When it comes to running a business, one of the key goals is to minimize expenses and maximize profits. One often overlooked avenue for achieving this is by taking advantage of tax deductions. Section 179 of the Internal Revenue Code offers a powerful tool for business owners to significantly reduce their tax liability while investing in essential equipment and technology. In this article, we’ll break down the Section 179 deduction, how they work, and how you can leverage them to benefit your business’s bottom line.
Understanding Section 179 Deductions
Section 179 is a provision in the U.S. tax code that allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. This deduction is designed to encourage businesses to invest in themselves by providing an immediate tax break for capital expenditures. In other words, instead of depreciating the cost of these assets over several years, you can deduct the entire expense in the year you make the purchase.
Qualifying Assets
Not all assets are eligible for Section 179 deductions. The IRS defines eligible assets as tangible personal property used for business purposes. This includes machinery, equipment, vehicles, livestock, computers, and furniture. It also includes some intangible assets such as copyrights, patents, and software that is not custom-made. It’s important to note that the asset in question must be used more than 50% for business-related activities to qualify for the deduction.
Limits and Maximum Deductions
While Section 179 deductions can be incredibly advantageous, there are limits to how much you can deduct in a given tax year. For tax year 2023, the maximum deduction limit was $1,160,000, with a spending cap of $2,890,000. This means that if your business spends more than $2,890,000 on qualifying assets, the deduction begins to phase out dollar-for-dollar.
In addition, there are specific limitations on which vehicles for business use qualify. For example, there is a spending cap on heavy vehicles that weigh between 6,000 and 14,000 pounds. These typically include SUVs, pickup trucks, and commercial vans. In 2023, this cap is $28,900. All other eligible vehicles need to weigh under 6,000 pounds.
It’s also worth mentioning that real estate is not covered by Section 179 deductions, and neither are land or land improvements. However, there are a few exceptions, including:
Roofs
Fire alarms and other protective systems
Lodging property
Heating, ventilation, and air conditioning (HVAC) property
Conclusion
If you don’t qualify for Section 179 deductions, you might try bonus depreciation, which allows businesses to deduct a large percentage of the asset’s purchase price up front. However, the percentage will be decreasing each year per the Tax Cuts and Jobs Act of 2017. Taxpayers can depreciate 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027. For help figuring out what is best for your business, consider consulting a tax professional. Optima Tax Relief is the nation’s leading tax resolution firm for both individuals and businesses alike.
Crowdfunding is the act of funding a project by collecting small donations from a large number of individuals, often via the internet. GoFundMe is one of the most popular crowdfunding sites that provides a fundraising platform for just about anyone. From education campaigns to medical expenses, GoFundMe makes it easy to raise and collect funds for many causes. But like many other acts that result in free money, taxes are not often considered. Here’s a breakdown of how GoFundMe donations are taxed.
How do crowdfunding and GoFundMe work?
Crowdfunding sites, like GoFundMe, provide a way for people to solicit donations from friends, family members, and even strangers who want to support their cause. First, you’ll need to set up a campaign page with a title and description of your cause. You’ll also set a fundraising goal. Once your page is set up, you can share it with others through social media, email, and other channels. People who visit your campaign page can make donations directly through the GoFundMe platform. They do this by using their credit or debit cards, and sometimes third-party payment apps, like PayPal. Once you start receiving donations, you can withdraw the funds from your campaign, less any fees that the site charges.
Is crowdfunded money taxed?
The big question everyone wants to know is “Are these donations taxed?” Typically, donations are considered nontaxable gifts in the IRS’s eyes. However, there are a couple of exceptions that can cause the IRS to consider your crowdfunded money taxable income.
Crowdfunded money is taxable if your donors received something in return for their donations
If you offer something of value in exchange for a donation, this transaction could instead be viewed as a sale. Since profits from sales are taxed as income, the IRS would view the “donation” as taxable.
Crowdfunded money is taxable if an employer sets up the fund for their employee
In this scenario, because the fund was set up by an employer, it is considered additional income. This basically means it is taxed accordingly.
