with interest and late payment penalties, but they can provide relief if you’re unable to pay your balance immediately.

Offer in Compromise

In some cases, the IRS may agree to settle your tax debt for less than the full amount owed through an Offer in Compromise (OIC). To qualify, you’ll need to prove that paying the full amount would cause financial hardship or that the total amount is more than you could reasonably pay. The OIC process is rigorous, so working with a tax professional will take a big load off your plate.

Currently Not Collectible Status

If your financial situation is dire, you may qualify for Currently Not Collectible (CNC) status. This means that the IRS will temporarily halt collection efforts due to your inability to pay. However, interest and penalties will continue to accrue during this time, and the IRS will review your financial situation periodically.

Step 4: Stay Informed and Seek Professional Help

Tax laws change frequently, and staying informed about updates can help you avoid future issues. For example, changes in tax credits or deductions may affect how much you owe or are entitled to claim. Regularly reviewing your tax situation, especially when significant life events occur (such as getting married, buying a home, or having children), can help ensure that your tax returns are accurate and up-to-date.

A tax professional can provide valuable advice and guidance, particularly if you’ve fallen behind on your taxes. They can help you navigate IRS procedures, maximize deductions, and represent you in case of an audit or other tax-related issues.

Falling behind on your taxes can be stressful, but it’s not a situation without a solution. By gathering your documents, filing for the missing years, communicating with the IRS, and taking steps to prevent future issues, you can get back on track. Whether you choose to handle the process yourself or seek professional assistance, the key is to take action sooner rather than later. With the right approach, you can resolve your tax issues and start sleeping at night again.

by Kate Supino

Renting out a vacation home can be a lucrative venture, but it comes with a complex set of tax rules that homeowners must navigate to remain compliant and maximize their financial benefits. Learn more about the essential aspects of vacation home rental rules, including clarity and guidance for prospective and current vacation home landlords.

Introduction to Vacation Home Rentals

Vacation home rentals have surged in popularity, thanks in part to platforms like Airbnb, VRBO, and others, facilitating easier access to a global audience of travelers. However, the income generated from these rentals isn't free from tax obligations, and the IRS has specific rules based on the usage pattern of the property.

Understanding the IRS Rules

The tax treatment of your vacation home depends on how often you rent it out and how much you use it personally. The IRS categorizes vacation homes into three groups based on usage: personal use, rental use, and mixed-use. Understanding these distinctions is crucial for tax purposes.

Personal Use Versus Rental Use

1. Personal Use: A property is considered used for personal purposes if you or any other owner uses the vacation home for more than 14 days or more than 10% of the total days it was rented at a fair rental price, whichever is greater.

2. Rental Use: If you rent out your property for more than 14 days a year and personal use does not exceed 14 days or 10% of the total rental days, the IRS considers your property a rental property. This designation significantly impacts your tax reporting and deductions.

Tax Implications and Reporting

1. Reporting Rental Income: All income received from renting out your vacation home must be reported on your tax return, regardless of the number of days rented.

2. Deducting Expenses: The ability to deduct expenses related to the rental depends on the classification of your property. Deductible expenses may include mortgage interest, property taxes, insurance premiums, maintenance costs, and depreciation.

Mixed-Use Vacation Homes

Properties that are used both as a personal residence and a rental property fall under the mixed-use category. For these homes, you must allocate expenses between rental and personal use based on the number of days used for each purpose.

Deduction Limitations and Rules

The IRS places limitations on deductions based on the property's classification. For properties considered personal residences, rental expense deductions cannot exceed rental income. However, for properties classified as rental properties, you can deduct rental expenses in full, subject to passive activity loss rules.

Special Situations and Exceptions

1. Renting for Less Than 15 Days: If you rent your vacation home for fewer than 15 days per year, you do not have to report the rental income, nor can you deduct any expenses as rental expenses.

2. Real Estate Professional Status: If you qualify as a real estate professional under IRS rules, different tax benefits and deductions may apply, potentially allowing you to deduct rental losses against other income.

Keeping Accurate Records

Maintaining meticulous records is vital for vacation home owners. Keep detailed logs of rental and personal use days, along with receipts and documentation for all expenses. This documentation is crucial for tax reporting purposes and in the event of an IRS audit.

Leveraging Tax-Advantaged Strategies

1. Depreciation: Depreciation can be a significant deduction for rental properties, allowing you to recover the cost of the home over time. Understanding how to calculate and claim depreciation is essential for maximizing your tax benefits.

2. 1031 Exchange: Under certain conditions, you may be eligible to defer capital gains taxes if you sell your vacation rental property and reinvest the proceeds in another rental property through a 1031 exchange.

Consulting with a Tax Professional

Given the complexities of tax rules surrounding vacation home rentals, consulting with a CPA or tax advisor is advisable. A professional can help you navigate the tax implications, ensure compliance, and strategize for tax efficiency based on your specific circumstances.

Rental Agreements

Clear, detailed rental agreements are essential for managing guest expectations and protecting the homeowner's interests. These agreements should outline rental terms, house rules, cancellation policies, and any other conditions of the stay. A well-crafted agreement can help prevent disputes and ensure a smooth rental experience for both parties.

