Do You Have a Hobby or a Business in Summerlin?

hobby or business summerlin

Do you collect stamps? Write stories? Craft macrame holders for hanging plants? Do you consider what you do a hobby or a business? The IRS has weighed in on this: “A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit.” Of course, acknowledges the agency, you may engage in hobby activities that turn into a source of income.

However, determining whether that hobby has grown into a business can be confusing. To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or a hobby.

Factors the IRS Uses to Determine Whether You Have a Hobby or a Business

These factors are whether:

  • The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
  • The taxpayer puts time and effort into the activity to show they intend to make it profitable.
  • The taxpayer depends on income from the activity for their livelihood.
  • The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
  • The taxpayer has enough income from other sources to fund the activity.
  • Losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
  • There is a change to methods of operation to improve profitability.
  • The taxpayer and his or her adviser have the knowledge needed to carry out the activity as a successful business.
  • The taxpayer was successful in making a profit in similar activities in the past.
  • The activity makes a profit in some years, and how much profit it makes.
  • The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts and circumstances with respect to the activity must be considered. No one factor is more important than another.

Safe Harbor

In most situations, the IRS will grant a “safe harbor” and approve an activity as a business if it has turned a profit in at least three of five consecutive years.

What if a taxpayer gets lucky and starts making a profit from an activity that was never intended to do so? The IRS has that covered too: If a taxpayer receives income from an activity that is carried on with no intention of making a profit, the taxpayer must report the income he or she receives.

Not Sure Whether You Have a Hobby or Business?

If you’re not sure about your situation, consult with a qualified tax professional. Here at Layton Layton & Tobler we can help you decide. Contact us today to schedule a consultation. We can also help you with payroll preparation and auditing.

We’ll Help You Determine Whether You Can Claim What You Do as a Business in Summerlin

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Posted on July 30, 2022 | Published by Ignite Local | Related Local Business

Can an IRS Offer in Compromise Help You?

Offer in Compromise

Despite its reputation, the Internal Revenue Service can be flexible in situations where you owe more in taxes than you can feasibly pay. The IRS will consider your unique set of circumstances and your ability to pay in terms of your income, expenses, and asset equity. From there, the IRS generally approves an offer in compromise submission when the amount of money being offered represents the greatest amount of money that the IRS can expect to collect in a reasonable period.

How to file an offer in compromise form

The trick is knowing how the system works. First, you have to file an OIC application. Before the IRS accepts the application, the IRS will check to see that you’ve filed all of the required returns and made your estimated payments on time. It’s also important to know that you can’t apply for an OIC if you’re involved in open bankruptcy proceedings.

If you meet those conditions, you can submit your application alongside the $205 application fee. You will also need to make an initial payment, the value of which will depend on your offer and the payment option you choose.

The two payment options when submitting an OIC form 

Here are your options:

  • Lump sum cash—Submit an initial payment of 20% of the total offer amount with your application. If your offer is accepted, you’ll receive written confirmation from the IRS. The remaining balance that is due on the offer will be paid in five payments or less.
  • Periodic payment—Submit your initial payment with your application. Continue paying the remaining balance in monthly installments while the IRS considers your offer. If it is accepted, continue to pay your amount due until the balance is paid in full.

If you meet the low-income certification guidelines, you won’t have to pay an application fee or an initial payment, nor will you need to make monthly installments while the IRS is evaluating your offer.

For others, while you await a decision regarding your offer, your nonrefundable payments and fees will be applied to the tax liability. You can designate payments to a specific tax year and tax debt. Meanwhile, keep the following implications of your filing in mind:

  • A Notice of Federal Tax Lien may be filed.
  • Other collection activities might be suspended.
  • The legal assessment and collection period is extended.
  • You must continue to make all required payments associated with your offer.
  • You don’t have to make payments on an existing installment agreement.
  • Your offer is automatically accepted if the IRS doesn’t let you know its decision within two years of the IRS receipt date.

What to expect if your OIC form is accepted 

If your offer is accepted, these could be the terms of your situation:

  • You must meet all of the offer terms listed in your form, including filing all required tax returns and making all payments on time.
  • Any refunds due in the calendar year your offer is accepted will be applied to your tax debt.
  • Federal tax liens aren’t released until your offer terms are satisfied.
  • Certain offer information is available for public review by requesting a copy of a public inspection file.

