1031 Exchange: Why It’s Such A Great Tax Planning Tool To Defer Capital Gains

Like many business owners, you might also own highly appreciated business or investment real estate. Fortunately, there’s an effective tax planning strategy at your disposal: the Section 1031 “like kind” exchange. It can help you defer capital gains tax on appreciated property indefinitely.

How it works

Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” In fact, these arrangements are often referred to as “like-kind exchanges.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.

Personal property must be of the same asset or product class. But virtually any type of real estate will qualify as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.

Executing the deal

Although an exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.

When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.

An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.

The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. Be sure to contact us when exploring a Sec. 1031 exchange.

If you exploring to defer captal gains, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

 

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Tax Exempt? Why Your Nonprofit Must Avoid Excess Private Benefit Transactions

Not-for-profits that ignore the IRS’s private benefit and private inurement provisions do so at their own peril. These rules prohibit an individual inside or outside a nonprofit from reaping an excess benefit from the organization’s transactions. Violation of such rules can have devastating consequences and could cause the loss of tax exempt status.

Defining terms

A private benefit is any payment or transfer of assets made (directly or indirectly) by your nonprofit that’s beyond reasonable compensation for the services provided or the goods sold to your organization, or that’s for services or products that don’t further your tax-exempt purpose. If any of your nonprofit’s net earnings inure to the benefit of an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

The private inurement rules extend the private benefit prohibition to your organization’s “insiders.” The term “insider” or “disqualified person” generally refers to any officer, director, individual or organization (as well as their family members and organizations they control) that’s in a position to exert significant influence over your nonprofit’s activities and finances. A violation occurs when a transaction that ultimately benefits the insider is approved.

Tax exemption refers to a monetary exemption which reduces taxable income. Tax exempt status can provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.

Tax exemption generally refers to a statutory exception to a general rule rather than the mere absence of taxation in particular circumstances, otherwise known as an exclusion. Tax exemption also refers to removal from taxation of a particular item rather than a deduction.

Never too careful with your tax exempt status

Of course, the rules don’t prohibit all payments, such as salaries and wages, to an insider. They simply require that a payment be reasonable relative to the services or goods provided — and that it be made with your nonprofit’s tax-exempt purpose in mind.

To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith, in your organization’s best interest, and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties.

Protect your private benefit and tax exempt status

Any amount of private benefit or inurement is enough to cause the loss of your organization’s tax-exempt status. And individuals involved may be subject to significant excise tax penalties. Contact us if you have questions about how to maintain your exempt status.

If you need a hand estimating quarterly taxes, tracking mileage and expenses and paying or collecting invoices, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

When Are Key Tax Deadlines for Businesses In the 3rd Quarter of the Year?

For most people, September 15th marks the tax deadline to get your taxes in to IRS or face penalties. While that may be true for most americans, there are other tax deadlines for businesses you must take note of if you run a company.

For businesses, tax deadlines can vary depending on the type of business entity. Corporations, partnerships, and sole proprietorships often have different tax deadlines to file their tax returns. It is also important to note the tax deadline dates for mailing out certain information forms and paying quarterly estimated taxes.

This tax calendar has the tax deadline dates for 2017 that most taxpayers will need. Employers and persons who pay excise taxes also should use the Employer’s Tax Calendar and the Excise Tax Calendar .

Fiscal-year taxpayers.   If you file your income tax return for a fiscal year rather than the calendar year, you must change some of the dates in this calendar.

First Quarter

 The first quarter of a calendar year is made up of January, February, and March.

Second Quarter

 The second quarter of a calendar year is made up of April, May, and June.

Third Quarter

 The third quarter of a calendar year is made up of July, August, and September.

Fourth Quarter

 The fourth quarter of a calendar year is made up of October, November, and December.

Here are some of the key tax-related deadlines affecting businesses and other employers during the thurd quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), and pay any tax due. (See exception below.)
  • File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

  • If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
  • File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
  • Make contributions for 2016 to certain employer-sponsored retirement plans.

What are the advantages of using a tax cal­endar?

The following are advantages of using a calendar.
  • You don’t have to figure the due dates yourself.
  • You can file or pay timely and avoid penal­ties.
  • You don’t have to adjust the due dates for Saturdays, Sundays, and legal holidays.
  • You don’t have to adjust the due dates for special banking rules if you use the Employer’s Tax Calendar or Excise Tax Calenda
Which calendar(s) should I use?
To decide which calendar(s) to use, first look at the General Tax Calendar and highlight the dates that apply to you. If you’re an employer, also use the Employer’s Tax Calendar. If you must pay ex­cise taxes, use the Excise Tax Calendar. De­pending on your situation, you may need to use more than one calendar.