Renting out a vacation home offers a valuable opportunity to generate income, but it requires careful attention to tax rules and regulations. By understanding the IRS's classification of your property and the associated tax implications, you can make informed decisions that maximize your rental income and minimize your tax liability. Accurate record-keeping, strategic tax planning, and consultation with tax professionals are key components to successfully navigating the vacation home rental landscape. Whether you're a seasoned landlord or considering renting out your vacation home for the first time, a comprehensive understanding of these rules will equip you with the knowledge needed to make the most of your investment.

by Kate Supino

More people are engaging in remote contract work than ever before. Remote contract work offers almost as many advantages to workers and companies as full-time employment. However, this sea change from traditional in-house work to remote contract positions not only alters the way work is done, but also affects both the tax obligations and opportunities for workers. The tax implications of remote contract work are complex, so the advice of a CPA is strongly recommended. In general, however, here is a broad outline of those implications.

What is the Tax Status of Remote Contract Workers?

Remote contract workers are not considered employees, according to the IRS. In many cases, their tax status is “independent contractor.” As an independent contractor, there are certain tax obligations that the worker shoulders themselves. This includes paying both income tax and self-employment tax, which covers Social Security and Medicare contributions.

How Does the IRS Define Independent Contractor?

The IRS carefully outlines the definition of an independent contractor in the tax law. The status is mainly defined by the level of control the company has over the worker in terms of behavioral control, financial control and the type of relationship between the parties.

Behavioral control refers to whether the company directs or controls how the worker does the task(s). Included in this is the degree of instruction, evaluation systems and training.

Financial control references whether the business has a right to control the economic aspects of the worker's job. It includes factors like the extent of the worker's investment, the degree to which the worker can realize a profit or incur a loss, and how the worker is paid.

Type of relationship includes things such as written contracts, provided benefits, permanency, and extent of services in relation to being a key aspect of the business of the company.

You can find the IRS definition of an independent contractor here. The reason it’s important to know if you are an independent contractor is because it directly impacts how you pay taxes and how much taxes you’ll pay. Consult with your CPA for details.

Tax Implications of Remote Contract Work

The many tax implications of remote contract work include the following:

Making Estimated Tax Payments

One of the key responsibilities of an independent contractor is making estimated tax payments on a quarterly basis. Since taxes aren’t withheld from their income, remote contract workers need to calculate and pay estimated taxes to the IRS four times a year. These payments cover income tax and self-employment tax and are due in April, June, September and January of the following year.

Failing to make these payments, or underestimating the amount due, can lead to penalties and interest charges. It's crucial for remote contract workers to keep accurate and detailed records of their income and expenses to make precise calculations. This is why many remote contract workers rely on a CPA to calculate and submit their quarterly tax payments.

Home Office Deductions

Many remote contract workers operate from a home office. The IRS offers a home office deduction that can be valuable for such workers. To qualify, the space must be exclusively and regularly used for business purposes. This deduction allows for certain expenses related to the home office to be deducted, such as a portion of rent or mortgage interest, utilities, and insurance.

There are two methods for calculating this deduction: the simplified option and the regular method. The simplified option offers a standard deduction based on the square footage of the home office, while the regular method involves more detailed accounting of actual expenses. Deciding which method to use depends on various factors, and a CPA can help determine the most beneficial option, depending upon your individual circumstances.

Deductible Expenses
In addition to the home office deduction, remote contract workers can deduct other business-related expenses. Maintaining detailed records of these expenses is crucial for accurate deduction claims. These may include, but are not limited to:

Equipment and supplies needed for work
Software subscriptions and online tools
Business-related travel and mileage
Professional development, such as courses or conferences
Health insurance premiums, if not eligible for a spouse’s plan

State and Local Tax Considerations

Tax obligations can vary significantly based on location. Remote contract workers need to be aware of the state and local tax laws that apply to them, especially if they work across state lines. This can complicate tax calculations and filings, making the advice of a CPA even more valuable.

Helpful Tips For Remote Contract Workers

Being a remote contract worker feels like freedom, but it can also feel very isolating. Here are some helpful tips as far as tax implications:

Keep all receipts - You may not be aware of all the tax deductions you’re entitled to. Keep all your receipts so that you can quickly reference the details of expenses in case your CPA finds something that you can or cannot deduct. Most people find that simply taking a picture with their phone or scanning receipts into a folder works better than having a drawer full of paper receipts.

Save for tax payments - Remember that all the money you receive from your client(s) isn’t yours; some of it belongs to the government. You could be in for a shock if you find that you don’t have enough left over to make your estimated tax payment. Consider putting a percentage of your income payments into a savings account, so you can be sure to have the money available come tax time.

Be diligent about saving for retirement - There are advantageous retirement savings plans you can still participate in as a remote worker. Your CPA might have some ideas. Just because you’re a contract worker doesn’t mean you have to have a lean retirement account.

