Schaaf CPA Group LLC

Rental losses are passive losses and are not typically able to be used to reduce your ordinary income. But if your AGI is under $100,000, you can deduct up to $25,000 of your rental loss. If you are a real estate professional you can deduct all of your rental loss no matter what your income is. Using cost-segregation strategies, we can make sure that your rental shows a loss on your tax return, even if it produces positive cash-flow.

In general, you can deduct 50% of meals and 0% of entertainment. There are various exceptions to this, such as:
a. You can deduct 100% of the office holiday party or picnic
b. You can deduct 100% of the transportation to the entertainment event or meal
c. You can deduct 100% of the food offered to the public for free (e.g. seminar, open house)

You can deduct up to $25 in gifts paid to an individual per year.  Thus, if you give a client a $50 Starbucks gift card, you can deduct $25 of that gift.  How to get around this?  Give a gift of $25 to the client and a gift of $25 to that client’s spouse and deduct $50 in total instead of just $25. 

If you buy a new or used truck or SUV at the end of the year and claim 100% business-use (by, for example, purchasing it on December 31st and driving it from the dealership to Office Depot to purchase paper for your business and then leaving it in the Office Depot parking lot until January 1st), then you can write off 60% of the cost of the vehicle in the year that you buy it even though you are likely never going to use that vehicle very often for business again. If you buy the same vehicle mid-year and use it 5% for your business, then your deduction would be 5% of the cost of the vehicle times roughly 60% = 3% deduction. This strategy works best if the vehicle is titled in the name of the business, but that isn’t necessary.

If you arrive at the end of the year and need a business or rental deduction to make sure that you don’t creep into the next tax bracket, then consider pre-paying 2025 expenses in 2024. You can pre-pay up to 1 years’ worth of 2025 expenses in 2024 and take a deduction for that pre-payment in 2024. You can pre-pay 12 months of phone bills, utilities, rent, supplies, insurance, etc. Remember, you get a deduction for what you charge on your credit card in 2024 on your 2024 return even if you don’t pay off the credit card until a future year.

These improvements include hot water heaters, HVAC systems, windows, exteriors doors, insulation, etc.

• As of January 1, 2023, you can receive up to $1,200 per year (up from the previous $500 annual credit limit) on your federal tax return from these improvements.
• In addition, you can receive up to $2,000 for certain electric or natural gas heat pump water heaters, electric or natural gas heat pumps & biomass stoves & boilers (you can exceed the $1,200 limit on this one).
• So, max credit might be 2,000 plus 1,200, if you spend enough money.

Note, beginning in 2025, for each item of qualifying property placed in service, no credit will be allowed unless the item was produced by a qualified manufacturer and the taxpayer reports the PIN for the item on their tax return.

Common Giving Reminders:
• Donating your services doesn’t create a deduction and doesn’t appear anywhere on the tax return
• Donating your “stuff” (i.e. goodwill donations) allows you a deduction equal to the lesser of the cost of the item or its fair-market value only if you itemize. The maximum amount per group of donated items is $5,000 per year (unless you want to get a formal appraisal of what you donated)
• You generally only get a deduction on your return if you give money or stuff to a church, government entity, or 501c3 organization and only if you itemize
• Donating to a GoFundMe campaign for an individual is never a deduction on your return (it is a gift to a friend) since your friend is not a church, government entity, or 501c3 organization
• If you are taking RMDs from a traditional IRA then it is always more tax-efficient to give money directly from the traditional IRA to the organization (versus giving from your checking or savings account) – this is known as a QCD – Qualified Charitable Distribution
• If you spend money while doing work for an organization, then you can deduct the cost of what you spent if you get a letter from the organization stating that you spent that money on behalf of the organization (if you spend money to go on a mission trip, then document your expenses and then ask the sponsoring-organization for a letter stating that they acknowledge that you spent the money on their behalf)
• Generally, if you want to somehow take credit for a donation on your return (whether a QCD, a goodwill donation, a monetary donation, etc.) then you need a receipt/letter from the organization by the date that you file your return that contains the following information:
o Name of charity
o Date of contribution
o Detailed description of property donated
o Amount of contribution
o A statement regarding whether or not any goods or services were provided in exchange for the contribution

Are you withholding enough tax from your wage at work? The only way to be certain is to send us your year-to-date paystubs so that we can take a look. This service is always free to our clients, so don’t hesitate to reach out.

