Learning Center for Tax and Financial Insights

When we are talking about building a sustainable business, we are talking about one that is built to last.Often, entrepreneurs get caught up in the headlines about businesses with hyper-growth rates. We start thinking of how we can replicate these results.But what is often missing is these results are just short-term, fueled by outside money or poor business models that are not sustainable.There are many examples of the crash and burn businesses that are all the rage but come crashing down. WeWork comes to mind as a perfect example.Understanding how to build a sustainable business might be the difference between success and failure.Here are some tips to building a business meant to last:1) Be nimbleWe have all read about the crash and burn start-ups or the established businesses that suddenly can't compete and are stuck on life support (Ex: Blockbuster, Sears, Blackberry). Big companies, by their nature, are not agile. They get stuck in bureaucracies and fear of risks that let smaller upstarts outflank them.2) Listen to your customersThe pandemic showed us that human decisions and economic trends could be flipped in a very short period of time. From the great resignation to remote work, consumers have changed their behavior. Entrepreneurs need to listen to their customers to develop personas and segments to understand their unique pain points and needs better.Ask for customer feedback.Start customer advisory boards.Track your critical KPIs.From this data, you can be quick enough to take advantage of consumer trends and pivot your offering to meet these new realities.3) Listen to your employeesThe pandemic has caused a shift in the workforce. Listen to your employees to share their needs and aspirations with you, as this will help them feel supported by the company during these difficult times. Keeping an employee's unique perspective becomes necessary for the survival or success of business operations due to changing conditions like increased competition from other companies who are also listening closely because it pays off big time! Help out those workers trying hard but stretched thin--it is important both physically AND mentally before anything else begins.4) Budget, budget, budgetIf anything, the pandemic has taught us that revenue streams can dry up overnight. From supply chain delays, government regulations to inflation pressures, your margins are threatened more than ever.It is difficult to know when your business will be profitable and what resources you might need without a proper budget. It can also make operating within one's means more challenging as unexpected costs arise from the unpredictable nature of life (elements such as illness).

Many taxpayers use the Where's My Refund tool and wonder what "Return being processed" means for them and their refund. The answer: not much yet! The prompt means that the IRS has received your return, but due to Covid-19 delays, the IRS is experiencing a considerable backlog, slowing processing times and disbursements. Typically the IRS processes tax returns and issues refunds within 21 calendar days of receipt. The IRS even stated in January communicating the 21-day time frame. Add in the pandemic-related tax changes and child tax credit advances, and this tax season is more complicated than ever. Avoid filing a paper return. Use electronic filing with direct deposit to receive your tax refund the fastest way. If your tax refund is delayed, you have options. You can call the IRS, but you should wait out the delays before putting yourself through this added stress. Due to the backlog, it can take 6-8 weeks to process your tax return.The following are some of the reasons why tax returns take longer than others to process: Your tax return includes errors, such as incorrect Recovery Rebate CreditYour tax return Is incompleteYour tax return needs further review in generalYour tax return Is affected by identity theft or fraudYour tax return includes a claim filed for an Earned Income Tax Credit or an Additional Child Tax CreditYour tax return consists of a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process

