The Deduction on Job Related Education

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The Deduction on Job Related Education

Jan 12, 2018 Posted by deepak No Comments

During the 80s and early 90s, there was a long-term decline in real average earnings of many US workers. There was also a trade deficit and reductions in manufacturing employment growth. All of these have become public concerns. The notion that was brought about this situation is that there is a required job training and education in order for the work force to improve the economic status. There is also a competitive position in the global market place that has to be met.

The quality of the US workforce matters right now more than ever. Workers have to be motivated and well trained in order for them to produce high quality services and goods at quite a low cost. This can definitely help enhance the competitiveness and industrial productivity and also keep the American living standards at a high quality. Today’s international economy requires workers to be prepared and also change the way they approach and do their jobs so that they can capture the benefits from the technology that rapidly evolves. Training goes hand-in-hand with quality, automation, productivity and flexibility in the best performing firms.

Individuals can deduct their educational expenses that they have paid for, even if this training or further studies have led to an MBA or a post-bachelor degree. However, the deduction may be large so there are rules that are still subject to interpretations. The IRS is aware of this situation so it has increased the number of audits in this department.

America is facing major crisis when it comes to education. There is a large and more significant dilemma and it has been quite apparent recently. Americans must understand the scientific and mathematical principles that can be applied to their everyday problems when it comes to the executive suite and the factory floor. It is also required that Americans who can read and understand the complex technical material must use the knowledge that they acquire in order to perform new tasks.  It is also preferred that more Americans can work individually and in teams and identify and solve problems without relying on the direct supervision or rigid rules of the company. What is also required are more Americans who can converse in foreign languages and then be cognizant of the events that are beyond borders. What is required are Americans who can live and also work effectively with people who come from diverse backgrounds and cultures.

This may seem a bad reflection of the current US educational system but truth of the matter is that there is an improvement in the education and training of workers. There are some general views that have been expounded regarding the relationship of education alongside earnings and how it can also improve the job training systems.

The Most Tax-Advantaged Ways to Reimburse Job Related Education Expenses

 Reimbursing the employees for the expenses for their education strengthens the capabilities of the workforce. It also retains them and makes them loyal to the company. Aside from this, the employer and the employees save valuable tax dollars. However, it is very important to follow IRS rules. Here are some options to maximize savings when reimbursing job related education expenses.

A fringe benefit

 Qualifying the reimbursements along with direct payments from job related education costs are excluded from the employee’s wages. This is called the working condition fringe benefits. It also means that employees do not have to pay tax. This can also deduct costs and make it appear as employee education expenses. There is no need to withhold the payroll taxes as well as the income tax.

To qualify as a working condition and fringe benefit, the education costs must also be the expenses that the employees were allowed to deduct and file as a business expense if this has been paid directly and were not reimbursed. In a nutshell, this means that the education should be connected to the current profession of the employee. They should also not qualify themselves for another profession. There is no ceiling on the amount that the employees can receive the tax free as the working condition of the fringe benefit.

An educational assistance program

 This is another approach that is used to establish formal education assistance program. This covers the job-related and non-related training for the individuals. The reimbursements include the expenses for:

  • Fees
  • Equipment and supplies
  • Books
  • Tuition for undergraduate or graduate level

The reimbursement of materials that employees can maintain after the completion of their classes (except for books) are not eligible.

It is also possible for the individuals to annually exclude this from the income of the employee and deduct a maximum of $5,250. This can also be an unlimited amount if the training or the higher education is connected to the profession. Other eligible education reimbursements come in the form of the employee benefit expense. They also do not have to withhold their income tax or withhold their taxes from their payroll on these kinds of reimbursements.

Train and Retain

 If the business has employees who wish to take their skills for the job toward the next level, employers must think before they even decide to go to their competitor. When they reimburse their education costs then these turn out to be a fringe benefit and is also set up as the educational assistance program. Employers then keep their staff trained and constantly evolving toward a better future which would let them also save lots from taxes.

In order for the individual to qualify, there are three requirements that must be met:

 The individual’s training and education is maintained and improves the skills for the job. If the individual has worked in one industry before and after he or she has entered graduate school, then the purpose of the study is for the individual to further work on his or her profession. The MBA must be related to the previous occupation. Another scenario is when the education and further training is required by the employer, as stated by the law and the regulations, in order for the individual to keep his or her job, status and present salary. The latter situation has higher chances of getting a deduction.

 The education or further studies must not be required in order to obtain the minimum requirements for a specific business niche or trade. In order for an individual to become a doctor, he or she must attend medical school. For one to pursue becoming a layer, he or she must enroll in law school. These occupations do not deduct the education cost as a form of business expense because it is a minimum requirement. On the other hand, the individual can work in finance or management without an advanced degree. Expenses on this field could definitely qualify especially if he or she is pursuing an MBA degree.

 The education or further studies must not qualify the individual for another business, trade or job. If he or she has limited business and managerial duties in his or her profession before pursuing an MBA, then the MBA should not be used as a way to qualify for another business or trade. Obviously, this would not be considered a deductible. Employers should also be mindful of the change of duties somehow involved in the similar kind of occupation. This is not considered a new business or trade. However, there are also IRS officers that focus on the said specific rule so that they can try and also not allow these deductions for the expenses targeted for higher education.

 What if the Individual is not Audited?

 If the individual is not audited, then it is likely that the IRS is currently questioning whether he or she a) is still in the trade or business if time off from school was taken, b) the education that the individual is taking is indeed giving him qualification for another business or trade and c) the education and further training has truly improved the skills in that specific or business that the individual has entered for graduate school. If these are the cases then these should be regarded as personal enrichment and therefore, not a deductible. For that last item listed, they should also be looked into if the coursework that they are taken is indeed directly related to the business.

You will pay more taxes this year unless you set up a corporation

Feb 22, 2018 Posted by deepak No Comments

Using Corporations as Tax Shelters

A great form of protecting assets is creating a corporation. However, not a lot of people are aware that corporations can be made into tax shelters as well. Tax shelters are legal ways that allow to minimize or decrease the taxable income. This reduces the tax liability overall.

