SMALL BUSINESS TIPS Small Business Tips Deducting 100% of your Business Meals In the past, the tax deduction for business-related meals has generally been limited to 50% of the cost of the meal. However, to help the restaurant industry recover from the Covid-19 pandemic, the relief bill signed into law at the end of last year temporarily increased the business meal deduction to 100% for tax years 2021 and 2022. This means that you can now fully deduct the cost of your business meals provided they meet a few requirements. What Qualifies as a Business Meal? The first step is to make sure your meal qualifies as a business expense. Deductible business meals include: Meals for yourself while out of town on a qualified business trip. Note that you cannot deduct your own meals while working unless you are either out of town on an overnight business trip or meeting with a potential business associate. To substantiate your meal as a qualified business expense you should save the receipt as well as document who you met with or the purpose of your out-of-town trip. Meals shared between you and a person with whom you could reasonably expect to engage in business activity, such as a customer, supplier, employee, partner, or professional advisor. How Do You Qualify for the 100% Deduction? In the past, the tax deduction for business-related meals has generally been limited to 50% of the cost of the meal. However, to help the restaurant industry recover from the Covid-19 pandemic, the relief bill signed into law at the end of last year temporarily increased the business meal deduction to 100% for tax years 2021 and 2022. This means that you can now fully deduct the cost of your business meals provided they meet a few requirements. What Doesn't Qualify for 100% Deduction? Businesses that are not qualified restaurants include any that primarily sell pre-packaged food or beverages not for immediate consumption, including: Grocery Store Specialty Food Store Liquor Store Drug Store Convenience Store News Stand Vending Machine Meals purchased from any of the places mentioned above would still be limited to the 50% deduction. If you choose to use federal per diem rates to deduct your meals during business trips or to reimburse your employees for business meals, you are also limited to the regular 50% deduction. To qualify for the 100% deduction you must use the actual cost of the meals. Read More Articles Summary Business meals have traditionally been a sore spot for business owners due to the limited tax benefits relative to other business expenses. With this temporary increase you can now fully deduct your business meals as long as they are a qualified business expense and are provided by a qualified restaurant.

Quarterly: Oct 17 Profiting From the Failure of Active Managers If you were to Google “Active vs Passive Management” you would see a multitude of articles debating the value of high-fee active managers verses low-fee passive ETF sponsors. Instead of sharing our two cents on the fee debate, we would rather spend our time addressing the failure of the models behind most active managers and how to profit from their mistakes. The reason most active managers fail to outperform their benchmarks is not simply due to their higher fee structure. They fail because they fail to recognize that the markets are random. In their refusal to recognize the “randomness” of the markets, they put their trust in their “expert” ability to predict the future, but the future is not predictable because the markets are random. That is why Tamco spends zero effort attempting to predict which companies will grow earnings next year. Why spend resources in an attempt to predict something that is unpredictable? Rather than basing our stock selection on a model that tries to predict the future, we buy stocks based on their characteristics at the time of purchase. As an example, let’s take the earnings trends of BlueCo and RedCo (below). If these two companies existed today, BlueCo is likely to trade at a high valuation while RedCo is likely to trade at a low valuation. And the difference between these valuations will be driven by the “experts” and their assumptions about the future earnings of these two companies. But academic studies have shown that experts are very bad at predicting the future and historical trends tend to revert back to their mean. This principle is called “Reversion to the Mean.” So the primary focus of our analysis is on the data point of today. What do these companies look like today? What are their current earnings? What are they currently doing with their free cash flow? And how does their valuation compare with other opportunities in the marketplace? Because today’s earnings and today’s capital allocation decisions give us the best insight into what these two companies will look like tomorrow; and the probability of their earnings reverting back to the mean is higher than most would think. This type of analysis not only keeps us from overpaying for BlueCo, it also helps us identify the opportunity with RedCo; because there is a reasonable probability that each of these companies will end up with similar earnings and similar valuations over time. And the valuations are likely to be somewhere between where they are each priced today.

