HBS Tax Articles

In today’s column I will discuss the Adoption Tax Credit and children that meet the IRS definition of “special needs.” I will also discuss the unexpected financial windfall adopting these children created for these grandparents and, finally, why time is running out on claiming the credit. 

On January 1st, 2013 Congress passed the American Taxpayer Relief Act of 2012, AKA the Fiscal Cliff Tax Act. This legislation contained 157 pages of Tax Code changes, more than a dozen of which were retroactive and altered the rules for the prior tax year.  These changes were made at the very moment the IRS (and the entire tax-processing industry) was prepared to process income tax returns using the laws that were already in place for 2012. What this has meant for many taxpayers is delayed filing, delayed refunds, and the increased possibility of filing returns containing errors.

If you own a home in a planned community or development there is a good chance you are a member of a homeowners’ association (HOA). One perplexing aspect of HOA management is the tax reporting requirements of the IRS.  I have discussed this topic several times in the past. Still, it continues to generate more calls and web visits than any other topic.  Some common questions our office receives are “Must our HOA file a tax return?” “What return must it file?” and “What happens if we haven’t filed for a number of years?”  Today, I’ll revisit some of these basic questions in order to clarify some of the confusion associated with taxes and your HOA’s reporting requirements.

If your business has ever been audited by the WV State Tax Department the result may have included a very expensive vocabulary lesson.  It is a lesson that forever stamps the phrase “Use Tax” into your, the owner’s, lexicon.

It’s a fact.  Small business owners and their employees generally work harder and wear more hats than their counterparts in larger organizations.  Profitable small businesses must be simultaneously nimble and lean - able to change quickly with their environment while employing just enough staff to get the job done.  Small business owners beware of over-reacting when you feel overwhelmed by too much to do and too little time.  The uncalculated hiring of additional employees is a very poor substitute to implementing and refining systems. It’s one of the most common, growth-stunting mistakes small business owners make just when opportunity knocks.

The fiscal cliff was the progeny of 2011’s debt ceiling debate and the Budget Control Act of 2011.  The Budget Control Act was Congress’s self-imposed ultimatum to find $1.2 trillion in deficit reduction (via a bipartisan super committee) or else.

The election is over.  America has decided.  The Affordable Care Act remains and will soon alter the shape of American health care.  Those who have taken a wait-and-see attitude regarding the law’s post-election viability are scrambling to parse its 2,400 pages and learning two important facts.  First, if everything runs smoothly, many more Americans will have health insurance coverage.  Second, the Affordable Care Act places the Internal Revenue Service smack-dab in the center of health care reform. 

As we transverse the calendar from 2012 to 2013, the horizon is veiled in a fog of financial uncertainty.  If we do not steer clear of this proverbial fiscal cliff, the average taxpayer will face a major tax increase as the Bush Era tax cuts expire. As uncertain as these skies may seem, however, underwater homeowners (debt on their home exceeds its value) facing the prospect of short-sale and/or foreclosure may soon face another dilemma: a sea of tax debt caused by the expiration of Qualified Principal Residence Indebtedness Exclusion. 

If you are the sole owner of an unincorporated business and have not elected to be treated as a corporation for tax purposes, you are considered a “sole proprietor” for tax purposes.  Sole proprietors report their business income and expenses on Schedule C, Profit or Loss from Business.  Schedule C then becomes part of the owner’s individual tax return, Form 1040.  Sole Proprietorships are the most common form of business in the United States, making Schedule C the most common business form filed with the IRS.

Last year the IRS took an aggressive step to ratchet up its ability to enforce business compliance with annual 1099 income reporting regulations.  Today I will discuss form 1099-Misc and these enforcement changes.  I will also share the potential consequences for not filing these annual reports and how to stay out of the IRS’s enforcement cross-hairs.

Solar power has come a long way in recent years.  Increased production has reduced costs while advances in technology have increased the efficiency of solar panels. Increased regulation and rising fuel prices have made traditional forms of electricity more expensive.  At the same time, state and federal tax credits are offsetting much of the cost of installation and causing many homeowners to give solar energy a second look. Is the time right for you to go green?  Today, we’ll discuss some of the efficiency gains and cost savings that solar energy has experienced in recent years and take a look at the tax credits available to those who add solar energy to their homes’ electrical grid.

