What Members of #Military Should Know about the #Earned#Income#Tax#Credit

The IRS reminds members of the military and veterans that they may qualify for the earned income tax credit. This credit benefits certain people who work and have earned income that’s less than $53,930.

A tax credit usually means more money in the taxpayer’s pocket. The EITC can reduce the amount of tax someone owes, but it might also result in a refund. Here are some things members of the armed forces should know about this credit. These are all specific to the military:

  • Generally, nontaxable pay for members of the armed forces isn’t earned income for the EITC. Examples of nontaxable military pay are
    • Combat pay
    • Basic allowance for housing
    • Basic allowance for subsistence
  • A member of the armed forces can elect to have their nontaxable combat pay included in earned income for purposes of the EITC. Doing so may increase or decrease their EITC. The taxpayer can find the amount of their nontaxable combat pay on their Form W-2, in box 12, with code Q. The IRS encourages these taxpayers to calculate their taxes both ways to find out what’s best for them.
  • Taxpayers who elect to include their combat pay in income must include all nontaxable combat pay they received. They can’t choose to include only a part of the nontaxable combat pay in earned income. Couples with two members of the military filing a joint return have a few options when deciding whether to include combat pay in their income:
    • Spouse 1 can choose to include all their nontaxable combat pay and spouse 2 can choose zero
    • Spouse 1 can choose to include zero amount of your nontaxable combat pay and spouse 2 can choose to include all of it
    • They can both choose to include all their nontaxable combat pay
    • They can both choose not to include their nontaxable combat pay
  • Members of the military on extended active duty outside the U.S. are considered to live in the country during that duty period for purposes of figuring their EITC. Extended active duty means the taxpayer is called to duty for an indefinite period or for a period of more than 90 days. Once they begin serving extended active duty, they’re still considered to have been on extended active duty even if they don’t serve more than 90 days.

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

More Information:

Share this tip on social media — #IRSTaxTip: What Members of Military Should Know about the Earned Income Tax Credit.  https://go.usa.gov/xnfqg

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#IRS, #States and #Tax Industry Warn Employers to Beware of Form #W-2 #Scam; #Tax_Season Could Bring New Surge in #Phishing #Scheme

WASHINGTON – The Internal Revenue Service, state tax agencies and the tax industry today urged all employers to educate their payroll personnel about a Form W-2 phishing scam that made victims of hundreds of organizations and thousands of employees last year.

The Form W-2 scam has emerged as one of the most dangerous phishing emails in the tax community. During the last two tax seasons, cybercriminals tricked payroll personnel or people with access to payroll information into disclosing sensitive information for entire workforces. The scam affected all types of employers, from small and large businesses to public schools and universities, hospitals, tribal governments and charities.

Reports to phishing@irs.gov from victims and nonvictims about this scam jumped to approximately 900 in 2017, compared to slightly over 100 in 2016. Last year, more than 200 employers were victimized, which translated into hundreds of thousands of employees who had their identities compromised.

By alerting employers now, the IRS and its partners in the Security Summit effort hope to limit the success of this scam in 2018. The IRS last year also created a new process by which employers should report these scams. There are steps the IRS can take to protect employees, but only if the agency is notified immediately by employers about the theft.

Here’s how the scam works: Cybercriminals do their homework, identifying chief operating officers, school executives or others in positions of authority. Using a technique known as business email compromise (BEC) or business email spoofing (BES), fraudsters posing as executives send emails to payroll personnel requesting copies of Forms W-2 for all employees.

The Form W-2 contains the employee’s name, address, Social Security number, income and withholdings. Criminals use that information to file fraudulent tax returns, or they post it for sale on the Dark Net.

The initial email may be a friendly, “hi, are you working today” exchange before the fraudster asks for all Form W-2 information. In several reported cases, after the fraudsters acquired the workforce information, they immediately followed that up with a request for a wire transfer.

In addition to educating payroll or finance personnel, the IRS and Security Summit partners also urge employers to consider creating a policy to limit the number of employees who have authority to handle Form W-2 requests and that they require additional verification procedures to validate the actual request before emailing sensitive data such as employee Form W-2s.

If the business or organization victimized by these attacks notifies the IRS, the IRS can take steps to help prevent employees from being victims of tax-related identity theft. However, because of the nature of these scams, some businesses and organizations did not realize for days, weeks or months that they had been scammed.