It is important to note that it is not as simple as incorporating this so that a tax shelter can be automatically granted. The real advantage of this route is that expenses are deducted in the business expense. This is not personally deductible. Businesses are taxed based on the profits that they make, and not the gross revenue that they accumulate. In a nutshell, businesses are taxed per dollar that they earn. This is extremely different from individual tax returns. The latter are taxed depending on their gross income.

To explain it thoroughly, individuals then earn money, but their income is taxed so whatever they have left from that is what they take home and spend. On the other hand, businesses and corporations earn money, spend what is necessary and are only required to pay taxes by setting it alongside the profits that they made.

There are businesses that incorporate so that they can avoid or lessen the taxes that they required to pay. This action is illegal. Business owners must have a legitimate reason and a motive to incorporate. If the business is sole proprietorship, then incorporating can also help with protecting the assets as well as time saving.

Timing Is Important

For those who are considering to start a new business, this is the perfect time. As a general rule, it is not practical to recharacterize the expenses the minute they are incurred. This means that if businessmen start their businesses, they should also incorporate this in the very year that their tax savings are captured of its costs. Failure to do so means that the entrepreneur can easily miss out on the significant cost savings.

Here is an example. There are people who can ultimately turn their hobbies into businesses they can do on the side. There are others who can also make this into a full-time business. This depends on the demand of their chosen entrepreneurial endeavor. These business owners must know that they should report this extra income that they are acquiring to the IRS. They will be taxed on it as if it was their income from the regular nine to five job.

These entrepreneurs can reduce their taxes if they can put the supplies that they purchased their expenses. However, all these costs must be listed as such or this will not be tracked. A way to do this efficiently is to be sure that this is incorporated during the tax year and then tracked. Startup costs can also be documented before the actual businesses started to make money. These can also be regarded as expense costs and can easily go through the incorporation process.

Unique Tax Deductions on Small Businesses

Small businesses can also make the tax deductions that the regular tax payers cannot. An example of this is education. If the employee is required to undergo some kind of further training in order to advance his or her skills in the profession that he or she is in, then the employee can deduct the costs related to tuition as business expenses. Education costs can also include more than just the traditional “college” setting. This also includes expenses incurred by trade shows, seminars and other avenues that are used to continue and pursue further education. CDs, books, DVDs and magazines that are purchased by industries and businesses can also be deducted. Looking at this example, it proves that investing in learning at any craft is good for a business.

Travel expenses can also make good business deductions. If individuals have to travel because they are expected to visit clients and attend shows or conferences, then the expenses from that travel are entirely deducted. This includes expenses from flights, cabs, hotels, gas and on-the-road costs. Food can also be in the budget.

Employees of a small business can also be good sources for deductions. There are small companies that resort to not hiring employees because there are complicated employment laws that also come with tax requirements but if the need for it arises because the business is growing, then it may just be worth considering. These are employee-related experience can also be regarded as deductible business expenses:

  1. Employee wages and salaries
  2. Benefits of employees (life insurance, health plans and educational assistances to name a few).
  3. Office related expenses like supplies, desks, computers and others.
  4. Profit-sharing or pension plans

Entrepreneurs who can manage to run the retirement savings of their company can also decrease the over-all taxes that they are expected to pay.

The Kind of Corporation is an Factor

“S” Corporation do not pay any income taxes by itself. It resorts to a “pass-through” entity. What this means is that the shareholders can include what they have in the company and its profits on the tax return that they file. They can pay these on the profits depending on their tax rates as individuals.

Whereas with “C” corporations, they have their own tax rules. It is also taxed separately and per entity. Because of this, there are some deductions that are only exclusive to C-Corporations. Companies pay the taxes on the profits that the shareholders do not possess. What happens is that shareholders are then taxed on the total income that is provided to them by the C Corporation. This results to double taxation. The first level is the corporate and the next level is the personal. This can be avoided by small businesses when their directors and managers expense out the profits of these companies through the form of salaries and other perks.

While both of the types of these corporations are offered in the form of tax advantages so that these can corporate the protection of the owners, then the S Corp is then viewed as the best deal for the companies that are on the start-up level. There are many businesses that tend to lose money during the first few years upon starting. The S Corporation lets these losses “pass through” so that the individual tax returns of the owners can reduce the taxable incomes. An example of these is that S Corps can enable the owners of the business to pay less on the Social Security Taxes and Medicare.

Key Facts:

  • Avoiding taxes by using corporations as tax shelters consist of 1/3 of the federal revenues.
  • US corporations amount to $90 billion in the form of dodged income taxes and this is done by shifting the profits and then turn these to subsidiaries.
  • US corporations acquire $2.1 trillion in profits – a number of this has not been taxed in the States.
  • General Electric, because of its outsourced businesses that is set offshore, managed to accumulate a total of $27.5 billion from 2008 through 2012. However, they only claimed tax refunds that amounted to $3.1 billion.
  • Apple also managed to acquire $74 billion on worldwide sales from 2009 to 2012. This excludes the United States. They paid almost nothing in American taxes.
  • There are 26 profitable firms on the Fortune 500 that did not pay federal income taxes from 2008 to 2012. 111 of these corporations are large and profitable and did not pay federal income taxes.

 Points To Consider

  1.  Tax breaks for corporations that merely ship jobs and also earn profits offshore must be ended. America is worth investing in so that there are jobs created for Americans.
  2. Whenever the corporations resort to tax havens so that they can avoid paying taxes, those that do the right thing have to do this for them. Families end up paying higher taxes and they get fewer services. Everyone else get a big deficit from this.
  3. Large corporations that dodge taxes do this by putting small businesses, so they can go around the rules and take advantage of this. Every business must be on the same level of the playing field.
  4. Corporations also claim that there are 35% in the form of corporate income tax and this is the highest when set to taxes around the world. This makes the business uncompetitive and also decreases job opportunities. Corporations fail to pay enough in taxes. There are many who even pay too little. The average American family pays more in income taxes in a year than General Electric. There are also large corporations that are highly profitable and pay tax rates amounting to less than 20%. They pay absolutely nothing. If these corporations pay less, then everyone else have to pay more. Corporations must pay what is required of them to make this fair.
  5. Corporations reason that repatriation tax holidays allow them to tabulate the profits and then invest and also create jobs. However, truth of the matter is that this can only result to failure. Companies have to cut jobs and also line up pockets for the corporate executives and the big shareholders. Tax holidays can also give tax breaks to the corporations that have accomplished the most in the aspect of dodging their taxes and paying what is expected of them.


A number of US corporations go through offshore taxes and perform a number of accounting gimmicks so that they don’t have to pay a whopping $90 billion per year just for federal income taxes. This is the large loophole when discussing US tax law. It also enables the corporations to avoid paying the taxes on the foreign profits unless these are brought home. This tactic is commonly regarded as deferral. It provides huge incentives to keep the profits offshore and for as long as this can be done. The corporations choose to not bring the profits home and at the same time not pay the US taxes that come with this.

Deferral in the corporate setting is an enormous incentive and can also be used as an accounting trick so that it would appear the profits were earned and then generated in the tax haven. The profits are eventually funneled in the form of the subsidiaries. This is often done by companies that have few employees and not as much business activities. This is effective because firms eventually launder the profits so that paying taxes can be avoided.

Loopholes used to Shift US profits to Tax Havens

  • US firms can start a subsidiary outside US soil and just focus offshore so that there are channels for the billions of dollars in profit to go through. This makes it disappear for US tax purposes. There is actually a box that can be checked on the IRS form.
  • Corporations can also sell the right to the patents as well as the licenses in a low price. This can then be licensed back to US ground and set the price so steep when sold within America. The goal is “transfer pricing” because it makes it seem that the company can generate profits in the tax havens but not in United States.
  • Wall Street banks along with credit card companies and the other corporations that have large financial units can also move the US profits offshore and then regard this as a loophole and call it “active financing exception.”
  • US corporation can also do the inversion by then buying a foreign firm and then eventually claiming this as the new company that is merged and regarded as foreign. This then reincorporates in the country that is the tax haven and put this in a lower tax rate. The process then takes place on paper and the company does not have to be moved to the headquarters in the offshore setting. The ownership is also unchanged, and the privileges can be enjoyed upon operating and for the taxes to be payed at such a low rate in foreign settings.


The way to solve this is to just end the deferral. Corporations should pay the taxes based on the income that they get offshore as opposed to indefinitely paying the income taxes in the US setting. This can also remove the incentives that are shifted by the US profits and to the tax havens.

How to Request for Employer Paid Courses

Nov 20, 2017 Posted by deepak No Comments

It is possible to convince employers to pay for the employee’s education. This is a long-term goal that a company should aspire for because the employee can receive new skills which will benefit the business. There are various direct benefits to employer-funded education and HR managers are knowledgeable of these. By providing employees paid courses, there is an increase in loyalty, a deduction in employee turn-over, an increase in productivity and the ability to take new projects and opportunities to showcase their skills in leading.

Higher education increases the productivity of the company. HR managers must explain to employees that when they successfully complete their further education that the company paid for, then they can take on additional projects. This enables both the employee and the employer to take on more work and incur additional revenue.

At least half of American workers receive educational benefits from jobs. Most employers also pay for the courses that are considered work-related. But not a lot of employers pay for practically every course. A way to maximize your chances of getting the employer to help pay their school fees.

Check out the details of the employer’s school benefits before they even sign up for any classes.  They must also make sure that the course they sign up for is qualified. They should also check with HR if there is a grade requirement that they have to maintain. There are employers that will not pay the tuition of the employee’s grades are low.

These education benefits assist the workers – whether they are full time or part time – to get further in their careers. Research shows that the more employers invest in their employees, the more loyal the employees are to stay in the business.

How Companies Pay for their Courses

 Many large enterprises have partnered with universities and local colleges. This lets them have a company-specific training that can benefit the company as well as the student. There are companies that offer scholarships to employees as well as their families and assist them in the costs of higher education. This is usually a benefit included in the employee compensation package, which is quite attractive. This is the special payment that is offered to the employee as long as he or she does enroll to that college or university.

The company can also take additional tax credits and deductions that are rooted from the employee education funds. As long as the education qualifies for the IRS guidelines and is within the confines of the industry or trade, then there is no problem. Naturally, employees must check with the tax preparer so that the extent of the eligibility can be determined before a claim is made.

The most common form of education assistance is the tuition reimbursement plan. This means that upon enrollment or completion of the education and the employee shows proof of both, the company then supplies the funds to support the former’s educational endeavors.

How to Discuss Employer Paid Courses

  •  Pick a degree or a diploma or a designation or certification.
  • Pick a course and a school or college.
  • Create a list on how the company will benefit from the employee’s education.

Here are examples:

  • The employee adds new skills to the existing workforce.
  • The employee is more productive and can also increase the company revenue.
  • The employee takes on new projects to generate more revenue.
  • The employee can take on leadership and management roles in the company.
  • The diploma and degree of the employee will add give prestige and add more professional image for the business.
  • The employee can mentor the incoming employees and also spread his or her newly gained sills to the employees.

The employee must anticipate the concerns or questions that the HR manager presents. He or she must answer these in a style that concludes the higher education can benefit the business. If the concern is that the education will take the employee away from work, the proper response is that the employee can take on online classes or night classes and make this fit into his free time. This already adds the skill of time management as well as an increase in productivity.

If the concern is that the education is an additional expense for the company, the proper response is that tuition cost less as opposed to training or even hiring new employees who have the certification, diploma or degree that the business requires. The employee’s education can make money for the business.

If the employee refuses, do not give up. It is possible to try again after three or four months or even next quarter.

Contract on Employer Paid Courses

If the employer agrees to reimburse the employee’s tuition, then there must be an education contract. This must be read carefully and meticulously and also discussed with the HR manager. If there are any clauses that are not understood or deemed agreeable, then it must be brought up. The employee has the right to not sign the contract if he or she does not agree with the terms.

