Tax Learning Center

Explore the differences between a CPA vs. a tax preparer. Find out which one suits your needs when seeking accounting services for small businesses.

Follow our guide on tax planning for small business owners. Learn how you can minimize your tax burden in this blog. Start planning with us today.

The U.S. Treasury Department has requirements to report information about LLCs, corporations and partnership entities that you have formed and can impose a $10,000 fine for failure to timely file. Many people form LLCs for new or potential businesses that are never actively operated, and they do not realize that they have an obligation to file with the U.S. Treasury information as to who owns the entities. U.S. citizens, legal residents, and any foreigner who is present in the U.S. for a certain period of time is required to file a FINCEN report with the U.S. Treasury if at any time during the year the combined balance of they own of all bank accounts exceeds $10,000. These reports can easily be filed online through the Financial Crime Enforcement Network (FINCEN Network) which can be accessed online at ( here )

Donating an investment, such as stock, mutual fund or real estate, that has significantly gone up in value creates a double tax saving. First, you get a tax deduction for the value of the investment donated; second, you also avoid paying taxes on the investment when you eventually sell it. People often sell a stock, and then donate the proceeds to a charity, which creates a tax bill for selling the stock. In these cases, it’s a no-brainer to donate the investment directly to charity, since you avoid paying tax on the capital gain. If you donate the investment directly to a charity and have the charity sell it, the charity does not pay taxes on the gain since the charity is tax exempt. It's a win-win! The trick is to help the charity receive the investment . Generally speaking, most large charities have an investment account, while many smaller charities do not. I work with clients to help their favorite charities (e.g. church or synagogue) set up a low-cost investment account, using popular brokerage accounts such as Vanguard, to facilitate the donation. The brokerage account won’t charge you anything to transfer the stock, and the charity will most likely pay an estimated $20 to sell the donated stock, so cost is not an issue. Another tip: Ensure the charity is a U.S. charity , since foreign charity donations are not eligible for you to take a tax deduction. Please email matthew@msabrams.com with any questions you have.

Learn about converting a non-deductible IRA to a Roth IRA. Understand the tax implications and benefits of this for your retirement savings.

Maximizing tax deductions before the end of the year can save you taxes. An often overlooked deduction is donation of clothing and household items. It’s important to know how to do this to both maximize your tax savings, and follow the tax rules. This deduction for many taxpayers often can range between $500-$1,000, which could save a taxpayer between $150-$300 in taxes, assuming a tax rate of 33%. This is an easy tax break to take advantage of if you know the tax rules and how organize your documentation. If you can’t make the donation by year end, make it a New Year’s resolution to do this in January , and get the deduction next year. The tax deduction is the fair market value of the donated items, or their original tax basis (cost) if lower. Inherited items that are donated have a tax cost of their value when inherited, so donating inherited items can result in a significant tax deduction. Documentation of donations is needed for donations of any dollar amount. Donations in excess of $500 require an additional tax form to be included in your return, but the rules for donations less than $500 are basically the same. Therefore, it’s best to learn the rules that apply to donations over $500 to keep it simple. In addition to a receipt from the organization you make the donation to, you need to demonstrate how you calculated the value of the donated goods. Valuing Your Donation IRA distributions can be tax free if you are older than 59 ½ and have low income this year, but you need to take action fast before year end. Your itemized deductions and exemptions might exceed your income, which creates the opportunity to take a taxable IRA distribution tax free. But if you are younger than 59 ½, there’s a tip for you too! Organize the items you are donating into similar items (in this example we assume clothing is donated) Add up each category of clothing donated, such as men’s or women’s pants, shirts, suits, dresses, shoes, etc. Count the number of items in each category, add up the number of items for each category, and multiply the quantity by the value of each category. For your convenience, I have posted an Excel worksheet that will make this task easier (above). The worksheet is complete with calculations that will automatically total the values if you enter the quantity and value for each line item. Take a picture using your cell phone or a camera of the stacks of clothing. Pick up a receipt from the charitable organization when you donate your items, and attach your worksheet calculating the deduction. The receipt should include the wording “no services or item of value received”. Since many organizations often give you a blank receipt that they expect you to fill out, write down a basic description of the donation and this phrase on the receipt, and ask the attendant to sign it. Documentation should be obtained prior to the extended due date of your tax return. There are slightly different rules to what information needs to be documented depending on whether the donation is under $250, under $500 or more than $500, so to keep things simple. I would stick with the rules that apply to donations valued at over $500; this will help keep you in compliance when addressing smaller donations: Name and address of organization you make the donation to. Description of items donated. Date of donation, and date of purchase or acquisition (“various will generally suffice for date of purchase). Value and cost (value at date of inheritance, or if a gift, original cost of the gift). Method of valuation (generally “fair resale value”). Special Rules to Know Clothing and household items must be in good condition (no junk), unless the item has appreciated in value. Donations must be made to a qualifying charity. Although a donation to a needy individual doesn’t qualify, you could make an arrangement with a local charity you are associated, such as your church, to donate the items to the organization, and then agree to deliver the items to the intended recipient on behalf of the organization. This would require something in writing authorizing this. Foreign charities do not qualify either, but often have a US-based associated charity than can handle the donation. Appreciated items have special rules. A donation worth more than $5,000 requires an appraisal. Deductions for cars worth more than $500 are limited to the amount for which the organization sold the car, and requires certain written documentation from the organization. A donation worth more than $5,000 requires an appraisal. Please email matthew@msabrams.com with any question you have

Repair deductions are often claimed on rental properties or office in home deductions. However, repairs that replace a component of a property with something new is not deductible as a repair expense but must be added to the cost of the property and depreciated over time. A common example is replacing a roof on a building with a new roof. On the other hand, repairing a leak in a roof is deductible as a repair. ​Other building components that are replaced are not considered repairs are anything structural or something that cannot be removed without damaging the building. Walls, doors, windows, floors, electrical and plumbing are all considered part of the building structure, and if replaced cannot be deducted as a repair and must be added to the cost of the building. Replacing carpeting, linoleum floors, appliances, cabinets and fixtures are also added to the cost of the building but can often be expensed under special depreciation rules. ​When remodeling or renovating a building it is important to categorize the costs by these categories and not by the part of the building being repaired. E.g., a kitchen remodeling has components that are both structural that will be deducted (depreciated) over 27.5 to 39 years, but also includes appliances and fixtures that are added to the cost of the building but can often be expensed in one year.