As a remote contractor worker, you’re in a unique position as far as your taxes. Your CPA will be an invaluable resource as you navigate all the ins and outs of this role.

by Kate Supino

Caring for a loved one with dementia is a profound emotional experience. The gradual loss of memory, personality changes, and the increasing need for constant care can be overwhelming. It's a time of sorrow, frustration, and often, financial strain. The emotional toll is heavy, and the financial implications can add to the burden. But understanding the available support, both emotional and financial, can make this journey a little easier. 

Financial Challenges and Tax Considerations

The financial burden of caring for a loved one with dementia is significant. From medical care to specialized facilities, the costs can quickly add up. Many families face unexpected expenses, and the need to navigate complex tax considerations only adds to the stress. Understanding the available tax credits and deductions can alleviate some of the financial pressures, but it requires careful planning and professional guidance.

Claiming Your Loved One as a Dependent

You’ll need to consult with your CPA to be certain, but if you provide more than half of the support for your family member, you may be able to claim them as a dependent. This includes deducting fees for medical expenses incurred in a nursing home or residential memory care facility, as long as the relative is your dependent. The rules around claiming a dependent are intricate, involving considerations of legal residency, income, dependence, living arrangements, and marital status. Understanding these rules and how they apply to your situation is crucial to maximizing your tax benefits.

Itemizing Medical Expenses and Utilizing Flexible Spending Accounts

Medical expenses can be a significant part of caring for a loved one with dementia. Many associated expenses may be deducted. Additionally, a flexible spending account (FSA) allows you to put aside pre-tax dollars for medical expenses. This can be used for things like eyeglasses, hearing aids, prescriptions, or other medical expenses. Properly itemizing these expenses and utilizing available accounts can provide substantial financial relief.

Tax Credits and Deductions for Caregivers

As a family caregiver, you may be eligible for various federal tax credits and deductions that apply directly or indirectly to caregiving costs. Understanding these credits and how to claim them requires careful attention to detail and often professional guidance.

Selling a House to Pay for Dementia Care

The decision to sell a family home to pay for dementia care is a significant and often emotionally charged one. It's a choice that many families face as they grapple with the rising costs of long-term care for a loved one with dementia. This article explores the process of selling a house to finance dementia care and the associated tax consequences, providing insights to help families navigate this complex financial landscape.

The Need to Sell: Financing Dementia Care

Dementia care is expensive, and for many families, the family home represents a substantial asset that can be leveraged to cover these costs. Selling the home can provide the necessary funds to ensure that a loved one receives the care and support they need. However, the decision to sell is fraught with emotional and financial complexities. It's not just about letting go of a physical structure; it's about parting with memories, history, and a sense of stability.

Practical Considerations

Selling a home to pay for dementia care requires careful planning and consideration of various factors. From understanding the home's value to managing the sale process, families must navigate a series of practical steps. This includes gathering important documents, such as recent mortgage statements and property assessments, to prove the right to sell the property. Engaging real estate professionals and planning ahead can ease the process, reducing stress during an already challenging time.

Understanding Capital Gains Tax

When selling a home, capital gains tax may apply, depending on the profit made from the sale. However, there may be exemptions for those whose annual income falls below certain thresholds. For example, a parent may be exempt from long-term capital gains tax if their annual income is below $40,400 (single) or $80,800 (married).

Utilizing Home Equity

A bridge loan allows tapping into home equity to pay for senior care before the sale closes. Equity is the difference between what the home is worth and how much is left on the mortgage. This can provide immediate funds to cover care expenses, offering a financial bridge during the transition.

Medicaid Considerations

Selling a home has major financial implications for older adults who need the money to pay for long-term senior care. Medicaid's look-back period can determine a period of ineligibility based on the average cost of nursing home care in the state. Understanding these rules and how they interact with the sale of a home is crucial for those considering Medicaid assistance.

The Role of Annuities

Immediate annuities can be a strategic financial tool when selling a home to pay for care. By investing some of the proceeds from the sale into an annuity contract, families may be able to receive regular income payments, providing a steady financial support system during a time of transition.

The Importance of Consulting a CPA

Tax law is complex, and the determination of how tax laws affect a taxpayer depends on each individual's situation. Consulting a competent tax professional is vital to ensure compliance with IRS rules and to fully understand all the deductions to which you are entitled. A CPA can provide personalized guidance tailored to your family's unique needs, helping you navigate the tax landscape and take advantage of all available deductions and credits. Their expertise can make a significant difference in your financial well-being.

Compassion and Financial Wisdom

The task of caring for a loved one with dementia is filled with emotional and financial complexities. Being aware of the general tax considerations and seeking professional guidance from a CPA can alleviate some of the financial burdens. Every situation is unique, and a tax professional can provide personalized advice tailored to your specific circumstances. By being tax-smart, you can focus more on providing the love and care your loved one needs during this challenging time. The path may be filled with challenges, but with the right support and understanding, it can also be a journey filled with love, growth, and fulfillment.

- by Kate Supino -

More than ever, taxpayers are engaging in hobbies that bring in extra income to the household. There’s no limit to the creativity of humans, and hobbies run the gamut from painting, ceramics, baking, photography, weaving, blogging, coin collecting and more. The IRS classifies hobby activities differently, particularly when it comes to tax liabilities. If you have hobby income, it’s crucial to understand the potential tax implications. The best idea is to consult with your CPA for advice about your hobby income. In the meantime, here’s what you should know. 