What to do if your OIC form is rejected 

However, if your offer is rejected, keep these details in mind:

  • You have the option to appeal the rejection in 30 days.
  • The IRS Independent Office of Appeals provides additional assistance to people who would like to appeal a rejected offer.

At the end of the day, it’s all a matter of government discretion. The IRS provides fair consideration to each properly submitted OIC application. In recent years, about 40% of OIC submissions have been accepted. So, what can you do to improve the odds that your application will be approved? Work closely with a financial professional by contacting us today.

Let Us Help You With Your IRS Offer in Compromise Application in Las Vegas

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Posted on June 8, 2022 | Published by Ignite Local | Related Local Business

9 Ways To Avoid an IRS Audit in Summerlin

IRS audit summerlin

While you cannot fully control whether the IRS audits you come tax season, there are measures you can take in an effort to lower your chances of being audited. It all starts with hiring a reputable tax accountant. If you prefer to file your own taxes, make sure you are diligent and extra careful. But what does this mean? Basically, you should avoid making the following common mistakes that tend to result in an audit from the IRS.

Making data entry errors

When you transfer any amount of data from one location to another, you run the risk of improperly copying numbers, inaccurately inputting data points, and making mistakes regarding your calculations. It is important to be as specific as possible when adding, subtracting, multiplying or dividing digits as you perform data entry. Instead of rounding numbers, be as exact and as precise as possible.

Failing to report all of your income

The IRS receives its own copies of every income reporting form that you fill out, including W-2 forms and Form 1099, as well as alimony-related forms and your K-1 income, which entails any losses or dividends that you accrue as a result of your business or your financial partners. Information pertaining to foreign bank accounts is also accounted for by the IRS.

If you fail to report any of your income sources, you run the risk of being audited by the IRS, even if the omission happened by total accident. Whether it’s income from a full-time job or a part-time side hustle, all of the money you earn must be reported.

The IRS often looks at your income from one year to the next, so any discrepancies that are spotted will pique the interest of the IRS, which may lead to an audit.

Misrepresenting your deductions 

Overestimating how much money you can deduct from what you owe is a dangerous game to play. From charitable deductions and business expenses to home office deductions and other potential tax breaks, claiming too many deductions can ultimately look like a cause for concern in the eyes of the IRS.

This is usually especially true if your deductions are far greater this year than they were in years prior. Be honest about how much money you’ve donated to charity, the size of your home office, and other specifics pertaining to any and all tax deductions that you claim. When possible, obtain and hold on to receipts that you can provide to the IRS in the event that you are audited as a result of the deductions you are claiming.

If you claim a lot of various deductions when filing your taxes, you are typically automatically at risk of being audited because deductions often draw attention to you. Just make sure that any deductions you claim can be proved with documentation in the event that you are selected for an audit.

Choosing the wrong filing status

It is imperative that you select the proper filing status for yourself and your circumstances. With the help of a reputable tax professional, you can ensure that you are making the right selection. If you change your filing status in a way that is drastically different from your prior filing status, then you might cause heads to turn at the IRS.

For instance, if you recently divorced your spouse but you try to claim head of household or single for the year you were still married, the IRS will likely investigate. There are different filing status options for a reason, so make sure you select the status that is accurate for you.

Falsely claiming dependents 

It might seem easy to claim dependents, but there are various checklists that must apply before you can do so. Claiming children that you don’t actually have or saying you have dependents when you only have pets will be viewed as pure deceit. Instead of getting into trouble with the IRS, be honest about your dependents. While honest mistakes can happen, especially in the event of confusion caused by child custody, the IRS is not always forgiving of accidents, so the fewer you make and the more you can avoid, the better.

Wrongfully claiming the Earned Income Tax Credit

The Earned Income Tax Credit was put in place with the intention of assisting households that have low income levels. The IRS is adamant about making sure only the households that legitimately qualify are able to take advantage of this credit opportunity, so before you claim the Earned Income Tax Credit, double-check your eligibility with an experienced tax adviser.

