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Olga Mavrody, CPA, 459 Monterey Avenue, Suite 207, Los Gatos, CA (2026)

01/04/2024

After years of delays, the first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024. It imposes a new federal filing requirement for most corporations and limited liability companies (LLCs) formed in 2024 and later.

⚠️The CTA’s purpose is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes, but it applies to honest business owners as well as criminals.

The CTA does not apply to all new businesses. It applies only to entities such as corporations, LLCs, and others formed by filing a document with a state secretary of state or similar official. It doesn’t apply to sole proprietors.

Some businesses are exempt:

🔸large businesses—businesses with more than 20 full-time employees and $5 million in receipts on their prior-year tax return,
🔸certain businesses already heavily regulated by the government, such as banks and insurance companies,
🔸nonprofits, and several others.

Note that the exemption for large businesses may apply to updates but not to the initial formation because there is no prior-year tax return.

⚠️The CTA’s purpose is to compile a massive government database containing the identities and contact information of the “beneficial owners” of most types of business entities. Beneficial owners are the humans who own or exercise substantial control over the entity.

For most reporting companies, identifying the beneficial owners is simple. For example, a three-member LLC in which each member has a one-third ownership interest has three beneficial owners. Identifying beneficial owners for reporting companies with complex ownership structures can be more difficult.

📲If you have any questions that you would like to discuss with us, please schedule your call today!

12/24/2023

Merry Christmas & Happy Holidays from Olmatax! ✨
We’re grateful for your trust and wish you a joyful holiday season filled with merry memories and a bright financial future!❤️💚❤️💚

11/23/2023

Warm wishes from Olmatax!

Wishing you a Thanksgiving filled with joy, love, and the delightful company of those who make your world brighter.
Happy Thanksgiving! 🧡🦃🍁

11/22/2023

In the past (before 2018), when you traded vehicles in, you pushed your old business basis to the replacement vehicle under the old Section 1031 tax-deferred exchange rules. (remember, these rules no longer apply to Section 1031 exchanges of vehicles or other personal property occurring after December 31, 2017)

Whether you used IRS mileage rates or the actual-expense method for deducting your business vehicles, you could still find a significant deduction here.

Check out how Sam finds a $27,000 tax-loss deduction on his existing business car. Sam has been in business for 15 years, during which he

▪️converted his original personal car (car one) to business use
▪️then traded in the converted car for a new business car (car 2)
▪️then traded in car two for a replacement business car (car 3)
▪️then traded in car three for another replacement business car (car 4), which he is driving today.

During the 15 years Sam has been in business, he has owned four cars. Further, he deducted each of his cars using IRS standard mileage rates.

If Sam sells his mileage-rate car today, he will realize a tax loss of $27,000. The loss is the accumulation of 15 years of car activity, during which Sam never cashed out because he always traded cars. (This was before he knew anything about gain or loss.)

Further, Sam thought his use of IRS mileage rates was the end of it—nothing more to think about.

Because the trades occurred before 2018, they were Section 1031 exchanges and deferred the tax results to the next vehicle. IRS mileage rates contain a depreciation component. That’s one possible reason Sam unknowingly accumulated his significant deduction.

To get a mental picture of how this one sale produces a cash cow, consider this: when Sam sells car four, he is really selling four cars—because the old Section 1031 exchange rules added the old basis of each vehicle to the replacement vehicle’s basis.

Examine your vehicle for this possible loss deduction. Did you procure the business vehicle you are driving today in 2017 or earlier? Did you acquire this vehicle with a trade-in? If so, your tax loss deduction could be big!

11/10/2023

As the year winds down, many of our clients look toward clothing and household item donations as a means to give back and optimize tax deductions.

Recent cases, such as the one involving Duncan Bass, highlight the importance of understanding and following the IRS regulations concerning these contributions.

Mr. Bass made a staggering 172 trips to Goodwill and the Salvation Army, cleverly keeping each donation receipt below the $250 threshold. Unfortunately, he overlooked the aggregation of similar items and appraisal rules.

🔹The $250 rule🔹
If you make a single charitable contribution of $250 or more, you must obtain a written acknowledgment from the charitable organization to substantiate your deduction. This is often called a “contemporaneous written acknowledgment.”

▪️It must confirm the amount of cash or a description of any property contributed by you.
▪️It must state whether the charity provided you any goods or services in exchange for the gift. If so, it must provide a description and a good faith estimate of the value of those goods or services.
▪️It must state that the only benefit you received was an intangible religious benefit, if that was the case.

If you make several smaller gifts to the same charity throughout the year, you need an acknowledgment only if any single gift is $250 or more.

🔹Assigning fair market value.
This can be the most challenging aspect. The fair market value isn’t what you paid for an item, but rather what it’s worth now. Several reputable resources, including The Salvation Army and Goodwill, provide donation value guides.

