In this Edition
April 4, 2023
Offering Summer Job Opportunities? Double-Check Child Labor Laws
PODCAST: Overall Tax Planning Advice for Individuals
Thinking About Converting Your Home Into a Rental Property?
Tax Calendar
Choosing an Entity for Your Business? How About an S Corporation?
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Offering Summer Job Opportunities? Double-Check Child Labor Laws |
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Summertime isn’t far off. If you typically hire minors for summer jobs, it’s a good idea to brush up on child labor laws before you hire.
In a March 2022 News Release (No. 22-546-DEN), the U.S. Department of Labor’s Wage and Hour Division (WHD) announced that the department is stepping up efforts to identify child labor violations in the Salt Lake City area. The news serves as a good reminder to companies nationwide about the many details involved in employing children.
Finer Points of the FLSA
The Labor Department is the sole federal agency that oversees child labor and child labor laws. The most sweeping federal law that governs the employment and abuse of child workers is the Fair Labor Standards Act (FLSA), enforced by the WHD.
The law restricts the hours that children under age 16 can work and lists hazardous occupations as too dangerous for young workers to perform. Examples include the operation of power-driven woodworking machines and jobs that involve exposure to radioactive substances and ionizing radiators.
The FLSA allows 14- and 15-year-old children to work outside of school hours in various manufacturing, non-mining and non-hazardous jobs under certain conditions. Permissible work hours for this age group are:
- Three hours on school days,
- 18 hours in a school week,
- Eight hours on non-school days,
- 40 hours in a non-school week, and
- Between 7 a.m. and 7 p.m. (from June 1 through Labor Day, nighttime work hours are extended to 9 p.m.).
Just One Example
The WHD news release reveals the results of three specific investigations. In them, the government found that employers had allowed minors to operate dangerous machinery and committed other violations.
For example, one restaurant allowed minors to operate or assist in operating a trash compactor and a manual fryer, which are prohibited tasks for 14- and 15-year-old workers. The employer also allowed minors to work:
- More than three hours on a school day,
- More than 18 hours in a school week,
- Past 7 p.m. from Labor Day through May 31,
- Past 9 p.m. from June 1 through Labor Day, and
- More than eight hours on a non-school day.
The WHD assessed the business $17,159 in civil money penalties.
Letter of the Law
In the news release, WHD Director Kevin Hunt states, “Early employment opportunities are meant to be valuable and safe learning experiences for young people and should never put them at risk of harm. Employers who fail to keep minor-aged workers safe and follow child labor regulations may struggle to find the young people they need to operate their businesses.” Employers may also face substantial financial penalties if they fail to follow the letter of the law.
Consult an employment attorney for further details on the FLSA. We can help you measure and manage your hiring and payroll costs and tax responsibilities.
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Aaron Boettcher, CPA
D 920.337.4523
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Overall Tax Planning Advice for Individuals
In this episode, Jeff Dvorachek, a tax partner, shares ways you can increase 401k, IRA, and HSA contributions to save on next year's taxes.
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Thinking About Converting Your Home Into a Rental Property? |
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In some cases, homeowners move to new residences, but keep their present homes and rent them out. If you’re thinking of doing this, you’re probably aware of the financial risks and rewards. However, you also should know that renting out your home carries potential tax benefits and pitfalls.
You’re generally treated as a regular real estate landlord once you begin renting your home. That means you must report rental income on your tax return, but you’re also entitled to offsetting deductions for the money you spend on utilities, operating expenses, incidental repairs and maintenance (for example, fixing a leak in the roof). Additionally, you can claim depreciation deductions for the home. You may be able to fully offset rental income with otherwise allowable landlord deductions.
Passive Activity Rules
However, under the passive activity loss (PAL) rules, you may not be able to currently deduct the rent-related deductions that exceed your rental income unless an exception applies. Under the most widely applicable exception, the PAL rules won’t affect your converted property for a tax year in which your adjusted gross income doesn’t exceed $100,000, you actively participate in running the home-rental business, and your losses from all rental real estate activities in which you actively participate don’t exceed $25,000.
You should also be aware that potential tax pitfalls may arise from renting your residence. Unless your rentals are strictly temporary and are made necessary by adverse market conditions, you could forfeit an important tax break for home sellers if you finally sell the home at a profit. In general, you can escape tax on up to $250,000 ($500,000 for married couples filing jointly) of gain on the sale of your principal home. However, this tax-free treatment is conditioned on your having used the residence as your principal residence for at least two of the five years preceding the sale. So, renting your home out for an extended time could jeopardize a big tax break.
What if you don’t rent out your home long enough to jeopardize your principal residence exclusion? The tax break you would have gotten on the sale (the $250,000/$500,000 exclusion) won’t apply to the extent of any depreciation allowable with respect to the rental or business use of the home for periods after May 6, 1997. It also won’t apply to any gain allocable to a period of nonqualified use (any period during which the property isn’t used as the principal residence for you, your spouse or former spouse) after December 31, 2008. A maximum tax rate of 25% will apply to this gain (attributable to recapture of depreciation deductions).
Selling at a Loss
Some homeowners who bought at the height of the market may ultimately sell at a loss. In such situations, the loss is available for tax purposes only if the owner can establish that the home was in fact converted permanently into income-producing property. Here, a longer lease period helps an owner. However, if you’re in this situation, be aware that you may not wind up with much of a loss for tax purposes. That's because the beginning basis (the cost for tax purposes) when the home is first converted to a rental property is equal to the lesser of actual cost or the property’s fair market value when it’s converted to rental property. So, if a home was bought for $300,000, converted to a rental when it was worth $250,000, and ultimately sold for $225,000, the loss would be only $25,000. Keep in mind that depreciation deductions while it was a rental property also reduce basis.