Is it Hobby Income or is it Business Income?

The differences between hobby income and business income lies at the heart of how the IRS views your earnings. According to IRS guidelines, a business exists to make a profit, while a hobby is done mainly for personal recreation or pleasure. However, in reality, the line between the two can easily blur, and the classification ultimately depends on several factors, such as the time and effort invested in the activity, the level of income generated, and the manner in which the activities are conducted.

In simpler terms, if you engage in a hobby mainly for the love of it, but you wouldn’t mind making a little bit of money from it, it's still considered a hobby. But if your goal is to consistently generate income, it would be seen as a business. Still, regardless of the classification, you must report all income earned from your hobby or business to the IRS. The difference is how it’s reported and whether related expenses are tax deductible.

The Taxation of Hobby Income

It's essential to understand that hobby income is taxable. Even if your hobby is not a business, the IRS still expects you to report the income you generate from it. Your CPA can take care of reporting the hobby income as such, when they do your annual tax return. But you have to tell your CPA about the income.  Remember, failure to report hobby income could potentially lead to penalties.

Hobby Expenses Aren’t Deductible 

Taxpayers cannot claim deductions for hobby expenses to offset hobby income. This means that while hobby income is fully taxable, the costs incurred to generate that income are not deductible. If you think that’s not ideal, you’re not wrong. Still, that’s the way it is for now. And it’s a compelling reason for taxpayers to consider converting their hobby into a business. In fact, your CPA has probably already suggested that you consider it.

Turning Your Hobby Into a Business: The Benefits and the IRS' Criteria

Converting your hobby into a business can open up new avenues for tax deductions. As a business, you're permitted to deduct "ordinary and necessary" expenses you incur to conduct the activity. Ordinary expenses are those that are common in your line of business, while necessary expenses are those that are helpful and appropriate.

However, making the leap from hobby to business isn't just about declaring it so. The IRS will consider several factors when determining whether your activity qualifies as a business or hobby, such as:

• The manner in which you conduct your activities, including keeping detailed records and operating in a business-like manner
• Your expertise and that of your partners, if any
• The time and effort you invest in the activity
• Whether you partially depend on the income for your livelihood
• The potential for profit and your history of profit or loss

Notably, to satisfy the IRS that your activity is a business and not a hobby, you must demonstrate that you have profited in at least three of the past five tax years, excluding the current year (or at least two of the last seven years for certain horse-related activities).

Keeping Detailed Records: A Key Practice

Whether you classify your hobby as a business or not, maintaining detailed records of income and expenses related to your activity is crucial. These records will not only help you during tax season but may also prove invaluable should the IRS ever question your reported income or deductions. If you have a CPA preparing your tax return and advising you on how to qualify your hobby as a business, you will have fewer concerns, though. 

Reporting Income: What Counts and What Doesn't

When it comes to reporting income from your hobby or business, it's essential to remember that all forms of payment, including cash, digital transactions, barter exchanges, goods, and services, should be reported as income. Even if you don't receive a 1099 form from the person or company that paid you, you're still legally obligated to report the income, as your CPA can tell you.

Enlisting the Help of a CPA: When and Why

If your hobby generates a substantial income or if you plan to transition from a hobby to a business, it might be prudent to consult a CPA. Tax laws are complex, and understanding how they apply to your situation can be a challenging task. A CPA can provide specific advice tailored to your circumstances, helping you make informed decisions and potentially saving you money in the process.

Enjoying Your Hobby While Navigating the Tax Landscape

Engaging in a hobby that produces income can be a rewarding experience, but it also introduces additional considerations when it comes to your taxes. The keys to successfully navigating this landscape include understanding the differences between a hobby and a business, keeping detailed records of income and expenses, reporting all income, and seeking advice from a tax professional when necessary.

By following these tips,  you can keep enjoying your favorite pastime while responsibly managing the associated tax obligations with the help of your CPA. And, if your hobby transitions into a business, you'll be well-prepared to meet the tax-related challenges that come with it. With careful planning and diligence, you can enjoy the fruits of your hobby without worry, knowing you're meeting your tax responsibilities fully and accurately.

Owning your own business has significant tax advantages. Ask anyone who has gone from being an employee to being their own boss and they’ll tell you the deductions alone make it all worthwhile. Still, many business owners are missing out on a fair number of deductions. This may be for a combination of reasons. Maybe they don’t use a CPA, they don’t completely understand how to track expenses, or something else. The IRS is happy to let you take as many legitimate business deductions as you qualify for. But you need to be aware so you keep track of those expenses.

1. Research

There are two ways that tax write-offs apply when it comes to business research. Your CPA can amortize the costs, or you could get a research tax credit. Because research is an activity that boosts the overall worth of the business, research and experimental costs are typically capital expenditures. Capital costs must be depreciated over a specific time frame.
Costs for research and experiments that aim to give information needed to operate or expand your business, or that would remove doubt regarding the creation or improvement of a product are fair game as far as taxes go.

