Frequently Asked Questions
Be In The Know
I just started a new business. Should I be an S-Corporation or an LLC?
This will depend on a variety of factors including input from your legal counsel. Some, but certainly not all things to consider are; the type and character of the income to be generated by the entity, the tax brackets of the owner(s) that the income will flow out to, the importance of deductible fringe benefits and the flexibility desired by the owners in making adjustments and distributions to the equity owners of the entity.
What is an S-Corp? Should I make the election?
In simple terms, an S Corporation is a corporation, limited partnership or limited liability company that's made an “S” election with the IRS.
The main advantage for small business owners is the ability to minimize payroll taxes. The S corporation minimizes amounts shareholder-employees pay in payroll taxes because the S corporation profit allocated to a shareholder isn't subject to payroll taxes. The catch is that as a S-corporation shareholder you must also pay yourself a reasonable salary.
To make the election, you must file a Form 2553 with the IRS by the 15th day of the third month of the year. (Typically, that means by March 15.)
The IRS has prescribed methods for relief for taxpayers who fail to timely file their Form 2553 through Revenue Procedure 2013-30. That being said, filing a late S corporation probably isn't a do-it-yourself project and will likely require the assistance of an experience tax professional.
My spouse died this year. What items have to go on our personal return and what items go on the estate or fiduciary return? Can I still file a joint return for this year.
Generally income or deductions incurred by your spouse before the date of death will go onto the individual tax return or 1040. Income or expense incurred after the date of death will go onto a fiduciary tax return or 1041, if the estate is large enough, they could possibly go onto an estate tax return, or 706. There are some exceptions to these rules , however, in general they will apply to most circumstances.
What can I now deduct on my 1040?
-Unreimbursed Medical and Dental Expenses.
-Interest expense: Mortgage interest of $750,000 or less. If incurred before Dec 16th 2017- $1 million or less.
What can I NOT deduct on my 1040 anymore?
-Mortgage interest: loan amounts from $750,000+ to $1 million
-State and local income, sales, and personal property taxes beyond $10,000
-Alimony payments for divorce agreements after Dec. 31, 2018
-Moving expenses (except active-duty military)
-Unreimbursed employee expenses
-Natural disaster losses (unless in an area designated by the president)
What is the Net Investment Income Tax (NIIT)?
The Net Investment Income Tax is imposed by §1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts for their first tax year beginning on (or after) Jan. 1, 2013.
Taxpayers will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Filing Status Threshold Amount*
Married filing jointly $250,000
Married filing separately $125,000
Head of household (with qualifying person) $200,000
Qualifying widow(er) with dependent child $250,000
*Please be aware that these threshold amounts are not indexed for inflation. If you are an individual that is exempt from Medicare taxes, you still may be subject to the Net Investment Income Tax if you have Net Investment Income and also have modified adjusted gross income over the applicable thresholds.
What generally are the Oregon estate tax rates?
Oregon has a graduated estate tax. It starts at 10% and goes up to 16%. The amount the estate is taxed depends on how much the estate is worth after the $1 million exemption and any other exemptions are taken.
When is an income tax return for an estate or trust required to be filed?
The filing threshold for any domestic estate is gross income of $600 or more, or when a beneficiary is a resident alien. IRS Form 1041 is used for this purpose. The filing threshold for a trust is when it has any taxable income for the year, gross income of $600 or more, or a beneficiary who is a resident alien. Don’t forget the Oregon estate or trust income tax return as well, form OR-41. It has the same filing rules.
When must an Oregon estate tax return be filed?
For deaths that occurred on or after January 1, 2012, estates with a gross value that exceeds $1 million must file an Oregon estate tax return, Form OR706, even if no Oregon estate tax will be due as a result of applicable deductions and exemptions.
All of my deceased assets were in a trust. Do I have to file an estate tax return for him/her?
That will depend on the size of the estate and the type and terms of the trust agreement. If the trust does not eliminate the need for filing an estate tax return, the filing thresholds for 2020 for federal purposes are $11,580,000, and for Oregon purposes $1,000,000.
Do I have to pay gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please reach out to us if you are considering this type of arrangement.
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule.
Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.
For 2020 the annual exclusion is $15,000
The FAQs are some of the questions that we frequently get asked. The questions and answers are not intended to be exhaustive and do not constitute advice for your particular question, issue or concern, nor do the questions and answers create any accountant-client relationship or duty on our part to assist you. We encourage you to contact us to discuss further your issues or questions.