Brad Danner, CPA, joined Abeles and Hoffman P.C. in 2019 and serves as a Tax Manager. In his role, Brad provides tax compliance, consulting, and planning services for C Corporations, S Corporations, Partnerships, and high-net-worth individuals. He works with clients across a broad range of industries, including architecture, engineering, law, healthcare, manufacturing, real estate, and retail. Brad also specializes in state and local tax compliance, offering valuable guidance in navigating complex multi-state regulations.

Brad earned his Bachelor of Science in Accounting from Southeast Missouri State University in 2013. His technical knowledge, industry versatility, and commitment to client service make him a valuable member of the firm’s tax team.

Brad lives with his wife, Samantha, an accountant for a union benefits office, and their young son, Winston, who turns one in May. Their household is completed by their three dogs and his wife’s two cats, making for a lively and loving home. In his free time, Brad enjoys spending time with family—and reading the tax code to Winston at bedtime, which has proven to be an excellent sleep aid!

Fun Questions

1. If you didn’t have to sleep, what would you do with the extra time? – I would ride my bike with my family, go on more hikes/walks, and play more golf.
2. What fictional place would you most like to visit? – Willy Wonka’s Chocolate Factory
3. What is a new skill that you would like to master – Woodworking
4. What do you wish you knew more about – Cooking/Smoking Meats
5. What’s the farthest you’ve ever been from home? – Istanbul, Turkey
6. What question would you most like to know the answer to? – What is really at Area 51?
7. What is the most impressive thing you know how to do? – My wife is really impressed at how quickly I can get our son to fall asleep.
8. What was the best compliment you’ve ever received? – That I have the best sense of humor
9. What accomplishment are you most proud of? – Trying to impress my now wife when we were dating by climbing Grays Peak in Colorado. The tenth highest summit of the Rocky Mountains at 14,276 feet tall. I had no business hiking this mountain and it was way out of my capabilities.
10. What is your favorite smell? – Cinnamon Buns
11. If you had a clock that would countdown to any one event of your choosing, what event would you want it to countdown to? – The date I can Retire
12. When was the last time you climbed a tree – 2014 after a night of enjoying too many alcoholic drinks
13. What’s the most unusual thing you’ve ever eaten? – Alligator
14. What was your first job? – Sandwich maker at St. Louis Bread Company
15. If you could have any superpower, what would it be? – Teleportation because it would be the most practical thing for me in everyday life

The Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA), P.L. 116-283, passed by Congress in 2021.

The rule revises the definition of “reporting company” to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.

In addition, the rule exempts foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company and exempts U.S. persons from having to provide such information to any foreign reporting company for which they are a beneficial owner.

The update above and additional information can be found at the AICPA’s BOI Resource Center. Additional information can also be found at the FinCEN BOI Resource Website. We encourage you to check these websites regularly for further updates.

In addition, we encourage you to contact your legal counsel regarding these updates, your compliance requirements, or any other questions on this matter.

The landscape of digital transactions has undergone a significant transformation over the past few decades, prompting the Internal Revenue Service (IRS) to introduce and adapt tax reporting mechanisms to keep pace with the evolving nature of online payments and e-commerce. One such adaptation is the Form 1099-K, “Payment Card and Third Party Network Transactions,” a document designed to report payments received through payment card transactions and third-party network transactions (such as payment apps and online marketplaces). This article delves into the history of Form 1099-K, its current reporting threshold for 2024, the implications for recipients, and how it influences tax reporting.

Historical Context of Form 1099-K – Form 1099-K was introduced as part of the Housing and Economic Recovery Act of 2008, with its reporting requirements taking effect in 2011. The form was a response to the growing e-commerce sector and the IRS’s need to ensure that income from online transactions was accurately reported. Initially, the form aimed to provide the IRS with a mechanism to track payments processed by third-party networks and payment card companies, thereby reducing the tax gap resulting from underreported income.

The original reporting threshold was set at transactions totaling $20,000 or more and more than 200 transactions within a calendar year. This threshold was intended to capture significant e-commerce activity while excluding smaller, casual sellers from the reporting requirement.

The Evolution of Reporting Thresholds – Over the years, the threshold for reporting on Form 1099-K remained unchanged until Congress, in the American Rescue Plan Act of 2021, significantly lowered it. Starting with transactions in 2022, the threshold was reduced to $600 for the total amount of payments, with no minimum transaction number requirement. This change marked a significant shift in reporting requirements and was designed to capture a broader range of transactions and ensure that income from even small-scale online sales and services was reported to the IRS.

However, recognizing the challenges and concerns raised by this drastic reduction in the reporting threshold, the IRS announced transitional relief measures. For instance, the IRS designated 2022 and 2023 as transition years, allowing time for taxpayers and third-party settlement organizations (TPSOs) to adjust to the new requirements.

Current Reporting Threshold for 2024 – For 2024 the IRS plans to implement a phased approach to the $600 reporting threshold. According to IRS Notice 2023-74, issued on November 22, 2023, the threshold for the 2024 tax year (i.e., the 1099-K forms taxpayers will receive in 2025) is set at $5,000. This interim threshold is part of a gradual implementation strategy designed to ease the transition to the $600 threshold. It reflects the IRS’s responsiveness to feedback from taxpayers and industry stakeholders about the challenges associated with the lower threshold. The IRS recently announced the threshold for 2025 will be $2,500 and for all subsequent years it will be $600.

