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Welcome to Our Blog

We’re a San Diego, Calif.-based boutique tax consulting firm focused on personalized tax and financial guidance to individuals and businesses. Here on our blog, you’ll find you’ll find news, insights, and observations from trusted sources in the world of tax planning and and financial guidance.

What You Need to Know About Reporting Beneficial Ownership Information

By |January 19, 2024|Categories: Business Advice|Tags: , |0 Comments

In 2021, the United States Congress passed the Corporate Transparency Act — a measure that creates a new beneficial ownership information reporting requirement. This requirement is part of the U.S. government’s efforts to make it harder for criminals, terrorists, and other bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

Beneficial Ownership Information Graphic

Starting Jan. 1, 2024, many companies will be required to report information to the U.S. government — specifically to the Financial Crimes Enforcement Network (FinCEN) — about who owns and controls them directly or indirectly. FinCEN begins accepting beneficial ownership information (BOI) reports on Monday, Jan. 1, 2024, electronically through a secure filing system accessed through its website at www.fincen.gov/boi. However, the actual deadline for filing is based on the date of your company’s creation or registration to do business.

For example:

  • A reporting company created or registered to do business before Jan. 1, 2024, has until Wednesday, Jan. 1, 2025, to file its initial beneficial ownership information report. (A reporting company is a business entity that’s required to report its beneficial ownership information; not all companies are required to do so. See the next section to determine whether your company is required to report its beneficial ownership information or not.)
  • A reporting company established or registered between Jan. 1, 2024, and Jan. 1, 2025, must file its initial beneficial ownership information report within 90 calendar days after receiving notice of its creation or registration. This deadline of 90 calendar days commences upon the company’s receipt of official notice confirming its effective creation or registration, or following the initial public notice of the company’s creation or registration by a secretary of state or similar office, whichever occurs first.
  • Companies subject to reporting, established or registered on or after Wednesday, Jan. 1, 2025, must submit their initial BOI (Beneficial Ownership Information) reports to FinCEN within 30 calendar days from the official confirmation or public announcement validating the effectiveness of the company’s creation or registration.

In this post, we bring you up to speed on what you need to know to comply with the requirement to report beneficial ownership information for any reporting companies you own or control; for example, if you operate your small business as an S-Corp or LLC.

Warning! If you receive any correspondence claiming to be from a government agency instructing you to click a link or website address or scan a QR code to provide information about your company, disregard it. Such letters or email messages are fraudulent. Do not respond to them or click on any links or scan any QR codes they may contain. The Financial Crimes Enforcement Network (FinCEN) does not send unsolicited requests.

Determining Whether Your Company Is Required to Report Its Beneficial Ownership Information

There are two types of reporting companies (companies required to report beneficial ownership information): Continue reading…

By |January 19, 2024|Categories: Business Advice|Tags: , |0 Comments

How To Properly Document Your Charitable Contributions for Tax Purposes

By |November 8, 2023|Categories: Charitable Contributions|Tags: , , , , , , , |0 Comments

Sometimes, it truly is better to give than to receive, especially when tax time rolls around and you’re looking for ways to reduce your reported income. The more generous you are, up to a point, the bigger your deduction, and the lower your tax obligation.

The drawbacks are few: You need to itemize your deductions instead of claiming the standard deduction, and you must document your charitable contributions. With the IRS gearing up to take a closer look at tax returns — especially those of high-income individuals — keeping detailed documentation is more important than ever.

Charitable Donation Documentation Requirements illustration

In this post, we offer some general guidance on claiming deductions for charitable contributions. We also provide detailed guidance on how to document those contributions to maximize your tax benefits and get something back for your generous philanthropic efforts.

Choose Eligible Charities

The first step to claim deductions for charitable contributions is to donate to organizations that have a legitimate tax-exempt status. Only donations made to eligible nonprofit organizations, such as registered charities, religious organizations, educational institutions, and certain foundations, can be claimed as deductions on your tax return.

The IRS maintains a searchable database of qualified organizations on its website. Before donating to an organization, you can check to see whether it’s in the IRS database of tax-exempt organizations. Use the Internal Revenue Service’s (IRS’s) Tax-Exempt Organization Search tool at apps.irs.gov/app/eos.

Keep Detailed Records

Maintaining accurate records is essential when claiming deductions for charitable contributions.

Warning: When you donate, don’t forget to ask for a receipt or acknowledgment letter from the charity, which should include the charity’s name, the date of the donation, and the amount donated. These records are crucial when you file your tax return and need to prove your deductions.