WHITE PAPERS The purpose of our White Papers is to give our prospective clients the opportunity to hear the solutions we have recommended to address complex problems and to help people understand the issues to consider when making complex financial decisions. While the situations are real, the names have been changed to protect the innocent! WLW Win One, Lose One, Win One... This was a fun case for our team. There was complexity due to the types of income this family was generating and the stakes were high because they were in the 39.6% tax bracket in the prior tax year. They were also paying the alternative minimum tax. Read More JSZ Realtor Sam This case had similarities to cases that had come across our desk in the past. However, what was unusual about this case was the ratio of investment property income to commission-based income being generated from home sales. Due to this we were initially not sure if we would be able to reduce his tax burden, but in the end we were able to save him $7,000 per year. Read More CWS Coulda-Woulda-Shoulda This case highlights a situation where a client's failure to consult with us prior to making a large financial decision ended up costing them $30,000 in taxes. Read More SOO Starting Over, And Over Our SOO case deals with a young Realtor client who had to repeatedly start her business over from the beginning as her life took her across the country. Amidst this repeated reset we were able to reduce her tax bill by $8,000 and increase her cash-flow. Read More

REGISTRATION CLOSED FOR AUGUST 18TH Our webinar on August 18th has reached the maximum number of registered attendees. To accommodate additional attendees we have added a second presentation on September 8th at 7:30 pm. REGISTER FOR SEPTEMBER 8TH

Asset Location and Creating Tax-Free Retirement Income

SMALL BUSINESS TIPS Deduct Your Medical Expenses by Hiring Your Spouse Deducting 100% of Your Business Meals New Provisions for the Paycheck Protection Program Pandemic Provision for Tax-Free Payments to Your Employees How to Get Forgiveness of Your Paycheck Protection Loan Tax Impact of the Paycheck Protection Program Economic Relief From The Small Business Administration Deducting Your Business Travel Five Year-End Business Deductions Avoid Taxes On Your Reimbursed Employee Expenses How Will Your Real-Estate Sale Be Taxed? Putting Your Self-Employment Income Away for Retirement Deducting the Business Use of Your Vehicle How to Deduct Your Vacation Travel as a Business Expense Staying Out of the "Danger Zone" of the New Small-Business Deduction New Deduction for Pass-Through Businesses Unlocking the Missed Deductions of a Home Office Avoid the Headaches and Penalties Associated with 1099 Reporting Providing Healthcare Coverage to Your Employees What is the Best Business Structure for You? Are You Protecting Yourself From Your Corporate Income?