The IRS established a special email notification address specifically for employers to report Form W-2 data thefts. Here’s how Form W-2 scam victims can notify the IRS:

  • Email dataloss@irs.gov to notify the IRS of a Form W-2 data loss and provide contact information, as listed below.
  • In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information data.
  • Include the following:
  • Business name
  • Business employer identification number (EIN) associated with the data loss
  • Contact name
  • Contact phone number
  • Summary of how the data loss occurred
  • Volume of employees impacted

Businesses and organizations that fall victim to the scam and/or organizations that only receive a suspect email but do not fall victim to the scam should send the full email headers to phishing@irs.gov and use “W2 Scam” in the subject line.

Employers can learn more at Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

Employers should be aware that cybercriminals’ scams constantly evolve. Finance and payroll personnel should be alert to any unusual requests for employee data.

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IRS Urges Travelers Requiring Passports to Pay Their #Back_Taxes or Enter into Payment Agreements; People Owing $51,000 or More Covered

WASHINGTON ─ The Internal Revenue Service today strongly encouraged taxpayers who are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.

This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt.  A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

A passport won’t be at risk under this program for any taxpayer:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

In general, taxpayers behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS. Frequently, taxpayers qualify for one of several relief programs, including the following:

  • Taxpayers can request a payment agreement with the IRS by filing Form 9465. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.
  • Some financially distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

IRS.gov has other tips for taxpayers to catch up on their filing and tax obligations and more information about the revocation or denial of passports because of unpaid taxes.

2018 #Tax_Filing Season Begins Jan. 29, #Tax_Returns #Due April 17; Help Available for Taxpayers

WASHINGTON ― The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 29, 2018 and reminded taxpayers claiming certain tax credits that refunds won’t be available before late February.

The IRS will begin accepting tax returns on Jan. 29, with nearly 155 million individual tax returns expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.

Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

The IRS set the Jan. 29 opening date to ensure the security and readiness of key tax processing systems in advance of the opening and to assess the potential impact of tax legislation on 2017 tax returns.

The IRS reminds taxpayers that, by law, the IRS cannot issue refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February. While the IRS will process those returns when received, it cannot issue related refunds before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return.    The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are using a tax software product for the first time will need their adjusted gross income from their 2016 tax return to file electronically. Taxpayers who are using the same tax software they used last year will not need to enter prior-year information to electronically sign their 2017 tax return. Using an electronic filing PIN is no longer an option. Taxpayers can visit IRS.gov/GetReady for more tips on preparing to file their 2017 tax return.

April 17 #Filing_Deadline  

The filing deadline to submit 2017 tax returns is Tuesday, April 17, 2018, rather than the traditional April 15 date. In 2018, April 15 falls on a Sunday, and this would usually move the filing deadline to the following Monday – April 16. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 17, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

The IRS also has been working with the tax industry and state revenue departments as part of the Security Summit initiative to continue strengthening processing systems to protect taxpayers from identity theft and refund fraud. The IRS and Summit partners continued to improve these safeguards to further protect taxpayers filing in 2018.

Refunds in 2018

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS expects more than four out of five tax returns will be prepared electronically using tax software.

The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.

By law, the IRS cannot issue refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February. This applies to the entire refund — even the portion not associated with the EITC and ACTC.

The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if those taxpayers chose direct deposit and there are no other issues with the tax return. This additional period is due to several factors, including banking and financial systems needing time to process deposits.

After refunds leave the IRS, it takes additional time for them to be processed and for financial institutions to accept and deposit the refunds to bank accounts and products. The IRS reminds taxpayers many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving Presidents’ Day may affect their refund timing.

The Where’s My Refund? ‎tool on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers in late February. Taxpayers will not see a refund date on Where’s My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

IRS Offers Help for Taxpayers

The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov, the official IRS website. Taxpayers can find answers to their tax questions and resolve tax issues online. The Let Us Help You page helps answer most tax questions, and the IRS Services Guide links to these and other IRS services.

Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.

In addition, 70 percent of the nation’s taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $66,000 or less.

The online fillable forms provide electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to IRS.gov and enter “free tax prep” in the search box to learn more and find a nearby VITA or TCE site, or download the IRS2Go smartphone app to find a free tax prep provider. If eligible, taxpayers can also locate help from a community volunteer. Go to IRS.gov and click on the Filing tab for more information.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.