Specific documentation requirements are as follows: Continue reading…

Complying with CalSavers — California’s Retirement Savings Mandate for Employers

By |November 3, 2023|Categories: Retirement Planning|Tags: |0 Comments

As Southern California’s tax planning and financial strategies advisory firm for entrepreneurs and small business owners, we here at SWC play a unique role in helping our clients understand and comply with California’s tax laws and related regulations.

Small-business owners rarely have lawyers or lobbyists to represent them and keep them informed. Many small business owners aren’t even connected with resources like their local Chamber of Commerce. That’s where we come in. We are trusted tax professionals that our clients can turn to for information, guidance, and support.

And that includes notifications and updates related to CalSavers and California’s retirement savings mandate.

What Is CalSavers?

CalSavers Graphic

CalSavers is California’s retirement savings plan for workers whose employers don’t offer a workplace retirement plan, and for self-employed individuals and others who want to save extra toward retirement. Savers contribute to a Roth IRA (individual retirement account) that belongs to them but is administered by the state.

For a more detailed CalSavers primer, including how to register your business, please see our previous post, “Getting Up to Speed on CalSavers: California’s State-administered Retirement Plan.”

Designed to be easy for employers and simple for employees, CalSavers is professionally managed by private sector financial firms with oversight from a public board chaired by the State Treasurer. There are no fees for employers, and employees manage their accounts directly with CalSavers.

Employers that don’t offer their own plan must register with CalSavers by a specified deadline and facilitate their employee’s access to the program. And if they don’t?  Well, that’s what the rest of this post is all about.

Is Your Business Required to Participate?

In 2023, the employer mandate was expanded to include employers with one (1) or more employees. Your business is exempt from participation in CalSavers in only three cases: Continue reading…

By |November 3, 2023|Categories: Retirement Planning|Tags: |0 Comments

Designating Yourself a ‘Real Estate Professional’ and Claiming Real Estate Losses Against Ordinary Income

By |October 5, 2023|Categories: Real Estate|Tags: , , , |0 Comments

Welcome to the world of real estate, where savvy individuals who have earned the right to call themselves real estate investors have more options for taking advantage of tax-saving opportunities.

For those involved in the real estate industry, “materially participating” in the management of your properties or investments and being classified as a “real estate professional” can translate to substantial tax savings, leaving you with more cash to build your real estate investment portfolio.

In this post, we explore the distinct tax advantages that come with material participation and being recognized as a real estate professional, delving into how these designations can increase deductions, minimize tax liability, and ultimately enhance your financial portfolio of real estate investments.

Whether you’re a seasoned investor or a newcomer eager to optimize your tax planning, understanding and harnessing the potential of these classifications can accelerate your progress toward meeting your real estate investment goals and your overall financial goals.

Image for Designating Yourself a ‘Real Estate Professional’ and Claiming Real Estate Losses Against Ordinary Income

Claiming Real Estate Losses Against Ordinary Income

As real estate investors know, rental real estate is ordinarily a “passive” activity. Generally, when you’re preparing your tax return, you can deduct passive losses only from passive income — income from sources such as stocks, mutual funds, royalties, and rental properties. You’re generally not allowed to deduct passive losses against ordinary income — income from sources such as salary and interest.

If all your income is passive, or if your passive gains exceed your passive losses, this restriction doesn’t impact your tax obligation. However, if your passive losses exceed your passive gains, and you have ordinary income, being able to claim passive losses against ordinary income can reduce your tax obligation.

There are two important exceptions that allow you to claim passive losses against ordinary income: Continue reading…

By |October 5, 2023|Categories: Real Estate|Tags: , , , |0 Comments

What You Need to Know About the Research and Development Tax Credit

By |September 20, 2023|Categories: Tax Credits|Tags: , |0 Comments

When we initially meet with small business clients, they sometimes lament that the federal government isn’t as supportive of their contributions to society as they’d like. They envision a world where innovation not only fuels their business growth but also earns them a significant tax break.

As it turns out, in some respects, this is already a reality. The Credit For Increasing Research Activities (aka, the Research and Development (R&D) Tax Credit) — which first appeared as part of the Economic Tax Recovery Act of 1981 — is an often-overlooked tax incentive that serves as a powerful tool that may put money back into your business’ pocket for the inventive work you’re already doing. In this blog post, we share what you need to know to take advantage of this important tax credit.