Implications for Recipients of Form 1099-K – Receiving a Form 1099-K means that you have received payments through payment cards or third-party networks that exceed the IRS’s reporting threshold. For individuals and businesses engaged in e-commerce, online services, or other digital transactions, this form is crucial for accurate tax reporting. It reports the gross amount of transactions, not accounting for returns, refunds, or fees, which means recipients must carefully account for these factors when reporting their income.

As a result of the lowered reporting threshold the number of taxpayers who will receive Form 1099-K will increase significantly, including small sellers and individuals who engage in occasional online sales. Even those who receive money from family and friends through a third-party network and that’s unrelated to selling products or providing services may receive a Form 1099-K. This change underscores the importance of maintaining meticulous records of online transactions, associated costs, and any related business expenses that can be deducted.

Impact on Tax Reporting – The introduction and subsequent adjustments to Form 1099-K reporting thresholds have profound implications for tax reporting. Taxpayers who receive this form must report the income on their tax returns, considering the gross transactions reported and deducting any relevant business expenses to arrive at their net taxable income.

For many, the receipt of Form 1099-K necessitates a more detailed approach to record-keeping and tax preparation. It may also lead to increased scrutiny from the IRS, as the agency uses the information to identify discrepancies between reported income and the amounts reflected on Form 1099-K.

• Individuals Selling Personal Items – For individuals selling personal items online, receiving a Form 1099-K can be a source of confusion. It’s crucial to understand that not all payments reported on Form 1099-K are necessarily taxable income. For instance, if you sell a personal item for less than you paid for it, you’re not making a profit, and thus, the sale proceeds are not considered taxable income. However, the receipt of Form 1099-K for such transactions necessitates proper reporting on your tax return to avoid potential issues with the IRS.
• Self-employed Individuals – If you are a self-employed individual, all business income, including amounts reported on Form 1099-K, should be included in the gross income you report on Schedule C (Profit or Loss from Business) that is part of your individual income tax (1040) filing. Here’s how to ensure you’re reporting your 1099-K income correctly:

Start by reporting the total gross income your business earned during the tax year on Schedule C. This includes all income from sales, services, and any other business activities, regardless of whether it was received in cash, checks, credit card payments, or through third-party networks.

If you’ve received a Form 1099-K, the amount reported should already be part of your gross receipts. Ensure that you’re not double counting this income. The total on your Schedule C should reflect all your business’s gross income, including the transactions reported on Form 1099-K.

• Reimbursement of Personal Expenses – You may receive a Form 1099-K from a third-party network or payment card that reports money you received from a family member or friend who sent you the money as a gift or as reimbursement for a joint expense. An example is when you pay the rent or household expenses on your home and your roommate reimburses you for their share. While these repayments shouldn’t be reported on Form 1099-K, they still may be. Personal payments included in the 1099-K will need to be reported on your return and then “backed-out”, so you don’t pay tax on the money you received but still satisfy the IRS’ reporting requirement.

Since each payment app or online marketplace has its own processes to determine the nature of payments, you should review the policies of any apps or online marketplaces you use. The person sending you the payment may be able to code the transaction as a personal one to prevent 1099-Ks in future years from being erroneously prepared.

• Crowdfunding – You may receive a Form 1099-K for money raised through crowdfunding. Depending on the circumstances some money raised through crowdfunding may be taxable to you, and you may be required to report it on your income tax return. However, some money raised may be considered a gift and would not be taxable. Other than gifts, here are some scenarios:
  • No Business Ownership Interest Given – When the fundraiser offers nominal gifts (like products from the business, coffee cups, or T-shirts) in exchange for contributions, the money raised is considered taxable income to the fundraiser. This is because the funds are received in exchange for goods or services and are seen as revenue for the business.
  • Not Taxable Crowdfunding Income – When the fundraiser provides contributors with a partial business ownership, such as stock or a partnership interest, the money raised is treated as a capital contribution and is not taxable to the fundraiser. The amount contributed becomes the contributor’s tax basis in the investment.
  • Special Considerations – Money received through crowdfunding that is structured as a loan that must be repaid, or as gifts made from detached generosity without any quid pro quo, may not be considered taxable income. The classification depends on the specific facts and circumstances of each case.
• Incorrect 1099-K Forms – If you believe the information on your Form 1099-K is incorrect, contact the issuer immediately to request a corrected form. Don’t contact the IRS as the Service can’t correct the form. Keep copies of any correspondence, as you may need to reference these communications if discrepancies arise during the tax filing process.

If you received a 1099-K and have questions or need assistance with preparing your return, please contact our office.

In recent years, wildfires, hurricanes, and other natural disasters have become increasingly frequent and devastating, leaving many individuals and families grappling with the loss of their homes and personal property. For those affected by such disasters, particularly in areas designated as federal disaster zones, understanding the tax implications and available relief options is crucial. This article delves into the various disaster loss tax provisions, including the limitations, claims process, and tax treatments associated with qualified disaster losses. We will explore the intricacies of claiming losses, the election to claim losses on prior year returns, and the tax implications of insurance payments and FEMA assistance.

