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Our articles cover a variety of tax topics that are currently trending. While these cannot be relied upon to provide financial or tax advice, they can be used to understand these topics If you have any questions or would like additional information about any of the topics covered in these articles, please do not hesitate to contact us.

S-Corporation – Advantages and Disadvantages

An S corporation is a corporation that is treated, for federal tax purposes, as a pass-through entity through an election made with the Internal Revenue Service (IRS) to be considered an S corporation.

Here is a checklist highlighting advantages and disadvantages of the S corporation form. This form is very popular among small businesses and is the most common form of doing business except for the unincorporated sole proprietorship.

Some of the advantages of operating a business as an S corporation are:

  1. Self-employment tax is not owed on the regular business earnings of the corporation, only on salaries paid to employees. This is a potential advantage over sole proprietorships, partnerships, and limited liability companies.
  2. Your personal assets will not be at risk because of the activities or liabilities of the S corporation (unless, you pledge assets or personally guarantee the corporation's debt).
  3. Your S corporation generally will not have to pay corporate level income tax. Instead, the corporation's gains, losses, deductions, and credits are passed through to you and any other shareholders, and are claimed on your individual returns.

Some of the disadvantages are:

  1. S corporations cannot have more than 100 shareholders (but with husband and wife being considered as only one shareholder). Further, no shareholder may be a nonresident alien. Corporations, nonresident aliens, and most estates and trusts cannot be S corporation shareholders. Electing small business trusts, however, can be shareholders, a distinct estate planning advantage.
  2. S corporation shareholder-employees with more than a 2-percent ownership interest are not entitled to most tax-favored fringe benefits that are available to employees or regular corporations.
  3. S corporations generally must operate on a calendar year.

Please note that the above Information provided in this chart is general in nature. It cannot be used to accurately assess a specific business or situation. For more detailed analysis of your situation consult your tax advisor.

Ami Shah CPA can provide expert guidance on choice of entity that suits your business model. We have years of expertise in new-entity formation consultation, incorporation, accounting and tax return preparation services. This means that you have more time to focus on your business rather than worry about the compliance or accounting aspects of your company.

Cost Segregation

Cost Segregation is the practice of identifying assets and their costs and classifying those assets for federal tax purposes. In a cost segregation study (CSS), certain assets previously classified with a 39-year depreciable life, can instead be classified as personal property or land improvements, with a 5, 7, or 15-year rate of depreciation using accelerated methods. An “engineering-based” study allows a building owner to depreciate a new or existing structure in the shortest amount of time permissible under current tax laws.

The benefits of a cost segregation study include:

  • Reduced current year tax liabilities
  • The ability to reclaim depreciation deductions from prior years (without having to amend tax return)
  • An immediate increase in cash flow due to above

Why to do a CSS now more than ever:

Due to recent legislative changes, real property owners now have even more reason to engage in a CSS. The new law includes cost recovery provisions that open new tax planning and savings opportunities for taxpayers owning or operating real estate. There is now a 100% bonus depreciation for qualifying property acquired and placed in service after September 27, 2017, and an expansion of the definition of qualifying property to include used property. Under the old provisions, there was an original use requirement to qualify for bonus depreciation. Taxpayers can use cost segregation when constructing a building, buying an existing one, or, in certain circumstances, years after disposing of one so long as the year of disposition still is open under the statute of limitations

In our vast experience of recommending CSS to our clients, we recommend the following type of properties who would benefit the most:

  1. Properties whose purchase price are over $700K
  2. Commercial properties
  3. Medical offices and building and Franchise operated buildings
  4. Restaurant buildings
  5. Properties that do not operate on a loss

How can Ami Shah CPA help here?

The Act benefits property owners not only by allowing 100% bonus depreciation for qualifying reclassified property, but also by extending bonus depreciation to qualifying used property. Taxpayers planning on building or acquiring commercial or residential real property should consult with us to ensure they are maximizing their tax benefits under the new legislation. We work with various professional consultants who have great engineering expertise and are pioneers in providing CSS. Our team will be in constant touch with the consultants to make sure to represent your interests in the study and get maximum benefit. We will also handle the tax compliance part after the CSS such as filing a form 3115 - Automatic Change in Accounting in lieu of an amended return. This saves a lot of time and money instead of filing an amended return to fix depreciation for prior years.

Taxpayers who have typically performed CSS are sometimes subject to IRS scrutiny. By engaging the expertise of Ami Shah CPA, property owners can be assured that their study will stand up to the strictest scrutiny of IRS auditors.

IRS announces end date to Offshore Voluntary Disclosure Programs:

The IRS recently announced an end date to the Offshore Voluntary Disclosure Program (OVDP). The program officially ends on September 28, 2018.

To recap, OVDP was an amnesty program introduced by the IRS to encourage taxpayers to voluntarily come forward and report foreign assets and financial accounts.

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations. Though the IRS is closing this program, they note that seeking out and prosecuting tax noncompliance will continue to be one of their main concerns.

A separate program, the Streamlined Filing Compliance Procedures (“SDOP”) , for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point. The Streamlined Filing Procedures are available to taxpayers who did not know they had a filing obligation, and the related penalties are significantly less than the amounts imposed by the OVDP. To utilize the Streamlined Filing Procedures, expats must file three years of delinquent tax returns and six years of delinquent Foreign Bank Account Reports (FBARs).

At Ami Shah CPA, we have brought in hundreds of clients under compliance by filing under the above programs. If you have foreign financial accounts and foreign assets that haven’t been disclosed in your US Tax returns, then reach out to our team right now. We have multiple years of experience in dealing with these cases including working with the assigned IRS agent to get a smooth closure for the case. We review your situation and suggest the best possible program suited for your case. Reach out to us today and schedule a consultation.

Cryptocurrency – Evolution and Taxation explained

Virtual currencies/ cryptocurrencies are becoming a fad investment since the past year due to their extraordinary surge in their values. Almost everyone seems to be talking about and many investors have made a fortune selling them for cash. However, there is also a lot of uncertainty about the taxation of cryptocurrency. Hence to help navigate this uncertainty we have compiled a list of most frequently asked questions from investors on Bitcoin or other cryptocurrencies.

  1. What is Virtual Currency/ Cryptocurrency?

    Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are currently more than 1,500 known virtual currencies. Bitcoin is the most famous among them but there are many others like Ripple, Ethereum and LiteCoin that are gaining popularity. These are usually generated through a process known as mining.

  2. How are these taxed?

    Virtual currency transactions are taxable by law just like transactions in any other property. The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency. This notice states that virtual currency is to be treated as a property rather than currency for tax purposes. This means that is not treated as currency that could generate foreign currency gain or loss.

  3. What happens if I mine Bitcoin or other cryptocurrencies?

    When a person successfully mines virtual currency, the fair market value of the virtual currency generated as of the date of receipt is includable in gross income. If mining is your trade or business, then the net earnings (gross income less allowable deductions) resulting from this constitute self-employment income and are subject to the self-employment tax

  4. Should transactions involving Cryptos be disclosed on my US tax returns?

    The most common taxable event is short-term capital gains. Cryptocurrency capital gains occur when you hold a cryptocurrency for less than a year and sell the cryptocurrency at more than basis. This means that they must be disclosed on your returns just like you would disclose any other stock trades you do.

  5. What happens when I convert/ exchange one Crypto for another?

    Another common transaction that investors indulge are converting one Crypto into another. The IRS treats this as a taxable event. For example, you purchase a Bitcoin for $1,000. Shortly afterward the price appreciates to $1,500, and you trade it for $1,500 worth of LiteCoin. The trade triggered a taxable event, and you’re now liable for $500 of taxable income even if you didn’t get any cash as a result of this transaction.

  6. What happens if I do not disclose the Crypto gains/ losses I made on my tax returns?

    Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS. But the IRS has time and again reminded taxpayers to report these transactions on your tax returns. The IRS has also indicated that taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest. In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.

    At Ami Shah CPA, we have helped various current clients to disclose their transactions the right way on their tax returns. If you have dealt in Cryptos and not disclosed them on your tax returns, contact us to get compliant. We can put up a income tax compliance plan including preparing and filing US Tax Returns or Amending Tax Returns and an appropriate disclosure program