You may qualify for a tax credit of up to 20% of the qualified costs incurred for these activities if your small business conducts research. Additionally, you might be eligible to use a portion of this research credit as a payroll tax credit against your company's share of Social Security Tax if your small business qualifies.

Typically, experiments utilizing science to enhance a product or procedure are considered research activities for the purposes of this tax credit.

2. Startup Costs

Startup costs of $5,000 or less can be deducted. Specifically, if your startup costs are $50,000 or less, you can deduct up to $5,000. If startup costs are over $50,000 but less than $55,00, you are legally allowed to deduct $5,000, less the difference between your total startup costs and $50,000. If you had money to help with startup costs, such as from an angel investor or from venture capital, the equation is more complicated. In this case, you should keep track of strap expenses, but let your CPA handle how much deduction you’re entitled to.

3. Bad Debt

Considering the current economy, it’s good to know that bad debt can be used as a business deduction. Many of the most famous companies in the world have a lot of bad debt, which serves to give them a tax break. To establish bad debt, there must be a bona fide relationship between the creditor and the debtor, such as a purchase order, contract or similar. The business owner needs to be able to show that there was an expectation of payment. For this reason, be sure to keep all records of transactions, not just the unpaid invoice.

4. Bank Fees

Does your business use a credit card processor or an online payment platform like Stripe or PayPal? If so, remember that the fees charged by agents like this are considered bank fees and are legitimate business deductions. Every time you transfer money from PayPal directly into your business bank account, PayPal charges a percentage; that’s a business deduction. That 35 cent transaction fee on credit card purchases from your customers is also a business deduction. These are small amounts, but they can add up over the course of a year. Your CPA may have ideas for keeping track of the tiny expenses to ensure you take credit for each and every one.

5. Business Memberships and Dues

Do you have a club membership that you use for yourself and your clients? Do you take your clients to lunch at your golf club? Do you give your employees a club membership as a perk? Keep your receipts because these all count as business tax deductions with the caveat that they are business-related.

6. Petty Cash Expenses

One of the most overlooked business tax deductions is expenses from the petty cash box. This box gets overlooked in so many offices. A good bookkeeper will replace money out with receipts in, so that at the end of the month the petty cash box balances out and all the proof is available for any legitimate business expenses. But if you’re wearing all the hats in your small business, this is an easy one to overlook.

7. Trade Subscriptions

Do you fill your front lobby with trade magazines? Do you get subscriptions to trade magazines at home so you can keep abreast of new developments in your field? Trade magazine subscriptions are business tax deductible, as long as they are related to your area of business. Online paid newsletters are also business tax deductible, as long as they qualify as business-related.

8. Home Office Expenses

If, like many people, you’ve transitioned to a work-from-home set up, you should know that many home office expenses are deductible, such as internet, office equipment, office furniture and more. There are very specific rules about what percentage of home office expenses you can deduct, and different ways to calculate the deduction, so be sure to consult with your CPA about your situation.

The key ingredient for making sure that you’re not missing out on any business deductions is to work closely with your CPA. Your CPA can review all your expenses and point out ones that are tax deductible so that you are both on the same page. It’s easy to simply sign your business tax return at the end of the year, but understanding where your business tax deductions could increase will yield more favorable tax positions.

If you've been busy rolling the dice at a crap table in Vegas, playing the lottery now and then, or betting on your favorite team to win a few games, you may have accumulated some gambling winnings. While this is certainly putting a smile on your face, realizing you may need to report your gambling income at tax time may turn your smile into a frown. Are you in or are you out? Here's what you need to know about reporting your gambling income.

All Gambling Winnings are Taxable

Whether you were the person who had the hot hand at the craps table or played it cool with your buddies at your weekly poker game and came away with a few hundred dollars to show for your efforts, the bad news is that all gambling winnings, no matter how big or small they may be, are technically considered by the IRS to be income that is taxable.

In fact, any and all winnings you have from gambling, whether it's in the U.S. or somewhere else around the world, are taxable. Thus, when you sit down to discuss this with your CPA, don't be surprised if they tell you that those winnings you got from playing the slot machines, being a contestant on a game show, or even playing bingo are subject to taxation.

What if You Only Won $1.00?

Yes, even if you only won $1.00 gambling, the IRS and your state tax folks will expect you to report it on your taxes. Assuming you decide to report your winnings, you will do so by reporting the gross amount you received. Depending on the amount you won, your winnings may be reported on a W2-G. However, even if you are not issued a W2-G, you're still expected to report that one measly dollar you managed to win.

Don't Underestimate the Taxes You May Owe

When many people, especially those who win big at the lottery or on game shows, receive their checks, there is usually 24% withheld for taxes. However, this may not be the full amount that must be paid. Since the federal tax rate is significantly higher than 24%, don't be surprised if the IRS has its hand out wanting more of your money.

If you think this could be the case, plan on consulting with your CPA. After you've cut the cards, blown on the dice, and said a prayer or two, your CPA may suggest you send the IRS an estimated tax payment once you get your check. Also, expect your state to want its fair share as well, so make sure your CPA explains this to you during your conversation.