Understanding Qualified Disaster Losses – A qualified disaster loss refers to a casualty or theft loss of personal-use property, including a personal residence, attributable to a major disaster declared by the President. These losses are subject to specific provisions that allow taxpayers to claim deductions, even if they do not itemize their deductions. The per-event limitations for qualified disaster losses include an increase in the standard deduction and a waiver of the 10% of adjusted gross income (AGI) reduction, although a $500 per casualty  threshold applies.

Specifically, each casualty loss must exceed $500 to be deductible. This threshold is in place to prevent taxpayers from claiming deductions for minor losses, ensuring that only significant losses are eligible for tax relief.

Claiming a Qualified Disaster Loss – The loss can be claimed in the year it occurred or, alternatively, on the prior year’s return, which if already filed would have to be amended. This flexibility allows taxpayers to potentially receive a quicker tax refund, providing much-needed financial relief.

However, if there is a reasonable prospect of reimbursement, the deduction is deferred until the reimbursement is determined. If the determination cannot be made by the return due date, then an extension can be filed extending the due date until October 15^th. If October 15 falls on a holiday or weekend, the due date is the next business day.

Election to Claim Loss on Prior Year Amended Return – Taxpayers can elect to claim their disaster loss on the prior year’s return, and if that return has already been filed, filing it can be amended to claim the disaster loss. This election must be made within six months after the due date of the taxpayer’s federal income tax return for the disaster year, without regard to extensions. The election statement should include details of the disaster, the location of the damaged property, and the amount of the loss.

Claiming a disaster loss in the prior year can provide several benefits:

• Quicker Access to Refunds: By claiming the loss on the prior year’s tax return, you may receive a tax refund more quickly than if you wait to claim it on the current year’s return.
• Potential for Greater Tax Benefit: Depending on your income and tax situation, claiming the loss in the prior year might result in a larger tax benefit. This is because the tax rates or your income level might have been different, potentially leading to a greater reduction in taxable income.
• Flexibility in Tax Planning: Electing to claim the loss in the prior year gives you the flexibility to choose the year that provides the most advantageous tax outcome.

Relief for Some Non-Itemizers – Normally taxpayers who aren’t itemizing deductions don’t include Schedule A in their return. However, taxpayers who are not itemizing and who have a net qualified disaster loss are eligible to claim both the qualified disaster loss and the standard deduction.

Net Operating Loss Deduction – A disaster loss Net Operating Loss (NOL) is created when a taxpayer’s allowable disaster-related losses exceed their income for the year. These losses are treated as “business” losses for the purpose of computing NOLs. When a disaster loss occurs, taxpayers in the affected area may be eligible to claim these losses as NOLs. This allows them to potentially offset taxable income in other years, by carrying the loss forward to future tax years.

For those familiar with NOLs, at one time an NOL could be carried back some years and then forward. However, per current law NOLs can only be carried forward until used up.

Insurance Coverage and Reimbursement – Insurance coverage plays a critical role in disaster recovery. Proceeds from insurance claims must be considered when calculating the deductible loss. If insurance reimbursement is received for living expenses, it is generally not taxable unless it exceeds the actual expenses incurred.

Taxation of FEMA Assistance Payments – FEMA assistance payments are typically not taxable. These payments are intended to help cover essential needs and expenses not covered by insurance. However, any payments received for expenses that are later reimbursed by insurance must be reported as income.

To apply for FEMA assistance after suffering a disaster loss, you can follow these steps:

• File a Claim with Your Insurance: Before applying for FEMA assistance, you must file a claim with your insurance company. FEMA cannot duplicate benefits for losses covered by insurance.
• Apply for FEMA Assistance: There are three ways to apply:
  • Online: Visit DisasterAssistance.gov to apply online. This is the easiest and fastest method if you have internet access and power.
  • FEMA App: Use the FEMA App on your mobile device to apply.
  • Phone: Call the FEMA Helpline at 1-800-621-3362. The helpline is available every day from 4 a.m. to 10 p.m. Pacific Standard Time. Assistance is available in most languages. If you use a relay service, provide FEMA with the number for that service.

For more information on the types of assistance available, you can visit fema.gov/assistance/individual/program. There is also an accessible video on how to apply available on YouTube titled “FEMA Accessible: Registering for Individual Assistance”.

When Disaster Losses Might Result in a Gain – In some cases, insurance proceeds may exceed the adjusted basis of the destroyed property, resulting in a gain. Taxpayers can defer this gain by purchasing replacement property within a specified period, under the involuntary conversion rules of Section 1033.

Involuntary Conversions – IRC Section 1033 allows taxpayers to defer gains from involuntary conversions, such as those resulting from insurance proceeds exceeding the property’s basis. To qualify, replacement property must be purchased within a specified timeframe.

This provision helps taxpayers avoid immediate tax liabilities that could arise from such conversions, allowing them to maintain their financial stability while replacing their lost or damaged property.

The general rule under Section 1033 is that taxpayers have two years (four in the case of a disaster) after the close of the first tax year in which any part of the gain is realized to reinvest in similar or related property.

Debris Removal and Demolition Expenses – Debris removal and demolition expenses are generally not deductible in the year of a disaster loss. The treatment of these expenses depends on their nature:

• Demolition Expenses: The costs of demolishing structures are typically not deductible. Instead, these costs are charged to the capital account of the underlying land.
• Debris Removal Expenses: If the debris removal costs are related to the replacement of part of the property that was damaged, these costs are capitalized and added to the taxpayer’s basis in the property.

Filing Extensions – When the President declares a disaster the IRS also provides filing and payment relief for individuals and businesses within the disaster area. These dates are different for each disaster and provided online at the IRS website.  As an example, the following are the extended due dates for the 2025 Los Angeles wildfires.

The Internal Revenue Service announced tax relief for individuals and businesses in southern California affected by wildfires and straight-line winds that began on Jan. 7, 2025. No ¶

The tax relief postpones various tax filing and payment deadlines that occurred from Jan. 7, 2025, through Oct. 15, 2025 (postponement period). As a result, affected individuals and businesses will have until Oct. 15, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the Oct. 15, 2025, deadline will now apply to:

• Individual income tax returns and payments normally due on April 15, 2025.

• 2024 contributions to IRAs and health savings accounts for eligible taxpayers.

• 2024 quarterly estimated income tax payments normally due on Jan. 15, 2025, and 2025 estimated tax payments normally due on April 15, June 16 and Sept. 15, 2025.

• Quarterly payroll and excise tax returns normally due on Jan. 31, April 30 and July 31, 2025.

• Calendar-year partnership and S corporation returns normally due on March 17, 2025.

• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.

• Calendar-year tax-exempt organization returns normally due on May 15, 2025.

In addition, penalties for failing to make payroll and excise tax deposits due on or after Jan. 7, 2025, and before Jan. 22, 2025, will be abated if the deposits are made by Jan. 22, 2025.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.

It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Using Retirement Funds for Recovery – Recent tax legislation includes a provision that allows taxpayers to withdraw up to $22,000 from their retirement funds in the case of federally declared disasters. This provision is designed to provide financial relief to individuals affected by such disasters. The withdrawal:

• Is not subject to the usual 10% early withdrawal penalty that typically applies to distributions taken before the age of 59½,
• amount can be included in income over a three-year period, and
• allows taxpayers to repay the distribution to their retirement account within three years to avoid taxation on the withdrawn amount.

Proving Losses – To substantiate a casualty loss, taxpayers must provide documentation such as photographs, receipts, and insurance claims. Accurate records are essential for claiming deductions and defending against potential audits. The IRS provides several safe harbor methods for calculating disaster losses, including:

• Estimated Repair Cost Safe Harbor Method for losses of $20,000 or less – To determine the decrease in the FMV of the personal-use residential real property, the lesser of two repair estimates prepared by two separate and independent contractors, licensed or registered in accordance with state or local regulations, may be used, provided the costs to restore the residence to pre-casualty condition are itemized. Costs that improve or increase the value of the residence above pre-disaster value must be excluded from the estimate. This safe harbor only applies if the loss is $20,000 or less before applying the per-disaster and, when applicable, percentage of AGI reductions.
• De Minimis Safe Harbor Method for losses of $5,000 or less – Under the de minimis method, the cost of repairs required to restore the residence to pre-disaster condition may be estimated by the taxpayer. Costs that improve or increase the value of the residence above pre-disaster value must be excluded from the estimate. The estimate must be done in good faith, and the individual must maintain records detailing the methodology used for estimating the loss. This safe harbor only applies if the loss is $5,000 or less before applying the per-disaster and, if applicable, percentage of AGI reductions.
• Insurance Safe Harbor Method for losses covered by insurance – The estimated loss determined in reports prepared by the individual’s homeowners’ or flood insurance company may be used.
• Contractor Safe Harbor Method based on contractor estimates – The contract price for the repairs specified in a contract prepared by an independent and licensed contractor (or one registered in accordance with state or local regulations) may be used if the contract itemizes the costs to restore the residence to the condition existing prior to the disaster. Costs that improve or increase the value of the residence above pre-disaster value must be excluded from the contract price for purposes of this safe harbor. To use the Contractor Safe Harbor Method, the contract must be a binding contract signed by the individual and the contractor.
• Disaster Loan Appraisal Safe Harbor Method based on loan appraisals – Under this method, to determine the decrease in FMV of the individual’s residence, an appraisal prepared for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government may be used. The appraisal should include the estimated loss the individual sustained because of the damage to or destruction of their residence from the Federally declared disaster.

Personal Belongings Valuation Table
# of Years Owned	Percentage of Replacement Cost to Use
1	90%
2	80%
3	70%
4	60%
5	50%
6	40%
7	30%
8	20%
9+	10%

For personal belongings, the IRS offers:

• De Minimis Safe Harbor Method for losses of $5,000 or less.
• Replacement Cost Safe Harbor Method for federally declared disasters. This method may be used to determine FMV of most personal belongings located in a disaster area immediately before the disaster to compute the disaster loss. If used, this method must be applied to all eligible personal belongings for which a disaster loss is claimed. This method may not be used for the following: boats, aircraft, mobile homes, trailers, vehicles, and antiques or other assets that maintain or increase in value over time.

Under this method, first determine the current cost to replace the personal belonging with a new one and reduce that amount by 10% for each year the personal belonging was owned, using the percentages in the adjacent Personal Belongings Valuation Table. A personal belonging owned by the individual for nine or more years, will have a pre-disaster FMV of 10% of the current replacement cost.

Home Destroyed – When a home is destroyed in a casualty or disaster the outcome can be quite different than expected by taxpayers. The reason being that their loss is measured from the lesser of the home’s adjusted basis or the fair market value (FMV) at the time of the loss.