Crowdfunded money is taxable if someone organized the fund on behalf of someone else but does not give the funded money to them
In this scenario, the fund would be considered taxable income and would be added to the organizer’s gross income.
Of course, if you are crowdfunding for a business venture, instead of a personal cause like help with funeral expenses, the answer to this question can become very complicated. Consulting a tax professional is your best option if you are attempting to crowdfund for a business venture.
How do taxes on donations work?
What if you’re on the other side of the screen and you are the one making the donations? One key thing to remember is the IRS does not allow you to deduct crowdfunded contributions during tax time. In order to deduct donations, you have to deliver it to a qualified 501(c)3 organization. That said, most GoFundMe pages do not qualify. However, there is one more tax obligation to keep in mind if you donate large sums of money via crowdfunding. That is the federal gift tax.
The gift tax is a federal levy on gifts over a certain value. Gifts can include money, property, art, vehicles, and more. In 2023, the federal gift tax cap is $17,000. This means you can give a single person up to $17,000 without having to report it to the IRS. If you exceed the limit, you’ll need to file a federal gift tax return via IRS Form 709. However, just because you file this return doesn’t necessarily mean you’ll owe taxes on the gift. You technically won’t owe taxes until you’ve exhausted the lifetime exemption amount, which is $12.92 million in 2023. If and when you finally exhaust the lifetime limit, you’ll be subject to a gift tax rate from 18% to 40%, depending on how much you gifted.
Tax Help for Crowdfund Donors
The important thing to keep in mind here is that there are responsibilities on both sides of the aisle, whether you are the organizer of a crowdfunding campaign or a donor. If you are the organizer, always make sure to use the platform responsibly and transparently. Provide accurate information to donors about how their contributions will be used. If you are a donor, stay below the annual gift tax limit as often as possible. When you can’t, or when you finally exhaust the lifetime limit, make all the necessary tax filings and payments. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
We’ve been warned about the new 1099-K reporting thresholds for over a year now. However, there is one payment app that is not included in these new policy changes: Zelle. In this article, we’ll give an overview of Zelle, including its features, why it is not required to abide by the new thresholds, and if it’s the right payment app for you.
What are the new 1099-K reporting thresholds?
As part of the American Rescue Plan of 2021, the IRS announced some new reporting thresholds for Form 1099-K. Prior to 2023, Form 1099-K, otherwise known as the Payment Card and Third-Party Network Transactions form, is automatically sent out by financial institutions if you earned an aggregate amount of $20,000 in over 200 transactions for goods and services. They are using 2023 as yet another transition year. In tax year 2024, the threshold for IRS Form 1099-K will be $5,000. This increase will serve as a phase-in for the $600 threshold in the future.
What is Zelle?
Zelle is a digital payment network controlled by a group of banks. These include Bank of America, Capital One, JPMorgan Chase, Wells Fargo, U.S. Bank, and a few others. It allows users to send funds directly to other users, even if they do not have the same bank and even if their bank does not offer Zelle. All you need is the recipient’s email address or phone number to safely send money.
Why is Zelle exempt from the new 1099-K reporting thresholds?
So, why is Zelle exempt from this? The answer to this lies in the method they use to transfer funds. With apps like Venmo, PayPal or Etsy, you receive funds in exchange for goods and services. Then those funds are held in the app until you transfer the funds to your bank account. Zelle, on the other hand, does not hold funds. Instead, they do direct bank transfers between users and these transactions are not subject to the IRS’s 1099-K reporting requirements.
Can I switch to Zelle to avoid receiving a 1099-K?
Remember, just because you don’t receive a 1099-K for income earned, does not mean you are exempt from reporting your income to the IRS or paying taxes on it. The last thing you want is an IRS audit or worse: the IRS pursuing criminal charges for deliberate concealment of taxable income.
Tax Help for Those Who Use Zelle and Other Third-Party Payment Apps
Although we haven’t technically experienced the new change, it is already in effect. If you receive payments through third-party payment apps other than Zelle, you should expect to receive a 1099-K if you earned within the reporting threshold. If you currently collect payments for your small business through Zelle, you will not receive a 1099-K. But beware that this does not mean you are off the hook when it comes to paying taxes. It means you have the additional responsibility of calculating the income earned through Zelle and reporting this income to the IRS during tax time. Optima Tax Relief is the nation’s leading tax resolution firm.