LLC Tax Deductions

Listed below are a few important highlights from this Tax and Legal Tips roadmap. Click on the [Learn More] links to read more about these points (in later sections of this page), or scroll down to learn about other tax tips.


  • A Limited Liability Company (#LLC) is taxed as a #partnership or sole proprietorship, unless the owners elect to be taxed as a #Corporation.
  • The unit owners of an LLC or stockholders of a “C” Corporation may be Corporations or foreign citizens.


  • “C” Corporations (i.e., general Corporations without “S” Elections or LLCs that elect “C” Corporation tax status) pay a 15% federal tax rate on the first $50,000 of taxable income.
  • Consultants can avoid the personal service Corporation tax status by issuing 6% of stock or LLC units stock to a person (including a spouse) that is not employed by the Corporation or LLC.
  • A general Corporation making a Subchapter “S” Election pays no federal tax on its taxable income and no employment taxes on its distributions to stockholders.

Choosing Between an LLC and a Corporation

The “Limited Liability” of Both Entities

The owners of a sole proprietorship or general partners of a partnership are not protected from the judgments against and liabilities of the business or from the acts of their business partners.

The stockholders of Corporations and members owning units in Limited Liability Companies (LLCs), on the other hand, benefit from “limited liability.” In other words, their liability is limited to their investment in the stock of the Corporation or in the units of the LLC.

 Why Choose an LLC? – Simple LLC Tax & Legal Explanations

 An LLC gives the greatest tax flexibility. The LLC operating agreement includes management provisions and buy-sell provisions, making the LLC a popular entity to own real estate, boats, and airplane, and a popular entity for foreign citizens to render services or sell products.

A one-member LLC starts out being taxed as a sole proprietorship. All income and expenses “pass through” to be reported on schedule C of the individual tax return of the member. No EIN (Employer Identification Number) is necessary.

A multi-member LLC starts out being taxed as a partnership that needs to apply for an EIN on Form SS-4. Each year, a Form 1065 Partnership Return needs to be filed with a Form K-1 for each member listing the income or losses to be reported by each member.

The main #disadvantage for owners of an LLC that is taxed as a sole proprietorship or partnership is that all taxable income, which passes through to the owners, is treated as “earned income” and is subject to employment taxes. Therefore, the 15.3% Social Security-Medicare rate applies to the first $90,000 of earned income and the 2.9% Medicare rate applies to all earned income over $90,000.

To avoid this disadvantage, an LLC can make a Subchapter “S” Election by applying for an EIN on Form SS-4 and filing a Form 2553 within 75 days after the date of formation or beginning of a tax year. (Note: only U.S. citizens and U.S. permanent residents can make this election). After deducting reasonable compensation and other business expenses, the LLC’s taxable income is then reported by the member(s) as passive income, rather than earned income subject to Social Security and Medicare contributions. After making the “S” election, the LLC would need to file a Form 1120S Corporation Income Tax Return each year.

An LLC may elect to be taxed as a Corporation (a.k.a. “C” Corporation) by applying for an EIN, and then filing a Form 8832 within 75 days after the date of formation or beginning of a tax year. After deducting reasonable compensation and other business expenses, the LLC’s taxable income is taxed at the Corporation tax rates on a Form 1120 Corporation Tax Return to be filed each year. The U.S. tax rate on Corporations is 15% on the first $50,000 of taxable income each year. This low rate is only available to LLCs that render personal services, and if a person who is not employed by the LLC owns at least 6% of the units (ownership interest). Otherwise, the top personal tax rate would apply to the taxable income from personal services in the LLC that elected to be taxed as a Corporation (“C” Corporation).

Why Choose a Corporation? Simple Corporation Tax & Legal Explanation

A Corporation is controlled by a majority of its stockholders. A Corporation needs to obtain an Employer Identification Number (EIN) and file a U.S. Corporation Income Tax Return each year.

A Corporation starts out as a “C” Corporation for tax purposes. This means that the taxable income (after deductions for salary, business expenses, and depreciation on furniture and equipment) is taxable to the Corporation. The Corporation would only be taxed on income “effectively connected with the United States.” The beginning corporate tax rate of 15% applies to the first $50,000 of Corporation taxable income each year.

The low 15% tax rate is only available to a Corporation rendering personal services if a person who is not employed by the Corporation owns at least 6% of the issued stock of the Corporation. Otherwise, the top personal tax rate would apply to the taxable income from personal services in the Corporation.

A Corporation owned by one or more U.S. citizens or permanent residents may file a Subchapter “S” Election with the Internal Revenue Service on Form 2553 within 75 days after either the date of incorporation or the beginning of a year. The “S” Election will cause the taxable income of the Corporation to be passed through to be taxed to the Corporation’s stockholders in proportion to their stock ownership.

The advantage of the “S” Election for Corporations that render personal services is that the profits distributed as “S” Corporation dividends are treated as passive income, and therefore, not subject to employment taxes. After reasonable salaries are paid for the personal services, the 12.4% Social Security Tax and 2.9% Medicare Tax would not have to be paid on the “S” Corporation’s dividends.

The disadvantage of the “S” Election is that deductions for health insurance, disability insurance, automobile, and medical, drug and dental plan reimbursements would be taxable to the “S” Corporation stockholders for whom they are paid.

Lowering the Tax Rate

The Tax Shelter Benefit
The Corporation or LLC which elects to be taxed as a Corporation can be a tax shelter. The first $50,000 of taxable income is taxed at 15%. A Corporation or taxable-LLC can retain up to $250,000 without having to justify (and pay a higher tax rate on) its accumulated earnings. If the Corporation or LLC is part of a controlled group, the low tax rate bracket and retained earnings exemption would have to be shared equally, or as otherwise agreed upon by the controlled group.

Avoiding the Personal Service Corporation Classification
A “C” Corporation or taxable-LLC that provides consulting or personal services other than professional services can avoid the 39.6% highest personal tax rate on its taxable income by issuing at least 6% of the stock in the Corporation or units in the taxable-LLC to a person not employed by the Corporation or taxable-LLC. This exception to the Personal Service Classification will apply even if the 6% of the stock of the Corporation or units of the taxable-LLC are issued to a spouse or relative of the 94% stockholder or unit owner (with the spouse/relative not being employed by the Corporation or LLC).

Allowable Tax Deductions

Since a Corporation or taxable-LLC can only deduct charitable contributions up to a value of 10% of its taxable income, it is usually advisable for the owner to make personal charitable contributions. (Note: Any excess Corporation or LLC charitable deductions not currently deductible can be carried over for 5 years).

A “C” Corporation or taxable-LLC can deduct all of the premiums paid on health insurance for its owners who are employed, along with their spouses and dependents. The cost of the premiums is not taxable to the employee owner. Subject to the rules of the health insurance company, health insurance might not be provided to other employees, or might be limited to single coverage. If family health insurance coverage costs $5,000 per year, the owner might have to earn twice that amount (in pre-tax dollars) to net enough to pay the premium out of his or her personal funds (in after-tax dollars). An individual can only deduct the premiums if the total of premiums and other medical deductions does not exceed 7.5% of the individual’s adjusted gross income.

A “C” Corporation or taxable-LLC can purchase disability insurance for one or more of its executives or other employees, and deduct the premium without the cost being taxable to the executive or employee. The drawback is that the benefits will be taxable when they are received by the disabled executive or employee. In order to avoid taxation on the benefits, the executive or employee should purchase and pay the premiums on the disability insurance. After the disability contract year, the “C” Corporation or taxable-LLC could reimburse the executive or employee for the premium and take a deduction for the reimbursement.

The “C” Corporation or taxable-LLC could reimburse an executive or employee the current mileage rate permitted by the Internal Revenue Service for the business use of an automobile owned by the executive or employee. Another alternative is that the “C” Corporation or taxable-LLC could purchase or lease a business automobile and include  a percentage of personal use of the automobile, including trips to and from the office, in the Form W-2 of the executive or employee. A third alternative is that the executive or employee could purchase the automobile, take depreciation on it up to the business percentage use, and lease it to the business. The advantage of this approach is that you don’t have the valuation question if the executive or employee wants to get the automobile out of the Corporation or taxable-LLC for personal use when it is to be replaced by a new business automobile.

You should consult with your insurance agent to determine the various types of insurance coverage you will need for your Corporation or LLC. The Corporation or LLC should be listed as the name insured on all of the insurance policies. You should make certain that Workmen’s Compensation Insurance covers all individuals who are employed by the Corporation or LLC. If you are a consultant, the Corporation or LLC may want to purchase professional liability insurance. The individual owners who are employed by the Corporation or LLC should consider purchasing an umbrella liability insurance policy with coverage of no less than $1 million to raise the coverage limits of their automobile and homeowner’s policies. The premiums for the foregoing insurance are deductible by the Corporation or taxable-LLC.