Example of term is that the employee agrees to stay with the business for a certain duration. The business requires this because they do not fund the training for the employee only to have him or her go to another. The employee must be sure of what he or she wants and if it is the right time to do this, then he or she can sign the agreement.

The employee must also know how to refund the tuition. Either the company directly pays the university or the college or the money is given to the employee. Other concerns include: will the company immediately pay once the employee completes the studies? Will the employee be required to achieve and maintain a specific grade point average? What happens if the employee fails to do this?

Another important concern for the business is what is the consequence if the employee does not attend classes? This can be because there are problems due to health issues, personal nature or family matters. There are other circumstances that can also take place and prevent the employee from completing their degree or course. If that is the case, do they have to repay what the company has paid?

Four Steps to Using Employer Paid Courses

 Earning a college degree and working at the same time is a smart professional move. It increases the employee’s value to the employer and also secures the former’s job. It also improves and heightens the career trajectory. As the employer works and studies to get a degree, he or she maintains the flow of income and also reduces the reliance on student loans. If the employer then offers the Tuition Assistance Program, the employee can also come out on top.

Definition of a Tuition Assistance Program

 A Tuition Assistance Program is run through the employer’s HR Department. This is where employees can also take the courses and the degree that has already been paid by the employer. According to the IRS, companies can allot up to $5,250 for educational assistance every year. This results to the employer not including the benefits with the employee’s tips, wages and compensation that is shown on W-2. This also means that the employee does not have to list these benefits down on their ITR.

First Step: Research

 Before the employee takes advantage of the employer paid courses, they must research is there is a program that is they are qualified to take in their work setting. The HR Department is the best place to ask. If the employer provides paid courses then the employee must make sure that there is a written policy.

Here are key questions that should be asked to HR:

  1. What are the available and eligible college courses? Does the employer pay for undergraduate or graduate classes? Is it credit bearing? Is it non-credit bearing? Do they accept online college classes?
  2. How will the courses be reimbursed? Does the company pay for the courses that the employees required to take up front? Or does the employee pay the tuition then just request to be reimbursed upon completing the course? Who should they submit the request to? Is this on a semester basis? Is this on a per course basis?
  3. Should the employee meet and maintain a certain GPA requirement? What are the consequences if he or she fails a class or has no choice but to drop out?

Second Step: Sign Up for Courses

A multitude of businesses offer education benefits that have increased in terms of revenue over the last 10 years. There is a high possibility that even if the employer did not offer a tuition reimbursement plan prior, they do so right now. It is worth checking out. 

Before employees sign up for the courses, they should know the following:

  • Which of the courses are considered eligible? There are some employers that require the courses be taken directly because it is associated with the job. Then there are others that the courses and there are still that require the classes that is strictly business in nature. It really depends on the employer and the policy of the company.
  • Are there providers that have been approved to assist financially? Employers have partnerships with approved colleges and universities and specific courses regarding employer sponsored educational program.
  • Does the employee have to be approved by the manager? There are employers that require sign-off from the supervisor or the manager. If this is a requirement, then he or she must determine which courses and classes are connected to the job and eligible to be reimbursed.
  • What is the process for enrollment? In most situations, the employer’s tuition reimbursement program must be notified and the employee must sign up here before he or she can enroll at the preferred university, college or institution for higher learning.

 Third Step: Maximize Your Benefits

Once the employee has gained approval for the educational plan from the employer, the next step is to maximize every dollar obtained from the benefit.  Here are some ways to do so:

  1. Take classes and courses that are eligible for credit. Upgrade skills and obtain college credit that is eligible to transfer into the accredited degree programs.
  2. Consider options of low-cost. Employees must research on the lowest possible cost for their education so when combined with the benefits that they would get from their employer, then they would completely have a full year of college at a minimum amount.
  3. Reduce the risk. If the employee is unsure regarding the feasibility of returning to school, then he or she must take a free trial and gauge whether they can fit school in their work life. Starting college when you are already working full time can mitigate risks when it comes to time and money.

When making the most out of the employer paid courses program, the employee must always pay close attention to what is written. According to IRS, there are services that can use educational benefits. There are also some benefits that cannot do this. Employers may also have additional requirements that is not written on the fine print.
Fourth Step: Measuring Progress


Whether the employee is pursuing the undergraduate or a graduate degree, then he or she must evaluate the direction that the employee will head. The employee may find that he or she is ready to lead new projects in the work place and even apply the skills that have been acquired in the further studies program. After training, these employees may even be considered for promotions.
Making the Most of Employer Paid Courses


If the employer offers paid courses through a tuition assistance reimbursement program, then the employees who wish to pursue further studies are definitely fortunate. They have to make sure that they make the most out of this once in a life time opportunity so that they can invest in themselves. They shouldn’t take this granted as well.

Thinking About Becoming An Enrolled Agent ?

Mar 25, 2017 Posted by Sanjiv No Comments

 Do you want to be called a tax expert? Is it your goal to represent taxpayers before the IRS? Do you desire to be respected as a professional?  If so, you should work towards becoming an enrolled agent or EA.

Enrolled agents are specialists who represent the cream of the crop when it comes to taxation. They are the only federally recognized tax practitioners who can represent taxpayers before the Internal Revenue Service.

EAs and CPAs can help taxpayers facing the various tax problems:

  • Tax evasion
  • Tax fraud
  • Tax debt
  • Failure to file/pay tax penalties
  • IRS audit
  • Tax liens
  • Tax levies
  • Unfiled tax returns
  • Appeals
  • Collection issues

There are only less than 50,000 practicing EAs in the United States, according to the National Association of Enrolled Agents (NAEA).

The relatively small number of practicing enrolled agents in the US can be attributed to the expertise necessary to become one, as well as the stringent requirements for maintaining the license.

While it isn’t easy to become an enrolled agent, the rewards are more than worth it, so to speak.  Enrolled agents are highly in demand. They are needed by law and accounting firms.  These professionals can also find employment in banks and investment firms. Some pros also choose to put up their own private practice.

