CPA Blog

QSB stock offers 2 valuable tax benefits

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Published: Tuesday, 02 August 2016 10:24

Written by Phillip Strickler, CPA.CITP

By investing in qualified small business (QSB) stock, you can diversify your portfolio and enjoy two valuable tax benefits:

1. Tax-free gain rollovers. If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

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Should you make a “charitable IRA rollover” in 2016?

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Published: Wednesday, 27 July 2016 14:49

Written by Phillip Strickler, CPA.CITP

Last year a break valued by many charitably inclined retirees was made permanent: the charitable IRA rollover. If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions.

Satisfy your RMD

A charitable IRA rollover can be used to satisfy required minimum distributions (RMDs). You must begin to take annual RMDs from your traditional IRAs in the year in which you reach age 70½. If you don’t comply, you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t. (An RMD deferral is allowed for the initial year, but you’ll have to take two RMDs the next year.)

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To deduct business losses, you may have to prove “material participation”

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Published: Tuesday, 19 July 2016 16:50

Written by Phillip Strickler, CPA.CITP

You can only deduct losses from an S corporation, partnership or LLC if you “materially participate” in the business. If you don’t, your losses are generally “passive” and can only be used to offset income from other passive activities. Any excess passive loss is suspended and must be carried forward to future years.

Material participation is determined based on the time you spend in a business activity. For most business owners, the issue rarely arises — you probably spend more than 40 hours working on your enterprise. However, there are situations when the IRS questions participation.

Several tests

To materially participate, you must spend time on an activity on a regular, continuous and substantial basis.

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Today’s asset purchase could turn into tomorrow’s tax break

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Published: Thursday, 14 July 2016 10:33

Written by Phillip Strickler, CPA.CITP

Shopping, anyone? If your business is in need of office equipment, computer software or perhaps an HVAC system, the purchase you make today could provide you with a tax break tomorrow — or, more specifically, when you’re ready to file your 2016 taxes. The Section 179 expensing deduction remains a solid potential tax-saving value for today’s companies.

Expensing your buys

Sec. 179 of the Internal Revenue Code allows businesses to elect to immediately deduct — or “expense” — the cost of certain tangible personal property acquired and placed in service during the tax year. This is instead of claiming the costs more slowly through depreciation deductions. The election can only offset net income, however. It can’t reduce it below $0 to create a net operating loss.

The election is also subject to annual dollar limits. For 2016, businesses can expense up to $500,000 in qualified new or used assets, subject to a dollar-for-dollar phaseout once the cost of all qualifying property placed in service during the tax year exceeds $2 million.

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