Exhibiting strange behavior when self-employed 

The IRS keeps a watchful eye on the self-employed because self-employment taxes can be quite complex. If you are self-employed and you either fail to acknowledge that you’ve made a profit or claim that you are not profiting from your self-employment services, then the IRS will be skeptical of the legitimacy of your self-employment.

Reporting drastically different information than your employer

If you happen to be a shareholder in a corporation of any kind, be mindful of the fact that the IRS will likely compare your tax return to the information reported by the corporation. If your information does not line up with theirs, the IRS might investigate to figure out why there are discrepancies between you and the other party.

Keeping inaccurate records

Make sure you maintain accurate records that you can then reference when it comes time to file your taxes each year.

The odds of getting an IRS Audit in Summerlin are slim

When you are intentional and honest about your taxes, there is nothing to worry about. The odds of you being audited will be slim, but even if you are selected for an audit, the IRS will likely see upon further investigation that there is no reason to be concerned. As always, there is no way to be sure that you’re safe from an audit, but if you are audited by the IRS, try not to panic. Instead, contact us at Layton, Layton & Tobler. Established in 1971, we are a trusted CPA firm providing highly experienced accounting, auditing and tax services for business and individuals in the greater Las Vegas area.

We Help You Avoid an IRS Audit in Summerlin

Serving Las Vegas, Summerlin & Henderson


Posted on May 11, 2022 | Published by Ignite Local | Related Local Business

Getting Representation Before the IRS in the Las Vegas Area

representation IRSNobody likes dealing with the IRS, but if you have to do it, it’s nice to have an expert in your corner. That’s why you have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. It’s one of the fundamental rights of all taxpayers as outlined in the Taxpayer Bill of Rights. If you cannot afford representation, you have the right to seek assistance from a Low Income Tax Payer Clinic. You don’t have to attend with the representative when you retain representation unless the IRS formally summons you to appear. In most cases, the IRS suspends an interview if you request consultation with a representative, who may be an attorney, a certified public accountant, an enrolled agent or an enrolled actuary. Any such representative may submit a written power of attorney to represent you before the IRS.

The Power of Representation with the IRS

Indeed, although the IRS may seem all-powerful, you have a lot of leverage. Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

Taxpayers are also entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Offi­ce of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

Special Help for Low-Income Taxpayers

If you decide to seek assistance from the low-income taxpayer clinic, check out the Low Income Taxpayer Clinics page on IRS.gov or call the IRS toll-free at 800-829-3676. LITCs are independent of the IRS and of the Taxpayer Advocate Service. They charge a small fee to represent you in audits, appeals and tax collection disputes before the IRS and in court. If you speak English as a second language, there are people at the clinics who can provide information about your rights and responsibilities in many different languages.

For more information about your rights as a taxpayer, see Publication 1, Your Rights as a Taxpayer. For a list of LITCs, go to the Low Income Taxpayer Clinic List. More about the Taxpayer Advocate Service is available on its website.

Your Best Bet For a Good Outcome With the IRS

Your best bet for a good outcome with the IRS is to work closely with a qualified tax professional. Contact us at Layton, Layton & Tobler. Established in 1971, we are a trusted CPA firm providing highly experienced accounting, auditing and tax services for business and individuals in the greater Las Vegas area.

Getting Representation: Help With the IRS From Qualified Tax Professionals in Las Vegas

Serving Las Vegas, Summerlin & Henderson


Posted on April 22, 2022 | Published by Ignite Local | Related Local Business

 

Can You Lower Your Property Taxes?

property taxes las vegas

Property taxes can be confusing, as there doesn’t appear to be an obvious, consistent rate. Still, there is a method to the apparent madness.

How Property Taxes are Calculated

First, understand that property taxes are calculated using the tax rate and the current market value of your property. Tax rates are based on state law and set based on what municipalities feel they need to pay for important services. An assessor hired by your local government estimates the market value of your property, including the land and structure.

The assessed value is a percentage of the home’s market value or the market value itself, depending on the jurisdiction, and your tax bill is based on this assessment. Your tax office multiplies the tax rate by the assessed value to come up with your bill.