How to Become an Enrolled Agent

 Unlike other professional designations, there is no educational requirement for a person wanting to become an enrolled agent.

However, you must prove your knowledge on tax related matters by either passing the EA exam or working with the IRS for at least five years.

The EA exam is also called the Special Enrollment exam. It consists of three parts, with each one testing your knowledge on taxation.

The first part concerns individual taxpayers, covering sections on income and assets, deduction and credits, taxpayer information, taxation and advice, and returns for individuals.

The second part focuses on business entities with sections on businesses, specialized returns and tax payers, and business financial information. It is widely considered by EAs as the toughest section in the exam.

The third part focuses on representation, practice, and procedure.

Aside from passing the test, you will be subjected to a thorough investigation conducted by the IRS.

Maintaining Certification 

If you successfully passed the exam, you will be federally recognized as an enrolled agent. However, you will need to do the following to maintain your certification:

  1. Renew your Preparer Tax Identification Number (PTIN) annually.
  2. Renew your status as an EA every three years
  3. Undergo 72 hours of continuing education (CE) every three years. There’s a minimum requirement of 16 hours of CE per year, with at least two hours on ethics.  The need to undergo at least two hours of ethics training annually is in line with the Department of Treasury’s Circular 230.

 Joining Professional Organizations

 There are numerous professional organizations of enrolled agents. The NAEA is perhaps the biggest and most prestigious of them.

The Washington, DC-based organization aims to promote the highest level of professionalism, skills, and knowledge among its members. It is also a staunch advocate of taxpayer rights.

Established in 1972 as an offshoot of the Chicago-based National Association of Enrolled Federal Tax Accountants, the NAEA has grown into a large organization with more than 11,000 members.

Those members are demanded to take 30 hours of CE every calendar year, or 14 hours more than the 16 hours set by the IRS. They are then required to report the number of hours of CE they’ve garnered in the past year for renewal of their membership in the upcoming year.

The NAEA lets its members earn missing CE hours in the next calendar year to make up for the less than 30 hours that they accumulated in the previous year.

NAEA Membership Benefits

 While there are other professional groups of enrolled agents, the NAEA is widely considered to be the most prestigious in the country. Aside from completing annual continuing education that surpasses the requirements of the IRS, NAEA members are known to abide by a code of ethics. They also conduct themselves in a very professional manner.

Once you become an enrolled agent, you should aim to join the NAEA. Becoming a member of this organization opens the door to numerous professional benefits such as:

  1. Continuing education. Members of NAEA can participate in seminars, conferences, and conventions that can update their skills and knowledge, and set them up for success. Some of the more common CE topics include ethics, tax preparation, accounting, advanced IRS summons, among others.
  1. Participation in year-long events. NAEA conducts seminars, conventions, and meetings during the entire year. These events provide networking and educational opportunities to its members.

A key event in the NAEA calendar is the NAEA national conference. This is the only annual educational event in the country designed particularly for Circular 230 practitioners looking to focus on client representation before the IRS. The event is anchored by the National Tax Practice Institute.

  1. Enhanced reputation. NAEA works to spread the word about the benefits of hiring an enrolled agent. It taps both traditional media such as print and broadcast and social media to effectively increase the public’s knowledge about enrolled agents, and thereby enhance the potential value of EA to taxpayers. Simply put, the organization strives to make the taxpaying public more appreciative of the value of enrolled agents.
  1. Information sharing. The NAEA offers a tax knowledge base where members can look for answers to some of the more frequently asked questions of tax practitioners.
  1. Marketing tools and membership discounts. The organization offers discounts for office supplies and software that their members can use in their respective offices.

Participating in NAEA Courses

 The NAEA as well as its state affiliates are known to host numerous continuing education (CE) courses. These courses are held all year-round and provide an opportunity for current EAs to hone their skills and keep themselves updated on the latest taxation issues.

Should you become an EA and eventually a member of the NAEA, you can browse the organization’s website, to find and apply for an organization-sanctioned course.

The website features the “Continuing Education” section where you and other EAs associated with the group can learn more about the requirements for continuing education credits.

There’s also the “Calendar” section in the website where NAEA events for the entire year are posted.  The events range from quarterly meetings, annual conventions, and seminars. Attending these events not only provide enrolled agents with the opportunity to earn CE credits, but also get some relaxation in a world-class resort.

For 2017, some of the cities where NAEA courses are scheduled to be held are Orlando, Las Vegas, Denver, and Reno.

Enrolled agents, thus, can improve their skills and knowledge, maintain their certification, and renew their NAEA membership while getting treated to a few days of leisure and vacation.

From a professional standpoint, NAEA courses also provide enrolled agents with the opportunity to network with some of the most dedicated tax professionals and learn from accomplished  tax authorities in the country.

NAEA and its state affiliates, in fact, offer its courses even to non-members.  There are seminars which are open to enrolled agents who are not members of the NAEA and its state affiliates. Signing up for a NAEA course may also benefits like complimentary membership, special member discounts, and access to special publications.

It is also possible to get discounts if a group of enrolled agents participates in a NAEA course. The NAEA and its state affiliates usually give discounts to groups of three or more colleagues who are joining a seminar, convention, or conference.

Enrolled agents can also attend one or two days of multiple-day seminars. The NAEA offers one-day only rates for most of its courses, meaning that EAs don’t have to attend the entire course.

The easiest way to register to any NAEA course is through the Internet. The NAEA website, as well as those of NAEA’s state affiliates, usually have downloadable PDF registration forms which enrolled agents can fill out to signify their participation in a particular course.

How to Save in NAEA Courses Participation

 Truth to be told, participation fees in NAEA courses and events aren’t cheap. The cost of participating in a continuing education course can run to hundreds of dollars. The cost may also be affected by other factors such as the location as well as the number of days of the event.

Yet enrolled agents can deduct the costs of their participation in NAEA courses in their next tax returns. After all, these are considered travel expenses which are defined by the IRS as common and accepted in a trade or business.