The term “basis” refers to the monetary value used to measure a gain or loss on an asset. A  property’s basis is not always equal to the original purchase cost and can be adjusted based on various factors such as improvements, depreciation, and casualty losses. There are also different types of basis, including cost basis, adjusted basis, gift basis, and inherited basis, each with specific rules for calculation depending on the circumstances of how the asset was acquired.

Since real property generally appreciates in value, for tax purposes a home that’s destroyed will generally result in a casualty gain as opposed to a casualty loss once insurance payment is considered. However, the gain can be excluded under the home gain exclusion (IRC Sec 121) if the taxpayer(s) qualifies and any remaining gain (up to the basis of a replacement home acquired) can be deferred under the involuntary conversion rules discussed previously. In the case of a disaster loss, that replacement period ends four years after the close of the first tax year in which any part of the gain is realized.

The Section 121 home gain exclusion refers to the ability of taxpayers to exclude up to $250,000 of capital gains from the sale of their primary residence if they are single, or up to $500,000 if they are married and filing jointly. To qualify, the taxpayer must have owned and used the home as their principal residence for at least two of the five years preceding the sale. This exclusion can generally be used once every two years. There are exceptions and special rules, such as those related to involuntary conversions, expatriates, and depreciation recapture for business use of the home.

This is all best explained by example:

Example – A wildfire in a disaster area destroys Phil’s home which had an adjusted basis of $125,000. Phil is single and has owned and used the home for over 10 years before it was destroyed. Phil’s insurance company pays Phil $400,000 for the house. A tax loss is different from a financial loss in that a tax loss is measured from the lesser of the home’s adjusted basis or the FMV at the time of the loss. So, in this case Phil does not have a tax loss, he has a gain.

The destruction of Phil’s home is treated as a sale for tax purposes and since Phil meets the 2 out of 5 years ownership and use tests, the Sec 121 gain exclusion will apply. In addition, any gain more than the amount excluded can be deferred under Sec 1033.  Here is how it all plays out for Phil…

Insurance company payment                               $400,000

Phil’s adjusted basis in the home                         <125,000>

Realized Gain                                                      275,000

Sec 121 Gain Exclusion                                      <250,000>*

Remaining Gain                                                     25,000

Phil elects to defer gain into replacement              <25,000>**

Net taxable gain                                                            0

                                                                

* Since the disaster was treated as a sale, presumably Phil would be qualified for another $250,000 Sec 121 exclusion after owning and using the replacement property for two years.

** Per Sec 1033 deferral, this amount reduces the basis of Phil’s replacement home. This is an election, and Phil could instead choose to pay the tax on the gain instead of deferring it.  In addition, the deferral cannot reduce the basis of the replacement property below zero; thus, any amount not deferred would be taxable.

 

Casualties on Business Property and Inventory Losses – Although this article is primarily devoted to homeowner disaster losses, some homeowners may also own a business within the disaster area:

• For business property, casualty losses are deductible against business income. Inventory losses due to a disaster can be claimed as a deduction, reducing both income and self-employment taxes.
• Losses from Investment Property – Losses from investment property are treated similarly to personal-use property losses. However, the deduction is limited to the lesser of the decrease in fair market value or the adjusted basis of the property.

Navigating the aftermath of a wildfire and the associated tax implications can be overwhelming. However, understanding the available disaster loss provisions and tax treatments can provide significant financial relief. By leveraging these provisions, affected individuals can mitigate the financial impact of their losses and begin the process of rebuilding their lives. We advise you to consult with our office to ensure all available options are utilized and compliance with IRS regulations is maintained.

In a significant shift impacting the tax landscape, the Internal Revenue Service (IRS) is projected to lay off approximately 6,700 employees right in the middle of tax season. As of the announcement, the IRS had expanded its workforce to roughly 100,000 employees after hiring initiatives initiated by the Biden administration, which aimed to enhance enforcement, particularly against wealthy taxpayers. However, the current downsizing aligns with a broader governmental restructuring initiative led by the “Department of Government Efficiency,” spearheaded by deputies aligned with Elon Musk’s vision for streamlined operations.

 

Overview of IRS Personnel Reductions – The layoffs encompass a diverse range of roles within the IRS, including revenue agents, customer service employees, independent specialists handling tax dispute appeals, and IT personnel. This move has sent ripples through Washington, with numerous reports surfacing about potential service disruptions, data security challenges, and a subsequent impact on taxpayer experiences. Especially concerning are those awaiting their tax refunds, as potential delays can affect financial planning for households nationwide.

IRS’s Strategic Position – Despite these staffing changes, the IRS affirms its commitment to ensuring a successful tax filing season, in adherence to the executive orders while minimizing disruptions. Official communications from the agency suggest that efforts are underway to manage resources efficiently and uphold service standards. However, this is an evolving situation with ongoing litigation and potential policy changes looming, possibly altering the current course of operations.

Data Security Measures – For those concerned about data security amidst these changes, the IRS maintains stringent protocols to safeguard sensitive taxpayer information. These protocols are applicable to all parties with data access, regardless of their employment status with the IRS, thereby upholding the integrity and confidentiality of taxpayer information.

Managing Expectations: Refund Processing – Taxpayers concerned about potential delays in refund processing can utilize the “Where’s My Refund?” tool for real-time status updates, typically available 48 hours post e-filing. Refunds from paper or amended returns may take longer to reflect in the system and can extend up to 16 weeks for processing. For amended returns, taxpayers can check the “Where’s My Amended Return?” tool for updates.