Can I Get Any Gambling Deductions?

If there is a bit of a silver lining to this roulette wheel of gambling income and taxes, it is that there are some deductions you can take on your taxes along the way.

However, before you start jumping for joy thinking you can somehow use the money you lost gambling to cancel out your winnings come tax time, have yet another talk with your CPA. According to the IRS, you assume the risk of losing when you decide to gamble. Because of this, you are not allowed to deduct certain gambling-related expenses, such as hotel, food, transportation, and cover charges at betting establishments.

Should you think your luck has finally run out, don't push aside your poker chips just yet. According to the IRS, gamblers are allowed to deduct all losses on their tax return, but only up to your winnings. Considered to be a miscellaneous itemized deduction, this may make it easier on you come tax time. Unfortunately, your CPA will tell you that unless you meet the standard deduction amount, which is quite high, you probably won't qualify for this deduction.

What About Non-Cash Prizes?

Should you be a contestant on a game show and come away with a car, vacation, or other prize that is not cash, you may think you have found a way to bluff your way by the IRS and not have to pay out thousands of dollars in taxes for your winnings.

Unfortunately, Uncle Sam also has quite a poker face, and is already several steps ahead of you on this matter. According to the IRS, the fair market value of non-cash prizes, such as cars, trips, furniture, or other items is classified as gambling income, and thus is expected to be reported on your tax return.

Are You a Professional Gambler?

If you gamble not just now and then but rather consider it to be your chosen profession, you and your CPA will take a slightly different approach to your winnings.

If you are indeed a professional gambler, your winnings are considered to be regular earned income, meaning they are taxed at regular income tax rates. Specifically, your winnings would be reported as self-employed income, making them subject to not only federal and state income taxes, but also self-employment tax as well.

Should you claim to be a professional gambler, your CPA will strongly suggest you be telling the truth to the IRS. If you are caught in a lie, the casino bouncers you encounter will look like cupcakes compared to what the IRS may have in mind for you down the road.

Play it Safe, or Go All In?

Whether you decide to play it safe or go all in when it comes to reporting your gambling income, make sure you discuss all the details with your CPA. Rather than make a bad decision or an honest mistake on your return, take the advice of your CPA on reporting gambling income. By doing so, your lucky streak will continue.

You may have noticed a lot of talk lately about something called, “universal basic income.” The increase in online chatter about universal basic income, or UBI, is likely connected to the government handing out stimulus money during the pandemic. 

When that happened, a lot of people were hopeful that “free money” in the form of monthly checks from the government would become the norm. That’s when others started chiming in about the concept of UBI and advocating its benefits. Of course, the pandemic stimulus checks ended up being a short-term solution, and the government currently has no concrete plans to distribute more stimulus checks. But the notion of universal basic income has not dissipated from social awareness, so it’s worth understanding exactly what is UBI.

What is Universal Basic Income?

Universal basic income is defined as guaranteed income for every adult, provided by the government. In a standard UBI system, every adult would be automatically given a monetary amount of money on a recurring basis, typically every month. Presumably, the amount of money would be the same across the board. So a person earning $200 a week would get the same amount of UBI as a person earning $500 a week, and so on. Of course, variations in a UBI system are available. If a government wanted to try to equalize the payouts, they could create thresholds where a person who earns more at their job might receive less UBI than a person who earns minimum wage, for example. 

Where Did the Concept of UBI Originate?

The concept of UBI is not new. Sir Thomas More, English 16th century humanist and statesman, talked about the concept in his tome, “Utopia.” Thomas Paine put forth the idea of UBI for younger people in his work, “Agrarian Justice.” He recommended a tax program where government revenues would provide a stream of income for “every person, rich or poor.” Martin Luther King wrote a book called “Where Do We Go From Here,” in which he proposed guaranteed income for all. Little known to all, President Richard Nixon attempted to enact UBI, which would have guaranteed, for example, that a family of four would receive $1,600 a year in “free money.” Not much now, but that amount would equate to about $10,000 per year in today’s money. As you can see, the concept of UBI is not new or foreign. Several of our own leaders and early “influencers'' advocated for UBI, centuries before the rest of the world thought of it.

Does UBI Exist Anywhere Currently?

Interestingly, another little known fact is that the state of Alaska has been distributing money to its residents since 1982. Due to the money coming in from oil, mining and gas reserves revenues, plus the lack of available employment opportunities in Alaska, residents now receive a check every September from what’s called the Alaska Permanent Fund.

While there are small pockets around the globe that offer temporary monetary compensation to residents or would-be residents, there is no country that currently offers UBI on a permanent basis. Mongolia and the Islamic Republic of Iran are the only countries that temporarily tried UBI, but they no longer have that system in place. 

The Case For UBI

As mentioned, the inciting incident of the economic distress that families experienced as a result of the pandemic brought UBI to the forefront. COVID-19 left many people without jobs and without means to provide for themselves and/or their families. It’s estimated that over 20 million people lost jobs due to COVID. The pandemic is one case that has been raised in favor of implementing UBI. 