Article Highlights:WinningsLossesDocumentationCharity RafflesSocial Security IncomeHealth Care Insurance Premium SubsidiesMedicare B & D PremiumsOnline Gambling AccountsDependentsAlthough gambling may seem to be a recreational activity for many taxpayers it is not for THE government. They look at it as a source of tax revenue and as one might expect, the government takes a cut if a gambler wins. What makes matters worse, tax laws do not allow recreational gamblers to claim a loss in excess of their winnings. There are far more tax issues related to gambling than one might expect, and they may impact taxes in more ways than one might believe. Here is a rundown on the many issues:Reporting Winnings – Taxpayers must report the full amount of their gambling winnings for the year as income on their 1040 returns. Gambling income includes, but is not limited to, winnings from lotteries, raffles, lotto tickets and scratchers, horse and dog races, and casinos, as well as the fair market value of prizes such as cars, houses, trips, or other non-cash prizes. The full amount of the winnings must be reported, not the net after subtracting losses. The exception to the last statement is that the cost of the winning ticket or winning spin on a slot machine is deductible from the gross winnings. For example, if a gambler put $1 into a slot machine and won $500, they would include $499 as the amount of their gross winnings, even if they had previously spent $50 feeding the machine.Frequently, gamblers with winnings only expect to report those winnings included on Form W-2G. However, while that form is only issued for “Certain Gambling Winnings,” the tax code requires all winnings to be reported. All winnings from gambling activities must be included when computing the deductible gambling losses, which is generally always an issue in a gambling loss audit.If winnings at one time hit certain levels, the government requires the gambling establishment to collect an individual’s Social Security number and report their winnings to Uncle Sam on a Form W-2G. Gambling establishments will issue a Form W-2G if the winnings are:$1,200 or more on a slot machine or from bingo.$1,500 or more on a keno jackpot.More than $5,000 in a poker tournament.$600 or more from all other games, but only if the payout is at least 300 times the wager.TAX TRAP #1 – The way the tax laws work, gambling winnings are included in a taxpayer’s adjusted gross income (AGI), while losses are an itemized deduction. Since winnings and losses can’t be netted, the full amount of the winnings ends up in a taxpayer’s adjusted gross income (AGI). The AGI is used to limit other tax benefits, as discussed later. So, the higher the AGI, the more other tax benefits may be limited.If the winnings minus the wager exceed $5,000 and the winnings are at least 300 times the wager, the gambling establishment is required to withhold 24% of the proceeds, which they then pay over to the government. The lucky taxpayer then claims this amount, which will be included on the W-2G form in box 4, as income tax withheld on their 1040 form. Some states may also require state income tax to be withheld. Taxpayers who have big gambling winnings on which tax isn’t withheld should consider making estimated tax payments to avoid underpayment of tax penalties.Reporting Losses – A taxpayer may deduct gambling losses suffered in the tax year as a miscellaneous itemized deduction but only to the extent of that year's gambling gains.TAX TRAP #2 – If a taxpayer does not itemize their deductions, they can’t deduct their losses. Thus, individuals taking the standard deduction will end up paying taxes on all of their winnings, even if they had a net loss.Documenting Losses – The next logical question is: how to document gambling losses if audited? Taxpayers shouldn’t rush down to the track and start collecting discarded tickets, since they generally aren’t acceptable documentation because of their ready availability. The IRS has published guidelines on acceptable documentation to verify losses. They indicate that an accurate diary or similar record that is regularly maintained by the taxpayer, supplemented by verifiable documentation, will usually be acceptable evidence for substantiation of wagering winnings and losses. In general, this diary should contain at least the following information:(1) The date and the type of specific wager or wagering activity,(2) The name of the gambling establishment,(3) The address or location of the gambling establishment,(4) The names of other persons (if any) present with the taxpayer at the gambling establishment, and(5) The amounts won or lost.Save all available documentation, including items such as losing lottery and keno tickets, checks, and casino credit slips. Also save any related documentation such as hotel bills, plane tickets, entry tickets, and other items that would document a taxpayer’s presence at a gambling location. If a taxpayer is a member of a slot club, the casino may be able to provide a record of electronic play. Affidavits from responsible gambling officials at the gambling facility may prove helpful. With regard to specific wagering transactions, winnings and losses might be further supported by:Keno – Copies of keno tickets purchased by the taxpayer and validated by the gambling establishment.Slot Machines – A record of all winnings by date and time that each machine was played.Table Games – The number of the table at which the taxpayer was playing as well as casino credit card data indicating whether credit was issued in the pit or at the cashier's cage.Bingo – A record of the number of games played, the cost of tickets purchased, and the amounts collected on winning tickets.Racing – A record of the races, entries, amounts of wagers, and amounts collected on winning tickets and lost on losing tickets. Supplemental records include unredeemed tickets and payment records from the racetrack.Lotteries – A record of ticket purchase dates, winnings, and losses. Supplemental records include unredeemed tickets, payment slips, and winning statements.