As of 1/1/2024, a new federal law—The Corporate Transparency Act (CTA)—has taken effect.  The Federal Government currently has no centralized database that contains information on every entity in America – this law forces you to report to the Federal Government information about your entity to aid them in anti-money-laundering efforts.

Entities (LLCs, Incs) that existed before 1/1/2024 (i.e. your entity) have until 1/1/2025 to provide basic information to the Federal Government regarding the entity.  This information is reported on a “Beneficial Ownership Information Report” (BOI).  The information provided is basic:

• Entity name
• Entity Address
• Ownership information:
  • Names
  • Addresses
  • Driver’s license images

If the BOI isn’t filed by the due date: the penalty is $591 per day, up to $10,000.

Another note:

• The law also says that your entity has 30 days to update the BOI filing if it changes any of the following after the initial filing:
  • Entity name
  • Ownership
  • Address
  • Any owner’s address

Ask us if this applies to you and if you need our office to submit the filing on your behalf.

If your ex-spouse gives you funds from their 401K due to a divorce settlement, and need those funds before you reach age 59.5, then you likely can withdraw these funds directly from the ex-spouse’s 401K without having to pay a 10% penalty.  If you roll these funds from the 401K to your Traditional IRA, then any withdrawals from the Traditional IRA will be subject to the 10% tax.  If you think you will need these funds before age 59.5, instead of rolling the funds from the 401K to your Traditional IRA, you should consider leaving the funds in a segregated account with the 401K plan trustee.  Distributions from the segregated 401K account pursuant to the divorce decree “QDRO” are not subject to the 10% tax even if made before age 59.5.

You can exclude up to $500K of gain from the sale of your personal home if the home was the primary residence for you and your spouse and you lived in the home for 2 out of the 5 years before the sale.  We often see taxpayers move out of their primary residence and then rent the home for several years before deciding to sell.  If the taxpayer wants to take advantage of this $500K gain exclusion, then it is important to sell the home within 3 years of moving out so that the taxpayer doesn’t violate the “2 out of 5 years” rule.  So, the usual advice is to move out, rent the home for 2.5 years, and then sell the home within 3 years of moving out unless you want to keep the rental for a very long time (and don’t mind converting tax-free appreciation into taxable appreciation).

We routinely are asked to file tax returns for recently-deceased family members.  Often, the executor (normally the brother or sister of the decedent) can’t find all of the W-2s, 1099s, or other tax documents that we need or they might not even have a copy of the previous-year’s tax return for the decedent.  Our normal process is to have the executor sign a power of attorney so that we can ask the IRS for the decedent’s W-2s and 1099s and have the IRS provide us with a copy of the previous-year’s tax return.  This ensures that we “know what the IRS knows” and then can build upon that in order to make a complete tax filing for the decedent.

A provision of the tax code allows owners of small businesses to avoid paying tax on 20% of their small business profits.  This provision is called the Qualified Business Income Deduction (“QBID”).  This deduction is limited if the small business is a Specialized Services Trade or Business (“SSTB”).  An SSTB is a business in the fields of health, law, accounting, performing arts, consulting, athletics, financial services, brokerage services, or investing.  We often see service-based businesses erroneously classified as “consulting” businesses by other CPA firms.  This classification limits this valuable deduction.  The definition of “consulting” is not very broad and normally doesn’t describe the client’s business operations so we often amend the client’s tax returns to claim this valuable deduction.  If you think your QBID deduction is being limited because you were classified as a consulting SSTB (confusing…I know), then reach out to us so we can have a look.

We are often asked about Social Security claiming strategies. When should I claim Social Security? Should I wait? Should one spouse claim before the other? How does a pension affect Social Security?  This subject is deceivingly complex and we are not experts.  We will usually refer you to http://socialsecurityadvisors.com/appointment where you can make an appointment with advisors, we trust who focus on this one topic.

As we have posted, if a child works for your business then you should pay them as follows:

If under age 18, then pay the child from your Schedule C business (don’t pay them directly from your S Corp)

If age 18, then pay them directly from your S Corp or Schedule C (doesn’t matter which)

If age 19, then pay them from either your S Corp or Schedule C business, but see if you can get very cheap subsidized health insurance for them on healthcare.gov.  If the child earns more than 138% of the federal poverty level, and they are not your dependent, then you can take them off of your family health insurance plan and the child can get their own health insurance.  Since they don’t have much income, their health insurance will likely be better than yours and be almost completely subsidized by the Federal government.  Repeat each year until they graduate college and get a job.