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Cash Flow vs. Profit: The Hidden Reason Healthy Businesses Struggle

Thu, 12 Feb 2026 06:00:00 GMT

When a “Good Year” Still Feels Tight

You finally have a year where sales are up and the books show a profit—yet your bank account feels like it missed the memo. You’re working harder than ever, but cash seems to disappear the moment it hits your account.

If that sounds familiar, you’re not doing anything wrong—you’re just bumping into one of the most common challenges in business: confusing profit with cash flow.

Profit tells you how your business looks on paper. Cash flow shows how your business feels in real life.

And while both matter, only one pays the bills.

The Real-World Disconnect

Here’s where the confusion usually starts:

You invoice a client for $20,000 in December. On your profit and loss statement, that sale boosts your year-end numbers. But if the client doesn’t pay until February, that profit doesn’t do much to help you cover January’s rent, payroll, or taxes.

Or imagine a landscaping company that buys $15,000 of equipment in spring to prepare for summer jobs. On paper, the expense is spread out over time—but in reality, that cash leaves your account today.

The result? You’re profitable on paper but short on cash in practice.

Why This Happens to So Many Business Owners

Cash flow issues aren’t a sign of failure—they’re often a natural part of growth. When your business scales, so do your expenses, payment cycles, and timing gaps between money in and money out.

The biggest triggers include:

Delayed payments: Clients pay on their schedule, not yours. 
Seasonal swings: Slow months still have fixed costs. 
Inventory or supply purchases: You pay upfront, earn later. 
Tax surprises: Profit may be taxable long before the cash arrives.

Without planning for those timing gaps, even healthy businesses can feel like they’re running on empty.

Turning Chaos Into Control

This is where working with a trusted financial professional can make all the difference. They can help you:

Forecast cash flow so you see slowdowns before they happen. 
Smooth out seasonality by building cash reserves during strong months. 
Review expenses strategically to make sure growth doesn’t outpace available cash.

Even simple steps—like syncing invoicing and bill-paying schedules or setting aside a percentage of each payment for future expenses—can dramatically reduce stress and improve stability.

Bottom Line

Profit is your scoreboard. Cash flow is your oxygen. You need both to survive—and thrive.

If your business feels profitable on paper but tight in the bank, you’re not alone. Contact our firm today for guidance on building a cash flow plan that keeps your business strong through every season.

Pro's and Con's of Organizing as a Partnership

Wed, 11 Feb 2026 23:15:57 GMT

Considering bringing on a partner? While there are certainly benefits you want to make sure you consider all aspects of such a relationship and look to the long term.

Here are five of the best reasons (Pro’s) to organize a business as a partnership, explained in practical, plainEnglish terms:

THE PRO’S

1. Shared Capital and Resources

A partnership allows multiple owners to pool money, assets, and resources, making it easier to start or grow a business than going alone.
Partners can contribute cash, equipment, property, or intellectual property
Reduces the financial burden and risk on any one individual
Often improves credibility with lenders and suppliers

2. Complementary Skills and Expertise

Partners can bring different strengths and experience to the business.
One partner may excel at operations, another at sales or finance
Better decisionmaking through multiple perspectives
Division of labor increases efficiency and focus
This is especially valuable in professional services, startups, and small businesses.

3. Simple and Flexible Structure

Partnerships are generally easy to form and operate compared to corporations.
Fewer formalities and lower startup costs
Minimal ongoing compliance requirements
Partnership agreements can be customized to fit the owners’ needs
Assets can be moved in and out of the partnership with little or no tax implications.
This flexibility allows partners to define roles, profit sharing, and management however they choose.

4. Pass Through Taxation

Most partnerships benefit from passthrough taxation, meaning:
The partnership itself does not pay federal income tax
Profits and losses pass directly on to the partners’ personal tax returns
Avoids the “double taxation” faced by many corporations
This can simplify tax reporting and, in some cases, reduce the overall tax burden.

5. Shared Risk and Responsibility

Running a business involves uncertainty, and partnerships help spread risk.
Financial losses are shared according to the partnership agreement
Emotional and operational pressure is divided among partners
Partners can support each other during difficult periods
For many entrepreneurs, not having to shoulder everything alone is a major advantage.

THE CON’S

Here are five of the strongest reasons not (Con’s) to organize a business as a partnership, especially when compared with an LLC or corporation:

1. Unlimited Personal Liability

In a general partnership, each partner is personally liable for the business’s debts and obligations.
Personal assets (home, savings, investments) can be seized to satisfy business debts
Each partner can be held liable for the actions of other partners
One partner’s mistake or lawsuit can financially harm everyone
Organizing as a Limited Liability Company (LLC) partnership would limit or may eliminate this personal liability.
This is often cited as the single biggest drawback of partnerships.

2. Joint and Several Liability for Partner Actions

Each partner acts as an agent of the partnership.
One partner can legally bind the business without the others’ consent
Poor decisions, negligence, or misconduct by one partner affect all partners
Disputes with vendors or customers can expose every partner to risk
Even highly trusted partners can unintentionally create legal exposure.

3. Potential for Conflict and Management Disputes

Partnerships often fail due to internal disagreements, not business performance.
Differences in work ethic, vision, or priorities can cause tension
Decisionmaking authority may be unclear or contested
Resolving disputes can be costly and disruptive
Without a strong partnership agreement, disagreements can quickly escalate.

4. Limited Continuity and Stability

Most partnerships lack perpetual existence.
The partnership may automatically dissolve if a partner leaves, retires, becomes disabled, or dies
Ownership transfers are often restricted or complicated
Investors and lenders may view partnerships as less stable
This can make longterm planning and growth more difficult.

5. Harder to Raise Capital and Attract Investors

Partnerships are often less attractive to outside investors.
No easily transferable ownership interests like corporate stock
Investors may avoid exposure to partnership liability
Growth options are more limited compared to LLCs or corporations
As a result, partnerships can struggle to scale beyond a certain size.

The Agreement

A key factor in any successful partnership is its operating/partnership agreement. A good agreement will lay out specific information, purpose, requirements, expectations, responsibilities, how much capital is to be raised and by whom, allocations of profits, losses and distributions, duties and obligations of the partners to the partnership and each other, possible compensation, how new partners are let in and how partners are allowed to withdrawal. You must also consider possible issues that may happen and have a contingency plan to address such things as; how partnership interests are handled, dissolution of the partnership, dispute amongst partners resolution and other items must be addressed in the agreement should a problem arise.

Such an agreement can be a very complex document due to all the things that should be addressed so consulting an attorney knowledgeable in partnership law is crucial. Each state has its own requirements thus the attorney needs to make sure the agreement will comply. Also, the IRS itself has things which it wants to see in the agreement. Before any operating/partnership agreement is signed, it should be reviewed by an attorney, each of the partners and a tax professional to see that it is in compliance with all rules and regulations and the partners, themselves, agreed to be bound by it.

Before you make the final decision on whether a partnership structure is right for you and your business associates, sit down with a tax professional and an attorney to discuss each of these good and bad reasons.

Looking for a financial partnership that thrives on building strong relationships with their clients? Call Steven Brewer today at 812-883-6938 to schedule an appointment. Accountability and results in growing your business.

Pay As You Go

Thu, 05 Feb 2026 01:53:50 GMT

Workers Comp Insurance: How Pay-As-You-Go Helps Small Businesses

As a small business owner, keeping your cash flow steady is essential. One area that can complicate that balance is workers comp insurance, especially when you’re required to estimate annual payroll and pay a large upfront premium. Those estimates are rarely perfect, which can lead to unexpected audit bills or paying more than necessary.

There’s a simpler option. Pay-as-you-go (PAYG) workers comp insurance allows you to pay premiums based on your actual payroll each pay period. No large deposits, no guesswork, and far fewer surprises. It’s a practical solution for business owners who want predictable costs and accurate coverage. If you’re looking for a way to reduce upfront expenses and avoid audit headaches, PAYG may be the adjustment your payroll needs.

What Is Pay-As-You-Go Workers Comp Insurance?

Traditional insurance workers compensation policies rely on projected payroll figures. Those estimates rarely stay accurate for an entire year, especially when your staffing levels change. As a result, many small businesses end up facing unexpected audit adjustments or paying more than the coverage required.

Pay-as-you-go workers compensation coverage provides a more precise alternative. Premiums adjust automatically with each payroll cycle, allowing you to pay based on actual wages rather than estimates. This approach helps maintain predictable expenses and reduces the risk of audit surprises.

The PAYG option does not change the essential protections of workers comp insurance, such as:

Medical and wage benefits for job-related injuries

Rehabilitation and recovery support

Employer liability protection

For many owners looking for the best workers comp insurance for small business, PAYG stands out because it aligns premium payments with real payroll activity. It’s a straightforward way to keep coverage accurate while supporting steady cash flow. If you’re unsure whether this approach fits your company, discussing your payroll trends and audit history with us can help you determine the right path forward.

Why Use PAYG? The Top Advantages for Small Businesses.

Pay-as-you-go offers a more practical way to manage workers comp obligations without the financial strain that comes with traditional policies. Instead of paying a large deposit and hoping your estimates hold, PAYG updates with each payroll run, giving you better control throughout the year.

Real-Time Alignment With Your Workforce

Your premium adjusts automatically as your team grows or contracts. This helps employers who experience seasonal shifts or project-based hiring stay properly covered without constantly revising their policy.

More Predictable Budgeting

Because payments occur alongside payroll, business owners can plan expenses more accurately and avoid the large upfront costs common with annual policies.

Streamlined Administration

Our PAYG options integrate directly with your payroll, reducing manual reporting and lowering the likelihood of administrative errors, an advantage for any small business managing multiple back-office tasks.

Smoother Audit Experience

With payroll data reported automatically, audits tend to be more straightforward. This reduces the chance of unexpected adjustments and keeps compliance efforts on track.

A Practical Fit for Growing Businesses

For owners searching for the best workers comp insurance for small business, PAYG provides flexibility and accuracy in a single model. It keeps coverage responsive to real operations, not outdated estimates.

Switch To Pay-As-You-Go Workers Comp Insurance

Switching to a pay-as-you-go workers comp insurance is a simple process that fits easily into your existing payroll routine.

Get a quote from our partner Gild Insurance Agency and secure a workers comp insurance policy.

Your policy is automatically connected to our payroll system.

Each time you run payroll, our system calculates your premium and withdraws it from your designated bank account.

Already have a workers comp insurance policy?

Gild Insurance can simply transfer your existing coverage for you!

Expert Support From Steven Brewer & Company And Gild Insurance

Choosing the right approach to business insurance and compliance requires both financial clarity and a trusted insurance partner. That’s why Steven Brewer & Company and Gild Insurance work together to provide small businesses with clear guidance and straightforward solutions. Whether you’re reviewing payroll processes, assessing insurance needs, or working to streamline administrative tasks, this combined expertise helps you make informed decisions with confidence.

Gild works with more than 40 insurance providers, making it easy for small businesses to compare business insurance options, without handling the process themselves. Their quoting process is simple and accessible, whether completed online or through a personal consultation.

After coverage options are identified, Steven Brewer & Company helps clients understand how those choices affect billing, audits, and cash flow. This added clarity allows business owners to make informed decisions with confidence. Both teams provide direct, human support, creating a practical and reliable path to securing the coverage that fits your business.

Consider Pay-As-You-Go Workers Comp Insurance

Pay-as-you-go workers comp insurance gives you a more accurate and predictable way to manage coverage alongside your payroll. If you want to see how this approach affects cash flow, reporting, or year-end planning, we can review the details with you and help you evaluate the fit.

From there, Gild Insurance can assist with a free business insurance review to help you understand your business insurance options. Whether you need a new policy or want to transfer an existing one, their team can compare providers, identify potential gaps, and outline how PAYG may work within your current operations.

Together, Steven Brewer & Company and Gild Insurance provide the guidance you need to make a confident decision for your business.

Frequently Asked Questions

Q. What is prepaid workers’ comp?

A. Prepaid workers’ comp is another term for pay-as-you-go coverage. It lets you pay premiums as you run payroll, rather than making a large upfront deposit.

Q. Can you pay workers’ comp monthly?

Yes. With pay-as-you-go options, you pay workers comp insurance premiums as you run payroll, which often means monthly or per-pay-period billing based on actual wages.

For more information, contact Steven Brewer at https://www.stevenbrewercpa.com/ or call 812-883-6938.

Schedule your consultation here: https://rkhbs.share.hsforms.com/2ZCvbFgfLQgyabEvLPNpG4Q

Get a Quick Quote here: https://www.yourgild.com/flow?partnercode=stevenbrewercpa

Inflation Into Opportunity: How Smart Businesses Turn Rising Costs Into Margin Gains

Sat, 24 Jan 2026 12:00:03 GMT

Inflation isn’t gone—it’s just quieter. Around 3% feels tame compared to the chaos of the past few years, but that doesn’t mean it’s harmless. For most business owners, small shifts in pricing, payroll, and supply costs have become the new normal—slow, steady pressure that eats into margins one percentage point at a time.

But here’s the thing: inflation doesn’t just erode profit. It also creates permission.

Permission to reprice.

Permission to renegotiate.

Permission to rethink how your business makes money.

And as we head into year-end—when every business is reviewing budgets, forecasts, and compensation plans—now’s the perfect time to turn inflation from a problem into a strategic opportunity.

The Inflation Mindset Shift: From Defense to Offense

Most owners treat inflation like a storm to wait out. They hunker down, cut costs, and hope the economy stabilizes. But smart firms? They play offense.

Inflation gives you the perfect narrative to reset pricing, refine operations, and re-anchor value with your clients or customers.

Think about it: when everything costs more—from raw materials to insurance—people expect prices to adjust. That makes this moment the cleanest window you’ll get to implement changes that were overdue anyway.

Step 1: Reprice With Confidence, Not Apology

The biggest mistake small businesses make is treating price increases like confessions. “Sorry, but our costs went up.”

Instead, reframe it as value alignment:

“We’ve upgraded our processes, improved delivery, and invested in technology to serve you better.”

Even if your costs are rising, your value probably has too.

If your last price review was more than 18 months ago, you’re already behind. Inflation gives you cover to fix that.

Step 2: Audit Margins and Cash Flow Before You Budget

Before you finalize 2026 budgets, run a true margin audit.

Which services or products are still profitable at today’s costs? 
Which are borderline or underwater? 
Which clients consistently underpay for the value delivered?

Then connect that data to your cash flow forecast.

A business that plans around real margins—versus assumptions—has control.

If you haven’t reviewed vendor contracts lately, this is also your chance to lock in rates before potential tariff shifts or supply cost changes next year.

Step 3: Forecast Smarter, Not Just Harder

Forecasting isn’t about predicting inflation—it’s about being ready for it.

Smart firms use 3-scenario forecasting:

Best case: Inflation drops further, demand grows. 
Base case: 3% inflation continues, steady but modest growth. 
Stretch case: Tariffs increase, costs rise, and cash flow tightens.

By modeling each, you build agility—not anxiety—into your business plan.