Today I will discuss the unique but often overlooked relationship that exists between a business, its customers, and community.  Sustainable business growth, especially small business growth, is NOT the result of a myopic strategy to steal dollars from customers and the competition.  In fact, the polar opposite is true - business growth comes from forming win-win relationships.  Ultimately, the level of success you enjoy is determined by how efficiently and effectively your business increases the life-quality of its customers.  In other words, success results from the masterful application of the “Golden Rule.”

Want to rid the driveway of the unused vehicle you must still pay insurance on (or – as in my case - the “oil-dripping eyesore” the Misses wants gone), help your local Habitat for Humanity organization, and get a potential tax deduction?  It’s as easy as making a phone call or visiting a website.

Today I’ll discuss the interest and penalties the IRS imposes on unpaid taxes and why it is important to file your tax return – especially when you owe a tax liability.  I will also share a few circumstances under which the IRS may remove assessed penalties.Today I’ll discuss the interest and penalties the IRS imposes on unpaid taxes and why it is important to file your tax return – especially when you owe a tax liability.  I will also share a few circumstances under which the IRS may remove assessed penalties.

In our last article, “Develop a Profit Paradigm” we discussed the importance of acknowledging two important facts about your business: 1) That profit is the only objective measure of its performance. And, 2) Without profit your business cannot survive, let alone grow. Eventually, most throw up their hands and ask:  “Exactly what is profit and how does it relate to MY business!?”  Answering this question will be the focus of today’s article.

Preparing a minister’s tax return can prove challenging for everyone involved: The minister who must keep records, the church secretary who prepares the W2 forms, the church leadership who determines minister compensation, and the tax professional who prepares the return and advises for the future.  My goal in this article is to help ministers prepare for next tax season and to enlighten church leaders about how the IRS taxes their minister’s compensation.

In an earlier column, “S Corporations, the Good, the Bad, the Scary” I provided an overview of S Corporations and discussed several potential benefits of operating a business as an S Corporation. Today, we will continue our discussion of S Corporations by sharing a common pitfall that can land shareholders in hot water with the IRS.  The Pitfall: deducting losses on their individual return to which they are not entitled.

In the Supreme Court’s 5-4 decision allowing most of the Affordable Care Act to stand, Justice John Roberts interpreted “fees” levied on individuals who choose not buy something (in this case health insurance) as a tax and not a penalty.  If such a fee is, in fact, a tax (and not a penalty), Justice Roberts reasoned, it falls within the scope of congress’s constitutional authority. This article will share a few uncovered details that may impact you and/or your business in 2013.  It will also discuss the penalty/tax scheduled to begin in 2014.

If you want to win at the game of business, and win BIG, you must make a profit – you must become what Peter Richman calls a “Prophet of Profit.”  Today, I will explain what it means to be a Profit of Profit and share some items that will prepare you for Prophet/Profit training.

Today I will begin a discussion on S-Corporations.  The basics and their potential benefits for owners.

Why only the private sector can repay our National Debt.

Today, I will discuss recent changes made to the IRS’s Streamlined Installment Agreement Program.  I will also share two other tools Professionals use to help taxpayers pay and reduce their tax debts: the Offer in Compromise, and the Partial Payment Installment Arrangement.

This column is about utilizing the Five Pillars of Business Growth to achieve your business dream of market domination.

In today’s column I will discuss the Adoption Tax Credit and children that meet the IRS definition of “special needs.” I will also discuss the unexpected financial windfall adopting these children created for these grandparents and, finally, why time is running out on claiming the credit.

If you’re like most business owners, you probably believe your customers purchase the product or service you provide.  Although this is true, it glosses over a far more important fact.

In today’s column I will expand our discussion of time: Its power to grow your business and how to tap into it.