Reminders

Online IRS Tax Calendar.
The IRS Tax Cal­endar for Small Businesses and Self ­Employed is available online at www.IRS.gov/taxcalendar. This calendar is also available in Spanish.

If you need a hand estimating quarterly taxes, tracking mileage and expenses and paying or collecting invoices, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

How To Get More From Your Non Profit Budget Sheet

Is your non profit budget offering enough (or the right) programs to keep members active and engaged? New programs require time, effort and money. So when you commit to developing one, you want to get the biggest bang for your buck.

Here are some simple non profit budget dos and don’ts to get the most out of your budget sheet.

DO consult your members. Through focus groups, surveys and informal conversations, gather information about issues your membership is facing. Note gaps between your budget sheet, current program offerings and members’ wants and needs.

DON’T support foregone conclusions. Spinning member feedback to match what you think your organization needs is a big mistake.

DO target specific outcomes that align with your non profit budget. Identify the intended outcomes of proposed programs and attach to them strategic, realistic and timely goals within your budget sheet.

DON’T lose focus. Consider only program ideas that will directly contribute to your association’s mission, vision and overall goals.

DO protect your creation. If your new program is unique, protect it with appropriate trademarks, service marks, copyrights, and patents.

DON’T go it alone. Whenever possible, share expenses and resources by partnering with other organizations. Alliances can lend depth, breadth and impact to programs. Your budget sheet will thank you for it.

DO keep your promises. Deliver new programs on time, on target and on your non profit budget for the greatest impact.

DON’T overspend. Come up with a reasonable budget and stick to it. Make adjustments only when absolutely necessary.

DO start small. Launch new programs slowly and thoughtfully — and then build on initial success as your budget sheet grows.

DON’T worry about perfection. Take chances and try new strategies.

The best ideas often are those most different from what you’ve done in the past. If you seek tools for building your organization’s non profit budget and listing revenue sources on a programmatic/functional basis, we are here to guide you through. We will assist you with budget sheet items including allocation of personnel, direct and indirect non-personnel expenses and more.  For more tips on making the most of your non profit budget, please click here to contact us or give us a call at (703) 534-6040. Our cloud base solution serve clients all over the nation.

3 Breaks for Business Charitable Donations You May Not Know About

Making business charitable donations is more than good business citizenship; it can also save tax. Though it’s important you know your options. Businesses can make charitable donations to bona fide nonprofit organizations, but you may be surprised to learn how it is deducted on your tax return. In fact, did you know the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

Here are three lesser-known federal income tax breaks for business charitable donations you may not be aware of.

1. Food Donations

Charitable write-offs for donated food (such as by restaurants and grocery stores) are normally limited to the lower of the taxpayer’s basis in the food (generally cost) or fair market value (FMV), but an enhanced deduction equals the lesser of: The food’s basis plus one-half the FMV in excess of basis, or Two times the basis. To qualify, the food must be apparently wholesome at the time it’s donated. Your total charitable write-off for food donations under the enhanced deduction provision can’t exceed: 15% of your net income for the year (before considering the enhanced deduction) from all sole proprietorships, S corporations and partnership businesses (including limited liability companies treated as partnerships for tax purposes) from which food donations were made, or For a C corporation taxpayer, 15% of taxable income for the year (before considering the enhanced deduction).

2. Qualified Conservation Contributions

Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. For qualified C corporation farming and ranching operations, the maximum write-off for qualified conservation contributions is increased from the normal 10% of adjusted taxable income to 100% of adjusted taxable income. Qualified conservation contributions in excess of what can be written off in the year of the donation can be carried forward for 15 years.

3. S Corporation Stock Donations

A favorable tax basis rule is available to shareholders of S corporations that make charitable donations of appreciated property. For such donations, each shareholder’s basis in the S corporation stock is reduced by only the shareholder’s pro-rata percentage of the company’s tax basis in the donated asset. Without this provision, a shareholder’s basis reduction would equal the passed-through write-off for the donation (a larger amount than the shareholder’s pro-rata percentage of the company’s basis in the donated asset). This provision is generally beneficial to shareholders, because it leaves them with higher tax basis in their S corporation shares. If you believe you may be eligible to claim one or more of these tax breaks, contact us. We can help you determine eligibility, prepare the required documentation and plan for business charitable donations in future years.

These are are 3 lesser known business charitable donations to save tax but there are more. To get a full spectrum of what you are capable of call our office at (703) 534-6040. There is a good chance we can we can help you save taxes.