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De Minimis Fringe Benefit Exclusion – Paul Gaulkin CPA

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De minimis fringe benefits occur when the value of the property or service provided to an employee is so minimal that the accounting to record it would be unreasonable. Examples of de minimis fridge benefits include: 1. Having a secretary type a personal letter for an employee 2. Occasional personal use of the company copy machine 3. Occasional parties or picnics for employees 4. Traditional holiday gifts that have a small fair market value 5. Tickets given out for entertainment … Read more

Annuity Income Exclusion Guidelines – Paul Gaulkin CPA

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An annuity is nothing more than a contract that pays a fixed income at set intervals for a specified period of time. The amount of income generally depends upon the premium paid, the life expectancy of the annuitant, and the number of years payments are to be received. When income is received as an annuity under an annuity, endowment, or life insurance contract, the amount received generally consists of two separate parts: 1. A nontaxable return on the investment made … Read more

State Income Tax Deduction – Paul Gaulkin CPA

map of USA

State income taxes, including franchise taxes measured by net income, are deductible as itemized deductions by individuals. State and local income taxes assessed against interest income that is exempt from federal income tax is also deductible. However, state and local income taxes on other exempt income are not deductible. A taxpayer is able to deduct state and local income taxes that have been withheld from their salary. They can also deduct tax payments made on prior year income in the … Read more

How to Calculate Tax Liability – Paul Gaulkin CPA

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Taxable income is computed using one of the two overall accounting methods, the cash method or the accrual method. It is possible to use a combination method that involves using both the cash method and the accrual method. Different Accounting Methods Under the cash method, income is reported when it is received and deductions are taken when the expense is paid. The accrual method requires income to be reported when all the events necessary to fix the right to receive … Read more

Distribution of Section 306 Stock – Paul Gaulkin CPA

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Basically, Section 306 stock is stock that is “tainted” when received in a nontaxable stock dividend and the sale of such stock produces ordinary income rather than capital gain. These proceeds from Section 306 stock are eligible for a reduced tax rate applicable to dividend income. Earnings and Profits Requirement The distributing corporation must have earnings and profits at the time of the distribution in order for the preferred stock to receive the taint of Section 306. The amount of … Read more

Personal Holding Company Defined – Paul Gaulkin CPA

capital stocks together

To be classified as a personal holding company, a corporation must meet the following two tests for the tax year in question: 1. Five or fewer individuals must own more than 50 percent of the value of the outstanding stock, actually or constructively, at any time during the second half of the taxable year. 2. At least 60 percent of the corporation’s adjusted ordinary gross income for the tax year must be personal holding company income. It is possible for … Read more

Estimated Tax Payments & Underpayment Penalties – Paul Gaulkin CPA

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Generally, if someone is an employee of a company, the withholding that is taken out of their paycheck should cover the tax liability at the end of the year. If a person is self employed, this is not the case and estimated payments much be made each quarter. This is generally called a declaration of estimated tax for which the taxpayer indicated their intent to make estimated payments. Understanding an Underpayment If the total amount of tax paid through withholding … Read more

Section 332 Nonrecognition Liquidation of Subsidiaries – Paul Gaulkin CPA

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Under Code Section 332, no gain or loss is recognized by a parent corporation on the receipt of property distributed in complete liquidation of a subsidiary. Basically, the subsidiary’s basis for assets carries over to the parent corporation so that any deferred gain or loss at time of liquidation is recognized if the parent subsequently sells the liquidated subsidiary’s former assets. In order to qualify for Nonrecognition under Section 332, three requirements must be met. These requirements are listed below. … Read more

Original Issue Discount Tax Treatment – Paul Gaulkin CPA

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Original issue discount is basically a form of interest that is considered income to the taxpayer. An individual who receives an original issue discount must include a portion of the discount as income as it accrues over the term of the debt instrument, even if they do not receive any payment from the issuer. Original Issue Discount A debt instrument generally has an original issue discount when the debtor issues the instrument for a price that is less than its … Read more

Doubt as to Collectability Offer in Compromise – Paul Gaulkin CPA

Big letter stamp IRS

If a taxpayer wishes to submit an offer in compromise on the basis of doubt as to collectability, they will need to show the IRS: 1. It is unlikely that the tax liability can be collected in full 2. The amount offered in satisfaction of the liability reflects the reasonable collection potential Without proving these two points to the IRS, it is likely that an offer will be denied on the basis of doubt as to collectability. Reasonable collection potential … Read more