Take Charge of Your Situation

Request a copy of your property tax card from the assessor’s office. It will give you information your town has gathered about your property, such as the size of the lot, the precise dimensions of the rooms, and the number and type of fixtures located within the home. It may include a section about improvements made to the existing structure.

Read it carefully, and note any discrepancies. If the information on the card is wrong, inform the assessor, who will either make the correction or conduct a reevaluation. Next, research other assessments on comparable homes. If a similar house has a lower assessment, bring it to the assessor’s attention.

You don’t have to give the assessor permission to access your home, but you should. If you refuse, it’s in the town’s interest to assume that you’re hiding some pricy improvements. Some towns have a policy to let the assessor automatically assign the highest value if not granted access to the property.

Look for exemptions

Your tax burden could be lowered:

  • If you are a senior.
  • If you are a veteran.
  • If you have certain disabilities.
  • Following the death of a homeowning spouse. This is called the homestead exemption; it can also release the surviving spouse from certain debts.

What to Do if You Believe You’re Being Overcharged

You may, after your research, believe you’re being overcharged. In that case, appeal your tax bill. You may have a small filing fee; and you’ll probably need a lawyer, who may take a portion of the savings on your tax bill if your appeal is approved. You may get a reduction, but there’s no guarantee. Sometimes, you even see a raise! So be prudent, and don’t file an appeal with nothing more than hope.

Finally, keep in mind that each state and each locale has its own rules and procedures. Work with local property and legal professionals to make sure your appeal has merit.

Property Taxes: The Bottom Line

The bottom line: Don’t assume your tax bill is set in stone. With research and due diligence, you may be able to reduce your burden. Contact us at Layton, Layton & Tobler. Established in 1971, we are a trusted CPA firm providing highly experienced accounting, auditing and tax services for business and individuals in the greater Las Vegas area.

Property Taxes for 2022 from Las Vegas CPA

Serving Las Vegas, Summerlin & Henderson


Posted on March 9, 2022 | Published by Ignite Local | Related Local Business

IRS Presents Filing Tips for 2022

irs filing tips las vegas

The IRS is encouraging taxpayers to make sure they’re well-informed about their tax situation as the filing deadline approaches. The key topics include special steps related to charitable contributions, economic impact payments and advance child tax credit payments. Here are some key IRS filing tips for taxpayers to know before they file next year.

Changes to the charitable contribution deduction

Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.

Check on advance child tax credit payments

Families that received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return:

  • Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
  • Eligible families that did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families that don’t normally need to file a return.

In January 2022, the IRS will send Letter 6419 showing the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance child tax credit payments with their tax records to share with their preparers. Individuals can also create or log in to an IRS.gov online account to securely access their child tax credit payment amounts.

Economic impact payments and claiming the recovery rebate credit

Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don’t usually file, to claim the credit.

Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return.

In early 2022, the IRS will send Letter 6475, which contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to an IRS.gov online account to securely access their economic impact payment amounts.

As for refunds, the IRS is saying that it anticipates that most taxpayers will receive their refund within 21 days of when they file electronically, barring any issues with processing their tax return. However, there are other reports that there will be delays this year because of special challenges.

Need Help Filing 2022 Taxes in Las Vegas? Contact Us for IRS Filing Tips

There’s a good chance you have other issues you should address to minimize any problems or hassle as the filing date approaches. Reach out to a qualified tax preparer to keep yourself on track. Contact us at Layton, Layton & Tobler. Established in 1971, we are a trusted CPA firm providing highly experienced accounting, auditing and tax services for business and individuals in the greater Las Vegas area.

IRS Filing Tips for 2022 from Trusted Las Vegas CPA

Serving Las Vegas, Summerlin & Henderson


Posted on February 15, 2022 | Published by Ignite Local | Related Local Business

January 31 Tax Due Date Is Approaching

january 31 tax As the year winds down, it’s time for businesses to start preparing for their tax filings. January 31 is the due date for many significant tasks, as shown below.

Businesses should keep in mind that state taxing authorities have their own set of due dates. Also, the IRS will grant extensions because of serious weather-related incidents, for example. It’s never too early to work with your accounting and payroll staff to make sure your end-of-year reporting is accurate and on time.