Step 4: Align Compensation and Value Creation

Inflation doesn’t just affect costs—it affects expectations. Employees feel it too. As you plan 2026 compensation, think about rewarding value creation instead of just cost-of-living bumps.

For example:

Introduce profit-sharing to align team success with performance. 
Offer flexible benefits like health stipends or hybrid schedules—high perceived value, lower cost. 
Communicate transparently about financial goals. Most teams handle reality better than silence.

Step 5: Protect Profitability Before It’s a Problem

When inflation was at 8%, you could blame it for shrinking profits. At 3%, it’s just math.

That means you can’t afford to ignore the incremental hits—subscription creep, silent vendor increases, underpriced legacy clients.

The businesses that thrive in 2026 will be the ones that use this “quiet inflation” window to:

Trim inefficiencies before they compound. 
Rebuild reserves. 
Reinvest in tools that save time or improve margins (think automation, AI, or better client systems).

The Big Idea: Inflation as a Reset Button

You can’t control the economy—but you can control how your business responds to it.

Inflation isn’t a crisis anymore. It’s your chance to reset the rules—on pricing, partnerships, and profitability.

When you treat inflation as an opportunity, not a threat, you stop playing defense and start leading from strength.

Ready to Plan Your 2026 Strategy?

Now’s the time to review pricing, forecasting, and compensation plans before the new year begins. If you want to make 2026 your margin expansion year—not another squeeze—contact our firm. We’ll help you analyze your numbers, refine your strategy, and move into the new year with confidence and control.

Why Cash Flow Planning Get Harder as You Grow

Thu, 08 Jan 2026 09:30:00 GMT

Growth Feels Great—Until It Doesn’t

At first, running your business feels simple: money comes in, bills go out, and if there’s something left over, you’re doing fine.

Then growth happens. 

More clients. Bigger projects. Higher payroll. Maybe even a second location.

Suddenly, cash doesn’t flow the way it used to. You’re booking record sales, but your bank balance looks… thin. You’re working harder than ever, yet the pressure to make next week’s payments feels heavier.

Welcome to the paradox of growth: the bigger your business gets, the tighter cash flow can feel.

Why Growing Businesses Feel Cash-Poor

It’s not bad management—it’s math. As revenue grows, so do:

Accounts receivable: Clients take longer to pay larger invoices. 
Inventory or project costs: You spend cash weeks (or months) before you earn it back. 
Payroll: Growth usually means more people—and payroll hits like clockwork, even when customer payments don’t. 
Taxes: Higher profits mean higher estimated payments that pull cash out of your account quarterly.

Growth stretches the timing gap between money going out and money coming in. Without a system to monitor and forecast it, you’re flying blind.

The Shift: From Bookkeeping to Cash Flow Strategy

Most small businesses start with simple bookkeeping: track what you earned, record what you spent, file the taxes. But once you grow, you need something more— cash flow management that looks ahead, not just backward.

That’s where financial professionals make all the difference.  They can help you:

Forecast inflows and outflows weeks or months in advance. 
Spot cash gaps early—and plan around them. 
Build reserves for seasonality or growth spurts. 
Model “what-if” scenarios (new hires, equipment purchases, expansions) before you commit.

In other words, they help you turn growth from a guessing game into a system.

Real-World Example: The Busy-but-Broke Dilemma

One of our clients doubled revenue in a year—then almost ran out of cash. Why? Every big new contract required more up-front costs and staff before payments arrived.

Once we mapped cash flow month by month, they saw the problem clearly. With a few tweaks—changing invoice terms, adjusting payroll timing, and setting up a short-term credit line—they moved from panic to predictability.

The revenue didn’t change. The system did.

Bottom Line

Growth brings opportunity—but it also brings complexity. What used to fit on a spreadsheet now needs structure, foresight, and strategy.

If your business is growing fast but cash feels tight, it’s time to move beyond basic bookkeeping. Contact our firm today to build a cash flow plan that grows as smart as you do.

Are You Ready to Make the Move?

Fri, 12 Dec 2025 18:54:14 GMT

Are you ready to make the move? Are you looking for someone to help you grow your business? A CPA firm who cares about not only your business but you as a person? A firm which can bring insight into your business? One that looks out for your best interests while keeping you compliant with all the IRS, state and other financial regulations?

If so, we are looking for you! Steven Brewer & Company, CPAs, is brick and mortar office with a strong virtual presence. We are looking for the right clients to join us. Currently we work with over 35 companies in 20 states. We know how to work virtually with our clients. We work to help you understand your business; help you plan for the future and use your business assets in planning for the best results in building your future.

If you are looking for all of this, give us call (812-883-6938) or drop us an email (admin@stevenbrewercpa.com) to schedule a meeting to discuss your financial needs. In the meantime, check out our website, stevenbrewercpa.com, to find out more about us.

Last-Minute Year-End Tax Tactics: Maximize Your Business Savings Now!

Wed, 10 Dec 2025 14:00:02 GMT

As the year draws to a close, small business owners find themselves in a crucial period for financial organization and tax strategy optimization. With the potential to significantly reduce your 2025 tax bill, implementing effective tax strategies now becomes imperative. By maximizing savings, managing cash flow, and ensuring compliance with tax deadlines, you can position your business more robustly for the upcoming year. Taking decisive action before December 31 is essential. To assist you in this critical period, here’s a year-end tax planning checklist to help small businesses take control and uncover valuable tax-saving opportunities.

Buy Equipment and Other Fixed Assets: One of the most effective ways to generate tax deductions is to buy equipment, machinery and other fixed assets needed for the business and place them in service by Dec. 31. Ordinarily these assets are capitalized and depreciated over several years, but there are a few options for deducting some or all these expenses immediately, including:

- Section 179 Expensing - This break allows you to deduct up to $2.5 million ($1.25 million if filing married separate) in expenses for qualifying tangible property and certain computer software placed in service in 2025. It’s phased out on a dollar-for-dollar basis to the extent Sec. 179 expenditures exceed $4 million.
Section 179 expensing allows businesses to immediately deduct the cost of certain qualifying property, rather than depreciating it over time. This includes tangible personal property purchased for use in an active trade or business, such as machinery, equipment, and off-the-shelf software. Certain improvements to nonresidential real property, like roofs, HVAC systems, and fire protection systems, also qualify. However, buildings and structural components generally do not qualify unless they fall under the category of "qualified real property," which includes specific leasehold, restaurant, and retail improvements. The property must be used more than 50% for business purposes and placed in service during the tax year the deduction is claimed.
- Bonus Depreciation - Bonus depreciation saw a significant enhancement due to legislative changes made by the OBBBA, which increased the depreciation rate to a full 100% for qualifying property purchased after January 19, 2025. Previously set at 40% for 2025, this change, which OBBBA made permanent, enables businesses to immediately deduct the entirety of the cost of qualifying property in the year it is placed in service, providing a powerful tax-saving tool.

Qualified property for bonus depreciation includes tangible personal property with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less, most computer software, certain leasehold improvements, and specific transport utility property. This depreciation benefit applies to both new and used assets acquired and placed in service after the designated date, offering businesses increased flexibility in managing their capital expenditures.

- De Minimis Safe Harbor - The de minimis safe harbor rule offers an opportunity to directly expense certain low-value items used in your business, bypassing the usual process of capitalizing and depreciating them as fixed assets. If your business maintains applicable financial statements, you can write off expenses of up to $5,000 per item or invoice for these purchases, assuming they're also expensed for accounting purposes. Without such financial statements, the cap is lowered to $2,500. Despite its "de minimis" label, this provision allows for substantial immediate deductions. For instance, purchasing ten computers at $2,500 each could enable you to claim an upfront deduction of $25,000.

Year-end Inventory Management: Year-end inventory plays a significant role in determining a business's profit or loss as it directly affects the Cost of Goods Sold (COGS), which is a critical component of calculating gross profit.

Cost of goods sold (COGS) is calculated as the beginning inventory plus purchases during the year minus the ending inventory. Thus, the value of the ending inventory directly reduces the COGS. A higher ending inventory results in a lower COGS, which increases gross profit and taxable income. Conversely, a lower ending inventory results in a higher COGS, reducing gross profit and taxable income. Here are some year-end strategies:

Identifying and writing down obsolete or slow-moving inventory at year-end can lead to reductions in taxable income, as the inventory's reduced value is recognized as a loss.
Delaying inventory purchases until after year-end, businesses can manage their COGS and effectively reduce taxable income, thereby optimizing their financial results for the current year.

Contributing to a Retirement Plan: Retirement plan contributions not only offer significant tax advantages but also facilitate future savings for both business owners and employees. For self-employed individuals, contributing to a retirement plan such as a Simplified Employee Pension (SEP) IRA can be highly beneficial. Business owners can contribute up to 25% of their net self-employment earnings, with a maximum contribution of $70,000 for 2025. The advantage of a SEP IRA is its flexible contribution deadline, which extends until the tax return filing date, offering additional planning time.

For sole proprietors, freelancers, and independent contractors, a Solo 401(k) presents an excellent opportunity due to its dual-role contribution system, where you are considered both employer and employee, allowing for substantial contribution limits. This makes it an ideal choice for maximizing retirement savings. Additionally, employers can enhance employee satisfaction and retention by offering year-end bonuses and retirement plan contributions, which are often deductible. This dual benefit of tax savings and employee incentive strengthens both the company's financial position and workforce stability.

Maximize the Qualified Business Income (QBI) Deduction: As the year-end approaches, business owners should take strategic steps to maximize the Qualified Business Income (QBI) deduction (also known as the Sec 199A deduction), a vital tax benefit allowing up to a 20% deduction on qualified business income. To optimize this deduction, first review your income levels to ensure they fall below the $197,300 for single filers or $394,600 for joint filers threshold (2025 amounts) to avoid phase-outs. Adjusting a “working shareholder’s” W-2 wages appropriately, aligning with industry standards while considering IRS scrutiny, is essential for businesses structured as S corporations. Making capital investments can enhance deductions through Section 179 expensing or bonus depreciation, effectively lowering business income.

Review Accounts Receivable for Bad Debts: As year-end approaches, business owners should evaluate their accounts receivable to consider writing off bad debts, which can provide valuable tax deductions. A bad debt is an uncollectible amount owed to your business, often arising from unpaid customer invoices or unreturned loans, and is categorized as either business or nonbusiness. To qualify for a business bad debt deduction, the debt must have been previously included in your business's income, and it should be related to regular business operations.

For accrual method taxpayers, these debts are deductible in the year they become worthless. Documenting diligent collection efforts and the debt's worthlessness is crucial for IRS compliance. Effective management of bad debts not only cleans up financial records but also optimizes taxable income, ultimately enhancing your business’s financial health. Consult with a tax advisor to ensure you take full advantage of this deduction as part of your year-end tax strategy.

Pre-Pay Expenses : As the year-end approaches, business owners can strategically manage their cash flow by prepaying expenses to reduce taxable income and, consequently, tax liability. By accelerating deductible business expenses such as insurance premiums, office supplies, or marketing costs before December 31st, you can effectively lower this year’s taxable income. This is especially beneficial for businesses using the cash accounting method, where expenses are deducted in the year they're paid. Prepaying up to 12 months of expenses, allowed under the IRS’s safe harbor rule, can be an effective way to pull deductions into the current tax year, provided income can be appropriately deferred without jeopardizing cash flow needs.

Deferring Income: Deferring income to the following year can keep a business under certain tax thresholds, thus optimizing tax outcomes. For cash basis taxpayers, delaying client billing until after the new year means that income is counted when received. However, careful consideration is required to ensure that deferring income won't adversely affect business operations or relationships. Balancing these strategies allows business owners to manage their taxable income actively, ensuring smoother cash flow and potentially significant tax savings.

First Year in Business? If so, you can elect to deduct up to $5,000 of start-up and $5,000 of organizational expenses in the first year of a business. Each of these $5,000 amounts is reduced by the amount by which the total start-up expense or organizational expense exceeds $50,000. Expenses not deductible in the first year of the business must be amortized over 15 years.

Avoid Underpayment Penalties: If you are going to owe taxes for 2025, you can take steps before year-end to avoid or minimize the underpayment penalty. The penalty is applied quarterly, so making a fourth quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid ratably throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters. Here are some possible solutions:

- If you have a qualified retirement plan, a temporary solution to address the under- withholding is to take an unqualified distribution from a qualified retirement plan, utilizing this as a temporary solution to address withholding shortfalls. Upon taking the distribution, 20% is automatically withheld for federal income taxes, providing an opportunity to catch up on required tax payments and avoid underpayment penalties. Meanwhile, you can mitigate tax implications by rolling over the full amount of the distribution, including the withheld portion, back into the plan within the 60-day window. This maneuver requires the use of other funds to cover the withheld amount during the rollover but allows for maintaining the tax-deferred status of the retirement savings and ensures compliance with rollover rules. This approach offers a unique yet viable method to align tax payments without incurring additional tax liabilities on the distribution.

- If you are married and your spouse is employed, the spouse can increase withholding for the end of the year. Even withhold as much as the entire paycheck with the help of a cooperative employer.

- If you have other sources of income subject to withholding, have the withholding increased appropriately.

It may be beneficial for you to consult with this office to estimate your underpayment and whether an underpayment penalty exception might apply.

Are You a Working Shareholder in an S Corporation? If so, you may not be aware of the IRS’s “reasonable compensation” requirements, which can influence your Section 199A (qualified business income) deduction and your payroll taxes. Reviewing the requirements as they apply to your circumstances may avoid future problems with the IRS.

Planning on Paying Your Employees a Bonus? Consider paying your employees their bonuses before year-end, rather than after the start of the new year. That way you benefit from the tax deduction a year sooner.

Reassess Your Business Entity: The end of the year is a smart time to evaluate whether your current business structure is still the best fit for your operations. Each structure has unique tax and liability implications. Options include sole proprietorships, partnerships, limited liability company, S Corporation and C Corporation.

Conclusion : While year-end strategies primarily aim to manage and reduce income tax liabilities, it's important to remember their wider financial benefits. Implementing these strategies can also diminish the burdens of self-employment tax and business payroll taxes. By shifting income, optimizing deductions such as the Qualified Business Income (QBI) deduction, and making strategic investments or prepayments, businesses can decrease taxable income to more favorable levels, thus lowering associated tax obligations across the board. Such comprehensive tax planning not only enhances cash flow but also strengthens the financial position of the business, paving the way for a more robust and tax-efficient new year. As you finalize your year-end financial strategies, consider consulting with this office to ensure you maximize these opportunities across all tax dimensions.

Workers' Compensation Insurance for Small Businesses

Sat, 29 Nov 2025 17:58:05 GMT

By Steven Brewer

As a small business owner, you’re balancing daily operations, team management, and future growth. One crucial task that often gets pushed aside is securing workers compensation insurance. Far more than a legal requirement, workers comp insurance protects your employees if they’re injured on the job, and it shields your business from financially devastating claims.

What is Workers Compensation Insurance?