Graphic for research and development tax credit

If any part of your business involves designing, developing, or improving products, processes, formulas, or software, be sure you’re claiming a federal Research and Development (R&D) Tax Credit and any R&D tax credits your state may be offering to offset the costs of these activities. The federal benefit provides a dollar-for-dollar credit against your business tax for the costs of performing R&D activities.

Qualified expenses include:

  • W2 wages paid to employees involved in the R&D activity
  • Supplies (including tangible property, extraordinary utility costs, and server leasing costs) used for the R&D activity
  • Contract R&D-related costs that would qualify if they were conducted by regular employees

Qualifying for the R&D Tax Credit: The Four Criteria

To qualify for the Research and Development (R&D) Tax Credit, your company’s R&D activities must be conducted within the United States and must meet all of the following four criteria: Continue reading…

By |September 20, 2023|Categories: Tax Credits|Tags: , |0 Comments

The Pros and Cons of a Cost Segregation Study

By |February 10, 2023|Categories: Real Estate|Tags: , , |0 Comments

If you own real estate, or you’re interested in investing in real estate as a strategy for building or increasing your net worth, then you need to know about cost segregation.

Cost segregation study illustration for residential propertyCost segregation is a technique recommended by a tax planning firm that specialize in helping its clients reduce their taxes and increase their net worth. Cost segregation allows property owners and real estate investors to reallocate the costs of a property from long-term assets (which have a useful life of 27.5 years or more) to shorter-lived assets (which have a useful life of less than 27.5 years).

This reallocation can provide significant tax benefits because shorter-lived assets are eligible for accelerated depreciation.

Depreciation 101: Depreciation is an accounting technique that distributes the cost of tangible assets such as real estate over their useful lifespan. It reflects the portion of an asset’s value that’s been utilized, allowing you to gradually pay for and generate revenue from an asset over a specified period of time.

When a property is built or purchased, the costs of the property (such as construction costs or the purchase price and cost of improvements) are typically allocated to the building and land as long-term assets. However, many of the items within a property (such as carpeting, lighting fixtures, and appliances) have a shorter useful life and can be classified as personal property. By identifying these shorter-lived assets and reclassifying them as personal property, the costs associated with them can be depreciated over a shorter period, resulting in a larger tax deduction in the early years of ownership.

Starting With a Cost Segregation Study

To add cost segregation to your tax planning approach, start by ordering a cost segregation study from a reputable firm. Here at SWC, we work with several of these firms and can recommend the right one for your particular circumstances and objectives.

When you engage a firm in a cost segregation study, a cost segregation specialist identifies and reclassifies the costs of your property, typically by examining the property and its invoices, blueprints, and other documentation. The study then allocates property costs to real property or personal property. Findings from the study can then be used by your tax planning firm — in this case, SWC — to calculate a one-time catch- adjustment. That’s because the IRS allows the Continue reading…

By |February 10, 2023|Categories: Real Estate|Tags: , , |0 Comments

New Tax Credits Can Offset the Costs of Energy-Efficient Home Improvements

By |January 31, 2023|Categories: Legislation|Tags: , , |0 Comments

With energy costs soaring, some homeowners are looking for ways to make their homes more energy efficient. However, energy-efficient home improvements can be quite costly.

To make these improvements more affordable, the federal government offers tax credits to offset the costs, while some state and local governments offer additional tax credits. Thanks to the Inflation Reduction Act of 2022, two substantial federal income tax credits for energy-efficient home improvements have been extended and expanded:

  • The residential clean energy credit
  • The energy efficient home improvement credit

In this post, we cover these credits and the steps you need to take to claim them.

Tax Credits Can Offset the Costs of Energy-Efficient Home Improvements

The Residential Clean Energy Credit

The federal income tax credit for eligible energy saving home improvements, formerly called the residential energy efficient property credit, is now called the residential clean energy credit. Before explaining how the credit has changed, let’s look at how it works under the “old rules” for eligible home improvements made in 2020–2022.

The Old Rules — for 2020–2022

The residential energy property credit varies, depending on when you had the work done:

  • 26 percent of qualified expenditures for energy-saving home improvements in 2020–2021
  • 30 percent of qualified expenditures for energy-saving home improvements in 2022 (thanks to the Inflation Reduction Act)

Note that there are no income limits. Even billionaires can take advantage of these tax credits. And given the high cost of many energy-saving home improvements, this tax credit can be substantial. For example, the credit for installation of a new $35,000 geothermal system in 2022 is $10,500!

Qualified expenditures include costs for site preparation, assembly, installation, piping, and wiring for the following: Continue reading…

Breaking Up Is Hard to Do: Ending Your California Residency

By |January 19, 2023|Categories: California Residency|Tags: , |0 Comments

For more than a dozen years now, more people have been moving from California to other states than have been moving to California from other states. This trend has been attributed to several factors, including cost of living to politics and highway traffic.

