Biden’s Budget Brings Tax Burdens
Dear Readers,
The Biden administration released it’s budget proposals on Friday June 4th, and among the many provisions are a host of proposed tax changes affecting individuals and corporations.
One set of tax and revenue proposals, named the American Families Plan, would increase taxes on high-income individuals, make permanent various recent tax credit expansions, further limit like-kind exchanges, and address various tax administration issues, including regulation of paid tax return preparers.
Other proposals are grouped under the name American Jobs Plan, and they include a variety of corporate tax changes, including raising the corporate tax rate and imposing a minimum tax on corporations, tax incentives to support housing and infrastructure, and clean energy incentives.
Upcoming Dates
- June 14 – Flag Day
- June 15 – Federal Estimated Tax Payments Due
- June 20 – Father’s Day
- July 15 – Exapnded Child Tax Credit Begins
In This Issue
- Hire Your Kids for Tax Savings
- How to Make More Strategic Decisions with Forecasting
- Hidden Tax Consequences of Cryptocurrency
- Expanded Child Tax Credit Begins July 2021
- Listen: Steve’s Recent Podcasts
Are you interested in coming up with a game plan to cut your taxes this year? Let’s discuss more in a tax strategy session now! If you know someone who could benefit from this newsletter, feel free to send it to them.
If you have any questions regarding the foregoing topics or any tax matter, we encourage you to contact us at 415-394-7200, 888-TAX-DEAL, or moskowitzllp.com for a conversation with Steve or another one of our attorneys at no charge to you.
Further, we will be posting Blog articles on these topics and upcoming legislation changes that will affect you under the IRS enforcement activities and the Tax Changes under the Biden presidency. We encourage you to subscribe to our blog.
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All the best,
Steve Moskowitz,
Founding Partner
Hire Your Kids for Tax Savings
Summer’s almost here, and soon most children will be on their long-awaited summer vacation. If you own or manage a business, have you thought of hiring your children, nieces, or nephews for a summer job?
If You Do it Right, It Can Be a Win-Win Situation for Everyone.
The kids will earn some money and gain valuable real-life experience in the workplace while your business will have some extra help during summer months when other staff may be on vacation. If it’s a family business, there might even be some tax advantages as well.
If your child is doing a valid job and the pay is reasonable for the work, your business can generally claim a normal tax expense for wages paid. Your child will probably pay no or very little income tax on the wages they earned. And if the child is under age 18 and your business is unincorporated, neither your child nor your business will have to pay Social Security or Medicare payroll taxes in most cases.
To make the arrangement work, adhere to the following guidelines:
- Ensure it’s a real job. It could be a simple job, such as office filing, packing orders, or simple production activities. But it needs to be an actual job.
- Treat your child like any other employee. Expect your child to work regular hours and exhibit appropriate behavior. Don’t show favoritism or you risk upsetting regular employees.
- Keep proper documentation. Keep records of hours worked just as you would for any employee. If possible, pay your child using your normal payroll system and procedures.
- Avoid family disputes. If the arrangement is not working, or is disrupting the business, help your child find a summer job at another business.
How to Make More Strategic Decisions With Forecasting
Tax and Financial planning is a year-round proposition
Steve was recently interviewed on Your First 100K Podcast discussing profit optimization, link here. Moskowitz LLP offers forecasting and profit optimizing solutions year-round because we understand that clients only get so much value from historical financial reporting. We often hear questions like, “What will happen if I take this loan? What will happen if I hire more employees? What will happen if I add a new location?” These are all questions that historical reports do not answer. That is why we offer Advisory Services including financial forecasting that includes monthly reporting packages that combines the past, present, and future into monthly, easy to read reporting.
How to take advantage of forecasting and profit optimizing solutions?
By doing tax and financial planning in rolling 12-month increments, you may find yourself in position to cash in on tax- and money-saving opportunities within the next 12 months. Here are several strategies to consider:
- Plan your budget.Will you need to put a new roof on your house? How about getting a new vehicle? How will your business expenses change?
- Identify your Key Performance Indicators.
- Finally get your bookkeeping under control and automated.
- Plan your taxes and estimated tax payments.
- Plan your retirement contributions. See our blog post here.
- Bi-Annual Tax Planning and Tax Credit Review with your tax advisor.
Thanks to technology and institution integrations, it is now easier than ever to get yourself set up to so that you too, can make business decisions based on financial data. Moskowitz LLP offers a comprehensive solution that includes forecasting and profit optimization. Remember, a well-planned system can often be the first sign of future challenges or potential windfall.
Hire Us for Tax Preparation Services Now
The Hidden Tax Consequences of Cryptocurrency
You may recognize the name Bitcoin and maybe even Ethereum, but what about Litecoin, Dogecoin, or Ripple?
These are just some of the more than 4,500 cryptocurrencies available today. There are hidden tax complications, however, associated with every cryptocurrency transaction. Here’s what you need to know.
- Every transaction has a tax consequence. The IRS treats cryptocurrency as investment property, like stock, and taxes every transaction as a capital gain or loss. When you pay for something in the traditional manner with U.S. dollars, the IRS doesn’t care what the value of the dollar is at the time of the transaction. For virtual currency purposes, however, the value matters. For example, assume you buy Bitcoin for $10 and two months later the market value of that Bitcoin grows to $15 and you spend that $15 worth of Bitcoin to buy something, you’ll have a $5 taxable short-term gain that needs to be reported on your tax return. If you spend a lot of cryptocurrency, tracking the gains and losses can be very complicated.
- Big gains mean big taxes, but big losses may be limited. In classic IRS form, there is no cap on the amount of taxes you might owe in a single year for gains on the value of cryptocurrencies you sell, while losses might take many years to recoup because of the annual $3,000 loss limit against income. Adding to the complexity, virtual currencies have dramatic valuation changes…much more so than most traditional investment securities. So you will need to budget appropriately for the taxes you’ll owe whenever you use or sell cryptocurrencies.
- Cryptocurrency puts you on the IRS’s radar. Being relatively new, virtual currency has caused the IRS to become very concerned about potential mistakes and fraud related to how cryptocurrency is reported on tax returns. The IRS is so concerned about you not reporting cryptocurrency activity that the very first question of your tax return, right beneath where you put your name and address, asks if you took part in any virtual currency transactions over the past year.
- You are responsible for bookkeeping. With the IRS watching so closely, it’s important to be accurate with your recordkeeping so you can properly report all virtual currency gains and losses on your tax return and substantiate all your transactions in the event of an audit.
Expanded Child Tax Credit to Begin July 2021
The IRS is notifying taxpayers by letter that they could be eligible for an expanded child tax credit. The American Rescue Plan allows for monthly payments to families beginning this July continuing through December 2021. The payments will be monthly and equal half of the child credit. Families will receive $3,600 for children under the age of 6 and $3,000 for children aged 6-17.
Eligibility is based on information submitted on the 2020 federal tax return, the 2019 federal tax return or the non-filers’ tool to claim the Recovery Rebate Credit. The monies will be paid via direct deposit, paper checks of debt card. If the family wants to opt-out of the monthly payment, they may do so and receive the credit in a lump sum on their 2021 federal taxes. Taxpayers must be up to date on their tax returns.For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.
Please do not hesitate to contact us if we can be of assistance.
Listen: Steve’s Recent Podcasts
Your First $100K Show – Life Coaching, Digital Marketing, & Business Growth.
KGO Radio: Small Business Benefits in the American Rescue Plan