Audit triggers to be aware of on your 2018 tax return. 1 2 How likely are you to be selected for an audit? In 2017, the IRS audited just 0.60% of individual tax returns. Most of these returns were filed by mail as opposed to electronically, thus lowering the risk for a typical return to be reviewed for an audit. With that said, there are specific factors that increase the likelihood that your tax return falls into the small percent that receives additional attention from the IRS. One factor that the IRS looks at when deciding who to audit is income. As your income increases so does the chance that the IRS will select your return for further examination. You are also at greater risk of an audit if you operate a small business and report your income on Schedule C. In 2017 taxpayers who filed a Schedule C were twice as likely to be audited than those who did not. We have identified 10 factors that can lead to unwanted attention from the IRS on your 2018 tax return. Some of these red flags can be avoided by filing a complete and accurate return, while others simply require proper record keeping to quickly shutdown any IRS inquiries. 1. Failing to report all taxable income. The IRS receives a copy of all of your W2's and 1099's each year. One of the quickest ways to get their attention is to fail to report some of this income. 2. Deducting "hobby" losses. The IRS is wary of taxpayers who take up a hobby and then report it as a business to deduct their expenses. If your business shows losses multiple years in a row the IRS will begin to question if you are actually operating a business or merely deducting your hobby expenses. 3. Large charitable donations. The IRS knows how much the average taxpayer with your income gives to charity. If you make large charitable donations every year it is important to keep records of those donations. 4. Claiming rental property losses. It is not uncommon for a rental property to show a loss on your tax return. In order to deduct these losses on your return you need to "actively participate" in the rental activity. This is not a difficult threshold to meet, it simply requires that you are involved in making management decisions for the property. But if you show large losses, or if you have significant income from other sources the IRS may question if you are actively involved in the rental property. Keeping records of any meetings for, or trips to, the property can help demonstrate your participation. 5. Taking an Alimony Deduction. Alimony payments can be a significant financial burden, so you want to make sure you are able to offset that cost by deducting your payments from your taxable income. Large deductions for alimony payments can catch the IRS' attention, particularly when the payer claims a deduction but the recipient does not report the income. Before taking a deduction for alimony, be sure that your divorce agreement clearly identifies the payments as alimony or spousal maintenance. Child support payments are not deductible. 6. Failing to report your Health Premium Credit. If your health insurance is provided through the marketplace, you may be receiving subsidies from the government to lower your monthly premium payments. If this is the case you are required to reconcile those subsidies at the end of the year on your tax return by reporting the amounts listed on your form 1095-A. If you do not report the credits received the IRS will reject your return and request that you correct the omission. 7. Taking an early withdrawal from an IRA or 401(k). When you take a withdrawal from an IRA or 401(k) before age 59 1/2 you typically pay a 10% penalty for taking those funds early. There are a number of exceptions that allow you to avoid paying that penalty, such as when using the funds for medical or education expenses. A large number of taxpayers incorrectly claim one of these exceptions when they do not actually qualify. As a result of this taxpayers who claim one of these exceptions on their returns face extra scrutiny from the IRS. If you claim one of these exceptions be sure to keep documentation showing that the funds were used for a qualified purpose. 8. Claiming large gambling losses. If you win the lottery or have a good day at the casino you are required to report your winnings on your tax return. The IRS allows you to offset some of the tax liability of that income by deducting your gambling losses, up to the amount of your winnings. If those losses are too high the IRS may challenge the amount you claim on your return. To prevent the loss of your deduction be sure to get a statement from the casino showing your total losses or keep track of your lottery ticket purchases. 9. Deducting business meals or travel. If you operate a small business and file a Schedule C then the IRS will pay special attention to your deductions for business meals or travel. If these expenses seem large relative to your industry or revenue, the IRS could mark your return for an audit. The key to protecting your deductions is to properly document the business purpose of each meeting or trip, and keep receipts for any expenses over $75. 10. Claiming 100% business use of a vehicle. If you deduct the full purchase price of your vehicle as a business expense and you do not have a second vehicle available for personal use you are putting yourself at extra risk for an audit. To secure your deduction you should keep accurate mileage logs to demonstrate the business use of your vehicle. Summary The chances of an IRS audit are small, but various factors can increase the likelihood that your return is selected for review. While you can eliminate some of these factors by filing a complete and accurate return, you can never be sure that your return will not be audited. Understanding the necessary record keeping requirements can make a large difference in the outcome of an audit should you face one. Read more articles WHAT TRIGGERS THE IRS 10 Red Flags that Could Signal an Audit Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

Three Pricing Options To provide our small-business clients with flexibility in how they work with us, we offer three different pricing options for our services. 1. Additional rental properties will be charged at $50/property 2. Processing of monthly payroll includes Federal 941 Quarterly Payroll Filing State Quarterly Payroll Filing Year-End 940 Payroll Filing W2 Issuance to Employees 1099 Issuance to Independent Contractors 3. Our Tax Savings Manual includes strategies to lower your federal tax bill. Historically we have found that we can save small-business owners between $5,000 and $12,000 per year. 4. Two conference calls throughout the year to discuss: Estimated Payments P&L Discussion Adjustments to Officer Compensation Misc. Business and Accounting Issues 5. Requires a three year agreement.