January 31 Requirements

  • File Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. However, if you deposited all of the FUTA tax when due, you have 10 additional calendar days to file.
  • File Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees if you paid wages to one or more farmworkers and the wages were subject to social security and Medicare taxes or federal income tax withholding under the Form 944, Employer’s Annual Federal Tax Return, for the previous calendar year instead of Form 941 if the IRS has notified you in writing to File Form 944.
  • File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll income tax withheld in the previous year. If you deposited all taxes when due, you have 10 additional calendar days to file.
  • File Copy A of all paper Forms W-2, Wage and Tax Statement, with Form W-3, Transmittal of Wage and Tax Statements, or file electronic Forms W-2, with the Social Security Administration (SSA) to report wages, tips and other compensation paid to an employee. For information on reporting Form W-2 information to the SSA electronically, visit the SSA Employer W-2 Filing Instructions & Information Web page.
  • File Copy A of paper, Form 1099, Miscellaneous Income, with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, or file electronic Forms 1099, Miscellaneous Income with the IRS, when you are reporting non-employee compensation payments in box 7. Don’t forget Form 1099-NEC, required for services performed by someone who is not your employee.

Other end-of-year reminders

There are other key issues you need to be on top of as the year ends:

  • You must report the amount of personal use of company-owned vehicles as compensation on employees’ W-2 forms. There is a standard formula used to calculate these amounts based on the value of the vehicle and the percentage of business vs. personal use of the vehicle.
  • You must report the amount of company-paid health insurance premiums for S-corporation owners and their families as compensation on the employees’ W-2 forms. This amount is not subject to Social Security and Medicare withholding.
  • You may have other payroll reporting requirements if you offer other fringe benefits to employees such as disability insurance, life insurance, dependent care and education.

This is just an overview. For details on what your company needs to do—for the end of 2021 and for all of 2022—work with a qualified tax professional.

End of Year and January Tax Help

This is just an overview. For details on what your company needs to do—for the end of 2021 and for all of 2022—work with a qualified tax professional. Ensure your financial statements are appropriately completed and filed by contacting the pros at Layton Layton & Tobler today.

January 31 Tax Help from Trusted Las Vegas CPA

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Posted on January 12, 2022 | Published by Ignite Local | Related Local Business

Payroll Tax Rates and Contribution Limits for 2022

payroll tax las vegas

Below are federal payroll tax rates and benefits contribution limits for 2022.

Social Security tax

In 2022, the Social Security tax rate is 6.2% for employers and employees, unchanged from 2021. The Social Security wage base is $147,000 for employers and employees, increasing from $142,800 in 2021. Self-employed people must pay 12.4% on the first $147,000.

Medicare tax

In 2022, the Medicare tax rate for employers and employees is 1.45% of all wages, unchanged from 2021. Self-employed people must pay 2.9% on all net earnings.

Additional Medicare tax

In 2022, the additional Medicare tax remains unchanged at 0.9%. This tax applies to wages and self-employment income over certain thresholds ($200,000 for single filers and $250,000 for joint filers).

401(k) limits

In 2022, the maximum contributions to traditional and safe harbor plans are as follows:

  • Employee (age 49 or younger) = $20,500, up from $19,500 in 2021.
  • Employee catch-up (age 50 or older) = $6,500, unchanged from 2021.
  • Employee and employer (age 49 or younger) = $61,000, up from $58,000 in 2021.
  • Employee and employer (age 50 or older) = $67,500, up from $64,500 in 2021.

Employees can contribute up to $14,000 to a SIMPLE 401(k) plan, up from $13,500 in 2021.

HSA and HDHP limits

In 2022, the maximum contributions to a health savings account are as follows:

  • Employer and employee = $3,650 (self only), $7,300 (family).
  • Catch-up amount (age 55 or older) = $1,000.

In 2022, the limits for a high-deductible health plan are as follows:

  • Minimum deductibles = $1,400 (self only), $2,800 (family).
  • Maximum out-of-pocket amounts = $7,050 (self only), $14,100 (family).

FSA limits

In 2022, employees can contribute:

  • Up to $2,850 to a health flexible spending account, increasing from $2,750 in 2021.
  • Up to $5,000 to a dependent care FSA if filing single or jointly, and up to $2,500 if married but filing separately. The American Rescue Plan temporarily raised the dependent care FSA limits in 2021 to $10,500 and $5,250, respectively. These increases do not apply in 2022.

QSEHRA limits

In 2022, employers with a qualified small employer health reimbursement arrangement can reimburse employees for health care expenses as follows:

  • $5,450 (self only), up from $5,300 in 2021.
  • $11,050 (family), up from $10,700 in 2021.

Commuter benefits limit

In 2022, employees can contribute up to $280 per month for qualified commuter benefits (e.g., mass transit and parking), up from $270 per month in 2021. This limit includes any employer contributions.

Adoption assistance exclusion limit

In 2022, up to $14,890 in employer-sponsored adoption assistance may be excluded from an employee’s gross wages, increasing from $14,440 in 2021.

Remember, these are all federal rates and limits. Be sure to check with the necessary agencies for state and local payroll rates.

Payroll Tax Help & Financial Monitoring by a Trusted Las Vegas CPA

Whatever your industry, your financial documents must be in order to avoid an unwelcome visit from the IRS. Ensure your financial statements are appropriately completed and filed by contacting the pros at Layton Layton & Tobler today.

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Posted on December 9, 2021 | Published by Ignite Local | Related Local Business

2021 Tax Tips: A Look at the Future

2021 tax tips

The end of the year always means the possibility of last-minute tax changes, and this year, that’s especially true. Some of the new legislation may mean major changes starting in the new year, but other proposed bills, such as new capital gains and qualified dividend tax rates, may take effect retroactively. And taxes on the wealthy may go up, too. Many are wondering what 2021 tax tips we can offer.

Difficult to Plan with Certainty

These possibilities make it difficult to plan with certainty. Specific provisions under consideration include those discussed here. Note that, if passed, these provisions are likely to be subject to certain exclusions and dollar limits:

  • Increasing the top ordinary income tax rate from 37% to 39.6%, which was the rate prior to the passage of the Tax Cuts and Jobs Act of 2017.
  • Increasing the long-term capital gains and qualified dividend rate from 20% to 39.6% for taxpayers with annual adjusted gross income of more than $1 million.
  • Changing the capital gains tax to:
    • Tax capital gains when assets are gifted or transferred to people at death.
    • Tax capital gains when assets are transferred to or from an irrevocable trust or partnership.
    • Tax capital gains on unrealized appreciation of assets held in trust if capital gains have not been paid on a property for 90 years (e.g., property in a generation-skipping trust).
    • Tax carried interests as ordinary income instead of capital gains.
  • Subjecting pass-through income to either the 3.8% Medicare tax or the 15.3% self-employment tax if taxable income is greater than $400,000.
  • Repealing the Section 1031 like-kind exchange rules for real estate so that investors cannot defer taxes by rolling profits from the sale of a property into their next purchased property.

More from Capitol Hill

Although we have not yet seen a final draft of the proposed legislation, these are changes that should be considered as part of 2021 year-end tax planning. In addition, at least two other tax topics still might be included in the final bill: (1) a change in the $10,000 state and local income tax and (2) an increase in the estate and gift tax rate. (However, the $11.7 million allowance is scheduled to sunset on Dec. 31, 2025, unless it is extended.)

2021 Tax Tips: Six Proactive Measures

Debate around all these provisions is ongoing, but prudent taxpayers should become familiar with how they can change business and estate plans going forward. Here are six proactive measures that can result in lower taxes should these changes in the tax code be enacted:

  1. Transfer any appreciated assets you were planning to transfer by the end of 2021. Waiting until 2022 may expose these gifts to a capital gains tax. This is a good idea even for transfers to a spouse, revocable trust, not for profit, small business or family farm because we do not yet know whether transfers to any or all of these entities will be excluded from taxation.
  2. Review any estate tax planning strategies involving irrevocable trusts or partnerships to assess whether a capital gains tax may be triggered on appreciated assets to be contributed or distributed in the future.
  3. Consider selling investment real estate and buying new property in 2021. This may help avoid triggering taxes if the Section 1031 exchange rules change.
  4. Maximize contributions to retirement plans. Be aware that backdoor Roth IRAs may be eliminated in 2022.
  5. Cash out any carried interest positions.
  6. If you’re thinking about selling a business in 2022, consider doing so in 2021 instead, before there is a change in the capital gains rate. The proposed capital gains rate is nearly double the current rate, which means you would nearly double the amount of tax paid on the sale.

2021 Tax Tips, Tax Preparation and Planning in Las Vegas

Keep in mind that the situation is changing rapidly, and your best bet is to keep in close touch with financial professionals. Ensure your financial statements are appropriately completed and filed by contacting the pros at Layton Layton & Tobler today. We are also payroll and auditing experts.

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Posted on November 10, 2021 | Published by Ignite Local | Related Local Business

State and Local Tax Considerations for Remote Employees in Las Vegas

remote employees las vegas
When the COVID-19 pandemic started, no one could have envisioned how long remote work would last or how many people would want to continue working remotely on a permanent basis. Along with the many problems this created in the workplace is one that affects how remote employees pay state and local taxes. In general, there is a difference between employees who work remotely because of their employers’ necessity and those who do so for their own convenience. With hybrid work arrangements becoming a feature of the new workplace, employers should be very deliberate when they communicate and execute policies relating to an employee’s work location.

‘Convenience of the employer’ rule

The core question is this: Which state does the employee pay income tax to: the state where he or she lives or the state where his or her employer is located? In most states, a remote employee must pay taxes wherever he or she resides. However, some states follow a “convenience of the employer” rule that treats days worked at home as days worked at the employer’s location if the employee is working remotely for his or her own convenience and not the employer’s necessity.

Some states have reciprocal agreements stating that employees only have to pay tax in the state where they live, no matter whether they are doing so for necessity or convenience. Employees in this category will only have taxes withheld for one state.

If the employee lives and works in different states and those states do not have a reciprocal agreement, the employee will have to file two tax returns, one for each state. In addition, some cities and localities, such as New York City and Yonkers, New York, have their own taxes, which means some taxpayers will have to pay taxes to three entities.

While taxpayers affected by these rules will not necessarily be double- or triple-taxed because they usually are eligible for tax credits, each state has its own tax rates, and that could affect the taxpayer’s total tax bill.

This issue may eventually reach the U.S. Supreme Court, but the court recently declined to hear two cases relating to telecommuting tax policy.

Domicile or residency

A person’s state of domicile is the state in which his or her primary residence is located. A person has statutory residence in a state if he or she spends more than 183 days in that state in a given year. Some people also have income from additional states.

In general, personal income taxes must be filed in the state where the taxpayer’s principal residence is located. This is true for both W-2 employees and 1099 independent contractors.

Keep in mind that even states that do not collect personal income taxes usually require the taxpayer to file a return, and that taxpayers who live in one of those states must file nonresident tax returns in states from which they receive a W-2.

Keeping relevant documents and records, including utility bills and EZ pass statements, can help support your claims if you are audited. Having a daily calendar can be helpful as well.

Employer considerations and Remote Employees

Remote workers can cause additional work for employers, which must be sure to be compliant with payroll tax withholding rules for accurate payroll tax withholding and reporting. Business tax filings may also be affected, including filings regarding passthrough business income, unemployment insurance withholding, workers’ compensation, disability, sales tax and employment requirements.

Sales tax can be a particularly thorny issue since it takes only one employee working in a state to create an economic nexus in that state.

There are many rules to consider, including how long COVID-19 rule suspensions or modifications will be in force. In many instances, these rules have either expired or will expire shortly.

To be sure to avoid any penalties, individual taxpayers and businesses need to be familiar with the tax law in their resident state and any other states in which they operate. Getting professional help is the best option for navigating this changing area of the tax law.

Layton Layton & Tobler is a trusted CPA firm providing highly experienced accountingauditing and tax services for business and individuals in the greater Las Vegas area.

Help with Tax Considerations for Remote Employees in the Las Vegas Area

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Posted on October 13, 2021 | Published by Ignite Local | Related Local Business