A far more insidious case has also been made for UBI, and that is AI. AI, or artificial intelligence, is growing faster than most people realize. Behind the scenes, companies are building out their AI programs. AI started as innocuous automation. Who could be against automation when it made complex jobs more simple or alleviated the need for humans to conduct mundane tasks? But what started as convenience has become a full-fledged  movement for humans to be replaced by AI. And it’s coming sooner than anyone might have expected.

According to multiple experts, 36 million people will lose their jobs to AI. By the year 2030, 375 million jobs worldwide are at risk of being lost. That’s only nine years away.

This is why many individuals and reputable organizations are raising their voices to advocate for UBI. With so many jobs lost to AI, it is reasoned that people will need supplemental income to replace lost earned income. It’s not speculation. At this point, it’s a fact that more and more people will find themselves replaced by AI in the workplace. 

Will UBI Be Taxed?

There is currently no plan in place to implement UBI. However, the government is studying it and there are many representatives in D.C. who are for this new path to economic stability. So any answer to the question of whether UBI will be taxed would be purely hypothetical. If UBI is ever implemented in the U.S., there are no doubt many tax details that would need to be ironed out. For instance, would the child tax credit still exist? And how would the standard deduction be affected? No one really knows the answer; only that any UBI plan would need to be carefully planned and managed, and there would be multiple impacts on taxes from many fronts.

Theoretically, UBI is neither good nor bad. It’s just another possible way to ensure that families are able to support themselves in the wake of certain events, such as the pandemic and the rapid advancement of AI. It’s likely that if UBI is rolled out, there will be problems, adjustments and solutions. Things would be likely to happen in stages. The best thing you can do is to be aware of the possibility and to stay in contact with your CPA so you can be prepared insofar as your tax planning is concerned.

As you know, most income you earn or receive over the course of a year is subject to being taxed. While in many situations the taxes are paid through withholding, other situations may require you to make estimated tax payments. Most often, this occurs when an insufficient amount of taxes are withheld from your salary, you receive other forms of income, or you own a business. When you don't pay your fair share of taxes, the IRS can subject you to penalties that may quickly accumulate. To make sure you know everything you need to know about estimated tax payments, read over the following information and always consult with a CPA should you have additional questions.

Who Must Pay Estimated Taxes?

As to who is expected to pay estimated taxes, this applies to individuals such as those who have sole proprietorships, partners, and shareholders in S Corporations. In these situations, estimated tax payments are usually made if the expected amount of taxes to be owed when filing a tax return exceeds $1,000.

When it comes to corporations, estimated tax payments need to be made when the amount of taxes owed is expected to be at least $500. Finally, estimated taxes may need to be paid for the current year if your prior year's taxes were more than zero, so keep this in mind as well.

Who Does Not Have to Pay Estimated Taxes?

While you may assume almost everyone has to make estimated tax payments, that is not the case. In fact, you can avoid these payments by simply asking your employer to withhold more of your income for taxes and by filing an updated W-4 form with your employer. If you file this form, pay attention to the line for the additional amount you want withheld, and make sure you enter the correct amount.

In other situations, you will not have to make estimated tax payments if you had no tax liability for the previous year, were a citizen or resident of the U.S. for the entire year, and your previous tax year did in fact cover an entire 12-month period. Since you don't want the IRS to accuse you of avoiding your tax payments, always consult with a CPA if the need arises.

Figuring Your Estimated Taxes

While it can be confusing in some aspects, figuring your estimated tax payments is actually easier than you may imagine. To do so, you'll need Form 1040-ES, which is used by all taxpayers except corporations, which use Form 1120-W. To accurately figure your estimated tax payments, you will be required to first figure your taxable income, adjusted gross income, deductions, taxes, and credits for the tax year. Along with the worksheet contained in Form 1040-ES, the process will be easier if you also use your federal tax return from last year and the income, credits, and deductions from that year as well. Even if these have changed, they will serve as an excellent starting point to give you the help you may need. But since it is likely tax laws may have changed and your own financial situation may also be different, don't rely solely on how you interpret certain IRS regulations. Instead, talk to a CPA to avoid making costly mistakes.

When Should Estimated Tax Payments be Made?

When paying estimated taxes, remember that the IRS divides the year into four payment periods. Once you are ready to make your payments, you can do so by mail, online, or even through your smartphone or other mobile device. In addition, the IRS will give you options to make your estimated tax payments even easier. So long as you make all of your tax payments within the given time period, you can send in payments each week, every other week, or even monthly, depending on what will work best for you and your financial situation.

Penalties for Underpaying Your Estimated Taxes

While the IRS does have penalties that can be imposed on taxpayers who underpay their estimated taxes, these penalties are generally not very severe, and in most cases can actually be avoided altogether. In most cases, taxpayers can avoid financial penalties if the amount owed after subtracting credits and withholdings is less than $1,000, or if the taxes paid for the current year are equal to at least 90% of what is owed.

In addition, penalties for underpaying estimated taxes may also be waived by the IRS if you can show you failed to make payments due to unusual circumstances such as a casualty or natural disaster, you retired upon reaching age 62, or you became disabled in the tax year for which estimated tax payments were to be made. To be sure you can avoid any penalties, always have detailed records that can back up any claims you make, since it is likely the IRS will want to verify your story before waiving the penalties.