Enrolled agents can claim most of the expenses they incur while attending a NAEA organized event or conference. They can write off registration costs, lodging expenses, 50 percent of their meals, and incidental expenses.

Communication-related expenses during a NAEA convention, such as business calls and fax machine fees, may also be written off by enrolled agents. The same goes for other ordinary and necessary expenses related to the business travel like dry cleaning and laundry as well as tips paid for any expenses during the convention.

Transportation expenses can also be written off by enrolled agents who participate in a NAEA course. These include airfare, bus fare, or taxi fare between the enrolled agent’s home and the location of the event.

Since most NAEA events are held in the United States, enrolled agents should have no problems claiming the expenses they incurred in participating in a NAEA continuing education course. However, it is worth mentioning that even conventions held outside the United States may be deducted as a legitimate travel expense.

These include countries such as Aruba, Bermuda, Bahamas, Dominica, Dominican Republic, Costa Rica, Republic of Palau, Panama, Trinidad & Tobago, Jamaica, and Honduras, among others.

Of course, enrolled agents know very well that there are also other factors to be considered in justifying the location of a convention. These include, among others, the residence of the participants, purpose and activities of the convention, and locations of previous events.

Claiming travel expenses in the next tax return isn’t the only way for enrolled agents to save the next time they participate in a NAEA course. They can also seek the assistance of professional EA groups. There are numerous organizations of EAs – and not just the NAEA– that offer scholarship programs to  both current and aspiring enrolled agents.

For example, the California Society of Enrolled Agents offers scholarship to California residents wishing to pursue accounting, finance, and other courses in preparation for the special enrollment preparation.

It also offers scholarship to current EAs in California who wish to take up courses like Tax Court in their desire to broaden their knowledge in the field of taxation.

The NAEA, meanwhile, has its own scholarship program funded by its members. This grant covers the registration expenses of educational programs offered at NAEA conferences.

Joining Online Courses

Enrolled agents may also join online courses or webinars offered by the NAEA.  Online courses are a lot cheaper than seminars, conventions, and other continuing education classes offered by the organization.

Moreover, these courses are suited for enrolled agents who don’t have the time to attend seminars or meetings organized by the NAEA. Participants of online courses can also earn continuing education credits.

There is also a lot of variety in the topics discussed in online courses. Some may be aimed at enhancing the knowledge and skills of enrolled agents such as seminars on tax update, while others may be focused on enabling EAs to improve their practice such as using social media to reach out to more potential customers.

There are a lot of career opportunities awaiting enrolled agents in the United States. Organizations particularly the NAEA are more than willing to help professional growth of EAs. One way to  achieve this is the offering of various NAEA courses such as seminars, conventions, and meetings.  Enrolled agents should be pragmatic enough to grab the opportunity and participate in NAEA courses, whether held in or outside the US.

Hire Your Children To Save Taxes

Jan 19, 2017 Posted by Sanjiv No Comments

Child labor is a subject that has a negative connotation in our society. For most people, it means depriving children of their childhood. It means forcing them to work when they should be at home watching TV, or playing in the fields.

But it is a different matter altogether if the child is employed by his or her parent’s company.

If you have a small business and you have children aged below 18 years old, it is highly recommended that you hire them as employees. It can be a very fulfilling experience to them. It can hasten their growth, develop a sense of pride and self-worth, and teach them to be more responsible.

Moreover, it can save your company thousands of dollars in taxes. It’s like hitting two birds with one stone—your children can be productive during their spare time and you andyour company can get to save a lot of money.

Hiring teen and young adults in a family owned business benefits both parents and the young ones. Parents get to save more as their businesses have lesser tax burden. Children, on the other hand, can be productive and get some extra money for their extracurricular and summertime activities.

Tax Benefits

There are several ways for your company to benefit from hiring your children as workers:

  1. The child’s salary is free from taxes.

You might know that the first $6,300 of income in a fiscal year is free from federal taxes. This is called the Standard Deduction. So if you hire a child as an employee of your firm, you’re basically keeping that amount in the family. Hire someone else and that $6,300 is taken out of you.

That money coming from your own pocket can be used by your son or daughter to buy a car, or go on a vacation. Even better, he can use it to support himself or his college education.

  1. The child’s salary will be tax deductible.

Let’s say that you are hiring your child with an annual pay of $6,300.  You can declare that amount as tax deductible from your business income.  The first $6,300 earned by a child working in his/her parent’s firm is not subject to tax. Yes, this means that your child’s earning will not only be subject to federal income tax tax but also state tax, FICA, or Medicare.

You, as the business owner, meanwhile, can declare that amount as fully deductible. This means that you will get a tax relief based on your child’s salary as an employee of your business.

For instance, your business is in the 35 percent tax bracket. You hire your 14-year old son to work in your office and help you with the filing of documents, or working  with the spreadsheets. For the year, he earns $6,300 in wages. He must also has no other sources of income.

You, as the business owner, stand to save $2,205 since the full amount of his wages will be deductible as compensation.

  1. No FICA taxes.

As mentioned earlier, your child’s salary isn’t subject to FICA tax. This means your firm won’t have to pay FICA taxes on your child’s wages.

However, there are certain requirements for your child’s salary to be exempt from this kind of tax:

  1. Your business is a sole proprietorship
  2. It is a husband-wife partnership
  3. It is a husband-wife LLC considered as husband-wife partnership for tax purposes
  4. It is a single member LLC treated as sole proprietorship for tax purposes

It should be noted that your child’s salary is not exempt from FICA taxes if your business is a corporation. FICA tax exemption is also not applied if the business is a partnership, or one or more partners are not parents of the child.

  1. Setting up retirement savings plan.

What most people don’t realize is that children under 18 can contribute to their own individual retirement account (IRA). This can be a great way for them to get a head start as far as saving and investing money is concerned.

Your child can contribute up to $5,500 to a traditional IRA. He can subtract the amount from their income for tax purposes. However, your child can’t make more contribution to what he earned in a year. So if he earned $5,000 in a year, the maximum IRA contribution he can make is $5,000.

