Adams' Biz Musings
Hurricane Michael Relief
Hurricane Michael has devastated large parts of the Florida panhandle and has caused significant damage inland through Georgia and beyond. The IRS has issued various reliefs to those residing in the effected areas.
I find myself having to write and advise on disaster area casualty losses all too often over the past 12 months. Hurricane Michael has devastated large parts of the Florida panhandle and has caused significant damage inland through Georgia and beyond. The IRS has issued various reliefs to those residing in the effected areas including additional areas of North Carolina, South Carolina and Virginia. Individuals, residents and businesses in the following counties may be eligible for tax relief from the IRS:
Florida counties: Bay, Calhoun, Franklin, Gadsden, Gulf, Hamilton, Holmes, Jackson, Jefferson, Leon, Liberty, Madison, Suwannee, Taylor, Wakulla and Washington
Georgia counties: Baker, Bleckley, Burke, Calhoun, Colquitt, Crisp, Decatur, Dodge, Dooly, Dougherty, Early, Emanuel, Grady, Houston, Jefferson, Jenkins, Johnson, Laurens, Lee, Macon, Miller, Mitchell, Pulaski, Seminole, Sumter, Terrell, Thomas, Treutlen, Turner, Wilcox, and Worth
As a reminder, the below is just a summary and many situations present unique circumstances. Please read the releases thoroughly or contact a tax professional to help you navigate the best course of action for your situation. Also, as a reminder, all of the below only applies to areas declared by FEMA as eligible disaster zones. If you are not within those zones, other relief may be available.
Don't stress about the extension filing deadline for 2017 personal returns that were due on October 15th, 2018. The deadline has been extended to February 29th, 2019. However, tax payments due for 2017 do not receive an extension as they should have been paid by April 17, 2018. Various other tax filings and tax payments that were to be made in the period commencing October 7th, 20178 are being granted relief and have also been extended to Feb 29, 2019. A comprehensive list of which filings and payments are and are not extended can be found in the IRS press release link at the end of this article.
Casualty losses can generate significant, and fairly immediate, tax refunds and/or savings. A casualty loss is a deductible property loss that you can claim on your tax return. There was a lot of discussion about casualty loss claims when the new tax bill went into effect in 2018, however, the change for casualty losses in declared disaster areas went mostly unchanged. Casualty losses occur when property is damaged, destroyed or lost due to a disaster AND you suffer a net financial loss. To potentially generate quick-ish cash flow, you are allowed to amend 2017 returns and have refunds issued against previously paid tax by claiming casualty losses on the amended returns. If you haven’t yet filed your 2017 return, you can claim the loss on that return when it is initially filed. If you are not in a rush, you can also claim casualty losses on your 2018 return when you file it. You don't have to amend 2017 returns to take advantage of casualty losses. This is a fairly complicated topic so please read the linked piece and then contact a tax professional, the IRS or FEMA if you need guidance.
I go into more detail about casualty losses in the below link that was written for Hurricane Harvey victims. There is little difference in how casualty losses are treated between the two disasters. This is still a pretty surface level overview but will give you a good idea as to if you qualify, how to proceed and some useful links.
LINK TO POST BREAKING DOWN CASUALTY LOSSES
The IRS will provide, free of charge and in an expeditious manner, copies of previous years tax returns. Taxpayers should put the assigned Disaster Designation “Florida, Hurricane Michael” in red ink at the top of Form 4506 (Request for Copy of Tax Return) or Form 4506-T (Request for Transcript of Tax Return), as appropriate, and submit it to the IRS.
The IRS has not yet issued guidance as to if they will allow usage of your 401(k) and similar employer-sponsored retirement plans, without penalty, for various hardships (rebuilding, food, shelter, etc.) if you are in the FEMA-declared zones. I do not know if they will eventually include this as an option, but if they do, I will provide an update. It is an option that has been provided in disaster situations in the past.
The IRS may continue to issue additional relief provisions in the coming days and weeks. If they issue any relevant additional guidance, I will provide an update. Remember, FEMA and the IRS will provide free guidance via phone and at certain locations where available. Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-829-3676. The IRS toll-free number for general tax questions is 800-829-1040. Tax professionals should be able to assist with all available tax reliefs as well.
If you have any questions about the IRS relief, require additional guidance or have any comments on the content, please contact me at adam@ditskystrategic.com.
As always, the information contained within is not to be used as advice. Please contact your tax advisor before making any decisions.
Important Links:
Link to IRS release for Florida Hurricane Michael Relief
Link to IRS release for Georgia Hurricane Michael Relief
Author:
Adam Ditsky, CPA
President, Ditsky Strategic
Can I get paid to an LLC (or other type of pass-through entity)?
The most popular question I've received since the unveiling of the new tax proposal is, "Can I get paid to an LLC by my employer"?
The most popular question I've received since the unveiling of the new tax proposal is, "Can I get paid to an LLC by my employer"? First and foremost, as I've said in previous posts, we have no idea what the final tax plan will look like. So, for now, some gentle review of potential outcomes is worthwhile but don't spend too much time researching anything in particular and certainly don't make any firm tax planning moves based on the one-page proposal from the White House. If you do have to make any decisions now try and choose options that allow for flexibility.
I know, this is really fun, right? Just wait...we might bust out some sparklers later!
The situation: you are an employee of a company and paid a w-2 salary, replete with federal, state and perhaps local withholdings and FICA and FICA MED deductions. You, too, want to pay the proposed 15% federal corporate tax rate! I don't think you'll love the answer.
There are a few issues with having an employer pay an employee as an LLC. You should, of course, contact your friendly tax professional for advice about your specific situation. In general, employers have to follow very specific guidelines about employee classification. In the vast majority of cases, those who work for an employer are employees and must be paid as w-2, salaried employees. An easy, but unofficial, test for employee classification is simply 'Does this person act like a normal employee...do they have a desk, do they have defined hours, etc.'. Very simply put, if it looks like a duck, walks like a duck and sounds like a duck, it's probably a duck (if you're more comfortable using another animal in your analogies, say a badger for example, feel free...the premise doesn't change).
The primary reason for rigid employee classification rules is that the IRS/Social Security Admin does't want to lose out on employer paid employment taxes (FICA, FICA MED). You might be thinking to yourself 'I thought those who receive profits from their LLCs have to pay the FICA and FICA MED via self-employment taxes on their personal returns.' (Kudos if thats what you were thinking...if it wasn't, go do some research and have a 2 page, double-spaced summary paper in my inbox by tomorrow). That thought is, indeed, accurate. Self-employment tax is 15.3% because it is designed to make up for both the employer and employees share of the payroll taxes. However, LLCs aren't the only type of pass-through entity.
S-corporations are a second entity type that passes income (or loss) through to the owner/s. There are several differences between these 2 types of corporations, but we'll just focus on the self-employment tax for now. Profits passed through from S-corps are not subject to self-employment tax. However, S-corps, unlike LLCs, are supposed to issue salaries to it's owners. The salary has FICA and FICA MED withheld and paid by the corporation just as if the owners were employees for any other company would. Owners of S-corps usually receive a combination of salary and pass-through income. The issue with S-corps from a tax collection standpoint under the new tax proposal, which I will barely stick my toe in the water on here, is that owners will try and drive down salaries and jack up pass-through income. This will drive down tax revenue. More stringent guidelines will be needed on the 'reasonable' salary required by the IRS to police this potential issue. This is certainly more complex than that, but it is an issue and it's final presentation will guide tax planning for the coming years.
A final point worth considering: what is lost by not being a w-2 employee and having income paid to a pass-through entity? Medical insurance, transit checks, 401(k) and other employee benefits are available to salaried employees only. Those benefits go by the wayside if you are not paid as a w-2 employee.
The point to all of this...if you want to have your income paid to pass-through entity (LLC, S-corp, etc.), you need to have a legitimate business. If you are an employee of a company and currently receive a w-2 salary, it's highly unlikely that you'll be able to have your income redirected to a pass-through entity.
Here is an article from Bloomberg on this topic as well...sheds some add'l and different light than my musings.
Author:
Adam Ditsky, CPA
President, Ditsky Strategic