🔹Over $5,000.
If you claim a deduction of over $5,000 for a non-cash charitable contribution of one item or a group of similar items, you must obtain a qualified appraisal of such item or group of items and attach it to your tax return.

⚠️Note that a “group of similar items” can trigger the appraisal requirement. That’s what happened to Mr. Bass. His 172 trips were for clothing donations totaling $13,852 and $11,594 for the two years before the court—well over the $5,000 appraisal requirement for the group.

📲If you want to discuss your charitable giving strategy, please call now!

10/30/2023

The Augusta rule gets its name from the Masters Golf Tournament, where some members and others who live in the area receive tax-free rent by renting their homes for a week or two. You don’t have to live in Augusta to benefit from this rule.

IRC Section 280A(g), also known as the Augusta rule, states: “Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—

▪️no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
▪️the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.”

✔️Example. Fred rents his home at $3,000 a day for 14 days. Under the Augusta rule, he qualifies for no rental deductions. But he also excludes all the rent, the full $42,000 ($3,000 x 14) from his income.

📲If you want to discuss the Augusta rule, please book your call today!

10/20/2023

IRS Hiring 3,700 New Employees, Primarily for Audits Purposes

In this hiring effort, and somewhat under the radar, is the fact that the IRS wants this new audit workforce to examine high-income earners, partnerships, large corporations, and promoters.

On the promoter front, the IRS wants to examine promoters aggressively peddling abusive schemes.

📲If you have any questions or need our assistance, please schedule your call today!

10/19/2023

The IRS is on a tear against improper employee retention credit (ERC) claims. Here are some actions taken by the IRS:

🔹Unfair Stop to Processing New ERC Claims

On September 15, the IRS announced a temporary halt on processing new ERC claims until after the end of this year. The IRS pinpointed a surge in improper ERC claims as the core issue. We think that all valid claims should be addressed immediately, especially to assist businesses that have faced financial hardships. Although the IRS might not address your claim until after 2023 concludes, it’s crucial to submit it now and secure your place.

🔹Slowdown in Processing of Existing Claims

The IRS has more than 600,000 ERC claims in its processing queue.

Instead of its standard processing goal of 90 days for the claims in process, the new goal is 180 days, and much longer if the claim needs further review or audit.

▪️If your ERC claim is legitimate, be patient, and make sure you have the documents to back up your claim.
▪️If your ERC is not legitimate, review the possibilities in IR-2023-169 and discuss them with your tax advisor.

🔹New IRS Q&A Document

Let’s examine its headline: “Client not convinced they’re ineligible for Employee Retention Credit? New IRS Q&A document may help.” Here’s the IRS giving us a tool to convince you that you don’t qualify for the ERC. The IRS should provide clear guidance on qualification and non-qualification.

🔹IRS Tells You to Watch Out for Red Flags

The ERC is a legitimate tax credit. But the IRS notes that the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.
On September 14, the IRS warns businesses to beware of nefarious actors who improperly assist businesses in claiming credits for which they don’t qualify. The IRS is correct in that you need to beware. Say your promoter helps you file for a $1 million credit, and you pay the promoter 25% ($250,000). Say, the IRS disallows your claim. You could be out the $250,000 fee you paid the promoter.

🔹Rule of thumb. Make sure your claim is valid.

📲If you want to discuss the ERC, please book your call now!

10/09/2023

In the United States, the federal tax filing requirements vary depending on the type of business entity.

🔹Sole Proprietorship (No LLC) - is an unincorporated business owned and run by one individual. The income and expenses of the business are reported on the individual’s personal income tax return, Form 1040, using Schedule C or Schedule C-EZ. The net income or loss from the business is then combined with the individual’s other income and deductions.

🔹Single-Member LLC - is disregarded for federal income tax purposes unless the owner chooses to treat it as a corporation. A single-member LLC is taxed in the same way as a sole proprietorship. The income and expenses of the LLC are reported on the owner’s personal income tax return, using Schedule C. But a single-member LLC can choose to be taxed as a C corporation by filing IRS Form 8832 or as an S corporation by filing Form 2553.

🔹Partnership (No LLC) - is an unincorporated business owned by 2 or more people. A partnership does not pay tax on its income, it “passes through” any profits or losses to its partners. The partnership must file an annual information return (Form 1065) to report income, deductions, gains, losses, etc. Each partner receives a Schedule K-1 (Form 1065) from the partnership, which partners use to report their share of the partnership’s income or loss on their personal income tax returns.

🔹Multi-Member LLC - is treated as a partnership for tax purposes. The LLC must file Form 1065, and each member receives a Schedule K-1 showing their share of the LLC’s income or loss. Each member then reports this income or loss on his or her personal income tax return. But a multi-member LLC can choose to be taxed as a C corporation by filing Form 8832 or as an S corporation by filing Form 2553.