  1. Shifting a parent’s higher taxed income to a child.

Since your child can save by a) having his income exempt from taxes and b) having the option to set up IRA on the income, you can then shift your higher taxed income to him.

Going back to our examples, your son makes $6,300 and then adds $5500 as a contribution to an IRA. Thus he has $11,800 shielded from taxes, and your business can write off that amount as a legit business expense that can reduce your gross income.

That’s the maximum amount that your child can make in a year sans tax. If you give him a higher pay than $6,300 in a year, the next $9,275 will only be taxed at a rate of 10%.

Thus, your son stands to have a tax of just $927.50 for the year on aggregate earnings of $21,075.

You’ll be wise enough to include that amount in your own income as you can incur a tax liability of $10,600. You can save up to $9,672 in taxes by doing so.


There are several things that you should know if you are to hire your kids as employees. Knowing these guidelines should keep the IRS from disallowing your company from claiming said tax exemptions:

  1. He/she must be a real employee.

Your children should be hired as bona fide employees. This means that they have work that is helpful and appropriate for your business. Typical jobs for children include routine office work such as typing jobs, stuffing envelopes, cleaning the office, answering phones, or making deliveries.  Tech-savvy teenagers can help in marketing a company through social media. Or they can help in maintaining the spreadsheets of the firm.

They can’t be hired for jobs that have no connection with your business, like mowing your lawn at home. Suffice to say, children shouldn’t be asked to do household chores and get compensated for it.

Since your child is considered as a real employee, he or she should fill out their timesheets. It is also recommended that they sign a written employment agreement that specifies the duties and work hours of the employee.

  1. The work must be age-appropriate.

The work assigned to your child should be age-appropriate. There’s a chance that a 8 or 9 -year old child can help in some tasks in the office like stuffing envelopes or even making deliveries. But it will be difficult for the IRS to believe that a child aged below that age can perform any useful work for your firm. Employing a 6 or 7 year old for photocopying work or filing can put you in trouble with the IRS.

It’s also a no-no for children aged 16 years and below to work in a dangerous industry. Hence if your business is heavy equipment contracting, you can’t assign your 15-year old son to the field.

  1. Child should comply with legal requirements.

Since the child is considered a real employee, he or she should comply with the same legal requirements as you would when you hire a stranger. Thus, he will have to apply for a Social Security Number and fill out IRS Form W-4. He or she should also complete Form I-9 of the U.S. Citizenship and Immigration Services.

  1. Compensation must be reasonable.

Simply put, your child’s salary should be consistent with market rates.

Many shrewd business owners would try to give their children a big compensation because it can give them more tax savings in the long run. It would enable them to shift much of their income to their kids who are likely to be in a much lower income tax bracket. But you shouldn’t attempt to do this as the IRS would eventually find out about this if they do an audit.

In paying your children, you should give them a reasonable compensation. The total compensation must include the salary plus all the fringe benefits such as health insurance and medical expense reimbursements.

To get an idea on how much you are to pay your child, you can call an employment agency to see the typical compensation for the type of work that your youngster will do in your business.

  1. Pay in cash.

It’s up to you to decide how much you would pay your son for the services he renders to your business. Just make sure that you pay him in cash if you don’t want to get in trouble with the IRS. Compensation in the form of foods and other things won’t cut it.

There was this case of a tax preparer in Washington who also owned an employment agency. She employed her three children aged 8, 11, and 15. The kids earned a combined $15,000 in two fiscal years for doing tasks like filing and stuffing envelopes. Their mom deducted their salary as business expenses. The IRS disallowed it.

Why?  It’s because the children’s wages was used by their mom to pay for their food, often pizza.  Also, she used the money to pay for their tutor’s fees.

While the mother argued that it was her children who asked her to spend their earnings that way, the Tax Court ruled in favor of the IRS. It noted that it is her parental obligation to provide food and support her children’s education, and the wages of the kids should not be used for these purposes.

  1. Be diligent about documentation and book keeping.

One way to ensure that this arrangement won’t backfire on you is to be diligent about the documentation and book keeping. Doing so would convince federal or state auditor that you reasonably employed your children for your business, and that your tax claims are legit.

Aside from getting all the state permits necessary to employ children, your company’s recordkeeping and payroll tax accounting must also be fool-proof. The payroll for your kids must be done in the same way that an employer would do the payroll for another employee. Paying a fair market rate, as mentioned earlier, would also satisfy the auditors.

  1. Your child should also help your business.

Finally, business owners should not only be concerned with the tax savings they’ll get when they hire their children. They must also be sure that their children can do the tasks assigned to them. The children should be able to help the business, and not just for the tax savings that the firm gets because of them.

Sure, they’ll reduce taxes by employing a child. But if the child doesn’t do a good job at work, then it would probably best to hire another individual to do the job for the firm.

Let’s say that a father hires his 15-year old son to help typing documents in his office. He’s able to save $3,000 in taxes for doing so. But if his son just lounges around the office and doing nothing, then the father didn’t really get the best out of this arrangement. It would have been better for him to hire another person who can actually help his company.

With the tax savings that small business owners can get, it really makes a lot of sense for them to hire their children during summer or even on weekends. The business owner not only stands to save on taxes, but also instils in his/her children values like hard work and responsibility.

If you decide to do this, you should ensure that you do things right. Get your children the necessary permits. Do your accounting cleanly. And give them real wages—not slices of pizza. If you do things correctly, you can save thousands of dollars in taxes while training your children who could be your successor one day.

tax shelter for business

Tax Shelter Ideas

Feb 23, 2015 Posted by Sanjiv No Comments

Tax Shelter Ideas for Small Business Owners

In general, a tax shelter refers to a program which allows business enterprises or individuals to either defer or reduce payment of income taxes. Such programs may not suit everyone and legitimate ones do involve some level of risk, which not all investors are comfortable to undertake. However, with the correct information, the process of taking advantage of these shelters becomes less involving.

The Internal Revenue Service (IRS) applies huge discretion when applying tax shelters as this area has traditionally been prone to abusive practices by both individuals and businesses.