The purpose of today’s column is to correct two of the most consequential misunderstandings regarding the Qualified Principal Resident Indebtedness Exclusion.

The number of foreclosures, short sales, and property owners simply handing over their keys remains at an all-time high.  Unfortunately, this trend will continue for the foreseeable future - as long as the number of owners “underwater” remains at an all-time high.

What is a business’s most valuable resource?  Is it the millions of dollars a company has amassed in cash reserves?  No.  How about a level of brand recognition that has created an ever-growing percentage of market-share? No. Is it Human capital?  Important but… no. A leader’s strategic vision? Sorry. No.

In my last column, I discussed three of the red flags most often waved at the IRS by sole proprietors: 1) Using the incorrect business classification code, 2) Errors made in reporting their business auto use, and 3) Claiming losses year after year.  Today, I will round out our “red-flag” discussion by reviewing the 4th major Schedule C red flag: the home office deduction.

The purpose of the Consultant’s Corner and Growth Strategies is to help business owners and leaders hurdle the many stumbling blocks that impede progress and, all too often, knock businesses and organizations completely out of the race.  The most daunting obstacle blocking the path to success is what I call the cold, hard truth.

If you are the sole owner of an unincorporated business and have not elected to be treated as a corporation for tax purposes, you are considered a “sole proprietor.”  Sole proprietors report their business income and expenses on Schedule C, Profit or Loss from Business.  Schedule C then becomes part of your individual tax return, Form 1040.  Sole Proprietorships are the most common form of business in the United States, making Schedule Cs the most common business form filed with the IRS.

The sagging economy has many reconsidering their charitable giving – just when it is needed most.  Tough times, however, do not mean you must forego the charitable season.  If you’re tired of paying insurance and maintenance on a seldom-used vehicle, consider donating it to charity.  It’s a great way to serve your community, cut expenses and, as a bonus, reduce your tax bill.

Helping others elevates your spirit.  Sharing your blessings as the holiday nears will lift the spirit of others.  It may even lower your tax bill if you itemize deductions and properly document your giving.

One of the reasons business owners choose to operate through a separate structure, such as an LLC or a corporation, is to obtain what is called “limited liability.”  In investing terms, limited liability means that an owner or investor cannot lose more money than the amount they have invested or personally guaranteed.

There has been much debate recently about increasing taxes to help balance the budget.  The debate centers on the fact that even though annual federal, state and local tax revenues have increased by 18% over the last decade, this increase has only offset a mere quarter of the same period’s 71% rise in government spending. Taxes are certainly a topic for serious discussion.  When government spending exceeds tax revenues, the difference must be borrowed – borrowing a free society can only repay through additional taxes generated by an expansion of private enterprise and/or the contraction of the government itself.

Thanks to a late-year legislative “Hail Mary,” the fall semester kick-off includes a significant reduction in 2011 and 2012 post-secondary tuition.  Students received this reduction due to a two-year extension of the American Opportunities Credit included in last December’s Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (the “Job Creation Act”).  In this article, I will discuss the American Opportunity Credit and how its provisions expand certain aspects of its predecessor, the Hope Scholarship Credit.  My goal is to help you obtain your degree while reducing the cost of paying for it.

Sir Isaac Newton’s First Law of Motion states that an object at rest will remain at rest until an agent of change forces it to move.  Once set in motion, the object will maintain the same speed and direction until something forces change again. 

No one adopts a child “for the money.”  To the contrary, most see adopting as an act of giving.  A rare act of fiscal atonement recently occurred when Congress changed the Adoption Tax Credit to give back to those who so generously give of themselves.

Today’s article will discuss the “non-business” business structure – the hobby and the “tax trap” it can spring on unsuspecting owners.

Watch television long enough and you’ll eventually find someone touting their ability to solve tax debts for “pennies on the dollar.”  Pay very close attention (and get out a magnifying glass) and you’ll also find the fine-print disclaimer stating that such results are unusual and not to be expected.

As the saying goes “The Taxman Cometh.” Step by step he approaches: Hard-soled shoes slapping pavement,  a trench-coat spotlighting shadows.  Penalties and interest mount as his computer ticks away – finding those who have not filed returns, uncovering those who underpay their taxes.