Charitable giving increases at the end of the year. If you are making donations keep these guidelines in mind to get your full tax benefit. Making The Most Of Your Charitable Donations As we approach the holidays you are most likely busy planning visits to family or getting ready for your holiday shopping. You are also likely planning to give some of your money or property to charity. Many charitable organizations report that they receive a majority of their donations in the last three months of the year. With this in mind, we want to share with you some simple guidelines to be aware of to make sure that you are properly rewarded for your generosity come tax season. There are two different types of donations that you can deduct on your tax return, donations made with cash, and donations made with non-cash items such as clothing, furniture, or food. DONATIONS MADE BY CASH Once you have determined that the organization you have chosen meets the five basic guidelines, you need to make sure that you have proof of your donation. This can be accomplished with one of the following: A receipt or other written document from the organization, showing the name of the organization, the date of the contribution, and the amount of the contribution A cancelled check or credit card receipt that shows the name of the organization, the date of the contribution, and the amount of the contribution. Keep in mind that you can also donate to most governments within the United States, if you ever feel inclined to pay more in taxes. (In which case we may not be the firm for you) NONCASH DONATIONS Noncash donations typically involve dropping off outgrown clothes or unwanted furniture at your local Goodwill or Salvation Army. The guidelines for determining if noncash donations to an organization are the same as the guidelines for cash donations. To determine the amount of a deduction you can claim for your noncash donations you need to know the Fair Market Value of the items. The Fair Market Value is the amount you could reasonably expect to receive if you sold the item instead of donating it. If you need help determining the value of your items, you can use Goodwill's Valuation Guide . When you make a donation to Goodwill or a similar charity, you should make sure you receive a receipt and keep a record of the items that you donate. This will ensure that you can take the tax deduction to which you are entitled. FIVE BASIC GUIDELINES to keep in mind when determining which donations are deductible: 1. Donations must be made to a corporation, trust, community chest, fund, or foundation. This means that donations to an individual, or a group of individuals is not deductible. For example, donating to a group of doctors who are going to the Philippines to provide medical care is not deductible, but donating to an organization that will send doctors to the Philippines is deductible. 2. The organization must be created or organized in the United States. The organization can still operate overseas, as long as it is based domestically. 3. It must operate for religious, charitable, scientific, literary, or education purposes, for the promotion of amateur sports, or for the prevention of cruelty to children or animals. 4. It must not operate for the profit of a private shareholder or individual 5.It must not engage in political lobbying Through the internet, it is easier than ever to give money to those in need. Most charitable organizations now have a website where you can donate online. This surge in online donations has led many to donate smaller amounts to various organizations, rather than one large donation to a specific organization. While this provides donors the freedom to give to the cause they most believe in, it has also blurred the lines between what is a tax-deductible donation, and what is not. To help determine which donations are deductible, see the center box. Read more articles Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

WHITE PAPER INTRODUCTION Our 1-2-3 case involves a husband and wife client of ours who received an unpleasant surprise when they filed their 2017 tax return. The husband and wife are both public servants, between them they are earning $225K per year. On top of this they received another $40K in interest and trust income during 2017. Anticipating a large tax bill, they decided to purchase a rental property and use the expenses they incurred to offset some of their taxable income and reduce their tax bill. During the year they spent $40K on the property. Based on advice they received from coworkers as well as another accountant they consulted, they believed they would be able to deduct this entire $40K on their 2017 tax return. THE CHALLENGE Unfortunately, when they came to us we had to tell them that not only could they not deduct the full amount, they would not be able to deduct any of their expenses on their current year return. There were 3 reasons they could not deduct the $40K they had been led to believe they would be: Cap on Losses from Rental Properties. What this couple was not aware of when they decided to purchase this rental property to write off the expenses, is the $25K limit on rental property losses that can be deducted per year. This means that at least $15K of the $40K they spent would need to be carried forward to a future year. The only exception to this limit would be if one of them qualified as a real estate professional, which they do not as this property is the only activity they have in the real estate field. Capital Expenditures. A large portion of the $40K came from improvements to the property preparing it for rent. These expenses cannot be deducted in the year they are paid but must be capitalized and depreciated over the useful life of the property, in the case of a residential rental property 27.5 years. Income Limit on Passive Losses. The final nail in the coffin for this couple’s rental loss deduction is they failed to realize there is a phase-out threshold for passive losses. Once a married couple, filing a joint return, have adjusted gross income above $150,000 they cannot take a loss for passive activities. Instead those losses are carried forward to future years until their income drops below the phase-out threshold. THE SOLUTION This couple was understandably not happy when we informed them that they would not be able to deduct any of the expenses they had incurred on the property on their 2017 tax return. They explained to us that one of the primary drives behind their purchase of the property was the tax break they expected to receive. Had they consulted with us during the year before making this purchase we could have warned them they would not be able to realize any tax breaks in the short term from the property and could have provided them with some alternative methods to reduce their tax burden for the year. By maxing out their respective deferred compensation accounts they could have reduced their taxable income by $16,000. Contributing to a Health Savings Account could have further reduced their taxable income by $7000. By failing to consult with us before making this decision they missed 3 red flags that show they would not be able to reduce their taxable income by purchasing this property. To avoid missing your own red flags be sure to seek counsel from Monotelo Advisors before making major investment decisions. Save as PDF View More White Papers