Under ordinary circumstances, refund processing timelines are as follows:

• E-filed Returns: Up to 21 days
• Amended or Mailed Returns: 4 weeks or more
• Returns Requiring Extensive Review: Longer durations

For those early filers claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) and filing online with refunds via direct deposit, most refunds are expected by March 3, provided there are no discrepancies. Legally, EITC and ACTC refunds cannot be issued before mid-February, and any issues during the processing of returns will prompt IRS communication for additional information.

To Optimize Refund Speed – Taxpayers should electronically file with automatic refund deposit.

Extension Options for Tax Filings – Taxpayers needing extra time can request an extension by the April deadline, which gives them until October 15 to file without incurring penalties. However, any taxes owed must be paid by the April deadline. Two main methods are available for securing this extension:

1. Online Payment with Extension Check Box:
   • Pay amounts due online and select the extension checkbox, negating the need for filing a separate extension form while providing the taxpayer a confirmation number for their records.
2. Mail-in Extension Request:
   • File Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) through the mail, online, or via a tax professional.
   • Estimate annual tax liability, subtract taxes already paid for the year and include a payment for the balance.
3. Business, Trust and Information Return Extensions – There are a variety of forms used to obtain an extension for these type returns. Contact this office for assistance.

Special Situations

• For U.S. Citizens Abroad: An automatic two-month extension is available for individuals residing outside the United States as of the standard tax filing deadline. If more time is still needed at the end of the two-month period, Form 4868 can be filed for an additional four-month extension to October 15.
• Disaster Situations: Additional time may be granted for those impacted by federally recognized disasters.

As this complex situation unfolds, it remains crucial for taxpayers and businesses alike to stay informed and proactive, ensuring compliance while optimizing financial outcomes amid these systemic changes. Contact our office with any questions.

Running a small business is a round-the-clock hustle. You juggle employees, invoices, marketing, and a million other tasks that always demand your attention. The last thing you want is to overlook a perfectly legal tax deduction that could save you thousands—or worse, get stuck paying more than your fair share.

Ready for a quick win? Let’s dive into some powerful tax deductions that small business owners often miss—and learn how you can bank that extra cash instead.

1. Vehicle Expenses: More Than Just Mileage

Think of all the errands you run in your car for your business—client meetups, supply runs, on-site visits. Each of those trips could be padding your deduction total instead of draining your bank account on gas. The IRS offers two routes here:

• Standard Mileage Rate: Track how many miles you drive for business and multiply by the current IRS mileage rate.
• Actual Expenses: Deduct a portion of your actual vehicle expenses (gas, insurance, repairs, etc.).

Pro Tip: Choose the method that nets you the highest deduction. But remember—meticulous record-keeping is key. Apps like MileIQ are a lifesaver for logging those miles.

2. Home Office Deduction: It’s Not Just for Freelancers

If you use a portion of your home exclusively for business, you’re sitting on a deduction goldmine. That means a chunk of your mortgage or rent, utilities, and even repairs could be deductible on your business return.

• Exclusive Use: Keep that space business-only—no letting the kids watch Netflix there at night.
• Regular Use: Make sure you use this space regularly. (A corner desk you touch once a year won’t qualify.)

This one’s a game-changer when done correctly, so don’t overlook it if you work from home.

3. Equipment Depreciation: Turbocharge Your Assets

Buy a new laptop this year? What about that top-of-the-line printer or ergonomic office chair?

• Section 179: Deduct the full purchase price of qualifying equipment in the year you buy it.
• Depreciation: Spread the cost out over the asset’s useful life if it makes more financial sense.

The right strategy can seriously reduce your taxable income—so choose wisely based on your cash flow and growth plans.

Beyond the Basics: Your Custom Roadmap to Bigger Savings

Health insurance premiums, travel costs, even business meals—can all add up to major deductions if you know how to document them properly. It’s not just about what you can deduct, but how to ensure the IRS stays happy while you claim everything you’re entitled to.

Why Going DIY Could Cost You

Sure, you can try to handle taxes on your own. But with so many moving parts in the tax code, one slip could cost you big time—or leave dollars on the table that you could have reinvested in your business. Working with a tax pro isn’t just an expense. It’s an investment in peace of mind and bigger returns.

Let’s Make the Tax Code Work for You

Here’s the bottom line: Every dollar saved in taxes is a dollar that can drive your business forward—whether that’s hiring new talent, upgrading equipment, or simply boosting your personal paycheck. Don’t let hidden tax breaks slip through the cracks.

Looking to supercharge your deductions? That’s what we’re here for. Let’s take a deep dive into your finances, tailor the perfect tax strategy, and keep more money where it belongs: in your business.

Get in touch today for a consultation, and let’s start checking off those hidden tax opportunities—together.

Remember when “downsizing” was something you did to your closet every spring? Now, it’s a buzzword for a major financial move: selling the big family home to streamline expenses, pocket extra cash, or fund that dream RV trip. Especially for Baby Boomers and Gen Xers stepping into retirement territory, downsizing isn’t just about purging your dusty attic—it’s about deciding how you want to live the next chapter of your life.

But there’s a caveat. Before you pop that “For Sale” sign in the ground, you’ve gotta get tax-savvy. Because the IRS? They never miss an opportunity to tag along.