As April 18th fades to memory many Americans find themselves face-to-face with an uncomfortable reality: owing taxes they are unable to pay.  Some did not have enough taxes withheld from their paychecks.  Others didn’t realize how much of their social security would be taxable.  Many are business owners stuck in the cash-poor mire of a reboundless recession.

Good news! The traditional April 15th income tax deadline falls on a Washington, D.C. holiday this year making April 18th the deadline to file your taxes.  The bad news - April 18th continues its advance regardless of this three day reprieve.

Changes made to tax business rules for 2010 were numerous.  So numerous, in fact, that many tax-saving opportunities may be overlooked by business owners when preparing their 2010 business returns.  Today, I’ll review four changes may help reduce your business’s 2010 taxable income and your tax liability.

The Tax Hike Prevention Act passed in late December of 2010 extended many “Bush era” tax rates that were set to expire in 2010 and reinstated some tax deductions and credits that had expired in 2009.  Today, I’ll review two changes included in the Tax Hike Prevention Act that will allow your business to write off property purchased in 2010 and 2011.

The close of 2010 ended an era of major changes in federal tax legislation. Last year witnessed at least four pieces of legislation that made significant changes to the tax rules for individuals and businesses.  And just when we thought taxes couldn’t get more complicated, Congress slipped the Tax Hike Prevention Act of 2010 into the IRS’s mail slot as it left Washington for Christmas vacation.

In past columns, I have outlined the Five Keys to Business Success.  The “Five Keys” are core characteristics we help business owners develop in order to achieve real, lasting business success.  These characteristics are: 1) living to serve, 2) making a profit, 3) owning a business (not a job), 4) making time for the “business” of business, and 5) managing systems, not people.

There are envelopes that strike the heart with a lightning bolt of terror: the white, windowed, number ten envelope stamped with the return address: Internal Revenue Service Center. If you receive one of these letters take a deep breath and draw some relief from the fact that the vast majority are simple notifications of an easily fixed error.

Taxes are complicated - so complicated that even those who create and enforce the US tax rules sometimes make mistakes. If the tax code is so complex that even its masters fail to file correct returns, how do you know your tax preparer is qualified?  Unless your preparer is an Enrolled Agent (EA), a CPA or a (tax) attorney, the answer is this: you can’t.

The majority of costly, ill-fitting advice we correct at HBS involves individuals and their businesses.  Today, I’ll briefly discuss four common and costly tax-myths that exist in the business community.  If you find yourself receiving advice similar to these “myths,” please seek professional assistance immediately, or at least before you act on it.

Today, we’ll discuss two surprisingly simple steps you can take to make your holiday burdens a tad bit lighter and this year’s season a few shades brighter.

A few weeks ago I discussed the first incentive: an exemption equal to the employer’s 6.2% share of Social Security tax on wages paid to previously unemployed new hires.  Today, I will review the Social Security Exemption and briefly discuss the second incentive, called the “Hire Retention Credit.”

As the unemployment rate rises so rises demand for higher education.  The bleak job market that coincides with the 2010 fall semester has stretched the meaning of the phrase “back-to-school.” Recent tax code changes have made college or vocational school significantly less expensive for both the traditional and nontraditional student.

A substantial, but widely unnoticed, business tax exemption went into effect earlier this year.  The exemption was included in the Hiring Incentives to Restore Employment (HIRE) Act. Today, we will look at the Employer’s Social Security Exemption with an eye on helping your business hire qualified employees while reducing the cost of doing business.

The tax gap is the difference between taxes owed to the US Treasury and taxes actually paid by taxpayers. In my experience, the vast majority of individual noncompliance is not caused by intentional misstatement or willful neglect. What should you do if you find yourself lost in the tax gap?

Does your business or organization qualify for the “Small Employer Health Insurance Credit?”  Let’s piece together a few of the credit’s major components and help assemble an answer.

