bruce e. bell

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Question:        I am a salaried employee and I also receive self-employment  income from a side business unrelated to my salaried employment.  Am I entitled to a qualified business income tax deduction for my earnings? Answer:          Taxpayers meeting the statutory requirements are entitled to a deduction of 20% of their qualified business income.  Qualified business income (“QBI”) generally consists of income derived from sole proprietorships and so-called pass-thru entities such as partnerships, limited liability companies and S corporations where business income is reported on the owners’ personal income tax returns. Your self-employment income may be eligible for the QBI deduction.  No…
Question: I am a salaried employee and I also receive self-employment income from a side business unrelated to my salaried employment. Am I entitled to a qualified business income tax deduction for my earnings? Answer: Taxpayers meeting the statutory requirements are entitled to a deduction of 20% of their qualified business income. Qualified business income (“QBI”) generally consists of income derived from sole proprietorships and so-called pass-thru entities such as partnerships, limited liability companies and S corporations where business income is reported on the owners’ personal income tax returns. Your self-employment income may be eligible for the QBI deduction. No…
Question:       I own an interest in a limited liability company with others through which we operate a professional service business. Our company holds a significant amount of assets largely consisting of equipment, accounts receivable and cash. How can we protect the company assets from creditors in a tax-effective manner? Answer:          There are various actions you can take to protect limited liability company (“LLC”) assets from creditors.  As a professional, your greatest liability concern is likely malpractice creditors.  Procuring and maintaining professional liability insurance is no doubt the best form of protection from clients and others  who file malpractice claims  against the…
Question:        I own a policy of insurance on my life that I am selling to a third party at a profit.  What tax consequences and other concerns do I have? Answer:          Any gain from the sale of a life insurance policy you own will be subject to income tax.  Like the sale of most other assets, the difference between the amount realized or the amount you receive from the sale and your tax basis in the policy will be subject to tax.  Based on recent legislative changes, your tax basis in the policy will generally be the aggregate amount of…
Question:        I personally realized a large capital gain from the sale of my stock.  Can I avoid or defer the gain by reinvesting some or all of the sale proceeds in a qualified opportunity zone investment? Answer:          A new trilogy of tax benefits are provided by the Federal government for those willing to make long-term investments in economically-distressed community areas.  The tax on the capital gain itself can be deferred for a number of years. Further, the amount of the capital gain which ultimately will be taxed can be reduced. Finally, the appreciation in the qualified opportunity zone investment itself…
Question:        I am buying an insurance policy on my life that contains a long-term care insurance rider. Can I transfer the policy to an irrevocable insurance trust and still benefit from the long-term care feature? Answer:          You can benefit from the long-term care feature of a life insurance policy held by an irrevocable life insurance trust (an “ILIT”) you create. Neither the ILIT policy ownership nor you benefitting from this type of policy is an issue. The concern is ensuring you can benefit in a manner that does not defeat the tax benefits you are seeking with an ILIT. Insured…
Question:        I received a distribution from a limited liability company in which I am an owner representing proceeds from the refinancing of a commercial loan on company property. Can I deduct my share of the interest on this debt? Answer:          The deductibility of interest on your share of limited liability company (“LLC”) debt depends upon how you utilize the refinancing proceeds which are distributed to you.  If the proceeds are utilized for an expenditure or investment for which interest deductions are allowable, then you can deduct your share of the interest on the LLC debt.  In all other cases, your…
Question:        I am planning to remarry and want my 401(k) plan benefits paid to my children upon my death, not to my future spouse.  Do I need a prenuptial agreement to accomplish this? Answer:          Specific requirements must be satisfied under the Internal Revenue Code for persons who wish for 401(k) and other qualified plan benefits to be paid to someone other than the participant’s surviving spouse. A participant’s spouse must waive the right to receive the participant’s plan benefits by consenting in writing.  The spouse’s written consent must be witnessed by an appropriate representative of the plan or by a…