Workers compensation insurance, often called workers comp insurance, is a policy that provides benefits to employees who experience work-related injuries, illnesses, or fatalities. It covers medical care, partial lost wages, rehabilitation, disability benefits, and, in severe cases, death benefits for dependents. It also includes employer’s liability protection if an employee sues over unsafe conditions.

This insurance operates as a no-fault system, meaning employees receive support regardless of who caused the injury, and employers are protected from costly lawsuits. With millions of workplace injuries reported each year, this coverage plays a critical role in keeping small businesses both compliant and protected.

Why Small Businesses Need Workers Compensation Insurance

It’s Legally Required!

Most states require workers comp insurance as soon as you hire even one employee. Failing to carry coverage can lead to steep fines, stop-work orders, and personal liability for workplace injuries. A few states, like Texas, allow employers to opt out, but doing so exposes the business to significant risk.

It Protects Your Business Financially

Without workers compensation insurance, your business could be responsible for covering medical expenses, lost wages, legal fees, and settlements. Even one claim can create a financial burden for a small business.

It Supports Employee Safety and Trust

Providing insurance workers compensation shows employees that their well-being matters, helping improve morale, reduce turnover, and build a healthier workplace culture.

It Helps Maintain Business Continuity

Many workers comp policies offer safety consultations, claims support, and resources that help lower risk and prevent future injuries, keeping operations running smoothly.

What Does Workers Comp Insurance Cover?

A standard workers compensation insurance policy typically includes:

Medical Costs: Hospital visits, surgeries, diagnostic tests, prescriptions, and physical therapy
Wage Replacement: Partial income while recovering
Disability Benefits: Payments for temporary or permanent impairment
Rehabilitation: Physical and vocational rehabilitation services
Death Benefits: Funeral expenses and support for dependents
Employer’s Liability: Coverage for legal defense and damages if an employee sues

Coverage applies to injuries that occur within the scope of employment, including slips, equipment accidents, repetitive strain injuries, and some job-related illnesses. Most policies exclude accidents that happen during commuting or outside work duties unless business travel is involved.

How Much Does Workers Compensation Insurance Cost?

The cost of workers compensation insurance is based mainly on your payroll and the type of work your employees do. Because it’s calculated as a rate per $100 of payroll, your premium increases or decreases as your payroll changes.

A Practical Approach to Managing Workers Comp Costs

Because workers' comp insurance is calculated directly from your payroll, many small businesses choose a pay-as-you-go option to keep costs predictable. Instead of estimating your annual payroll upfront, and risking overpaying, you pay your premium in small, accurate amounts each time you run payroll.

This approach is especially helpful for businesses with changing staff levels, seasonal work, or fluctuating hours. Your premium automatically adjusts with your real payroll, so you’re never paying for more coverage than you actually need. It’s easy to set up and provides immediate peace of mind, and you can always access additional support through our payroll services.

Ready To Find the Right Options for Your Business?

Start by scheduling a free business insurance consultation . It’s a simple way to review your current workers comp policy, understand what you’re paying for, and compare options through our partnership with Gild Insurance . This helps ensure your protection fits your payroll and your day-to-day risks, without adding extra stress to your plate. For support in other areas of your business, you can explore the full list of helpful resources and guidance on our Business Services page .

Frequently Asked Questions

Q: Is workers compensation insurance required for my small business?

A: Yes. Workers compensation insurance is required in most states, even if you only have one employee. It is likely workers compensation may be required.

Q: Who is exempt from workers’ compensation insurance requirements?

A: Owners and sole proprietors are often exempt from workers compensation requirements because they don’t classify as employees under most state laws.

Q: Does workers’ comp insurance cover remote employees?

A: Yes. Workers comp insurance typically covers remote employees as long as the injury happens while performing job-related duties, such as repetitive strain or home office ergonomic issues.

Citations:

Bureau of Labor Statistics, Injuries, Illnesses, and Fatalities Program, https://www.bls.gov/iif/

Workers’ Compensation Laws As Of January 1, 2025, https://www.wcrinet.org/reports/workers-compensation-laws-as-of-january-1-2025

Year-End Individual Tax Planning Opportunities

Tue, 25 Nov 2025 05:00:03 GMT

Year-end is rapidly approaching, as are the holidays. So, before you become distracted with the seasonal celebrations, it may be in your best interest to consider year-end tax moves that can benefit you for your 2025 tax filing. Here are last-minute tax issues you might consider:

Not Needing to File a 2025 Return? - If your income and tax situation is such that you do not need to file for 2025, don’t overlook the opportunity to bring in some additional income, to the extent it will be tax-free. For instance, if you have appreciated stock that you can sell without incurring any tax, consider selling it, or perhaps take a tax-free IRA distribution if you are 59½ or older or if younger and qualify for an exception to the “early withdrawal” penalty.

Also, just because you are not required to file a tax return does not mean you shouldn’t. By not filing you may miss out on some substantial refundable tax credits.

Is Your Income Unusually Low This Year? If your income is unusually low this year, you may wish to consider converting some or all your traditional IRA into a Roth IRA. The lower income likely results in a lower tax rate, which provides you an opportunity to convert to a Roth IRA at a lower tax amount. Also, if you have stocks in your retirement account that have had a significant decline in value, it may be a good time to convert to a Roth.

Are Your Children Attending College? If you qualify for either the American Opportunity or Lifetime Learning education credits, check to see how much you will have paid in qualified tuition and related expenses during 2025. If it is not the maximum allowed for computing the credits, you can prepay 2026 tuition if it is for an academic period beginning in the first three months of 2026. That will allow you to increase the credit for 2025. This is especially effective for students just starting college who only have tuition expenses for part of the year.

Did You Sell Your Home This Year? If so, and if you meet the ownership and occupancy tests, the gain from selling your main home will not be taxed, up to $250,000 ($500,000 if you file a joint return with your spouse who also meets the occupancy test). But if you don’t meet the requirements of both owning and using your home for 2 years in the 5 years counting back from the sale date, you may still qualify for a partial home sale gain exclusion. For example, you may qualify for a reduced exclusion if you sold your home to relocate this year because of a change in employment or due to health. We can determine the amounts of excluded income and taxable gain, and project how your taxes will be impacted.

Do You Have an Employer Health Flexible Spending Account? If so, and if you contributed too little to cover expenses this year, you may wish to increase the amount you set aside for next year. The maximum contribution for 2025 is $3,300. The amount you haven’t used in 2025 that may be carried to 2026 is $660 and must be used in the first 2½ months of 2026.

Did You Become Eligible to Make Health Savings Account (HSA) Contributions This Year? If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions for the entire year. This opportunity applies even if you first become eligible in December. In brief, if you qualify for an HSA, contributions to the account are deductible (within IRS-prescribed limits), earnings on the account are tax-deferred, and distributions are tax-free if made for qualifying medical expenses.

Have You Funded Your Retirement Savings? Be sure to maximize your retirement plan contributions before year-end. Once the year is gone, you have forever lost an opportunity to make this year’s annual tax-advantaged addition to your savings for future retirement, which won’t be all that pleasant without a substantial retirement nest egg. If your employer matches some of the amount you contribute to your 401(k) or another eligible retirement plan, be sure to contribute as much as you can to take full advantage of this perk. If the contributions are tax-deductible, such as to a traditional IRA, or made with pre-tax income, maximizing the contributions may also cut your tax bill.

Married and Spouse Does Not Work? If one spouse works and the other does not, tax law allows the non-working spouse to base his or her contribution to an IRA on the working spouse’s income. This tax benefit is frequently overlooked when spouses have been working and basing their individual contributions on their own income for years and then one of the spouses retires. Even if the working spouse has a retirement plan at work and his or her income precludes making an IRA contribution, the non-working retired spouse can still contribute based on the working spouse’s income.

Are You Age 60 to 64 This Year? Starting in 2025, individuals are eligible for increased retirement plan catch-up contribution limits, set at 150% of the standard catch-up limit, which translates to $11,250 for employer plans and $5,250 for SIMPLE plans. These catch-up contributions are designed to boost retirement savings during the final working years and are subject to cost-of-living adjustments to ensure they remain beneficial relative to inflation. This provision specifically targets SIMPLE, 401(k), 403(b), and other qualified employer plans, offering a strategic advantage to older employees seeking to maximize their retirement savings in a relatively short timeframe before retirement. These enhanced amounts do not apply to IRAs.

Are You Expecting a Bonus This Year? If a job-related bonus is expected to be paid around the end of the year, you might be able to defer that income into next year if that is appropriate in your situation, such as when you expect less ‘other’ income next year. See if your employer is willing to put off payment until just after the first of the year.

Do You Need to Take a Required Minimum Distribution (RMD)? Once U.S. taxpayers reach the age of 73, they are required to take what is known as a “required minimum distribution” from their qualified retirement plan or traditional IRA every year. If this is the first year that this rule applies to you and you haven’t withdrawn the required amount yet, there’s no need to panic – you don’t have to do so until sometime during the first quarter of next year. Of course, if you wait until 2026 to take your 2025 distribution, you’re going to end up having to take two distributions in one year – one for 2025 and one for 2026.

If you have been required to take an RMD before 2025, you only have until December 31st to take the required distribution for 2025 if you want to avoid penalties.

For those who inherited a retirement account and are required to distribute the entire account within 10 years, be aware RMD from those accounts is also required beginning for 2025.

Do You Have Stocks That Have Declined in Value? While most stocks have trended up this year, you should still review your stock portfolio to identify any losers and consider selling those under-water stocks to offset capital gains that would otherwise be subject to the 15% or 20% long-term capital gains tax rate. Capital losses can also offset up to $3,000 ($1,500 in the case of a married taxpayer filing a separate return) of ordinary income if capital losses exceed capital gains by at least that amount. Recognizing capital losses to offset capital gains can also reduce the amount of income subject to the net investment income surtax. Be aware of the wash sale rules that don’t allow you to deduct a loss if you repurchase those loser stocks within 30 days before or after the sale date.

Do You Have Stocks That Have Appreciated in Value and Your Income Is Low This Year? There is a zero long-term capital gains rate for taxpayers whose taxable income is below the 15% capital gains tax threshold. This may allow you to sell some appreciated securities that aren’t in an IRA or retirement account that you have owned for more than a year and pay no or very little tax on the gain. The 2025 15% capital gains tax bracket starts at a taxable income of $96,701 for married joint filers, $64,751 for those filing as head of household, and $48,351 for all other filers.

Have You Considered Prepaying State Income and Property Taxes? The One Big Beautiful Bill Act (OBBBA) increased the deduction limit for state and local taxes (SALT) starting in 2025. If you are not subject to the alternative minimum tax and you itemize your deductions, you are eligible to deduct both your property taxes and state income (or sales) tax up to a maximum of $40,000 for 2025, up from $10,000 in 2024. Did you know that in some cases, and of course if you haven’t exceeded the cap, you can increase the amount that you deduct on your 2025 return by prepaying some of the taxes by December 31, 2025? You can ask your employer to boost the amount of your state withholding by a reasonable amount; or, if you are self-employed, pay your 4th-quarter state estimated tax installment in December (otherwise due in January) and increase your deduction. The same is true for your real estate taxes: if you pay your first 2026 installment in 2025, you can take it as part of your 2025 deduction.

Are You Planning Your Charitable Deductions? Many people who itemize take advantage of the ability to take a deduction for their donations to their favorite charities or house of worship. Did you know that you can choose to pay all or part of your 2026 planned giving in 2025 to increase the amount you deduct in 2025? Though this may not be appealing to those who itemize every year, if you alternate between taking the standard deduction one year and itemizing the next, this can give you a big boost.

If you itemize deductions, there is another reason you might consider increasing your 2025 contributions in lieu of making the donations in 2026. Starting in 2026, there is a 0.5% floor on charitable deductions for individuals who itemize, meaning the amount of charitable contributions for the year is reduced by 0.5% of the taxpayer’s adjusted gross income. This is like the way the medical deduction works, where medical expenses are reduced by 7.5% of AGI.

Charitable contributions are deductible in the year in which you make them. If you charge a donation to a credit card before the end of the year, it will count for 2025. This is true even if you don’t pay the credit card bill until 2026. In addition, a check will count for 2025 if you mail it in 2025. For last-minute mailings, it may be appropriate to obtain proof of mailing from the USPS. And don’t forget to get an acknowledgment letter or document from each qualified organization that clearly states the donated amount and whether the charity gave you goods or services (other than certain token items and membership benefits) because of the contribution.

Did You Know You Can Make Charitable Deductions from Your IRA Account? Those who are age 70½ or older are allowed to transfer funds (up to $108,000 for 2025) from their IRA to qualified charities without the transferred funds being taxable, provided the transfer is made directly by the IRA trustee to a qualified charitable organization. If you are required to make an IRA distribution (i.e., you are age 73 or older), you may have the distribution sent directly to a qualified charity, and this amount will count toward your RMD for the year.

Although you won’t get a tax deduction for the transferred amount, this qualified charitable distribution (QCD) will be excluded from your income, with the result that you may get the added benefit of cutting the amount of your Social Security benefits that are taxed. Also, since your adjusted gross income will be lower, tax credits and certain deductions that you claim with phase-outs or limitations based on AGI could also be favorably impacted.

If you plan to make a QCD, be sure to let your IRA trustee or custodian know well in advance of December 31 so that they have time to complete the transfer to the charity. If you have contributed to your traditional IRA since turning 70½, the amount of the QCD that isn’t taxable may be limited, so it is a good idea to check with this office to see how your tax would be impacted. You should be sure to obtain an acknowledgement from the charity as described in the “Are You Planning Your Charitable Deductions?” above.

One cautionary note: if you have made traditional IRA contributions after reaching age 70½, they will reduce this benefit.

Have Outstanding Medical or Dental Bills? Taxpayers who itemize their deductions can deduct qualified medical and dental expenses that exceed 7.5% of their adjusted gross income. If you have reached that threshold or are close, then it may make sense for you to pay off any of those types of bills that are still outstanding rather than paying them over time. If you are near or above the limit, it may also make sense to look at what your medical and dental expenses will likely be for the next year and move those that you can into 2025 to increase the deduction. These expenses could include dental work or eyeglasses. An additional important issue: if you are thinking of doing this by using a credit card to make the payment, and you’re not going to pay the card balance immediately, make sure that you’re not paying more in interest than you’re saving with the increased tax deduction.

Have You Forgotten the Annual Gift Tax Exclusion? Though gifts to individuals are not tax deductible, each year, you are allowed to make gifts to individuals up to an annual maximum amount without incurring any gift tax or gift tax return filing requirement. For the tax year 2025, you can give $19,000 (up from $18,000 in 2024) each to as many people as you want without having to pay a gift tax. If this is something that you want to do, make sure that you do so by the end of the year, as you are not able to carry the $19,000, or any unused part of it, over into 2026. Such gifts need not be in cash, and the recipient need not be a relative. If you are married, you and your spouse can each give the same person up to $19,000 (for a total of $38,000) and still avoid having to file a gift tax return or pay any gift tax. Speaking of spouses, there’s no limit on the excluded amount a spouse can gift to their wife or husband.