🔹C Corporation - is a legal entity separate from its owners and is subject to corporate income tax. C corporations file Form 1120 to report income, deductions, gains, losses, etc. Unlike pass-through entities, C corporations are subject to double taxation. The C corporation can elect taxation as an S corporation by filing Form 2553.

10/03/2023

When enacted, the Affordable Care Act (ACA) eliminated most small business health plans that reimbursed individually purchased health insurance. Consequently, many small business owners chose health savings accounts (HSAs) or opted to provide no health coverage at all.

As of 2022, over 35 million HSAs were active, with assets amounting to $104 billion. The Devenir survey expects this to increase to 43 million accounts with $150 billion in assets by 2025.

HSA basics:

🔹To open an HSA, you must have high-deductible health insurance.
🔹2023 contribution limits are $3,850 for individuals and $7,750 for families. These limits increase slightly in 2024.
🔹If you’re 55 or older by the end of the year, you can contribute an extra $1,000
🔹HSAs come with substantial tax benefits, including deductible contributions, tax-free earnings, and tax-free withdrawals for qualified health expenses.

Monies taken from HSAs are tax-free when used for qualified medical expenses. If you don’t use the funds for medical expenses, they grow. Once you reach Medicare age,
▪️you can withdraw the funds and pay taxes or
▪️use the funds tax-free for medical expenses

You generally cannot make HSA contributions if you have a non-high-deductible health plan that overlaps with the high-deductible plan. Similarly, you cannot contribute to an HSA and a general-purpose healthcare flexible spending account (FSA) in the same year.

HSAs are similar to IRAs. They are trust or custodial accounts you set up at banks, insurance companies, or brokerage firms. The purpose of your HSA is solely to pay your qualified medical expenses. Like IRAs, HSAs can offer various investment options, though some trustees might limit choices to more conservative options.

The benefits of HSAs have grown significantly in recent years, making them a mainstream and advantageous choice for many. Given their tax advantages and flexibility, the HSA could be a good fit for you as a business owner.

📲If you would like to explore the HSA as a possibility for you, please schedule a call today!

09/25/2023

We have great news! You can have in your real estate portfolio both investor and dealer properties. This distinction is significant for tax purposes.

Here’s a snapshot of the potential tax differences:

Suppose you profit $90,000 from a property sale:

▪️As a dealer, your tax could be up to $46,017.
▪️As an investor, it might be only $21,420.

That’s a potential savings of $24,597 in taxes for investors!

You look at every property individually to determine its classification and make sure you identify each property in your records as either an investment or dealer property. Not doing so can lead to complications with the IRS, and believe me, you don’t want to rely on the IRS for “mercy.”

How the courts determine your classification:

🔹The primary factor is your intention when purchasing and holding a property. Your records play a pivotal role in illustrating this intent.
🔹Properties meant for sale to customers are dealer properties. If you frequently buy and sell properties within a year, they’re likely considered dealer properties.
🔹Properties purchased to renovate and sell usually fall under dealer properties.
🔹Subdividing properties also leans them toward dealer classification unless they meet the specific criteria of IRC Section 1237.

On the other hand, if your goal with a property is appreciation or rental income, it’s considered an investment property.

⚠️Remember, each property’s classification is determined independently. So, whether it’s you or your corporation, owning both dealer and investor properties is possible.

📲Need assistance classifying your properties? Please book you call today!

09/23/2023

In our continuous effort to provide value, here are some crucial insights into depreciation, particularly regarding business or rental assets.

💡When Does Depreciation Start?

Technically, depreciation begins not when you use an asset but when it’s ready and available for its intended purpose. For instance:

▪️A rental property begins depreciating when it’s available to rent, even if it hasn’t been rented yet.
▪️A farming tool is set to begin depreciation when you receive it, regardless of when you’ll use it.
▪️A business vehicle begins to depreciate when bought for business purposes, even if not driven yet.

💡Best Practices

To prevent any ambiguity, if a property is ready for rent, list it. For business vehicles, it’s ideal to drive them for business soon after purchase. This ensures there’s no question about their intent and use.

💡Assets That Are Vacant, Idle, or Standing By

Even if your asset is temporarily not in use, it doesn’t mean you stop claiming its depreciation. The continued depreciation applies to machines that are momentarily idle due to a lack of demand or a vacant rental property while you search for tenants.

💡When Does Depreciation End?

Business and rental properties typically remain depreciable until you remove them from their designated use, often when you sell or dispose of them.

📲If you have any questions or require a deeper discussion on depreciation, please schedule your call today!

Olga Mavrody, CPA

01/04/2024

12/24/2023

11/23/2023

11/22/2023

11/10/2023

10/30/2023

10/20/2023

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09/23/2023

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