#Office at #Home
The Internal Revenue Code has been liberalized to allow a corporation or taxable-LLC to reimburse its employees for their office at home expense, so long as the office at home is used regularly and exclusively for administrative and management activities of the business, and/or for storing records, inventory, or product supplies. The reimbursement could be paid on a monthly or yearly basis, is deductible by the Corporation or taxable-LLC, and is not included in the income of the employee. The items that can be included in the office at home calculation are: homeowner insurance, cleaning, maintenance, utilities, and telephone. The reimbursement is based on the percentage of office at home space in relation to the overall space in the home. Although depreciation could be taken on the office at home space, it would be recaptured upon the sale of the home. In order not to lose any of the long term capital gain exclusion ($500,000 for married couples and $250,000 for single tax payers), it is advisable to not take the office at home reimbursement during the last three years before your home is sold.

Tangible Property (Section 179)
Section 179 of the Internal Revenue Code permits the deduction of up to $25,000 (in the year of purchase) of the cost of tangible personal property to be used in the business. Computers, off-the-shelf computer software, and office furnishings all qualify as Section 179 property. If the total cost of all of the business’s tangible property bought and put into use by the business exceeds $200,000 in one year, the excess cost reduces the Section 179 deduction dollar by dollar. Since there is an advantage to offsetting the cost of Section 179 tangible property against income in the year of purchase, you could plan to stagger your purchases in different tax years of the business.

Retirement Plans
A Corporation or LLC can deduct contributions to qualified retirement plans. There are a lot of choices for qualified plans with different deduction limits that can be adopted. Plans can be adopted that provide for immediate vesting or provide for staggered vesting of the participant’s account. The contributions to the qualified plans accumulate tax-free in the plan until distribution to the employees upon death, disability, or retirement (when it is then subject to income tax). If an employee changes jobs, he or she can do an income-tax-free rollover of his or her vested interest to the plan of another employer or to a Rollover IRA account.

Children as Tax Shelters

The minor children of business owners can be paid for working for the business after school or during vacations. In effect, they can earn tax-free allowances or save for education. A child for whom a dependency exemption is allowed to another taxpayer may earn up to $6,200 without having to file a tax return. Even though Social Security contributions have to be made while children are employed by a Corporation or LLC, a Form W4E exemption from withholding tax can be filed. The child can also contribute up to $5,500 of his or her earned income to an IRA or Roth IRA.

Business Entertainment and Meals
A Corporation or LLC can deduct up to 50% of the cost of meals consumed during times of business entertainment or professional development. The cost of meals with employees is 100% deductible.

Education Expense
A Corporation or LLC can deduct education expenses (currently limited to $5,250) of its employees for them to maintain or improve their skills. The reimbursement for education expense under the employer’s education assistance program is not included in the income of the employee.

Longevity or Productivity Awards
A Corporation or taxable-LLC can deduct up to $400 of the cost of tangible property given to an employee by declaring it a longevity or productivity award. The award can be made every 5 years on a selective basis, with possible recipients including the owners who are employed by the business. The cost of the award is not included in the income of the recipient.

Dues and Subscriptions
A Corporation or taxable-LLC can deduct the cost of dues for business or professional organizations and/or the cost of newspapers and subscriptions related to the business. The cost is not included in the income of the employees who benefit from them. A sole proprietor could only deduct his or her expenses to the extent that the cost exceeds 2% of the sole proprietor’s adjusted gross income.

Conventions and Continuing Education
A Corporation or LLC can deduct the cost of travel, lodging, meals, and program fees for employees attending conventions and continuing education. This includes one or more owners employed by the business. The reimbursement is not included in the income of the employee.

Independent Contractor Agreement
If a consultant or manufacturer’s representative forms a Corporation or LLC through which to receive his or her income, it is important for the Corporation or LLC to execute an agreement with the client or manufacturer stipulating that the Corporation or LLC is an independent contractor providing the services of the consultant and is to be paid directly without any employment taxes or withholding. It is not unusual for a retired executive to form a Corporation or LLC to consult for the former employer on special projects or other clients in order to get the tax advantages of a Corporation or taxable-LLC.


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