How IRS Views Tax Shelters

Tax shelters are defined by the IRS as investments that normally requires making substantial contributions which oftentimes are associated with commensurate risk levels. For an individual, tax shelter implies an investment which involves liability incurred within the short-term, with hopes of making appreciable gains across the long term.

For instance, if someone invested in property situated within a low-income environment, depreciation benefits of such property would be termed as legitimate tax shelter.

The losses or tax deductions which a person can take on potential tax shelter gets limited to total worth of investment or amount at risk. The amount viewed as being “at risk” for example might get limited to:

  • Adjusted basis of property
  • Cash invested
  • Loans taken for which someone bears personal responsibility to repay

Treatment of Losses

It is vital gaining the understanding that business activity losses or credits are easily considered passive activity losses or credits. These may only be utilized for offsetting income from different passive activities. You cannot utilize them for offsetting income sources like wages, dividends or interest. Passive losses generated in excess from any tax shelter can be carried forward, or till the investor sells off the asset.

Take care of tax shelters which get marketed with promises of write-offs being more significant that the invested amount. IRS considers such as Abusive Tax Shelters. People generally make investments with hopes of generating huge amounts of profits. Legitimate shelters involve a certain level of risk, cut down fairly on taxes and generate income. If IRS takes note of someone operating an abusive scheme, the individual is then required to pay tax owed along with penalties and interest.

Legitimate Tax Shelters

It is vital knowing how to identify a questionable program. You may achieve this goal by adhering to three primary rules in order to distinguish between legal and illegal tax shelters as follows:

  • If the primary purpose of a given transaction is lowering taxes and not offering other economic gains to parties involved, consider such a business deal unethical or questionable.
  • Transactions involving exchange of goods, assets or even services at prices which lie well below the fair market value should be viewed with suspicion.
  • If the interest rate paid to a different party is unusually high or low, with the sole intention being sheltering income from taxes, such an arrangement should be seen as unethical.

Tax Accrual Work-Papers

The IRS maintains a policy of requesting tax accrual along with other financial audit work-papers that relate to tax reserves. This applies to deferred tax liabilities and footnotes which disclose contingent tax liabilities that appear in audited financial statements.

Owning a legitimate auto repair business enables you take advantage of numerous tax deductions, which are unavailable to mere employees. This includes partial deductions to expenses incurred on housing, automobile, entertainment and meals as well as cell-phone expenditure.

While some expenses get deducted within a year, others get spread out over a number of years.

You can write off full cost of new furniture and computers within this year as per IRS Code Section 179. This might not be significant to a relatively new business that may not generate a lot of income within at first. A wiser strategy therefore might be deferring some portion of deductible expenditure to years in future, which accountants call “depreciation”.

You may deduct some portion of “start-up costs” if this year is your first in business. However, beyond a certain level you will require spreading the remainder of associated costs across your tax returns for the next several years. This practice is termed “amortization” in accounting.

Remember not to overlook the expenses below when filing tax returns:

  • Legal and Accounting Fees
  • Website/ Advertising costs
  • Association Dues
  • Truck and Auto Expense
  • Computer Expense
  • Bank Charges
  • Subscriptions and Dues
  • Training and Education
  • Furniture and Equipment
  • Home Office Expense
  • Gifts
  • Insurance
  • Permits and Licenses
  • Postage and Delivery
  • Meals and Entertainment
  • Printing
  • Office Administration Fees and Rent
  • Maintenance and Repairs
  • Start Up Costs
  • Retirement Savings
  • Materials and Supplies
  • Telephone
  • Travel
  • Taxes (Payroll Tax, Property Tax etc)

Knowing the tax code is important for anyone who owns a business and IRS Publication 463 spells out on available business tax credits relating to travel, entertainment, gift as well as car expenses. Think about hiring services of a tax professional to aid in preparing tax returns for your auto repair business.

Major Student Loan Defaults : Another Financial Disaster

Mar 3, 2012 Posted by Sanjiv No Comments

A nationwide survey of US bankruptcy attorneys has revealed that four out of five more clients have been found to be struggling with student loans. It has been noticed that the number of student loan debtors have increased drastically over the last few years. About 25% of 860 attorneys found that their number of student loan cases has increased by more than 50 percent as reported by the National Association of the Consumer Bankruptcy Attorneys. The picture currently is such that it looks a lot like the nation is about to face a huge catastrophic financial meltdown.

This disturbing trend has raised an alarm in the nation. Most of the bankruptcy attorneys interviewed have reported that very student loan debtors have a chance to get rid of their loan owing to hardship. Most of the attorneys are finding it difficult to separately classify student loan debts to debtors.  Some attorneys who were surveyed say that some cases are almost 15 years old and are still being pursued. This spells for a huge loss for both the lenders and the debtors.

Student Loan Solution By Sanjiv Gupta CPA

After an array of surveys conducted it has been found that it is not only the school goers who are faced with this problem but also college students. College tuition fees are also spiraling way out of limit which have resulted in more students taking loans to pay college fees. With so many college students being burdened under debt the chances of going bankrupt is huge. Of the borrowers who started their repayment schedule on the year of graduation, almost 25 percent of them have failed to return the loan later and 15 percent have dropped out. Another newspaper group says that seniors who graduated with loans in 2010 owe a tax amount of $25,250 which is a 5 percent boost from the previous year.  With the growing unemployment situation they failed to pay back the loans.

Another research into this situation has revealed that it is not just the students who are shouldering the burdens but also the parents. Guardians who cosigned loans to help pay for their children’s education are also facing trouble. Loans to parents have seen a major jump to 75 percent since the year 2005-2006. Parents share an average of $34,000 in student loan the study reports. This figure will eventually rise to $50,000 over a standard 10 year loan repayment period. This makes the situation bleaker and the future unstable!

The study also reports that due to the current unemployment situation people in the age group 35-49 are found to be borrowing loans more often. This is so as many out of work Americans are opting for retraining and new educational degrees in order to bag a job. The report thus warns that this blossoming student debt brings in the possibility of a major economic threat to America.

Are you planning on taking a Student Loan ? Have you consulted with your CPA ?