Recent natural disasters, such as the earthquake that devastated Haiti, have impassioned those who see adoption as a way to help children escape danger and uncertainty.  At the same time, however, the cost of adopting (often upwards of $20-30,000) combined with the reality of economic recession and caused many who would like to adopt to put their plans on hold.

Health Care Reform will touch the lives of every man, woman, and child in the United States.  Its long-term consequences; good and bad, intended and unintended, cannot be overstated. 

The US Tax Code, more exactly, United States Internal Revenue Code, Title 26 of the U.S. Code (26 USC) contains more than 3.4 million words.  Printed 60 lines per page, which requires a 10 point font, it would fill more than 7,500 letter-size pages. In today’s article, we will highlight a few of 2009’s tax year.  Keep this list handy as you gather your tax materials to save a few tax dollars on your 2009 income tax return.

If you own a home in a planned community or development there is a good chance you are a member of a homeowners’ association (HOA).  One perplexing aspect of HOA management is following the tax reporting requirements of the IRS.

Regardless of the side one takes in the health care debate, all differences center on the best way to meet a common, three-point challenge: How to: 1) reduce the cost of health care, while 2) maintaining the healthcare quality, and, 3) simultaneously increasing the number of Americans who have access to healthcare.

When clients learn I am an Enrolled Agent with the Internal Revenue Service a variety of responses follow.  Some panic, thinking I am an auditor or some sort of secret tax-agent.  Others mistakenly believe I am an employee of the IRS.  More often than not, however, I get the response “Enrolled Agent, what is that?”

As unemployment increases so does demand for higher education. Whether traditional student or economic refugee, recent tax code changes have made college or vocational school significantly less expensive.

Are you planning some summer-time home renovations?  Tired of paying high energy costs?  Uncle Sam has some good news for you.  He wants to pay you back for home remodeling projects that reduce your electric and heating bill.

The American Recovery and Reinvestment Act of 2009 includes two tax credits that reimburse homeowners up to 30% of the costs of qualifying energy-saving projects.  These credits are called The Residential Energy Property Credit (REPC) and the Residential Energy Efficiency Property Credit (REEPC).

Foreclosure rates remain at an unprecedented high level.  It is highly likely that you, the reader, know someone who has either lost a home to foreclosure or is struggling to avoid foreclosure.  It is even more likely you know someone who is “upside down” in their mortgage (owing substantially more than their home is worth) and debating whether to continue paying the mortgage or abandon the home.

In recent columns we have discussed tax incentives that the federal government offers to increase demand for energy saving and energy-generating technologies.  Such incentives do not stop at the federal level.  West Virginia recently enacted two initiatives to help taxpayers save money while helping the environment.

Withdrawing money from retirement might seem an easy solution to pressing financial problems.  But removing savings from a tax deferred retirement account can result in a large, unanticipated tax bill.

We’ve all received a few letters that have brought black clouds to our day.  Like the bill for the third of five payments for the Garden Growler, the revolutionary ground-hog repellant that seemed such a bargain a few months ago, but which remains unopened in the garage.

There are, however, envelopes that we receive designed to create a hail-driven stampede back to the porch.  One sure-fire lightning bolt of terror: a white windowed size ten envelope with the return address: “Internal Revenue Service Center.

Most business owners are very familiar with the proper collection and remittance of sales tax. Sales tax’s cohort, use tax, however, often remains unnoticed until an auditor tallies up a jaw-dropping deficiency bill.

My experiences have taught me two business truths.  First, business owners that fail, fail for many reasons and, second, the owners of businesses that achieve real, lasting success share five common characteristics.

In this article, I will review these changes and briefly discuss a substantial, yet not widely promoted, tax deduction available for new vehicle in 2009.  My goal is to help those of you who purchased (or are planning to purchase) a new home or a new vehicle put a little extra cash in your pocket.

My goal in this column is to help ministers prepare for next tax season and to enlighten church leaders about how the IRS taxes their minister’s compensation.

Helping others elevates your spirit.  It may also lower your taxes.  Today, I will revisit some basic tax questions regarding charitable contributions.