Capital Gains Taxes: The Big Kahuna

Let’s get right into the heavy stuff: capital gains taxes. Suppose you sell your long-time home for more than you paid for it—yay, profit! But that profit might be taxable. There is good news, though: if the property was your primary residence for at least two of the last five years, the IRS offers a sweet exclusion—up to $250,000 for single filers, and $500,000 if you’re married filing jointly.

Sounds too good to be true? Well, there are a few catches:

• Short Occupancy: If you haven’t lived in the house for that magic two-year window, or used it as a rental or business site, you’ll likely face a bigger tax bill.
• Multiple Properties: Selling more than one home? You don’t get to claim this exclusion twice in the same two-year period.

Essentially, don’t assume your sale profit automatically sails off tax-free. You might need to plan your timing or usage to snag the best tax breaks.

Tapping Into Sneaky Deductions

Yes, you can still find deductions—but it’s complicated. Recent legislation (looking at you, Tax Cuts and Jobs Act of 2017) capped state and local tax (SALT) deductions at $10,000. That might cramp your style if you live in a high-tax state.

The moving deduction is no longer allowed except for the military.

Leveraging the Sale for Retirement Funding

Downsizing can do more than trim your monthly bills—it can boost your golden years. Turn your home’s equity into rocket fuel for your retirement:

1. Time Your Sale Wisely: Selling in a strong market = bigger proceeds, and a well-structured sale can minimize your tax hit.
2. Park Funds in Tax-Advantaged Accounts: Rolling part of that new nest egg into IRAs or 401(k)s (up to the contribution limits) can help cushion your post-paycheck life.
3. Diversify, Diversify, Diversify: Talk to a financial advisor about distributing your proceeds into a blend of stocks, bonds, or even real estate investment trusts (REITs). Because “eggs” and “one basket” never end well.

Carrying Over Your Property Tax Basis (Sometimes)

Heard the rumor that you might get to carry your old property’s tax basis over to a new one? In certain places—California, we’re looking at you—this is more than a myth. Laws like Proposition 13 allow eligible homeowners to transfer their property tax base to a new home.

But the rules are notoriously finicky. Age requirements, property values, and county regulations can all squash your hopes if you don’t follow them to the letter. This is the kind of nuance that can save you bundles… or cost you if you mess it up.

Don’t Wing It

Let’s be real: the money you’ve spent a lifetime building is on the line here. You want to keep as much of it as possible—preferably for fun stuff like spoiling grandkids or traveling the world, not handing it over to Uncle Sam.

That’s why a little strategic planning goes a long way. And you don’t have to be the tax code’s best friend to do it right. You just need the right people in your corner.

Next Step: Dial Our Office for Tailored Tax Smarts

Ready to turn your downsizing dreams into a fully informed reality? We’ve got you.

Call or email our office now, and let’s chat through your situation—no generic, one-size-fits-all advice here. We’ll help you:

• Identify tax pitfalls specific to your property
• Pinpoint opportunities for deductions and exclusions
• Map out strategies to amplify your retirement savings

Don’t let confusion about capital gains or complicated tax rules derail your next life move. Get clarity today—and set yourself up for a smoother, more profitable transition into those well-earned golden years.

Remember: The smartest moves are made with eyes wide open… and a solid tax plan under your belt.

In an increasingly globalized world, many U.S. taxpayers find themselves with financial interests or assets located outside the United States. Whether through inheritance, investment, or business ventures, these foreign assets come with specific reporting requirements mandated by the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN). Understanding these requirements is crucial to avoid severe penalties. This article explores the various forms and thresholds involved in foreign asset reporting, including the FBAR (FinCEN Form 114), Form 8938, and others, while also highlighting common scenarios where individuals might unknowingly hold foreign accounts.

FBAR (FinCEN Form 114) – The Report of Foreign Bank and Financial Accounts (FBAR) is a critical component of foreign asset reporting. U.S. persons, including citizens, residents, and entities, must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts exceeding $10,000 at any time during the calendar year. The purpose of the FBAR is to provide the U.S. government with information to combat financial crimes such as money laundering and tax evasion.

The due date for filing the FBAR is April 15, with an automatic extension to October 15 if the initial deadline is missed. The FBAR is filed directly with FinCEN and not as part of any income tax return. Penalties for failing to file the FBAR can be severe, ranging from $10,000 for non-willful violations to the greater of $100,000 or 50% of the account balance for willful violations. These amounts are indexed for inflation annually, and as of January 25, 2024 they are $16,117 and $161,166, respectively.

Form 8938 – Statement of Specified Foreign Financial Assets – Form 8938 is required under the Foreign Account Tax Compliance Act (FATCA) and must be filed by U.S. taxpayers holding specified foreign financial assets exceeding certain thresholds. For individuals living in the U.S., the threshold is $50,000 on the last day of the tax year or $75,000 at any time during the year. For married couples filing jointly, these thresholds double.

The types of reportable foreign financial assets include financial accounts held at a foreign financial institution, a stock or security issued by a foreign corporation. and an interest in a foreign corporation, partnership, or trust.

The Form 8938 is included with the taxpayer’s income tax return and the due date is the same as the taxpayer’s income tax return, including extensions. Failure to file can result in a $10,000 penalty, plus possibly a 40% accuracy-related penalty, with additional penalties for continued non-compliance and potential criminal charges. In some cases it may be necessary to file both a FBAR and Form 8938.