Question:        Is there any way to deduct business entertainment expenses after the most recent tax legislation? Answer:          The Tax Cuts and Jobs Act of 2017 fully eliminated deductions for entertainment expenses incurred by taxpayers, effective for tax years beginning after December 31, 2017.  With the new tax law, taxpayers can no longer deduct any of the expenses in connection with amusement, recreation and other entertainment events where businesses entertain clients, suppliers, vendors, employees and others.  One viable approach for dealing with the disallowance of deductions for entertainment expenses is identifying expenses incurred and determining if they can be reclassified or…
Question:  I am contemplating purchasing an interest in a limited liability company as an investment. What tax consequences if any I should be concerned with? Answer:   Various tax issues must be addressed in connection with the purchase of an interest in a limited liability company (“LLC”).   Of particular concern is ascertaining if there will be sufficient cash distributions from the company to satisfy your associated tax obligations. Limited liability companies with more than one owner or member are usually treated as partnerships for tax purposes requiring their members to report their proportionate share of the company’s income on their personal…
Question: Under the new tax law, can I deduct 20% of my S corporation income? Answer: The 2017 Tax Cut and Jobs Act entitles owners of S corporations, partnerships, limited liability companies and sole proprietorships to a deduction on their personal income tax returns for business income. These so-called “pass-thru” entities are not subject to tax on their income. Rather, the income reported is taxable directly on the income tax returns of the entity owners. Owners of these “pass-thru” entities may now be able to deduct 20% of this qualified business income (“QBI”). Various requirements must be satisfied to claim…
Question:  Can you provide some guidance from a tax perspective to my business partner and I on the best structure for a new business we are starting? Answer:   The myriad of factors that must be considered in choosing the proper business structure requires a careful evaluation of the available alternatives.  In today’s business environment, most closely-held businesses operate as conventional C corporations, S corporations or limited liability companies. From a tax perspective, C corporations are treated as entities separate and apart from their owners.  Income earned by a C corporation is taxed to the corporation while dividends paid by a…
Question: My S corporation, previously a C corporation, has historically received rental income from a real estate property.  Now that the company’s operating business has been sold, can the S corporation passive income tax on rental income be avoided? Answer:     The tax on S corporation passive income is an exception to the general rule that S corporations are not subject to Federal income tax. S corporations which were previously C corporations which now have income from passive sources may be subject to this tax if they hold undistributed income from years before they became S corporations. A common means of…
Question: I am selling the stock of my small, closely-held corporation.  What must I do to exclude the gain from taxation? Answer: Gain on the sale of small business stock by a non-corporate taxpayer can be excluded in whole or in part from the taxpayer’s income if various statutory requirements are satisfied.  For small business stock acquired after the enactment of the 2010 Tax Act, the entire gain on the sale may be excludable from taxation.  The excludable amount is limited to the greater of $10,000,000 ($5,000,000 for married taxpayers filing separate income tax returns) and ten times the basis…
Question:   I was granted incentive stock options and non-qualified stock options from my company prior to the time the company went public. Can you explain the tax consequences and whether I am better off buying and holding the stock or doing cashless exercises? Answer:   For tax purposes, there are three relevant time periods to consider with respect to stock options, the date the stock option is granted, the date the stock option is exercised and the date the stock acquired with the stock option is sold.  Unless the stock options themselves are publicly-traded or otherwise have a readily ascertainable fair…
Question: As a surviving spouse, most of my assets are held in my deceased husband’s bypass trust to which I am entitled to distributions of income and principal.  Since I will no longer be subject to estate taxes, is there an advantage to my withdrawing as much money as possible from this trust? Answer:  The new tax law changed the landscape for dealing with estate assets.  In the past, avoiding or minimizing estate taxes was the primary focus of taxpayers subject to estatetaxes upon death. With the recent, albeit temporary, increase in the Federal estate tax exemption to $11,180,000 per taxpayer, many taxpayers who previously would…