Article Highlights:Stepped-Up BasisInherited BasisInheritance Basis ExampleStep Down Basis Long-Term Capital Gains Tax RatesJointly Owned PropertyGifting Prior to DeathYou may hear people use the term “Stepped-Up Basis” that many believe is a tax provision that allows beneficiaries of an inheritance to reduce or even avoid taxes when and if they sell inherited property.When an individual sells property, any gain from the sale of the property is taxable. The tax term “basis” is the value from which any taxable gain is measured. For personal use property or investment property the basis is generally the cost of the property. For business property the term basis is replaced with adjusted basis, which generally means the cost of the property reduced by business deductions, such as depreciation, attributable to the property. However, for property received as a beneficiary the term inherited basis used. Tax law specifies that property received by a beneficiary as a result of an inheritance is the fair market value (FMV) of the property as of the decedent’s date of death. Since some property, such as real estate, generally appreciates over time, that means the property’s value will have increased, and the FMV on the date the decedent died will be higher than the decedent’s basis. Thus, the beneficiaries will inherit the property with a basis higher than the decedent’s, so they will have a stepped-up basis. Example: Jack has owned a rental property for several years. He purchased it for $200,000 and over the years claimed a depreciation deduction of $24,000 up to the time of his death. Thus, his basis when he passed away was $176,000 ($200,000 - $24,000). At the time of Jack’s death, the rental had an appraised FMV of $400,000. Bill, Jack’s only beneficiary, will have a basis of $400,000, and if he immediately sells the rental for $400,000, he would not have a taxable gain. On the other hand, had Jack sold the property for $400,000 just before his death he would have had taxable gain of $224,000 ($400,000 - $176,000). (Sales expenses have been disregarded in this example.)The example demonstrates the value of a beneficiary receiving a “stepped-up” basis. However, the actual term used in tax law is that the beneficiary receives the FMV at the date of the decedent’s death, so it is not always a stepped-up basis; there could be a step down in basis.Another tax benefit of an inheritance is that a gain from the sale of inherited property is treated as being held long-term and gets the benefit from the lower long-term capital gain tax rates even though the property is not held by the beneficiary over one year.

The Earned Income Tax Credit has been expanded and enhanced for low-income taxpayers who file their tax returns for 2021. Could you also be eligible? Watch this video for more details.

Article Highlights:Reverse MortgagesReverse Mortgage TermsWhen Is the Interest Deductible?Who Deducts the Interest?Other OptionsThe annual inflation rate in the U.S. accelerated to 7.5% in January of 2022, the highest since February of 1982, hitting those on fixed retirement income, namely seniors, the hardest. On top of escalating living expenses due to inflation, some retirees are faced with a significant amount of debt and inadequate income. Some seniors that have a mortgage on their home have retirement income too low to cover the mortgage payments and have enough left over to be able to enjoy their golden years. Are there any remedies for this situation?One possibility for those who have built up equity in their primary (main) home is to obtain a “reverse mortgage,” as this type of mortgage considers the homeowner’s equity. The loan is not due until the homeowner passes away or moves out of the home. If the homeowner dies, the heirs can pay off the debt by selling the house, and any remaining equity goes to them. If at that time the loan balance is equal to or more than the value of the home, the repayment amount is limited to the home’s worth.If the borrower is married and dies before their spouse, the surviving spouse must begin or continue to occupy the home as their primary residence to keep the reverse mortgage, and the surviving spouse will need to establish proof of their legal right to stay in the home. If the spouse isn’t named as a borrower on the reverse mortgage, the loan may be due upon the borrower’s death, even if the spouse continues to live in the home.Only borrowers aged 62 years and over with equity in the home can qualify for a Federal Housing Administration-backed loan of this type. Some private lenders have a different age requirement. Since the reverse mortgage must be a first trust deed, any existing loans on the home must be paid off with separate funds or with the proceeds from the reverse mortgage. The amount that can be borrowed is based upon age – the older the borrower, the larger the reverse mortgage can be and the lower the interest rate. The loan amount will also depend on the value of the home, interest rates, and the amount of equity built up. Over time, the amount of the loan will increase as the deferred interest payments, loan fees not paid up-front, and servicing fees are added to the original loan amount. The borrower has the option of taking the loan as a lump sum, a line of credit, or fixed monthly payments. In addition, the money generally can be used for any purpose, without restrictions imposed, so long as any prior mortgage on the home has been paid off. To determine whether the interest on a reverse mortgage is tax-deductible, these factors are considered: