 If you use an installment sale to help sell property, you can benefit from tax deferral and possibly lower your overall tax bill. But you need to watch out for certain tax traps if you do.
Installment sale defined Generally, you create an installment sale when you receive payments for sold property in the tax year of the sale and at least one other tax year. For instance, if you sell real estate for a profit in 2021 and receive payments in 2021 through 2026, your real estate transaction is an installment sale. Tax implications An installment sale creates a tax event in each year you receive payments. In the above example, part of your gain is taxable in 2021 and each year through 2026. Note that property held longer than one year qualifies for favorable capital gains tax treatment. The current tax rate on long-term capital gains is from 0 to 20 percent, compared with the top ordinary income tax bracket of 37 percent. You also have the ability to pay all the tax due on the sale up-front, to avoid paying tax on the installments in future years. In some cases you'll reduce your overall tax bill this way, though it may require some help with tax planning. Benefits of an installment sale With an installment sale, you may be able to lower your total tax on the sale of the property by spreading this income out over several years. In addition, the buyer will often pay a rate of interest to you higher than a typical bank loan for the remainder of the amount due. Installment sale tax traps Related parties caution. If you sell property to a related party and the property is then disposed of within two years, in most cases all the remaining tax comes due immediately. The tax law definition of related parties is more expansive than you might think. It includes:
To avoid this major tax surprise, consider stipulating in the contract that the property can’t be disposed of within two years. Depreciation recapture potential. Also be cautious if you took any depreciation on the property in prior years. In some circumstances you will owe extra tax related to that depreciation when you sell the property. Gains not losses. Be aware that installment sale treatment is only available for gains, not losses. Other special rules may apply, so reach out if you need advice specific to your situation. Of course, tax discussions now in Congress might impact how installment sales and long-term capital gains are taxed in the future. If you're planning an installment sale, consider reaching out for a consultation to discuss the tax implications. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA
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 As we enter mid-year, it's a good time to check your tax withholdings to ensure you haven't been paying too much or too little. This is especially true if your income was impacted by the pandemic or you have a change to your marital status, or number of dependents.
This quick checkup will ensure you are not surprised with a large tax bill when you file your income tax return. Get a rough estimate The IRS has an online tool that will help you calculate how much your current withholdings match what your final tax bill will be. In order to get an accurate reading, you need to have a copy of your latest paycheck or last quarterly estimated tax filing (Form 1040 ES). It may also help to have your last tax return on hand if you expect to take similar credits and deductions this year. The IRS tool is here: IRS Withholding Calculator Enter your data, including your filing status, dependents and any information about credits. Then refer to your last paycheck or withholding statement and enter in your total withholdings so far this year. Also enter what you expect to earn by year-end. After you enter your information, the tool print a result and provide a estimate of your under or over withholding for tax. But remember, this tool is a rough estimate. If you are concerned about your situation it is always best to ask for help to get a better read or run through alternative scenarios. How to fix a problem Whether you're paying too much or too little, you can fix it by filling out a new W-4 form and giving it to your employer. If you do so, you'll have to file another W-4 at the start of 2022 to return your withholding schedule to normal. If you're filing quarterly estimated taxes, you can adjust your next quarter's estimate in a similar way. Why a checkup is important In a perfect world, you would not owe too much nor get too large a refund. Unfortunately, the federal government refunds more than $3,000 a year to the average taxpayer. Think of that money as an interest-free loan the government borrowed from you. Conversely, a shortfall means writing a large check when you file your tax return. That's a surprise few of us need. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA  For years you have put away money from your pay into your employer provided 401(k) retirement savings account. Your employer may have even matched 50% of your contribution. Now you want to take some of this money out in the form of a loan to help pay your bills or to buy a car. Before you take action, here are some things to consider.
Loan versus withdrawal If you withdraw funds from a 401(k) prior to age 59 ½ you may be in for a surprise at tax time. Withdrawals are subject to income tax and often are subject to a 10% early withdrawal penalty. A better option is to consider loaning yourself the money. 401(k) loans are available for up to 50% of your account balance. The advantages There are many advantages of borrowing money from your own retirement account. No immediate tax. You do not pay income taxes on the funds lent to you. If you withdraw the funds, you must pay ordinary income taxes and a potential penalty on the withdrawal. You repay the loan. This re-establishes your original retirement account contributions for use during retirement. Your interest payment is to yourself. Your 401(k) loan payment includes interest. This interest provides you a return on your original contributions. It is better to pay yourself interest than to pay this interest to a bank. The disadvantages Repay or else. If you leave your current employer you will need to repay all outstanding 401(k) loans immediately. If you do not, your remaining loan balance turns into a withdrawal subject to income tax and a potential early withdrawal penalty. Opportunity lost. Your 401(k) loan amount is no longer invested. While your interest payments provide a small return, it usually is much lower than those available through retirement account investment options. Less take home pay. If you wish to continue contributing to your retirement savings at the same level as before you took out the loan, your take home pay will now be lower as you are making contributions AND paying off your 401(k) loan. When making the tough decision to borrow your retirement savings, remember to first consider all your alternatives. But most important, understand if you leave your job you must repay the loan or face a potential tax hit! "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA  The American Rescue plan signed in March, 2021 requires the IRS to pay out ½ of enhanced Child Tax Credits (CTC) to eligible taxpayers beginning this month. A tall order, and one filled with land mines. If you have children or know of anyone who has children, here is how you can help:
What’s happening now IRS web-sites. The IRS is establishing two web sites. One to help ensure you will get your Child Tax Credit if you are a non-filer and a second one to opt out of the monthly payments. Both can be accessed from the following IRS webpage; IRS Child Tax Credit Update The monthly payments are automatic. Beginning Mid-July you will begin receiving payments for ½ of your projected 2021 Child Tax Credit if:
The Opt-out option Not everyone should look forward to receiving payments each month for ½ of their Child Tax Credit. Here’s why; You do not qualify for the credit. The IRS is using past tax returns to estimate who should get advance payments of this credit. They are going to often be wrong. If your 2021 income is too high, you may need to pay back the advance payments when you file your tax return. You need the large credit. If you use this credit to balance out your year-end tax bill, you may find yourself owing money at the end of the year. If the early payments are gone, this could create a tax bill hardship. For example: With two kids you might be eligible for a $6,000 credit, with $3,000 paid to you in advance. When you file your tax return in April 2022, your unclaimed credit on the return will be $3,000 (you already received $3,000). Last year your tax return credit was $4,000. If you saved some of the advance payment, you will not have a problem. If it is spent, you now have $1,000 less of a credit to offset your other income on the return and may have to come up with some cash to pay your tax bill. Your circumstances change. If your tax life changes, advance payments of the credit will complicate things. For example, if you are in the midst of a separation or divorce, the advanced payments could become a big conflict. Action to take NOW! Look for notices. The IRS is sending out notices in the mail to those they think should receive the Advance Child Tax Credit payments. If you have not received one, the IRS may not think you should receive payments. So follow-up to ensure you are on their radar by reviewing your most recent tax returns (2019 and 2020). But don’t fret, if you are owed the credit you will receive it when you file your tax 2021 tax return. Opt-out. The Opt-Out portal is new and recently set up by the IRS. So if you do not want the early Child Tax Credit payments go to this site immediately and opt-out of the payments. No one is sure how efficient this will be, so you need to stay on top of this. Keep track of payments. You will need to know how much you receive in advanced payments when you file your tax return next year. Do not assume the IRS is going to accurately keep track of this for you. Forecast the impact. Moving from $2,000 to as much as $3,600 per child is a big change in most families’ tax bill. Know what the change does to yours and look to adjust withholdings to account for this change. It is fully refundable. Finally, remember the Child Tax Credit is now a fully refundable credit. So if you know of anyone that does not pay income tax and has children, tell them. The new Child Tax Credit may be helpful to them. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA This often overlooked bookkeeping and payroll tax requirement can cause a tangle of tax problems if not handled correctly. Could you be impacted? This is what you need to know.
Nanny tax explained In an effort to capture income from household employees, the tax code requires you to obtain employee information, pay the related state and federal taxes, and withhold taxes for anyone you employ around the house. The requirement comes into play if you pay any one individual $2,300 or more (in 2021). You must then submit a W-2 for each of these household employees. Who is covered? The household workers typically covered by this law include:
Employee or Not an Employee Before you panic, first determine whether your help is an employee or not. If in the eyes of the tax code, your help is not an employee the nanny tax rules DO NOT apply. What does the IRS look for?
"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA |
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