If you’ve never heard of the State and Local Tax (SALT) deduction, you’re not alone. But if you have, you may know that it is a topic that often raises eyebrows and sparks debates. For many taxpayers, the SALT deduction plays a significant role in their financial planning and overall tax liability. This is especially true for those who live in a high-tax state. In this article, we’ll delve into the intricacies of the SALT deduction, exploring its mechanics, controversies, and potential implications for taxpayers.
What is the SALT deduction?
The State and Local Tax (SALT) deduction allows taxpayers to deduct state and local taxes from their federal taxable income. These deductible taxes typically include state and local income taxes, property taxes, and sales taxes. One key thing to note, however, is you may only deduct either state and local sales taxes or state and local income taxes, but not both. The deduction aims to provide relief to taxpayers by preventing double taxation. In other words, it helps prevent paying taxes at both the state and federal levels on the same income. Taxpayers can deduct up to $10,000 in 2023, or $5,000 if they are married but filing separately. Remember, you may only take the SALT deduction if you itemize your deductions.
What does the SALT deduction cover?
The SALT deduction typically covers the following types of taxes:
Income taxes: Whether you are a W-2 employee or self-employed, you’ll be able to find out how much state or local income tax you paid over the tax year.
Property taxes: This tax is a little more complicated and does not come with much guidance from the IRS who advises that some types of payments do not qualify.
Personal property taxes: Typically, you can deduct taxes paid on personal property like a vehicle.
Sales taxes: Deducting sales tax usually requires keeping excellent records. Some taxpayers prefer to deduct state and local income taxes instead because it’s usually calculated for them at the end of the year. However, this is particularly beneficial for individuals residing in states without a state income tax. This is because they can deduct their sales taxes instead.
Key Points
While these are the primary taxes covered by the SALT deduction, there are limitations.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a cap on the SALT deduction. It limited the total deductible amount to $10,000 for both single and married taxpayers filing jointly. This cap significantly impacted taxpayers in high-tax states who were accustomed to deducting larger amounts.
Taxpayers must itemize their deductions on their tax returns to claim the SALT deduction. This means that individuals who choose to take the standard deduction won’t be able to benefit from the SALT deduction.
Taxpayers can choose either the state and local sales tax deduction or the state and local income tax deduction, but not both. The choice is typically based on which option provides a higher deduction amount.
The SALT deduction is subject to potential changes in tax law and policy.
Need Tax Help? Call Optima.
While the SALT deduction provides relief to many taxpayers, its limitations and potential changes have led to ongoing debates about its fairness, distributional impact, and its effect on federal revenue. Taxpayers should stay informed about changes to tax laws and consult with tax professionals to make the most informed decisions regarding their deductions and overall tax planning strategies. If ever unsure about which deductions you are allowed to take, contact an expert tax professional. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses private collection agencies, otherwise known as PCAs.
Unbeknownst to some taxpayers, the IRS doesn’t always collect taxes on their own. Sometimes they hire private collection agencies (PCAs). The IRS contracts these agencies to collect overdue tax debt from individuals and businesses.
That said, if a collection agency contacts you and they are not the IRS, you should still take the warning seriously. Keep in mind that the IRS currently only utilizes the services of three PCAs:
CBE Group Inc.
Coast Professional, Inc.
Conserve
If another company is trying to collect on the IRS’s behalf, you should report them to the IRS immediately. The IRS will send you Notice CP40 to let you know that your overdue tax account has been assigned to a PCA.
Taxpayers should keep in mind that once the IRS assigns their account to a PCA, they will no longer be able to claim hardship or submit an offer in compromise. However, getting your case back to the IRS is possible and should be considered if you want the best possible resolution.
Join us next Friday as Phil will answer your questions about tax deductions, including how to maximize them!
If Your Tax Account Has Been Assigned to a PCA, Contact Us Today for a Free Consultation