Foreign Rental Property – While foreign rental properties themselves are not reported on the FBAR or Form 8938, any income generated must be reported on the taxpayer’s U.S. tax return. Additionally, if the property is held through a foreign financial account, that account may need to be reported on the FBAR and Form 8938 if it meets the respective thresholds.

Foreign Pensions – Foreign pensions can be complex, as they may be subject to different reporting requirements depending on their structure. Generally, foreign pensions are reported on Form 8938 if they meet the asset threshold. Additionally, distributions from foreign pensions are typically taxable and must be reported on the taxpayer’s income tax return.

Form 3520 – Reporting Receipt of Foreign Gifts or Bequests – Form 3520 is used to report the receipt of certain foreign gifts or bequests. U.S. persons must file this form if they receive gifts or bequests from foreign individuals exceeding $100,000 or gifts from foreign corporations or partnerships exceeding $20,116 as of 2025 ($19,570 in 2024). The due date for Form 3520 is the same as the taxpayer’s income tax return, including extensions. It is filed separately from the income tax return.

Failure to file Form 3520 can result in a penalty of 5% of the gift or bequest amount for each month the form is late, up to a maximum of 25%.

Form 3520 – Reporting Ownership or Transactions with Foreign Trusts – In addition to reporting foreign gifts, Form 3520 is also used to report ownership or transactions with foreign trusts. U.S. persons who create, transfer assets to, or receive distributions from a foreign trust must file this form. The penalties for failing to file are similar to those for foreign gifts, with additional penalties for failing to report distributions.

Form 3520-A – Annual Information Return for Foreign Trust with U.S. Owner – Form 3520-A is required for foreign trusts with U.S. owners. The trust must file this form annually to provide information about its activities and financial status. The due date is March 15, with an extension available until September 15. Failure to file can result in a penalty of 5% of the trust’s gross value.

Form 5471 – Ownership or Voting Power in Foreign Corporation – U.S. persons with certain levels of ownership or voting power in a foreign corporation must file Form 5471. This form provides information about the corporation’s financial activities and the taxpayer’s involvement. The due date is the same as the taxpayer’s income tax return, including extensions, and is included as part of the income tax return filing. Penalties for failing to file can be substantial, starting at $10,000 per year.

Form 709 – Tax on Non-Resident Alien Gifts of Property Located in the U.S. – Form 709 is used to report gifts of property located in the U.S. made by non-resident aliens. While this form is not specifically for foreign assets, it is relevant for U.S. persons receiving such gifts. The due date is April 15, and failure to file can result in penalties based on the value of the gift.

Unrecognized Foreign Accounts – Many individuals may unknowingly hold foreign accounts, such as online gambling accounts or family accounts in foreign countries. These accounts may still be subject to reporting requirements if they meet the thresholds for the FBAR or Form 8938. It is crucial for taxpayers to review all potential foreign financial interests to ensure compliance.

Navigating the complex landscape of foreign asset reporting can be daunting, but understanding the requirements and deadlines is essential to avoid significant penalties. U.S. taxpayers with foreign financial interests should consult with tax professionals to ensure compliance with all reporting obligations. By staying informed and proactive, taxpayers can effectively manage their foreign assets and avoid the pitfalls of non-compliance.

Contact our office with questions and assistance in complying with foreign reporting requirements.  Don’t expose yourself to unnecessary penalties.

To our clients:

 

The Financial Crimes Enforcement Network (FinCEN) will extend the current March 21 beneficial ownership information (BOI) reporting deadline, has suspended BOI enforcement, and will develop new regulations it says will reduce “regulatory burden,” the agency said Thursday.

The decision to pause enforcement prioritizes “reporting of BOI for those entities that pose the most significant law enforcement and national security risks,” a FinCEN release said.

FinCEN said it will not take any enforcement actions, including not issuing fines or penalties, based on a failure to file or update BOI reports by the current deadlines until an interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. The agency recognizes “the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.”

FinCEN didn’t announce a new reporting deadline but said it will issue an interim final rule by March 21.

The update above and additional information can be found at the AICPA’s BOI Resource Center. Additional information can also be found at the FinCEN BOI Resource Website. We encourage you to check these websites regularly for further updates.

In addition, we encourage you to contact your legal counsel regarding these updates, your compliance requirements, or any other questions on this matter.

 

 

 

To our clients:

 

On February 18, 2025, the U.S. District Court for the Eastern District of Texas lifted the last remaining nationwide injunction which halted beneficial ownership information (BOI) filing requirements. In response to this decision, FinCen published an official notice on February 19, 2025 to announce FinCen is generally extending the deadline calendar 30 calendar days from February 19, 2025 for most companies.

What this means

For the vast majority of reporting companies who have not already filed, the new deadline to file an initial BOI report is now March 21, 2025. Note that FinCen acknowledged that it will assess its options to further modify deadlines.

The update above and additional information can be found at the AICPA’s BOI Resource Center. Additional information can also be found at the FinCEN BOI Resource Website. We encourage you to check these websites regularly for further updates.

In addition, we encourage you to contact your legal counsel regarding these updates, your compliance requirements, or any other questions on this matter.

 

 

 

 

Abeles and Hoffman, P.C.