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Teipen Selanders Poynter & Ayres reviews two important IRS tax clarifications for business taxpayers

Posted on October 9, 2018

Responding to taxpayer inquiries, the IRS clarified that business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses.

This is good news for Teipen Selanders Poynter & Ayres business clients. Teipen CPAs explained that business expense deductions are available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense. Therefore, in most circumstances, businesses can still deduct business-related payments in full as a business expense on their federal income tax return. However, for sub-S corporations and partnerships, the charitable contributions pass through to the owner on schedule K-1 to possibly deduct on their personal tax return.

TSPA has also noted: The IRS has issued new rules to limit misuses of the new 20 percent small-business tax break. Their biggest target has been dubbed by the IRS as “Crack and Pack.” That is the tax strategy of business owners splitting a business into several parts to get around the income limits ($157,500 for singles, $315,000 for married taxpayers) of the small business tax break.

“In other words, clarifies Barry Sapurstein, CPA with Teipen Selanders Poynter & Ayres, having an employee leave and get re-hired as an independent contractor is no longer kosher. The IRS presumes that if your employee is doing the same work, s/he is still an employee and therefore does not qualify for the 20 percent deduction.”

The same holds true if you own the company, but claim you are self-employed to grab the 20 percent small business break. The IRS says you would still be on the hook for all tax responsibilities related to running your own business.

At TSPA, we don’t want any of our clients running afoul of new tax rules and regulations. If you are unsure of how any IRS regulations will affect your business (or personal) taxes, now is the time to gain clarity. Schedule an appointment with us to review where you stand – before the end of the tax year.