Do You Think You May Have Under-Withheld Taxes This Year? Should your liability be greater than your prepayments by $1,000 or more, you may also be subject to underpayment penalties. This could simply be the result of under-withholding on your wages or underpaying estimated tax if you are self-employed, or of out-of-the-ordinary income, such as stock gains, sale of a business or rental or even winning big from the lottery. There are safe harbor prepayments to avoid a penalty, which require prepaying:

90% of the current year’s tax liability,
100% of the prior year’s tax liability, or
110% of the prior year’s tax liability, if the prior year’s AGI was over $150,000.

If you think there’s a chance that the income taxes you’ve paid to date for 2025 are insufficient, it’s a good idea to increase your withholding in the time that’s left before year-end to make up for it. Underpaying taxes makes you vulnerable to an underpayment penalty that is assessed quarterly. The good news is that even if you have underpaid for any or all the first three quarters of the year and will owe taxes when you file your 2025 return, you can catch up by boosting your year-end withholding, since federal withholding is deemed paid ratably throughout the year. Plus, increased withholding and possible payment of estimated taxes can also reduce the fourth quarter underpayment penalty.

Did You Suffer a Disaster Loss This Year? 2025 has had some significant disasters, including wildfires, severe storms, and flooding throughout the U.S. Any unreimbursed property losses incurred because of a federally declared disaster can be claimed on the current year’s tax return or, at the election of the taxpayer, on the prior year’s return (2024 for 2025 disasters), generally providing quicker access to a tax refund. However, care must be exercised to ensure a disaster loss is claimed on the return of the year that will provide the greater benefit. In addition, after insurance reimbursement is accounted for, the result may not be as expected and should be determined before making the decision of which year to claim a loss.

Did You Get Scammed This Year? Generally, casualty losses are only allowed when related to a declared disaster. However, there is an exception for thefts or scam losses if the loss is related to a transaction entered for profit such as investments and retirement funds.

Divorced or Separated This Year? A divorce or separation can have a significant impact on a couple’s tax filings. Filing joint or separate returns, who claims the children, the tax rules related to whether to take the standard deduction or itemize, how income and tax prepayments are allocated, and more issues need to be considered. Best to figure that all out in advance.

Energy & Environmental Tax Credits? OBBBA terminated the electric vehicle credit for purchases after September 30, 2025. Although the time is short, the credit for energy efficient home modifications and the home solar credit are still available through the end of 2025.

Credit For Energy Efficient Home Modifications – This tax credit for making energy saving improvements to taxpayers’ existing homes has been around in various forms since 2006. The most recent credit rate is 30% with an annual cap of $1,200. That allows individuals to annually make up to $4,000 of creditable home energy improvements and benefit from the credit. There are annual limits for certain types of improvements; for example, there is a $600 annual credit limit for residential energy property expenditures, windows, and skylights, and $250 for exterior doors ($500 total for all exterior doors). In addition to the $1,200 annual cap, up to $150 of the cost for an energy audit performed by a certified home energy auditor on your primary residence is allowed.

This credit is non-refundable (meaning it can only offset the current tax liability) and there is no carryover.

Solar Credit – There is a 30% nonrefundable federal tax credit for installing solar on your first and second homes (need not own the home). Unused credit can be carried forward to the subsequent year. Expenses of battery storage technology with a capacity of not less than 3 kilowatt hours count toward the credit. Battery and systems upgrades will qualify for credit even after the initial installation.

But keep in mind, to qualify for these two credits, the installations must be complete and paid for by December 31, 2025.

Have questions related to any of the above? Give this office a call.

Holiday Gifts That Offer Tax Benefits for You and Your Loved Ones

Sat, 15 Nov 2025 02:22:29 GMT

Article Highlights:

Educational Gifts:

A Gift for the Present
A Gift for the Future

Retirement Contributions: A Gift with Long-Term Benefits
Gifts to Spouses: Supporting Self-Employment
Employee Gifts: Navigating Tax Implications
Working Children Gift
Understanding the Annual Gift Tax Exclusion
Summary

The holiday season is a time of giving, and while the joy of gifting is often its own reward, there are ways to make your generosity even more impactful through strategic tax planning. By understanding the tax implications of certain gifts, you can maximize the benefits for both the giver and the recipient. This article explores various holiday gifts that come with tax advantages, including educational gifts, gifts to spouses, employee gifts, and contributions to retirement accounts.

Educational Gifts:

- A Gift for the Present - One of the most meaningful gifts a grandparent can give is the gift of education. Paying a grandchild's college tuition directly to the institution not only supports their educational journey but also provides significant tax benefits. According to IRS rules, such payments are exempt from gift tax and do not count against the annual gift tax exclusion. This means grandparents can pay tuition directly without worrying about gift tax implications.
Moreover, this act of generosity can also benefit the child's parents. If the grandchild is claimed as a dependent, the parents may be eligible for education tax credits, such as the American Opportunity Tax Credit (AOTC). This credit can reduce the amount of tax owed by up to $2,500 per eligible student, providing a financial boost to the family. Thus, paying tuition can be seen as a dual gift: one to the grandchild in the form of education and another to the parents in the form of a tax credit.

- A Gift for the Future - Donating to a Section 529 plan can be a thoughtful and practical holiday gift that combines the spirit of giving with valuable tax benefits. A 529 plan is a tax-advantaged savings account designed to encourage saving for future education expenses. Contributions to a 529 plan grow tax-deferred, and qualified withdrawals are tax-free when used for eligible education expenses, such as tuition, room and board, and other related costs. One of the most attractive aspects of gifting to a 529 plan is that contributions are considered completed gifts for tax purposes, which means they qualify for the annual gift tax exclusion. For the 2025 tax year, individuals can gift up to $19,000 per recipient ($38,000 for a married couple) without triggering gift taxes or reducing their lifetime gift and estate tax exemption.

Additionally, the 529 plan offers a unique five-year election option that allows individuals to supercharge their gift by front-loading contributions. This option permits contributors to treat a contribution as if it were spread over five years for gift tax purposes, up to five times the annual exclusion amount. For instance, a single contributor could donate up to $95,000 in one year ($190,000 for a married couple) without incurring gift tax consequences, provided no additional gifts are made to the same beneficiary during the five-year period. This feature enables grandparents or other family members to make significant contributions to a child's education fund while effectively reducing their taxable estate, making it an excellent strategy for both holiday giving and long-term financial planning.

Retirement Contributions: A Gift with Long-Term Benefits

Providing the funds for someone to contribute to their retirement account, such as a traditional IRA, can be a gift that provides long-term benefits. For the gift recipient, contributions they make to a traditional IRA may be tax-deductible, reducing their taxable income for the year. This deduction can be particularly beneficial for individuals in higher tax brackets who aren’t covered by an employer’s retirement plan.

The annual contribution limit for IRAs is subject to change, so it's important to check the current limits. For 2025, the limit is $7,000, or $8,000 for those aged 50 and over. By helping a loved one contribute to their traditional IRA, you are not only helping them save for retirement but also potentially providing them with immediate tax savings.

Gifts to Spouses: Supporting Self-Employment

Gifting items to a spouse that are used in their self-employment can be both a thoughtful gesture and a savvy tax move. For instance, if your spouse is self-employed and you gift them a new laptop or office equipment, these items can be deducted as business expenses on their tax return. This deduction reduces the taxable income from their business, potentially lowering their overall tax liability.

It's important to ensure that the gifted items are indeed used for business purposes and that proper documentation is maintained. Receipts and records of business use should be kept substantiating the deduction in case of an audit. This strategy not only supports your spouse's business endeavors but also provides a financial benefit through tax savings.

Working Children Gift:

Contributing to a Roth IRA on behalf of working children or grandchildren can be a profoundly impactful holiday gift that is rich with future potential. Young earners often overlook retirement planning, preferring to spend their hard-earned money on immediate needs or desires rather than contributing to retirement accounts. By stepping in to make a Roth IRA contribution, you are not only teaching the importance of early saving but also providing a gift that grows with them. Contributions to a Roth IRA are made with after-tax dollars, allowing for tax-free growth and tax-free withdrawals in retirement, provided certain conditions are met. Even modest contributions, when given the advantage of time, can accumulate significantly thanks to the power of compound interest. For example, a $1,000 contribution made today for a young worker can potentially grow to tens of thousands of dollars by retirement age, depending on the rate of return. This simple gesture not only helps secure their financial future but also imparts a valuable lesson in financial planning, making it a cherished and enduring holiday gift.

Employee Gifts: Navigating Tax Implications

Many employers choose to show appreciation to their employees during the holiday season through gifts. However, it's crucial to understand the tax implications associated with different types of gifts.

De Minimis Fringe Benefits: These are gifts of minimal value, such as holiday turkeys or small gift baskets, which are not subject to taxation for the employee. The employer can deduct the cost of these gifts as a business expense.
Cash and Cash Equivalents: Gifts of cash, gift cards, or any item that can be easily converted to cash are considered taxable income for the employee. These must be reported as wages and are subject to payroll taxes. Employers should issue these gifts through payroll to ensure proper tax withholding.
Non-Cash Gifts: Items that are not easily convertible to cash, such as a company-branded jacket, may not be taxable if they fall under the de minimis threshold. However, more valuable items may need to be reported as income.

Employers should carefully consider the type of gifts they give to employees to ensure compliance with tax regulations while still expressing gratitude.

Understanding the Annual Gift Tax Exclusion

The annual gift tax exclusion is a key consideration when planning holiday gifts. For 2025, the exclusion amount is $19,000 per recipient. This means you can give up to $19,000 to any number of individuals without incurring gift tax or needing to file a gift tax return. Married couples can combine their exclusions to give up to $38,000 per recipient.

Gifts that exceed the annual exclusion may require the filing of Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. These excess amounts also count against the lifetime gift and estate tax exemption, which is $13.99 million for 2025.

By staying within the annual exclusion limits, you can make generous gifts without affecting your lifetime exemption or incurring additional tax obligations.

Summary

The holiday season offers a unique opportunity to give gifts that not only bring joy but also provide financial benefits through tax savings. Whether it's paying a grandchild's tuition, supporting a spouse's business, gifting employees, or contributing to a retirement account, understanding the tax implications can enhance the impact of your generosity.

By strategically planning your holiday gifts, you can maximize the benefits for both you and the recipients, ensuring that your gifts continue to give long after the holiday season has passed. Always consult with a tax professional to ensure compliance with current tax laws and to tailor your gifting strategy to your specific financial situation.

If you have questions, give this office a call.

October Extended Due Date Just Around the Corner

Sat, 18 Oct 2025 16:09:24 GMT

If you could not complete your 2024 tax return by April 15, 2025, and are now on extension, that extension expires on October 15, 2025. Failure to file before the extension period runs out can subject you to late-filing penalties.

There are no additional extensions (except in designated disaster areas), so if you still do not or will not have all the information needed to complete your return by the extended due date, please call this office so that we can explore your options for meeting your October 15 filing deadline.

If you are waiting for a K-1 from a partnership, S-corporation, or fiduciary (trust) return, the extended deadline for those returns is September 15 (September 30 for fiduciary returns). So, you should probably make inquiries if you have not yet received that information.

Late-filed individual federal returns are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. If you are required to file a state return and do not do so, the state will also charge a late-file penalty. The filing extension deadline for individual returns is also October 15 for most states.

In addition, interest continues to accrue on any balance due, currently at the rate of just over .5% per month.

If this office is waiting for some missing information to complete your return, we will need that information at least a week before the October 15 due date. Please call this office immediately if you anticipate complications related to providing the needed information, so that a course of action may be determined to avoid the potential penalties.

Additional October 15, 2025, Deadlines – In addition to being the final deadline to timely file 2024 individual returns on extension, October 15 is also the deadline for the following actions:

- FBAR Filings - Taxpayers with foreign financial accounts, the aggregate value of which exceeded $10,000 at any time during 2024, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The original due date for the 2024 report was April 15, 2025, but individuals have been granted an automatic extension to file until October 15, 2025.

SEP-IRAs – October 15, 2025, is the deadline for a self-employed individual to set up and contribute to a SEP-IRA for 2024. The deadline for contributions to traditional and Roth IRAs for 2024 was April 15, 2025.

Special Note – Disaster Victims – If you reside in a Presidentially declared disaster area, the IRS provides additional time to file various returns, make payments and contribute to IRAs. Check this website for disaster-related filing and paying postponements.

Please call this office for extended due dates of other types of filings and payments and for extended filing dates in disaster areas. Please don’t procrastinate until the last week before the due date to file your extended returns. Final note: if for whatever reason you miss the October 15 deadline, you should still file your return as soon thereafter as possible.

If you need a professional to assist you with your taxes or need tax information, get started with Steve Brewer CPA & Company.

No More Checks for IRS!

Tue, 16 Sep 2025 10:30:00 GMT

After September 30, 2025, the IRS will NOT accept checks, money orders, cashier checks, etc. for payment of

taxes, penalties, fines and interest. You will only be able to pay by ACH or with credit card. This does not

affect the third quarter estimated individual tax payments which are due on September 15, 2025. It will affect

every business and individual who will be making any form of payment thereafter.

The fourth quarter estimate payment is due on January 15, 2025. You will not be able to pay this by check. It

must be in some form of an electronic payment. You could go ahead now and make your fourth quarter

estimate payment by September 15 along with the third quarter payment. You will need to designate the

payment as fourth quarter and enclose any payment voucher you have.

The estimate vouchers we give you do have instructions on how to pay online for both federal and state.

What does this mean if you owe on your tax return?

1. You will have to arrange payment using the instructions that are included on your payment voucher.

2. If you have set up an individual account with the IRS, you may make the payment via that account.

3. Finally, we can arrange through our tax software to have the amount due deducted from your bank

account. We must do this at the time of filing the return. Once the return is filed, we cannot refile it.

We are going to offer another option. An individual estimated tax payment service. In this service we will

arrange payment of your estimated payment each time one comes due. We will contact you about 2 weeks prior

to the due date to confirm your information. We will then arrange for the estimate payment for both the federal

and state. We will be offering this service for each quarter. For most of you it will be arranging payment of the

estimates which we give you when you pick up your tax return.

If you are one of our clients who we calculate up-to-date payments, you may add on this service.

The cost of this service is $200 per year. If you are uncomfortable working with a computer, do not have time

each quarter or just want to get it done, then this service is for you.

If you are interested, please call Christina at the office to arrange a call to discuss this.

Maximize Your Tax Savings: The Importance of Keeping Home Improvement Records Before Selling Your Home

Mon, 28 Jul 2025 15:00:04 GMT

Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain when they sell their home will never exceed the amount of the tax code’s exclusion for home gains explained as follows.

Under the current version of the tax code, you are allowed to exclude from your income up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 years (24 months) of the 5 years before the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property.

As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000.

If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion.

But what if your home sale gain is more than the home sale exclusion? Then it is in your best interests to have kept home improvement records, since the costs of improvements can be added to your purchase price of the home to be used in determining the gain. So keeping the receipts for the improvements, even if only in a folder or a shoe box, may be useful in the future when you sell your home.