Coronavirus Tax Relief

Due to the impact the COVID-19 pandemic has had on people throughout the United States, the IRS and Congress have passed legislation and put new regulations in place to help provide tax relief to those who may have lost jobs or businesses due to the pandemic. Specifically, the CARES Act has a provision in it that applies to self-employed individuals, allowing them to defer part of the Social Security tax. Thus, if you are self-employed, you may be eligible for such relief. To find out how this may help your situation, talk to a CPA as soon as possible.

Along with this information about various aspects of estimated tax payments, the IRS has other programs in place that may provide additional help in making sure you don't have to pay penalties. Yet if you try to sift through the various forms, worksheets, and other information on your own, you are almost certain to make mistakes along the way. To ensure you don't make costly mistakes that could result in penalties or you missing out on important relief opportunities, consult with a CPA today.

While most people are accustomed to being in debt for homes, cars, and other things, being in debt to the IRS is a different matter altogether. Since the federal government does not appreciate it when folks don't pay the amount of taxes they owe, the penalties for tax debt are often severe. Unfortunately, many people try to ignore their tax debt problems, hoping they will magically disappear. Instead, they only get worse. If you are in trouble with the IRS, here are some tips for how to deal with your tax debt.

Make It Your Top Priority

First of all, make your IRS tax debt your top financial priority. Since the agency is allowed to seize your business assets or even your home, it is often suggested that paying off tax debt is a higher priority than paying a mortgage. Thus, rather than find yourself dealing with property liens and wage garnishments for years, get serious about dealing with tax debt and resolve this issue as fast as possible.

Loans and Lines of Credit

If you happen to be a business owner who owes back taxes to the IRS, taking out a bank loan or using a line of credit can sometimes be your ticket to paying off your tax debts. While the interest you wind up paying will probably not be deductible, it should be much less than the interest rates charged by the IRS. In most instances, the IRS charges penalties on unpaid taxes that accrue at .5% per month, or six percent annually. This, coupled with an additional three percent charged on your balance calculated at the federal short-term interest rate, means you will have at least a nine percent interest rate staring you in the face until your taxes are paid.

Retirement Account Loans

Along with traditional bank loans or lines of credit, you can also take out loans from your pension plan or retirement accounts like a 401(k) to pay your tax debt. Though you will lose some investment returns and be subject to paying interest when replacing the money, the difference will be much less than it might be if you continue to carry the IRS debt. However, don't be like many people who panic and simply withdraw money from their retirement accounts without thinking. If you do so and thus make it a taxable distribution, you'll have even more money that needs to be paid back. Consult with your CPA about withdrawal strategies that won’t set you back too much.

Installment Payment Plans

If you have no viable means of immediately paying off your entire tax debt balance, don't give up. Instead, you can work with the IRS to set up an installment payment plan to solve your problem. If you select this option, you can have as much as 72 months to pay back your debt. Also, if the debt you owe is under $10,000, you won't even have to disclose any financial information, since you can set up your plan on the irs.gov website. However, if you owe more than $10,000, the IRS requires you to submit detailed information about your monthly income and expenses. It’s always best to consult with a CPA prior to making any installment payment agreement with the IRS.

An "Offer in Compromise”

Should you feel your financial situation is as dire as it could ever get, you do have the option of making what is known as an "offer in compromise" to the IRS. In other words, you are making a plea to the IRS to reduce the amount of money you owe the agency. While this initially sounds like you can wave a magic wand and suddenly owe thousands of dollars less to the IRS, don't count on it. In the view of the IRS, your financial circumstances would have to be extremely dire for the agency to agree to this option. If you have suffered a catastrophic medical event or lost a job, you may succeed with this. However, if your income is still quite high, don't expect the IRS to cut your tax bill.

If It Sounds Too Good to be True…

While watching television, you have likely seen commercials for companies claiming they can settle your IRS tax debt for pennies on the dollar. Of course, they make it sound oh so easy, and likely have you thinking that their solution is the answer to your prayers. However, as you know, if it sounds too good to be true, it usually is, so be very wary of dealing with these companies. Instead, speak to an experienced and trusted CPA to get experienced advice you know is reliable and truthful.

Is Your Debt Collectible?

While the IRS of course wants the money it says you owe them, it also does not want to waste lots of time, energy, and money trying to collect a debt that may in fact not be very collectible. Ultimately, any decisions made by the IRS as to how to proceed in collecting your tax debt will come down to the current amount of your disposable income, how much equity and assets you own that can be used to pay off the debt, and other related factors. During the COVID-19 pandemic, the IRS has been much more lenient when trying to collect taxpayer debt, but that is not expected to last forever. Therefore, if you have unresolved tax debt, striking while the iron is hot may give you an edge you won't have a few months from now.

If you try to go it alone when dealing with IRS tax debt, you are virtually certain to make an already tough situation much worse. To get your questions answered and embark on a viable plan to solve your problem, consult soon with a CPA whose advice and guidance you can trust.