This is a complex decision. Contact us for help reviewing your situation.
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Chris Felton, CPA
D 262.404.2114
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Tax Tip Tuesday - Video Short |
Last Minute Tax Saving Deductions - Health Savings Account
This week, Samantha Meiners, Justin Steinbecker, and Aaron Bahr explain how you can use a Health Savings Account for last-minute tax-saving deductions this tax season.
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Besides being the last day for individuals to file (or extend) their 2022 personal returns and pay any tax due, first-quarter 2023 estimated tax payments for individuals, trusts, and calendar-year corporations are due today (the states of Maine and Massachusetts have an April 19th federal deadline). Also due are 2022 returns for trusts and calendar-year estates and C corporations, FinCEN Form 114 (“Report of Foreign Bank and Financial Accounts” [but an automatic extension applies to October 16]), plus any final contributions that individuals plan to make to IRAs or education savings accounts for 2022. SEP and profit-sharing plan contributions are also due today if the return is not being extended. |
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Employers must file Form 941 for the first quarter (May 10 if all taxes are deposited in full and on time). Also, employers must deposit FUTA taxes owed through March if the liability is more than $500. |
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Calendar-year exempt organizations must file (or extend) their 2022 Forms 990, 990-EZ or 990-PF returns. |
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Second-quarter 2023 estimated tax payments are due for individuals, calendar-year corporations, estates and trusts. |
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Choosing an Entity for Your Business? How About an S Corporation? |
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If you’re starting a business with some partners and wondering what type of entity to form, an S corporation may be the most suitable form of business for your new venture. Here are some of the reasons why.
A big benefit of an S corporation over a partnership is that as S corporation shareholders, you won’t be personally liable for corporate debts. In order to receive this protection, it’s important that:
- The corporation be adequately financed
- The existence of the corporation as a separate entity be maintained
- Various formalities required by your state be observed (for example, filing articles of incorporation, adopting by-laws, electing a board of directors and holding organizational meetings).
Dealing With Losses
If you expect that the business will incur losses in its early years, an S corporation is preferable to a C corporation from a tax standpoint. Shareholders in a C corporation generally get no tax benefit from such losses. In contrast, as S corporation shareholders, each of you can deduct your percentage share of losses on your personal tax return to the extent of your basis in the stock and in any loans you made to the entity. Losses that can’t be deducted because they exceed your basis are carried forward and can be deducted by you in the future when there’s sufficient basis.
Once the S corporation begins to earn profits, the income will be taxed directly to you whether or not it’s distributed. It will be reported on your individual tax return and be aggregated with income from other sources. Your share of the S corporation’s income won’t be subject to self-employment tax, but your wages will be subject to Social Security taxes. To the extent the income is passed through to you as qualified business income (QBI), you’ll be eligible to take the 20% pass-through deduction, subject to various limitations.
Note: Unless Congress acts to extend it, the QBI deduction is scheduled to expire after 2025.
If you’re planning to provide fringe benefits such as health and life insurance, you should be aware that the costs of providing such benefits to a more than 2% shareholder are deductible by the entity but are taxable to the recipient.
Protecting S Status
Also be aware that the S corporation could inadvertently lose its S status if you or your partners transfer stock to an ineligible shareholder such as another corporation, a partnership or a nonresident alien. If the S election was terminated, the corporation would become a taxable entity. You would not be able to deduct any losses and earnings could be subject to double taxation — once at the corporate level and again when distributed to you. In order to protect against this risk, it’s a good idea for each shareholder to sign an agreement promising not to make any transfers that would jeopardize the S election.
Before finalizing your choice of entity, consult with us. We can answer any questions you have and assist in launching your new venture.
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Art Raak, CPA
D 507.252.6670
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Hawkins Ash CPAs Opens 2024 Internship Selection |
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At Hawkins Ash CPAs, we’re passionate about fostering the next generation of public accounting professionals. Accounting college students chosen to participate in our Internship Program receive the full public accounting experience as they work side-by-side with senior staff to provide critical, timely tax and audit services to clients. Our interns receive the training and support needed to get the most out of their time. They enjoy in-office lunches and snacks and other fun, team-building activities.
In many cases, interns who enjoy their internship and want to pursue a career in public accounting are offered the opportunity to return for the next year's internship program or a full-time position as an associate.
Hawkins Ash CPAs is a Top 200 Firm in the nation with ten offices in Wisconsin and Minnesota. We are proud to offer local tax, audit, and accounting services to clients and compete on a national level. We offer big-city career options and experiences close to home. Our offices are in small to mid-sized safe Midwest towns. Our flexible work schedules and growth opportunities allow our team to develop personally and professionally through all stages of life.
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Student On-Campus Events
Our recruiter and accounting professionals will be attending the following college career fairs and on-campus events. At these events, students will grow their network and explore career opportunities. They will be available to answer any questions and help guide students through the application and interview process.
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April 12: Mock Interview and Resume Review Night |
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April 19: Small-Firm Night |
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April 26: Scholarship Awards Night: Meet & Greet |
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Heather Notbohm
D 262.404.2194
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More Resources from CPA-HQ |
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Changes in Sec. 174 Make It a Good Time to Review the R&E Strategy of Your Business
A tax law that passed in 2017 makes a major change to Section 174 research and experimental (R&E) expenses. Here’s what it might mean for your 2022 business tax return being filed this year.
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Protect the "Ordinary and Necessary" Advertising Expenses of Your Business
How does a business know if advertising and marketing expenses are “ordinary and necessary” so they can be deducted on its tax return? Here’s a look at the issue.
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Have a Foreign Account? File an FBAR
In an increasingly global society, many taxpayers hold foreign accounts. This article explains the rules regarding who must file a Report of Foreign Bank and Financial Accounts (FBAR) with the government.
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