Compounding the problem is the fact that many companies — small business and large corporate enterprises alike — are abandoning California due to the high cost of doing business in the state, including Tesla Motors, Kaiser Aluminum, Wiley X Sunglasses, and Gordon Ramsay North American Restaurants.

Some people — especially high-net-worth individuals — want the best of both worlds. They love living in the Golden State for its weather, scenery, culture, culinary options, outdoor activities, and more. However, they would prefer lower taxes and a more business-friendly environment offered by other states such as Texas, Nevada, Florida, and Tennessee.

In an attempt to build this Shangri-La for themselves, they purchase a condo in Las Vegas, San Antonio, Nashville, or Fort Walton Beach and live there instead of in the house they own in California, in the mistaken belief that’s all it takes to reduce or even eliminate their obligation to pay California taxes.

Unfortunately, it’s not that easy. Ending your California residency is much more complicated than just moving out of state. And if you fail to meet all the requirements of becoming a non-resident, you’re likely to be pursued by the State of California’s Franchise Tax Board (FTB) for unpaid taxes and penalties.

In this post, we explain the rules that govern residency in California and what you need to do to officially end your State of California residency.

Defining “Residency”

According to the State of California, a resident is any individual who meets either of the following criteria: Continue reading…

By |January 19, 2023|Categories: California Residency|Tags: , |0 Comments

Thanks, Inflation! Cashing in on Inflation-Driven Tax Breaks

By |November 16, 2022|Categories: Taxes|Tags: , , , , , |0 Comments

Recently, inflation has commandeered the news cycle. Everyone’s worried about it. And why wouldn’t they be? With inflation, everything costs more, and increased income usually lags far behind.

But inflation isn’t all bad. If you own a home, for example, inflation will eventually increase its value (in most cases). And if you have a mortgage on that home, you’ll be paying it off with dollars that aren’t worth nearly as much as the dollars you borrowed.

In addition, inflation can save you money on taxes. “How so?” you ask. In this post, we reveal several ways where inflation has recently resulted in lowering taxes (for some people).

Inflation-Driven Tax-Relief Baked into the Tax Code

Most people assume that inflation will increase their tax burden. Since income taxes are based on income, and if your income increases, you’ll pay more in taxes, right? You might even suffer a double whammy, paying more tax on higher income and getting boosted into a higher tax bracket.

While that’s true to some extent, the tax code has some protections built in that prevent rising prices from automatically triggering higher taxes. In fact, the Internal Revenue Service (IRS) recently announced that thanks to inflation, taxpayers can expect the following relief in 2023 (the following generally applies to tax returns filed in 2024):

  • Income thresholds will be increasing 7 percent for all tax brackets. For example, instead of paying the lowest tax rate of 10 percent tax on the first $10,275 you earn, you’ll pay 10 percent on the first $11,000 you earn. If you’re married filing jointly, instead of paying 10 percent on the first $20,250 you earn, you’ll pay 10 percent on the first $22,000 you earn. In other words — assuming you earn the same amount in 2023 as you did in 2022 — you’ll actually be paying less federal income tax.
  • The standard deduction is increasing 7 percent from $12,950 for individual filers in 2022 to $13,850 in 2023, and from $25,900 for married couples filing jointly in 2022 to $27,700 in 2023. This represents the largest adjustment to deductions since 1985, when the IRS began annual automatic inflationary adjustments. You’ll start to see the new figures reflected in your income tax withholding statements on paychecks beginning in January 2023, resulting in an increase in take-home pay.
  • The maximum Earned Income Tax Credit, one of the federal government’s main anti-poverty measures, will increase from $6,935 in 2022 to $7,430 in 2023.
  • The annual gift tax exclusion (the maximum amount one person can give to another without incurring a tax penalty) will increase from $16,000 in 2022 to $17,000 in 2023.
  • The estate tax threshold (often used by wealthy Americans to shield inherited assets from levies) will increase from $12.1 million in 2022 to $12.9 million in 2023.
  • The amount of income adoptive parents can shield from taxes will increase from $14,890 per child in 2022 to $15,950 per child in 2023.

You May Now Qualify for the Premium Tax Credit

Thanks to the soaring costs of “affordable” health insurance premiums, you may now qualify for the Premium Tax Credit where in recent years, you fell short of the cutoff.

Starting next year, if your Continue reading…