Here are some situations when having home improvement records could save taxes:

The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount.

The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property.

The home is converted to a second residence, and the exclusion might not apply to the sale.

You suffer a casualty loss and retain the home after making repairs.

The home is sold before meeting the 2-year use and ownership requirements.

The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements.

One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples.

There are future tax law changes that could affect the exclusion amounts.

Everyone hates to keep records but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain more than the exclusion amount.

Home improvements include just about anything that will increase the value of the home, from big ticket items like remodeling a kitchen, adding another room or a swimming pool, and landscaping to smaller items like ceiling fans. But there are some home improvements that cannot be included in the cost of home improvements, or may be only partly included. Examples are items which qualify for tax credits such as home solar, home energy efficient improvements or those that qualify for a tax deduction such as handicap improvements. In addition, the costs of general maintenance or repairs, such as fixing leaks, painting (interior or exterior), and replacing broken hardware do not count as improvements.

If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call.

Expiring Tax Credits

Thu, 24 Jul 2025 17:46:30 GMT

With the signing of the One Big Beautiful Bill Act (OBBBA) many of the environmental credits that were in place and set to expire sometime in the future have now been moved up in their expiration dates. Below is a list of the credits set to expire and when they are to expire.

Expiring after September 30, 2025

• Previously Owned Clean Vehicle Credit

• Clean Vehicle Credit

• Qualified Commercial Clean Vehicle Credit

• Alternative Fuel Vehicle Refueling Property Credit

To claim credit before the expiration date, you must purchase/install and have title to the property.

Expiring after December 31, 2025

• Energy Efficient Home Improvement Credit

• Solar Energy Credit

• New Home Energy Efficient Home Credit

To claim credit before the expiration date, the property must be installed, be functional and if necessary, approved by local agencies before the expiration date. If you have any questions about any of these credits, please contact your tax advisor or call us to discuss.

Summer Hiring? Here’s How to Handle Seasonal Workers, Interns, and Payroll Compliance Without the Headache

Mon, 14 Jul 2025 15:30:00 GMT

Hiring for the summer? That’s exciting—until the IRS gets involved.

While onboarding interns or part-time help sounds simple enough, summer hiring is one of the most common ways small business owners get tripped up on payroll, compliance, and classification.

And yes, even a single misstep—like putting a W-2 employee on a 1099 “just for the summer”—can cost you big.

Let’s Clear This Up: Not Everyone’s a Contractor

You’re not alone if you’ve ever said:

“We’re just paying them a flat rate—it’s easier that way.” “They’re only here for 10 weeks.” “They’re a student; it’s not really a job-job.”

Here’s the hard truth: If you control when, where, and how someone works—you’re probably supposed to issue a W-2.

The IRS doesn’t care if it’s part-time, seasonal, freelance, or “just a favor.” If they look like an employee, they are one—and they want to see payroll taxes, not contractor payments.

Need the official word? See IRS guidelines on worker classification

Interns? Yes, They Usually Count Too.

Many businesses think unpaid internships are a gray area. But unless it’s tied to a formal educational program with no expectation of compensation, the Department of Labor may classify your intern as an employee.

That means:

Minimum wage laws apply
You may owe payroll taxes
Workers’ comp coverage could be required

Rule of thumb: If they’re contributing to your business, they probably need to be on payroll.

Don’t Miss Out on This: The Work Opportunity Tax Credit (WOTC)

Here’s some good news:

If you’re hiring people from certain target groups—like veterans, long-term unemployed, or summer youth employees—you might qualify for the WOTC, which can reduce your federal income tax liability by up to $2,400 per qualifying hire.

But:

You have to apply before hiring
The paperwork needs to be filed with your state agency
Most businesses never realize they’re eligible

More info? Explore the WOTC program here

Other Things to Nail Down (Before Your First Payday)

Set up correct federal and state withholding
Ensure you have an active payroll system (manual payments often miss required filings)
Collect and retain Form I-9s and W-4s
Check if local labor laws require sick leave or additional reporting for part-time workers
Know if you need to pay overtime—even if it’s “just for the summer”

The Bottom Line: Don’t Wing Payroll

We get it—your focus is on growing your business, keeping clients happy, and getting help in the door. But ignoring payroll compliance (even for “just a few weeks”) can lead to:

Penalties for misclassification
Missed tax credits
State audits
Unhappy former employees filing claims you didn’t see coming

Need a Hand Sorting It Out? Call Us Before You Hire

We’ve helped hundreds of small business owners set up summer payroll the right way—without overcomplicating things or drowning in red tape.

If you’re planning to bring on part-time, seasonal, or intern help in the next few weeks, let’s talk.  We’ll help you stay compliant, minimize tax risk, and maybe even find some credits you didn’t know existed.

Contact our office before you run that first paycheck—we’ll help you do it right from the start.

What to Expect from the IRS in the Near Future

Wed, 04 Jun 2025 06:45:00 GMT

I just finished reading a report on what tax professionals should expect from the Internal Revenue Service (IRS) in the very near and distant future. These changes are coming from the new Trump administration cuts via DOGE.

First off, is a 40% planned workforce deduction by May 15. This will affect all parts of the IRS but mainly in audit and tax assistance areas. Second is the closing of over 110 taxpayer assistance centers. These centers help taxpayers file tax returns, answer questions and help in resolving issues. Lastly, the Direct File Program started in 2024 is under review and may not be continued.

So, what does the mean for the taxpayers? A smaller workforce means less person-to-person interaction on matters. Any attempt to directly contact a person at the IRS will probably be met with a long time on hold.

The IRS will also be using technology to replace a lot of what is being done by a person. Systems will be put into place that will review returns and flag entries that may or may not be “normal”. One should expect to see more correspondence from the IRS from this questioning an item on the return.

IRS will push taxpayers to communicate with them via digital platforms like through an IRS account, which we talked about in previous blog post. IRS will also push that more documentation will have to be submitted digitally to work in their systems.

Taxpayers will either have to work with the IRS via their platforms or seek out the assistance of a tax professional to help with issues. Tax professionals are also going to have to improve the way they work with the IRS to have an efficient and effective way of communicating.

Taxpayers who used the Direct File Program in 2024 may have to find another way to file in 2025 and beyond. They will either have to look at one of the other “free” programs from a third party, buy the tax preparation software or employ a tax professional to prepare their return.

With these changes, taxpayers are also going to have to be careful with their documentation of items claimed on the return. Documentation will need to be more real time via dates of transactions and real documents, not estimates.

The reduction in the IRS is going to result in headaches, less human interaction, and more reliance on technology

Getting Married Soon? Tax Considerations for Newlyweds

Sun, 01 Jun 2025 02:15:00 GMT

You think planning a wedding ceremony is complicated? Wait till you see the possible tax issues involved. If you are getting married this year, there is a long list of things you need to be aware of and plan for before tying the knot that can have a significant impact on your taxes. And there are a number of tax-related actions you should take as soon as possible after marriage.

Considerations Before Marriage

Filing Status – For tax purposes, an individual’s filing status is determined on the last day of the tax year. Thus, regardless of when you get married during the year, you and your new spouse will be treated as married for the entire year and, therefore, can no longer file as single individuals or use the head of household status as you may have done prior to this marriage. Your options are to file using the married joint status, combining your incomes and allowed deductions on one return, or to file two separate returns using the married filing separate status. The latter is not the same as the single status you may have used in the past and can include some negative tax implications. Filing separately in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) can additionally be complicated. Also, the terms of a prenuptial agreement, if you have one, can affect your filing status choice.

Deductions – The standard deduction for each year is inflation adjusted and for 2025 for a married couple is $30,000 and for a single individual is $15,000. So, if both of you have been filing as single and taking the standard deduction, there is no loss in deductions. However, if in past years one of you had enough deductions to itemize and the other took the standard deduction, after marriage you would either have to take the joint standard deduction or itemize, which might result in a loss of some amount of deductions. There could also be an overall reduction of the standard deduction if one or both of you previously filed as head of household.

New Spouse’s Past Liabilities – If your new spouse owes back federal taxes, past state income tax liabilities or past-due child support or has unemployment income debts to a state, the IRS will apply your future joint refunds to pay those debts. If you are not responsible for your spouse’s debt, you are entitled to request your portion of the refund back from the IRS by filing an injured spouse allocation form.

Combining Incomes – Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes:

Being pushed into a higher tax bracket.

Causing capital gains to be taxed at higher rates.

Reducing the childcare credit which begins to phase out when your combined incomes (MAGI) reach $400,000.

The childcare credit may be reduced if either or both of you have a child and you both work, because a lower percentage of expenses applies as income increases.

The possible loss or reduction of the earned income tax credit which applies to lower income individuals.

Limiting the deductible IRA amount.

Triggering a tax on net investment income that only applies to higher-income taxpayers.

Causing Social Security income to be taxed.

Reducing or eliminating medical itemized deductions.

Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately.

On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return.

Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to skirt around a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero.

Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability.

Healthcare Insurance – If either or both of you are obtaining health insurance through a government Marketplace, your combined incomes and change in family size could reduce the amount of the premium tax credit to which you would otherwise be entitled, requiring payback of some or all of the credit applied in advance to reduce your monthly premiums. More complicated yet, if either or both of you are included on your parent’s’ Marketplace policy, those insurance premiums must be allocated from the parents’ return to your return.

Spousal IRA – Spousal IRAs are available for married taxpayers who file jointly where one spouse has little or no compensation; the deduction is limited to the smaller of 100% of the employed spouse’s compensation or $7,000 (2025) for the spousal IRA. That permits a combined annual IRA contribution limit of up to $14,000 for 2025. For each spouse age 50 or older, the maximum increases by $1,000. However, the deduction for contributions to both spouses’ IRAs may be limited if either spouse is covered by an employer’s retirement plan.

Capital Loss Limitations – When filing as unmarried, each individual can deduct up to $3,000 of capital losses on their tax return for a possible combined total of $6,000, but a married couple is limited to a single $3,000.

Impact On Parents’ Returns – If your parents have been claiming either of you as a dependent, they will generally lose that benefit. In addition, if you are in college and qualify for one of the education credits, those credits are only available on the return where your dependency applies. That generally means your parents will not be able to claim the education credits even if they paid the tuition.

Impact on State Return – Some states require taxpayers to use the same filing status on their state return as they did on the federal return. When deciding which filing status is more beneficial for you, you should also consider how your state return will be affected.

Things To Take Care of After Marriage:

Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. The Social Security Administration provides an online site to accomplish this task. Your income tax refund may be delayed if it is discovered that your name and SSN don’t match at the time your return is filed.

Notify the IRS − If you have a new address, you should notify the IRS by sending Form 8822, Change of Address.

Notify the U.S. Postal Service − You should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded.

Review Your Withholding and Estimated Tax Payments − If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when preparing your return for the first year of your marriage. On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling the working spouse to reduce their withholding or estimated tax payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season. The IRS provides a W-4 Webpage that provides links to the form and a tax withholding calculator.

Notify the Marketplace – If you or your spouse has purchased health insurance through a government Marketplace, you must notify the Marketplace of your change in marital status. If you were included on a parent’s health insurance policy through a Marketplace, then the parent must notify the Marketplace. Failure to notify the Marketplace can create tax-filing problems.

If you have any questions about the impact of your new marital status on your taxes, please call this office.

More Secure Filing of your Tax Return

Fri, 30 May 2025 08:15:00 GMT

Identity Theft. We hear about this all the time. It is on TV, on the radio or the internet every day. We think about this being where someone uses your personal information to get a loan, set up a credit card in your name, etc.

Did you know that thousands of tax returns are filed every year that are fraudulent. Someone uses another person's social security to file a return, receive a refund and then disappear. Every year we have a client or two who has had their IRS account “hacked” with an identity theft issue.

How can you secure your tax filing better? It is called Identity Personal Identification Number (PIN). This is a unique number assigned to you each year by the IRS which must accompany your e-filing of your tax return. Each year, the IRS will send you a notice via mail, with the unique number assigned to you that year.

You will need to give it to your tax preparer to file your return. Without the return will be rejected. That notice will also be available in your online account.

The first thing you need is an online account with the IRS. We spoke about this in a previous post. You can go to this link to find out more about individual PINs. Get an identity protection PIN | Internal Revenue Service.

When you file a joint return with your spouse, both the taxpayer and the spouse should get a PIN. Without that, the return is only 50% secure.

We highly encourage our clients to get this PIN to secure their filings each and every year from here on out. If you have any questions, please feel free to contact us.

Working with the IRS in Today's World

Fri, 09 May 2025 08:00:00 GMT

Today’s world is digital. Everywhere you go now, that person/entity wants you to set up an account online. It is annoying but in many cases, it is necessary and the best way to work with that entity. One of those entities is the Internal Revenue Service (IRS). The IRS is moving to a more digital platform. With the reduction of employees, digital will allow a person to make direct payment of any balance due, see payment history and respond to any notices without waiting on the phone for multiple minutes or hours to talk to someone, who may or may not be fully trained to handle your issue. Issues can be resolved quicker, with less stress.

You can set up an individual account with the IRS which will allow you to see the information that the IRS has on you, allows you to make payments, see payment history, create payment plans, request account transcripts, and authorize tax professionals to work with the IRS on your behalf. To learn more about this account, go to Online account for individuals | Internal Revenue Service.

You also work with the website ID Me. This site verifies your identity with the government. This is a very important issue (identity) that you must do to set up your IRS account. Not only is this account used by the IRS, it used by the Social Security Administration (SSA) so if you register with SSA you can use an existing ID ME account.

We are encouraging all of our clients to set up an account with IRS. This will allow us to request online power of attorney authorization from the client when we have to work with the IRS on the client’s behalf.

For those clients with business accounts, you can also set up a business account with the IRS. To learn more about this account go to Business tax account | Internal Revenue Service. Again, we are highly encouraging our business clients to set up one of these accounts.

To be better prepared to deal with possible future problems and see what your current status is with IRS and SSA, you need to set up these accounts and share them with us.

Are Your Deductions Properly Documented?

Wed, 22 Jan 2025 00:00:51 GMT

Recently I came across a professional article about an old subject. Proper documentation. It was just a good reminder of a basic requirement for claiming deductions and expenses for returns.

First off, the burden of proof for all deductions and expenses falls on the taxpayer. It is not the IRS job to disprove any deductions and expenses claimed, initially. Once the taxpayer submits proper documentation or evidence for a deduction/expense, then it becomes the IRS’s responsibility to disprove it.

When providing proof of documentation, it must be organized such that one can know that it is the related deduction/expense. A tax court case in 2024 involved the taxpayer’s providing photocopies of bills, receipts and handwritten notes, as a group, along with a spreadsheet for one group of the expenses claiming they represented the deductions/expenses on his return.

The copies were not grouped by the deductions/expenses or totaled to show the amount claimed. The court called it “the Shoebox Method”. For those of you too young to know what this is, us, old timers, use to see clients bring in a shoebox full of paid bills/receipts in a shoebox and give it to us to process. For some we call it the dashboard method because all the receipts are kept on the dashboard of the taxpayer’s truck until needed.

The spreadsheet itself was brought into question as it contained in its listing transactions that no documentation could be found on. Also, transactions were doubled from the original receipt and the credit card receipt. After that, individual transactions were questioned when it appeared that no clients/customers were involved in the meetings. So, the spreadsheet was not credible.

So, to summarize, when you want to claim a deduction or expense then you must have a document that supports the claim and then those related documents must be grouped together and totaled to properly substantiate the claim.

Good, Fast, Cheap

Sun, 19 Jan 2025 21:24:19 GMT

TRYING TO SAVE MONEY WHEN CHOOSING A CPA COULD BE THE WORST DECISION YOU’VE EVER MADE!

The new year is here and now is the time when most, especially if they are business owners, start getting serious about closing out last year and getting ready for meetings with their CPA.

It’s also a good reason to ask yourself- did I hire this person to do my taxes because they were cheap or because they were good?

There are two things in life you don’t want to scrimp on when hiring a professional; one is your doctor and the other is your CPA and when choosing any professional there are usually three considerations:

Good

Fast

Cheap

But here’s the catch: You can usually only have two.  Like your physical health, the stakes are too high to cut corners or gamble when it comes to your business health Choose wrong and simple financial errors could lead to missed opportunities, tax penalties, or cash flow crises that could derail your business.

So, this year, ask yourself the following questions.

What’s the long-term cost of going fast and cheap and getting this wrong?

Am I focused on quick and easy fixes over long term, sustainable solutions?

In selecting a CPA partner, how much value do I place on accuracy and expertise? Is it enough to invest in it? 

If you are building something for you and your families future, consider hiring a CPA that will take care of your business now while preparing you for the future.

Have a tax or financial planning question? Contact Steven Brewer & Company at (812)-883-6938 or go to https://www.stevenbrewercpa.com/  

How to maximize your relationship with your CPA!

Mon, 09 Dec 2024 22:09:04 GMT

END OF YEAR IS HERE!

How to maximize your relationship with your CPA!

Every year, whether for an individual or a business, we start feeling the stress of gathering information to take to our CPA to file our taxes. There is a reason you go to a CPA or tax professional for tax strategy and filing and it’s the same reason you would use a mechanic, plumber, contractor, lawyer...etc. There are years of education, experience, wins, failures, and countless hours dedicated to the profession. And if you want to make sure you pay as little as you can get as much back as you can. Makes sense, right?

So, this tax season, if you feel your CPA is not living up to your expectations, ask yourself these questions:

How many times a year are you paying your CPA for their services? 

▪ If your answer is once, then you are most likely only paying for Tax  Preparation Services.

Does your current engagement cover services beyond Tax Preparation? 

▪ If your answer is no, then maybe it is time to review your engagement.

For instance, if you want specific tax planning tailored around your personal or business situation, from an experienced tax professional, or need financial advisory services, expect a price tag.

Now, if you want quick, free access to information, the internet is full of it. Do a google search and dissect what you see. But if having a professional, qualified CPA or Financial Consultant brings value to your circumstances, then focus on the services you need and have that conversation with that individual or firm.  CPAs often get a bad reputation for "lack of tax planning" or "lack of initiative-taking strategies." But they can’t help you if they don’t have the information they need and they can’t work for free.

Ready to get more value out of your CPA going into next year? Call your CPA today and schedule a time to really walk through your needs and expectations of them.

Looking for a CPA that offers more? Call us at 812-883-6938 or schedule an appointment online at stevenbrewer&company.com for a Free Consultation.  

THE END OF 2024 IS ALMOST HERE. ARE YOU READY?

Sat, 23 Nov 2024 01:08:29 GMT

Filing your taxes for 2024 can be made easier by getting ready now. Another year winds down and another tax return needs to be filed. So, as we move toward the end of the year, we would like to offer a few reminders to individuals that have business operations. First, make sure you have filed the newly required Beneficial Ownership Interest (BOI) form by December 31, 2024. With the growth of sales over the internet, you may need to track out of state sales totals for reporting.   

Secondly, as year-end payroll reporting nears, don’t forget the following annual payroll reporting requirements. These include:

Employee personal use of company vehicles,
Employer paid health insurance for employees for W-2 purposes,
Employer paid health savings account deposits for W-2 purposes
Employer paid childcare expenses for W-2 purposes,
Employer paid education plans and term life insurance for W-2 purposes,
Employer contributions to employee pension plans.

As we go into 2025, we are all uncertain of what new tax rules will apply in 2025. So you may want to consider deferring major equipment purchases and building repairs or improvements until next year unless you are able to specifically discuss how this may affect your business. In addition, you may want to consider postponing new tax elections or setting up new entities until, with your CPA, have a better understanding of what new tax laws will be introduced in 2025.   

Next are a few year-end tax credits that might be valuable:

1. There is a new credit for smaller businesses who set up their first pension plan in 2024. This credit can, in many instances, completely offset the costs of setting up the plan as well as offset some or all of the employer’s plan contributions.

2. Some businesses may greatly benefit from the fuel tax credit. The Fuel Tax Credit is allowed for Federal highway tax paid for fuel used off-highway in a business such as pumps, generators, compressors, tractors, trucks used in lots, landscapers, farmers, grass cutters, tree trimmers, helicopters, crop-dusting and many more business applications. At over 18 cents per gallon this can be a huge credit!

Start a Special File that updates your information to have ready: This includes:

1. Has there been a change in ownership this year? If so, provide new owner identification information, dates and percentages.

2. Have you opened or closed any locations this year-if so, please provide that information with the physical address.

3. Provide a list of information about your owners email addresses and cell phone numbers.

Finally, do you have a website? If so, what is your website address: ___________________.

Additionally, make sure you have considered sales and income tax registration, collection and filing requirements in other states.

Last thing for filing normal year end information needed for filing 2024:

1. __ Copies of any new bank loans obtained during the year

2. __ Copies of any new leases signed during the year

3. __ List by date, amount and individual of any new investments made into the company this year by the owners

4. __ Copies of any federal or state tax correspondence received during the year

5. __ Copies of any equipment purchase invoices over $1,000

6. __ Loan payoffs, by loan number, of all business loans at December 31

7. __ Copies of your year-end bank reconciliation(s) and bank statements

8. __ 12/31/24 Year End Balances of:

Accounts Receivable $___________
Cost of Inventory on Hand $________
Accounts Payable $ ______________
Unpaid 941 Deposit for December $__________
Unpaid State(s) Withholding deposits for December $_______________
Unpaid Sales tax for December $_____________
Unpaid wages earned through 12/31/23 $__________

9. __ The enclosed engagement letter needs to be signed and returned

10. __ Year-end summary of business activity-back up, online access or hard copy (Accounting software back-up, trial balance, etc.)

11. __ Sales breakdown by state and city if applicable (Call us to determine)

12. __ Copies of all 4 quarters Form 941, and 2023 W-2’s issued to employees

13. __ All Forms 1099-K, 1099-NEC and 1099-Misc received

Filling in the amounts above represents your company’s amounts as requested and should be compiled prior to your first meeting with your CPA.   

Have questions? Make your 2024 tax filings easier this year. Simply fill out the information above and have it ready. Have any questions? Give us a call at 812-883-6938 to set an appointment and bring in this information and start 2025 off ahead.

MAKING CHARITABLE CONTRIBUTIONS THROUGH MY BUSINESS HELPS ME. RIGHT?

Thu, 31 Oct 2024 22:15:52 GMT

I have heard many times; business owners say that making contributions to charitable organizations gets them a tax deduction. They can save more money in their business by doing this. Well, the true answer is not what they want to hear.

For most of the businesses in the US, the answer is NO. Why not, you say? I gave money for business purposes to a charity. It should count for the same deduction as office supplies or wages. It does not.

There are three main business entities in the US. Sole proprietorships (single owner), partnerships (two or more owners) and corporations (small and large). Of course, you have the LLC (limited liability company) which can be any of those three.

The issue is that under sole proprietorships, partnerships and s-corporations (one of the two types of corporations), charitable contributions are considered pass-through items. Pass through items is not deducted to arrive at the net income or loss of the business. They are passed through or down from the business to its owners. The owners then take the deduction on their personal return just like if they had made the contribution themselves. For a c-corporation (the other type of corporation), the charitable contribution is deductible to a point but that is because a c-corporation is a standalone, tax paying business.

Ok, so I will take the pass-through contribution off my personal taxes then, you say. Well maybe and maybe not. In 2018 we had a major tax change which doubled the standard deduction and eliminated personal deductions. When doing a tax return, you reach a certain point in preparation where you can deduct the HIGHER of your standard deduction or the total itemized deductions you have. Itemized deductions include out of pocket medical expenses above certain amounts, personal taxes paid, mortgage interest and charitable contributions.

The problem is the standard deductions more than doubled in 2018 to almost $25,000 for a family ($12,500 for single) and have been going up each year since. Most people who did have higher itemized deductions under the prior to 2018 rules found out they did not itemize in 2018 and after. With the low interest rates, it is very hard for taxpayers to qualify for itemized deductions.

So those pass through charitable contributions do not effect your return if you do not itemize.

What can you do? First off, pick one or two organizations to support locally. Talk to them about sponsorships of programs, events, etc. and what “advertising” opportunities your business can have. I am not talking about your company name on a giving board in the lobby.

Here is an example from me. I buy a sponsorship package each year for an organization for a large dinner and auction fundraiser. In return I do receive a dinner ticket and merchandise, which I reduce my cost by. What I get is that the organization places my company name in the program brochure, with my logo. They also have a continuous, rolling slide presentation of all sponsors going all night for the businesses who bought sponsorships.

Now do I take 100% of the remaining cost as advertising? No, more like 80% which I classify as Advertising! The remaining 20% goes to charitable contributions. So that 80% of the remaining cost is advertising, which is now deducted as a business expense to determine net income or loss.

So, I went from a nondeductible charity expense to a partially deductible business expense. As always you need to discuss things like this with your tax advisor or preparer. If you do not have one, please call our office for an in-office, ZOOM or phone meeting to discuss your entire tax situation.

Are GoFundMe Donations Deductible?

Fri, 11 Oct 2024 02:34:48 GMT

With the advent of one natural disaster, we now have another one coming. As human beings we want to help those in need. When we see the tragedies in North Carolina and hear what will probably happen in Florida, we want to help. Many times, we do this through the giving of money to organizations which are working in the areas.

One method people use for this is GoFundMe. This is a crowdfunding method to raise money for purposes. People believe that by giving to GoFundMe it is a tax deductible donation like giving to the Red Cross, Salvation Army or church. The issue is it is not.

To be a tax-deductible donation, the organization you are given to must be recognized by the IRS as a Section 501c (3) organization. The organization has met certain IRS standards and maintains them. Just because money is being raised to help someone does not mean it is deductible.

The IRS maintains a list of the approved organizations on its website. You can find it here at Search for tax exempt organizations | Internal Revenue Service (irs.gov). If the organization is listed here, the IRS will allow you to consider your donation to be a tax-deductible donation. If it is not, then it is not allowed.

So, consider using organizations you know about such as Red Cross, Salvation Army, etc for giving. If not, realize at tax time, those donations given to GoFundMe, individuals, etc. are not going to be deductible.

As always, you should check with your tax advisor before doing any major transactions that could affect your income or tax filings.

Identity Theft, Tax Fraud and ID Protection PINs

Wed, 28 Aug 2024 09:30:00 GMT

By: Steven Brewer, CPA

We hear every day that another cyberattack has exposed thousands of pieces of personal data. Just recently, it has come to light that millions of us have had our personal data, including social security numbers, exposed by a cyberattack on National Public Data.

Identity theft takes many different forms. One of the most troubling is when someone uses your personal data to file a tax return. They will file false information using your name and social security number to obtain credits and refunds that are sent to them. There is a way for you to prevent this from happening.

The Internal Revenue Service instituted a program for Identity Protection PINs. These are a series of six-digit numbers assigned to you each year. Each year, you will receive a new PIN so you must give this to your preparer to be able to file your return. You must include this PIN when you e-file your tax return to identify that YOU are filing the return. If a return is filed without the PIN, then the return is rejected.

When you set up the PIN program with the IRS, you also will set up an online account with the IRS. That account will allow you to see your records with the IRS, what has been filed, what the results are, etc. This is very helpful if you ever have a question about what the IRS has. It also will help your tax preparer. When you have an online account, the tax preparer can send you a Power of Attorney form to the account for you to e-sign. The Power of Attorney form is needed for the tax preparer to receive information from the IRS on you if there is ever a problem that you ask the preparer to help you with.

To obtain information on the Identity Theft PIN, go wot https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin. Only you can obtain the PIN. No preparer or other third party can do this so if someone is telling you they can get one for “turn and run the other direction”.

You do have the option to opt out of the program unless you are a confirmed victim of identity theft. If so, you cannot opt out.

So, for your piece of mind and to stop the “bad guys” from getting into your taxes, get your PIN today.

New Scam – Self Employment Tax Credit

Sun, 25 Aug 2024 01:57:45 GMT

By Steven Brewer, CPA

Another tax scam has hit the market and social media. It is called the “Self-Employment Tax Credit”. The scam is marketed to self employed individuals and gig economy workers. The scam claims you can get up to $32,000 in a refundable credit for working during the COVID-19 pandemic period.

Social media seems to be the biggest media used to reach out to the unsuspecting people. This is causing them to file false amended returns. The promoters are charging hundreds, if not thousands, of dollars to prepare and help file these false returns. When the IRS denies the return and the taxpayer goes back to find the promoter who filed the return, they will be gone.

The closest tax credits that are available are the Credits for Sick and Family Leave for 2020 and 2021. What is happening is that taxpayers are claiming this credit when they are employees of a company and not self-employed person. These credits are only for self employed individuals who were not allowed to work (including caring for an individual subject to quarantine or isolation order) along with other technical requirements.

The marketing being used by the promoters is very similar to that seen for promotion of the Employee Retention Credit scams. As always, if you have any questions about a tax credit or other tax items, seek out the expertise of a professional tax preparer.

Also, there are other tax scams showing up for Fuel Tax Credit and household employee taxes. If you suspect something is a scam, it probably is.

Five Ways to Make Retirement a Little Less Scary

Thu, 02 May 2024 19:30:18 GMT

To avoid lying awake at night once you’re retired, consider having these strategies in place before you take the plunge.

On July 10, 2023, I walked out of my old office for the last time. Upon my departure, I gave up a lot of my identity. I spent eight years with the firm and was one of four owners. I lost some relationships. No, I didn’t lose friends or leave on bad terms, but I walked away from the thing that connected us and the daily social interaction it facilitated. I said goodbye to the daily structure.

And, oh yeah, I gave up a nice paycheck. No matter how much money you have in the bank, how well prepared you may be, that’s scary. And while I wasn’t retiring, almost every retiree faces these same challenges.

Below are a few strategies to help you sleep better at night in your first few years of retirement.

1. Retire “to” not “from.”

I drove from my old office to my new one. I didn’t stop at home. I didn’t stop for coffee. I don’t even think I listened to the radio. And I wouldn’t advise this. I encourage my clients to take some time to breathe. Do the home projects you’ve been putting off for 30 years. Spend time with your grandkids. Take that trip.

When I arrived at my new office, I had my new identity, much the same as my old. Professionally, I am a financial planner, an owner and an entrepreneur. The gig economy has made it much easier to work when you want, how you want, in the industry you are passionate about. The most important thing about retiring “to” something is that you know who you are. Remember: “Retired” says only what you don’t do. Make sure you know what you do do.

Now, I know you’re asking, “How does this make things less scary?” Two reasons. First, being busy inherently reduces stress. Second, many of the things that people retire to pay something. Probably not what you’re used to, but they take stress off your portfolio, and your shoulders, between retirement and Social Security.

2. Cash is king.

Not in an investment sense and not forever. I often encourage retirees to have a year’s worth of expected expenses in the bank, including any one-time, big-ticket items. That’s much more than the three to six months you’d read about in a personal finance textbook.

It’s really uncomfortable to watch your checking account deplete without the bi-weekly refills. One strategy that may help is to hold that year’s worth of expenses in a savings or money market account that deposits the exact amount of your old paycheck into your checking account every two weeks.

3. Have a financial plan.

Think of your financial plan as your gas gauge. It will tell you how far you can go without running out. Ideally, you have many more miles than you plan to drive. A proper financial plan will also address cash flow, risk management, investments and estate and tax planning.

However, the core thing you want your financial plan to tell you is this: “You’re going to be OK.” That will certainly help you sleep at night.

If you want reaffirmation of your plan, you can check your numbers for free here.

4. Have an appropriate asset allocation.

Your investments are the actual gas in the tank. Cerulli Associates and other financial firms have long documented the difference between “investment” returns and “investor” returns. The latter typically are much lower than the former because we are human beings. We buy at highs and sell at lows. Vanguard’s Advisor’s Alpha study highlighted behavioral coaching as the most valuable service financial advisers provide.

Much of this panic selling is due to having a portfolio that made much more sense in your 30s than it does in your 60s. Weekly, I come across Baby Boomers who have more risk in their portfolio than I do. I am 37. A subsequent article will serve as a guide to find your appropriate asset allocation. In the meantime, you can use this free tool to gauge how much risk you’re comfortable with.

5. Have an income plan.

Throughout your working career, if you’re an employee, you have an income plan. It’s your paycheck, and it’s probably as steady as your job. In the last 15 years, I can count on my two hands the number of pre-retirees who have an income plan for the next chapter.

The financial plan tells you how much you can spend every year. The income plan tells you where it’s going to come from every month. When I started my own firm, I knew that I had two years of runway, literally making no money, before I would run out. My financial plan told me that. Where I would draw excess money for expenses was part of my income plan. Fortunately, things ramped up quickly, and there were only a few months where this was necessary, but the fact that I had a plan meant I could sleep soundly.

Credit: Kiplinger.com

IRS Warns Taxpayers about Bad Advice on Social Media

Thu, 02 May 2024 18:57:18 GMT

The Internal Revenue Service is warning taxpayers about bad tax information on social media that can lure honest taxpayers with bad advice, potentially leading to identity theft and tax problems.

Social media can routinely circulate inaccurate or misleading tax information, where people on TikTok and other social media platforms share wildly inaccurate tax advice. Some involve urging people to misuse common tax documents like Form W-2, or more obscure ones like Form 8944 involving a technical e-file form not commonly used by tax payers. Both schemes encourage people to submit false, inaccurate information in hopes of getting a refund.

The IRS warns people not to fall for these scams. Taxpayers who knowingly file fraudulent tax returns potentially face significant civil and criminal penalties.

“Social media is an easy way for scammers and others to try encouraging people to pur sue some really bad ideas, and that includes ways to magically increase your tax refund,” said IRS Commissioner Danny Werfel. “There are many ways to get good tax information, including @irsnews on social media and from trusted tax professionals. But people should be careful with who they’re following on social media for tax advice. Unlike hacks to fix a leaky kitchen sink or creative makeup tips, people shouldn’t rely on made-up ways on social media to patch up their tax return and boost their refund.”

Social media: Not the ideal place for solid tax advice. Social media can connect people and information from all over the globe. Unfortunately, sometimes people provide bad advice that can lure good taxpayers into trouble.

The IRS warns taxpayers to be wary of trusting internet advice, whether it’s a fraudulent tactic promoted by scammers or it’s a patently false tax-related scheme trending across popular social media platforms. While some producers of misleading content are driven by criminal profit motives, others are simply trying to gain attention and clicks. They will post anything, no matter how wrong or outlandish, if it garners more attention.

The IRS is aware of various filing season hashtags and social media topics leading to inaccurate and potentially fraudulent information. The central theme of these examples involves people trying to use legitimate tax forms for the wrong reason.

Here are just two of the recent schemes circulating online:

Fraudulent advice on Form W-2. This scheme, circulating on social media, encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures, as well as the employer its coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund—sometimes as much as five figures—due to the large amount of withholding.

There are two other variations of the W-2 scheme. Both involve misusing Form W-2 wage information in hopes of generating a larger refund:

• Fraudulent Form 7202: This scheme involves encouraging people to use Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; they are not available for 2023 tax returns.

• Fraudulent Schedule H: Another scheme encourages people to invent fictional household employees and then file Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid.

The IRS is actively watching for this scheme. In addition, the IRS works with payroll companies and large employers—as well as the Social Security Administration—to verify W-2 information.

Form 8944 scheme. Another example of bad advice circulating on social media involves Form 8944, Preparer e-file Hardship Waiver Request. Wildly inaccurate claims made about this form include its use by taxpayers to receive a refund from the IRS, even if the taxpayer has a balance due. This is false information. Form 8944 is for tax professional use only.

While Form 8944 is a legitimate IRS tax form, it is intended for tax return preparers who are requesting a waiver so they can file tax returns on paper instead of electronically. It is not a form the average taxpayer can use to avoid tax bills.

Taxpayers who intentionally file forms with false or fraudulent information can face serious consequences, including potentially civil and criminal penalties, like criminal prosecution for filing a false tax return and a frivolous return penalty of $5,000.

How taxpayers can verify information. The best place for taxpayers to learn how to properly use tax forms, and to accurately follow social media channels related to taxes, is to go to IRS.gov.

• IRS.gov has a forms repository with legitimate and detailed instructions for taxpayers on how to fill out the forms properly.

• Use IRS.gov to find the official IRS social media accounts, or other government sites, to fact check information.

Report fraud. The IRS encourages people to report individuals who promote improper and abusive tax schemes, as well as tax return preparers who deliberately prepare im proper returns.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Center in the Office of Promoter Investigations.

Mail:

Internal Revenue Service Lead Development Center

Stop MS5040

24000 Avila Road

Laguna Niguel, CA 92677-3405

Fax: 877-477-9135

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

Credit: TheTaxBook.com

Cross References: IR-2024-98

How old are taxes? Older than you think

Sat, 13 Apr 2024 00:42:37 GMT

For thousands of years, human civilizations have been collecting taxes, in one form or another. From grain to beards to rubber balls, governments always found new ways to collect their due.

Every April in the United States, predictable signs of spring appear: budding flowers, chirping birds, and … taxes. They may be as certain as death, but taxes aren’t a recent phenomenon; they date back thousands of years.

Over the centuries, different governments all over the world have levied taxes on everything from urine to facial hair—and officials accepted payments of beers, beds, and even broomsticks. These payments went to fund government projects and services—from the pyramids of Giza to the legions of Rome.

FIRST TAXES

Taxation has existed for so long, it even predates coin money. Taxes could be applied to almost everything and might be paid with almost anything. In ancient Mesopotamia, this flexibility led to some rather bizarre ways to pay. For instance, the tax on burying a body in a grave was “seven kegs of beer, 420 loaves, two bushels of barley, a wool cloak, a goat, and a bed, presumably for the corpse,” according to Oklahoma State historian Tonia Sharlach. “Circa 2000-1800 B.C., there is a record of a guy who paid with 18,880 brooms and six logs,” Sharlach adds.

Creative accounting of in-kind payments helped some cheat the tax man as well. “In another case, a man claimed he had no possessions whatsoever except extremely heavy millstones. So he made the tax man carry them off as his tax payment.”

PHARAOHS' TAX PREPARATION

Ancient Egypt was one of the first civilizations to have an organized tax system. It was developed around 3000 B.C., soon after Lower Egypt and Upper Egypt were unified by Narmer, Egypt’s first pharaoh.

Egypt’s early rulers took a very personal interest in taxes. They would travel around the country with an entourage to assess their subjects’ possessions—oil, beer, ceramics, cattle, and crops—and then collect the taxes on them. The annual event became known as the Shemsu Hor, or Following of Horus. During the Old Kingdom, taxes raised enough revenue to build grand civic projects, like the pyramids at Giza.

Ancient Egypt’s taxation system evolved over its 3,000-year history, becoming more sophisticated with time. In the New Kingdom (1539-1075 B.C.), government officials figured out a way to tax people on what they had earned before they’d even earned it, thanks to an invention called the nilometer. This device was used to calculate the water level of the Nile during its annual flood. Taxes would be less if the water level was too low, foretelling a drought and dying crops. Healthy water levels meant a healthy harvest, which meant higher taxes.

TAX AMNESTY IN ANCIENT INDIA

In India's Mauryan Empire (ca 321-185 B.C.) an annual competition of ideas was held—with the winner receiving tax amnesty. “The government solicited ideas from citizens on how to solve government problems,” Sharlach explains. “If your solution was chosen and implemented, you received a tax exemption for the rest of your life.” The Greek traveler and writer Megasthenes (ca 350-290 B.C.) gave an astonished account of the practice in his book Indica.

Like most tax reform efforts, the system was far from perfect, Sharlach notes. “The problem is that nobody would have any incentive to ever solve more than one problem.”

RENDER URINE UNTO CAESAR

The Roman emperor Vespasian (r. A.D. 69-79) may not be a household name like Augustus or Marcus Aurelius, but he brought stability to the empire during a turbulent time—partly through an innovative tax on people’s pee.

Ammonia was a valuable commodity in ancient Rome. It could clean dirt and grease from clothing. Tanners used it to make leather. Farmers used it as fertilizer. And people even used it to whiten their teeth. All this ammonia was derived from human urine, much of it gathered from Rome’s public restrooms. And like all valuable products, the government figured out how to tax it.

Some wealthy Romans, including Vespasian’s own son Titus, objected to the urine tax. According to historian Suetonius (writing around A.D. 120), Titus told his father he found the tax revolting, to which Vespasian replied, “Pecunia non olet,” or “Money does not stink.”

ITEMIZATIONS FOR AZTECS

At its height in the 15th and 16th centuries, the Aztec Empire was wealthy and powerful, thanks to taxation. Historian Michael E. Smith has studied its tax collection system and found it to be remarkably complex, with different kinds of items collected at different levels of government.

All taxes made their way to the Aztec central governing body, the Triple Alliance. There they kept meticulous records of who had sent what. Many of these records survive today. The most famous are found in the Matrícula de Tributos, a colorful illustrated registry filled with pictographs showing exactly how many jaguar skins, precious stones, corn, cocoa, rubber balls, gold bars, honey, salt, and textiles the government collected each tax season.

RUSSIA’S FASHION TAX

Widespread use of coins and currency had a leveling effect on taxation systems, but rulers were not above applying some taxation muscle to achieve their ends. In 1698, Russian reformer Peter the Great sought to make Russia resemble “modern” nations in western Europe whose clean, close shaves Peter equated with modernization. After he returned to Russia, the tsar instituted a beard tax on his citizens, who favored beards.

Any Russian man who wished to grow a beard had to pay a tax—peasants paid a small fee while nobles and merchants could pay as much as a hundred rubles. Men who had paid the tax were also required to carry beard tokens wherever they went to prove that they'd paid their taxes for the privilege. Peter the Great’s beard tax did not last. Catherine the Great repealed it in 1772.

Source: National Geographic

By: Editors of National Geographic

Beneficial Ownership Reporting

kaitlyn@marketingcompany.com (Kaitlyn Lynn) — Wed, 20 Mar 2024 00:22:15 GMT

Over the past year, we, as business owners, have been hearing that we will need to report our business to the federal government if we are of certain legal entities. That is true. Under the US Corporate Transparency Act, all limited liability companies (LLCs), companies or other entities formed via a Secretary of State office would have to file a report showing all owners who own 25% or more of the business’s equity. That would be direct ownership (via direct ownership) or via third party entities like a trust.

A recent U.S. District Court case in Alabama has ruled the reporting, and the Act, unconstitutional. At this time the Department of Treasury says it will appeal the ruling but will also comply with the ruling meaning that reporting is suspended until further notice.

Recently, a client sent us a copy of the reporting form sent to them by a third-party company telling them they had to file this or suffer severe penalties. That was true before the court ruling.

The company was asking for a fee to file this form. I have no problem paying a company to do a job, but I have an issue when you get an email or mailing saying you must do something from a company that you or I know nothing about. That is my issue here.

My firm and I are monitoring the situation and will let you know if you need to file it and when. If it becomes necessary to file, we will be able to help you file the appropriate form for a fee. Until then, please ignore anything you get saying you must file a form for Beneficial Ownership.

If you have any questions, please contact my office.

How to Build Your Financial House From the Foundation Up

Thu, 03 Aug 2023 15:36:19 GMT

If you’re a fan of home improvement shows, you know how this goes: The clients, usually a couple hoping to build, buy or renovate a home, are mostly focused on the aesthetics — the kitchen countertops, the bathroom tile, the light fixtures, the wainscoting.

But, of course, there’s more to designing a home than picking the flooring or the fixtures. Without a strong foundation, sturdy walls and a dependable roof, the couple’s beautiful house won’t hold up well against the elements, age and other risk factors during the years their family lives there. Their real estate agent or contractor often has to remind them about what’s really important as they move forward.

And I have to say, I get where those pros are coming from every time — because the same holds true for building a family’s financial house. (Though I’ve yet to see an entire television network devoted to designing a financial portfolio.)

If you’re working with a financial adviser, you may have heard him or her refer to drawing up a “blueprint” for reaching your financial goals. And that’s an apt description. When you’re building your fiscal house, you’ll want to be sure you have a detailed plan that includes every aspect of your financial future and the methods and materials you’ll be using to help get you to your objectives.

Your financial portfolio — the collection of assets you’ll use to create a safe and comfortable future — should be allocated and managed in a way that helps you weather economic downturns, market volatility, fluctuating interest rates, rising inflation, risks that come with aging and other changes in your life.

Creating the blueprint for your financial house

What should your financial blueprint look like? It will be different for everyone. But a secure fiscal house will have the same basic characteristics as a well-built home.

A strong foundation

Your most stable assets typically will form the foundation of your financial portfolio. Although no investment is without risk, these are generally assets you can count on to stay solid — and provide a reliable income — when the economy or your personal finances take a hit or feel shaky. Some examples include:

Savings and certificates of deposit (CDs), which are protected by the Federal Deposit Insurance Corp. (FDIC)

Government bonds, which are backed by the U.S. Department of the Treasury

Fixed and fixed index annuities that are protected by a reputable insurance company.

Sturdy walls

The “walls” of your fiscal house should be sturdy — but because they can be repaired or rebuilt more easily than the foundation, these assets don’t have to be quite as invulnerable. Investments at this level can add value to your portfolio (by providing income, income protection and diversification), but they also may be exposed to moderate risk, so there’s some potential for growth. A few examples include:

Corporate and municipal bonds

Conservative dividend investments

Private real estate investment trusts (REITs)

A dependable roof

Of course, you want your roof to hold up against whatever the elements might throw at it. But if it is damaged, you likely can fix or replace it without the whole house falling in — as long as the lower levels are built to last. The roof of your fiscal house represents the investments that carry the highest risk you can tolerate (both financially and emotionally). And they can help you grow your money for the future. These assets might include:

Stocks

Mutual funds

Exchange-traded funds (ETFs)

Variable annuities

Where to start

Of course, every individual and family has different needs — and every financial plan will (or should, at least) be a little bit different to accommodate those needs. But if you’re looking for a good starting point, you may want to use the “Rule of 100” to determine how your assets should be allocated when building your fiscal house. That means taking the number 100, subtracting your age and using the difference to determine the percentage of your money you want to invest in riskier assets to maximize growth.

If, for instance, you’re 45 and in no rush to retire, you might feel comfortable investing 55% of your portfolio in stocks or ETFs. You’ll get the growth you’re looking for, but should you lose money in a market downturn, you’ll still have several years to recover.

But if you’re closer to retirement — let’s say 65 — you may want to limit the risk in your portfolio to 35% or less. You still can benefit from some growth, but with less time to recover from a market decline, you may choose to play it a bit safer.

Don’t forget ongoing maintenance

Making occasional upgrades and repairs can be an important part of maintaining your home’s value. And the same holds true for your portfolio. It can be helpful to reevaluate your investments and investing strategies at least once a year to be sure your plan stays aligned with your goals.

Over time, asset allocations may shift based on market performance, and you may need to rebalance your portfolio. You also may find that your tolerance for risk has changed, and a little remodeling is necessary. Or, if you realize your original design just isn’t functional for your family, you may want to seek a second opinion or go for a complete renovation.

You don’t have to look hard to find an example of why it’s so critical to design and maintain your fiscal house for the long haul.

Just a few short years ago, pretty much everyone’s financial portfolio was doing well thanks to an 11-year bull market. Then in March 2020, the COVID crisis rolled in and caught everyone off guard. And we all got a good reminder of how important it is to build a fiscal house that holds up against the storms we can predict — and those we can’t.

Is your fiscal house move-in ready?

One thing we’ve all learned from watching home improvement shows is that doing it yourself isn’t always the best way to go.

Similarly, some parts of investing may be doable on your own — and even fun. And you should have plenty of input into what you want from your plan.

But you’ll likely find it makes sense to work with a pro when you’re drawing up your overall financial blueprint — or making any big choices or changes. Mistakes and oversights can be costly, especially when you’re closing in on retirement. You’ll need a portfolio that’s carefully planned to keep you secure for the many years ahead.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Kurt Supe, John Culpepper and Brian Quick offer securities through cfd Investments, Inc., Registered Broker/Dealer, Member FINRA &SIPC, 2704 South Goyer Road, Kokomo, IN 46902, 765-453-9600. Kurt Supe, Andrew Drufke and Brian Quick offer advisory services through Creative Financial Designs, Inc., Registered Investment Adviser. Creative Financial Group is a separate and unaffiliated company. The CFD Companies do not provide legal or tax advice.

Credit: ANDREW DRUFKE

Scams are surging in the summer, the IRS says

kaitlyn@marketingcompany.com (Kaitlyn Lynn) — Wed, 26 Jul 2023 18:35:40 GMT

Summertime, and the scamming is surging.

That is according to the IRS, which issued a warning Friday for taxpayers to be wary of offers promising tax refunds or to "fix" tax problems. Many of these offers center on promises of a third round of economic impact payments. The IRS said it was receiving hundreds of complaints daily — and thousands since the July 4 holiday — at its phishing@irs.gov email account.

The economic impact payment scam includes an embedded URL that takes people to a phishing website to steal their personal information, the IRS said, adding that the third round of payments occurred over two years ago.

The scam, which has been around since 2021, has changed over time to trick people, the IRS said.

Remember: The IRS never initiates contact with taxpayers by email, text, or social media regarding a bill or tax refund.

"The IRS is seeing a wave of these summer scams relentlessly pounding taxpayers," IRS Commissioner Danny Werfel said in a statement. "People are being flooded with these email and text messages, but we want them to avoid getting swept up in these terrible scams. Taxpayers should be wary; remember, don't click on links from questionable sources."

The IRS also has received reports about emails urging people to "Claim your tax refund online" and text messages that the person's tax return was "banned" by the IRS. Spelling errors and awkward phrasing are one sign that these emails are a scam.

In addition to the economic impact payment scheme, the most recent wave of tax scams includes:

The misleading 'You may be eligible for the ERC' claim

The IRS has observed a significant increase in false employee retention credit (ERC) claims, an issue that made the IRS's annual "Dirty Dozen" list earlier this year. The ERC is a pandemic-related credit for which only certain employers qualify.

Taxpayers should avoid promoters who say they can quickly determine someone's eligibility without details and those who charge upfront fees or a fee based on a percentage of the ERC claimed, the IRS said.

The IRS advises eligible employers who need help claiming the ERC to work with a trusted tax professional. Details about eligibility, how to properly claim the credit, and how to report promoters are available at irs.gov/erc.

The 'claim your tax refund online' scheme

Because taxpayers are enticed by the idea that they have possibly overlooked money owed to them, identity thieves are upping their game with email and text schemes suggesting the recipient has missed out on a tax refund.

A variation hitting inboxes in recent weeks has a blue headline proclaiming that people should "Claim your tax refund online."

Again, there are telltale warning signs, including misspellings and language urging people to click a link for help to "claim tax refund."

The text scheme offering help to address a problem

In another recent scam, identity thieves send a text message with a name that tries to sound official, such as "govirs-accnnt2023." A variety of messages follow, saying that there is a problem with the recipient's tax return, but that the sender can fix the problem if the recipient clicks a link in the message.

As in other scams, there are many red flags in these text messages, including misspellings and factual inaccuracies.

The 'delivery service' scam at your door

The IRS is also warning taxpayers to be on the lookout for a new scam letter delivered in a cardboard envelope by a delivery service. The enclosed letter includes the IRS masthead and wording that the notice is "in relation to your unclaimed refund."

What to do

People who receive these scams by email should send the email to phishing@irs.gov.

People who become victims after clicking and entering their information should report the email at phishing@irs.gov and should file a complaint with Treasury Inspector General for Tax Administration and visit www.identitytheft.gov and www.irs.gov/identity-theft-central.

Credit for this article: Martha Waggoner with the Journal of Accounting

The Retirement Hobby

jonny@marketingcompany.com (Vern Eswine) — Mon, 16 Sep 2019 14:56:57 GMT

Fact # 2

Swanson presents another typical situation: a retired taxpayer pursues a long-held hobby and find they can produce some income from it to offset its cost. That does not make it a business. Here, Mr. Swanson was a resident of Alaska who had retired in 2010. His retirement income came from his pension, from Social Security and from rents received on two properties he owned.

Mr. Swanson was apparently an avid fisherman. He had fished in Alaska for over 30 years. He liked fishing for halibut and he liked fishing from a town called Homer, the self-described “Halibut Fishing Capital of the World.” But he lived in Anchorage, some 200 miles away.

After retirement he bought a boat “designed to fish for halibut.” Op at 4. He was apparently able to store his boat and equipment for free in Homer because his “life partner’s children lived in Homer” (Id.). He also bought a plane “to shorten his travel time between Anchorage and Homer.” Id. He apparently was not already a pilot because Judge Pugh notes he held only a student license in the three years at issue (2014-2016). Id.

All of this cost money and Mr. Swanson decided offset his expenses by offering his boat for charter fishing under the name Happy Jack Charters (currently ranked #53 of 63 boat charters in Homer, AK on TripAdvisor ). He made some money at it. During the three years at issue (2014-2016), he reported gross receipts of $1,500, $2,345, and $3,709, respectively. Op. at 7. But his reported expenses gave him net losses, totaling $131,000 over the three years.

Like Dr. Sherman, Mr. Swanson apparently was not very good at filing returns. He filed his 2016 return in June 2017 and his 2014 and 2015 returns in August 2017. It is not entirely clear from the opinion, but it appears he was prompted to file returns by an IRS audit. Apparently the IRS was concerned about unreported income. A Revenue Agent conducted a bank deposits analysis, finding deposits for each year exceeding reported income. That's not routine. The IRS sent him an NOD and Mr. Swanson hired a lawyer and petitioned the Tax Court.

Lesson #2: Don’t Be “Lazy On Your Books”

Unlike Dr. Sherman, Mr. Swanson at least had some income from his chartering activity. And he kept records.

Mr. Swanson at least kept receipts that “he would hand to his accountant at the end of the year ‘to figure it out.’” Op. at 10. But just having income and keeping receipts of expenses is not enough to show an activity is operated in a businesslike manner. Judge Pugh explains that “the key question is not whether the taxpayer keeps records, but whether the taxpayer uses his records to improve profitability and take steps to control expenses and increase income.” Op. at 10 (emphasis in original).

What hurt Mr. Swanson here was his poor recordkeeping. One gets a sense of it from this TripAdvisor review from May 2017: “We caught our limit of halibut. Only downside is he got ticketed by the water cops ... lazy on his books they said. Other than that, we really enjoyed the trip.”

Judge Pugh explains how Mr. Swanson was lazy on his books for tax purposes as well. He did not use his records to operate his activity like a business. “Mr. Swanson did not explain whether and how he used the data about his income and expenses to make his activity profitable. *** Mr. Swanson did not have a business plan and made no significant changes to reduce expenses and generate income the entire time he operated Happy Jack Charters. *** Despite the apparent lack of clients and income, Mr. Swanson purchased an airplane and incurred significant expenses related to storing, maintaining, and operating it.. Over the seven years of operating Happy Jack Charters, Mr. Swanson never made changes that enhanced his prospect for making a profit.” Op. at 10-11.

Bottom Line #2: Don’t be lazy on your books.

The Hobby-Business Mash-Up

jonny@marketingcompany.com (Vern Eswine) — Mon, 16 Sep 2019 14:54:56 GMT

Fact # 3

Our third case, Carson, presents a very strange fact pattern. Ms. Carson’s mom created a grantor trust and transferred mom’s cattle ranch to it; Mom was trustee. Mom and stepdad were the life beneficiaries of the trust. Ms. Carson and her brother were the remaindermen. During the tax years at issue (2017-2018) Mom and stepdad were living.

Per written agreements, Ms. Carson was obligated to pay the expenses of the ranch. But she was not entitled to any of the income from ranch unless both she and her mom agreed to it. Thus between 2014 and 2019 “[Ms.] Carson made substantial financial contributions to the ranch by paying its expenses. *** The ranch made money mainly by selling cattle. The receipts from the cattle sales were reported on the returns of [Ms.] Carson’s mother.” Oral Transcript at 3. That’s just weird. Normally parents try to assign income to their children, deductions!

It is not clear from the opinion but it appears that the Carsons lived on the ranch. At any rate Judge Morrison says that “the Carson’s two children lived at the ranch helping in the ranch’s business of raising cattle for sale. For this purpose, the children used horses, some of which they also used to compete in cash-prize rodeos. The children also performed manual labor for neighbors of the ranch.”

For the tax years at issue (2017 and 2018) the Carson’s filed a Schedule F, reporting a “livestock” business. However, the only income they reported each year was the cash prizes the kids won in rodeos and the money the kids made from neighbors: some $2,700 in 2017 (all from rodeo prizes) and some $8,000 in 2018 ($6,200 from rodeo prizes). Against that modest income they reported all the expenses Ms. Carson had agreed make: $139,000 in 2017 and $134,000 in in 2018.

This had been the pattern since 2014: “During the six years 2014 to 2019, the Carson’s reported cumulative losses of $502,742 on the schedules F. For each year, these losses not only dwarfed the gross income reported on the schedule F...but they largely offset the Carson’s ordinary income [from] wages.” Yessir, assignment of deductions!

On audit, the IRS disallowed all the Schedule F deductions in excess of the Schedule F income because the IRS Revenue Agent thought that the Carsons had mis-labeled the activity and it should have been reported as a rodeo activity, not a ranching activity. And the rodeo activity was a hobby, not a business. The Carsons petitioned the Tax Court. I cannot tell whether they were represented.

Lesson #3: Hobby + Business = Business?

The basic problem, Judge Morrison decides, is that the IRS mis-analyzed how the Carsons messed up their return. The Carsons' error was mashing up the rodeo activity and ranching activity on the same Schedule. That led the IRS to mis-analyze the return by ignoring the documented arrangement between Ms. Carson. The IRS approach “supposes that the Carsons lost approximately $120,000 per year entering their children in rodeos. *** [That] makes no sense in light of our view that the deductions reported on the Schedules F mainly related to ranching.” Transcript at 8.

Here, unlike our other two cases, the taxpayers kept good records. Transcript at 8. (Ms. Carson “kept meticulous details of the expenses that were deducted on the Schedule F.”). Those records showed most expenses related to the ranching activity and only a “relatively small part” related to the rodeo activity. Id. Judge Morrison declines to parse the expenses because the IRS “did not challenge the substantiation behind the deductions” id. and thus he was not going to ding Ms. Carson for not bringing records with her to trial.

Bottom Line #3: Don’t try this at home, but once Judge Morrison accepted that the ranching activity was legit, then mashing up the hobby and business was basically harmless error. Sure, the Carsons should have reported the rodeo income on Schedule 1 and not Schedule F. Sure, they should have reported the rodeo expenses on Schedule A (and, of course, for 2018 they would not have been able to deduct any rodeo expenses because of evil §67(g)). The proper reporting position, however, would not have affected their bottom lines very much if at all. The ranching net losses would have still been able to be used to offset the modest rodeo income they had as well as most of their wage income.

Coda : The real issue here—that the IRS just missed—was the assignment of deductions. Judge Morrison notes the weirdness of allocating all the ranching income to Ms. Carson’s mom and allocating all the ranching expenses to Ms. Carson but tells us that a “mismatch of income and deductions is not prohibited under the Code per se, but may be relevant in determining the appropriateness of accounting methods and in determining the appropriate allocation of income and deductions between partners. However, these legal issues are not before the court.”