If you’re in Washington State, the rules around wage garnishment work a little differently than in other states — and that can affect both how quickly collections hit and how much the IRS can take.

What Is Wage Garnishment?

Wage garnishment happens when the IRS sends a legal order to your employer requiring them to divert part of your paycheck to the IRS to pay your tax debt.

Unlike other creditors, the IRS doesn’t need to sue you to garnish wages. After sending the proper notices, they can move directly to collection.

How much they take doesn’t depend on a percentage, it’s based on a federal formula that protects only a small portion of your income. Most people feel the impact immediately.

How IRS Collections Escalate: From CP14 to Wage Garnishment

Here’s the typical sequence before the IRS can legally take your wages:

1. CP14: First Notice You Owe

You receive a balance-due notice. Nothing drastic happens yet.

2. Reminder Notices

The IRS sends additional letters showing your growing balance with added interest and penalties.

3. CP504: “Notice of Intent to Levy” (but limited)

This is the first real warning. It tells you:

• The IRS intends to levy
• They can seize state tax refunds
• They will escalate if you do nothing

Important: CP504 does not give the IRS the legal right to garnish wages or seize bank accounts yet. It’s more like: “We’re about to get serious.”

4. LT11 or Letter 1058: Final Notice of Intent to Levy & Notice of Your Right to a Hearing

This is the big one. Once you get an LT11 (or 1058), the IRS is giving you:

• Final notice before wage garnishment or bank levy
• 30 days to respond
• The right to request a Collection Due Process (CDP) hearing

If you do nothing, the IRS is now legally allowed to garnish wages, take funds from your bank account, and seize certain assets.

What Happens After the LT11?

If you don’t respond or set up a payment plan within 30 days, the IRS can:

• Garnish your paycheck
• Levy your bank account
• Take federal payments (e.g., Social Security, vendor payments)
• File a federal tax lien

Once garnishment starts, it continues until:

• The debt is fully paid
• You set up a resolution (installment agreement, hardship status, Offer in Compromise)
• You default on your payment plan

Washington State: What’s Different About Wage Garnishment?

Washington has its own garnishment protections for private creditors, but IRS collections work under federal rules and those rules override state limits.

Here’s what Washington residents should know:

1. IRS Garnishment Is Harsher Than Washington State Garnishment

For normal creditors in WA:

• Only 25% of disposable earnings can be garnished
• And you must be left with at least a minimum weekly amount

For the IRS:

• There is no flat percentage limit
• Instead, the IRS uses a federal exemption table and can take nearly everything above a small protected amount
• State protections do not shield your income from the IRS

This is why IRS garnishments are often financially devastating compared to regular creditor garnishments.

2. Washington Has No State Income Tax, But The IRS Can Still Take State Refunds

CP504 warns that the IRS can seize state tax refunds.

Washington doesn’t have state income tax, but the IRS can still take:

• Certain state-issued payments
• Business & occupation (B&O) tax refunds
• Excise tax credits
• Property tax credits (in limited cases)

Most WA residents don’t deal with state refunds, so CP504 sometimes feels less threatening, but don’t ignore it as it’s still a major warning sign.

3. Community Property Isn’t a Factor Here

Unlike places like California or Texas, Washington is a community property state, but federal IRS enforcement around wages typically targets the person who owes the tax. However:

• Joint bank accounts can be levied
• Joint refunds may be taken (injured spouse relief may help)
• Non-debtor spouse income is usually safe unless accounts are mixed

If you’re married and one spouse has tax debt, separating finances early can prevent messy levy situations.

4. Washington’s High Cost of Living Increases Hardship Eligibility

When requesting IRS hardship (Currently Not Collectible), the IRS uses national and local living cost standards.
Seattle-area housing, utilities, and transportation costs are significantly higher than average, meaning you may qualify for hardship more easily.

Many Washington clients successfully avoid garnishment by demonstrating that IRS collection would cause economic hardship.

How to Stop a Wage Garnishment Before It Starts

You must act before the levy hits your employer’s payroll department. Here are your options once you receive an LT11:

1. Request a CDP Hearing (strong protection)

Stops all collection until the case is reviewed.

2. Set Up an Installment Agreement

Even a modest payment plan stops wage garnishment.

3. Request Currently Not Collectible (Hardship) Status

If you can prove that you cannot afford to pay after covering living costs, the IRS will pause all collection.

4. Submit an Offer in Compromise

If you qualify, you may settle for less, but this takes time.

5. Have a Tax Professional Intervene

A representative can:

• Contact the IRS immediately
• Stop garnishment before it begins
• Negotiate repayment terms
• Request penalty relief
• Ensure you’re protected from enforcement

With a wage garnishment at stake, timing matters more than anything.

Washington Residents: What to Do Right Now if You Received CP504 or LT11

If you received a CP504:

• You still have time
• Contact the IRS or a professional
• A payment plan or IRS communication is often enough to pause escalation

If you received an LT11:

• You have 30 days
• The IRS can garnish wages after that
• Set up a plan or request a hearing immediately

If wage garnishment already started:

• It can be reversed
• A payment plan or hardship request often stops it
• A professional can usually get garnishments released faster

CP504 and LT11 aren’t just routine IRS letters, they’re the final steps before wage garnishment. For Washington residents, understanding how federal rules override state protections is crucial.

The earlier you act, the more options you have. Waiting until after garnishment begins will severely limit your paycheck and strain your financial life.

The post Wage Garnishment, CP504, and LT11: What Washington State Residents Need to Know Before the IRS Takes Action appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

Let’s explore what changes when you move from being a W2 employee to a 1099 contractor, the tax implications, and how common or risky this is in places like Washington.

What’s the Difference: W2 vs 1099

Tax Implications of Being a 1099 Contractor

Moving to 1099 status means several shifts in your financial setup:

1. Self-Employment Tax
   You’re responsible for both the employer and employee portions of FICA (Social Security + Medicare). That’s about 15.3% total on net business income, not just on gross. Under W2, your employer pays half.
2. Quarterly Estimated Taxes
   No one will withhold federal or state taxes automatically for you. Therefore, you’ll likely need to make estimated tax payments each quarter. Otherwise, penalties and interest could kick in.
3. Greater Deduction Opportunities
   Contractors can usually deduct many business-related costs that W-2 employees can’t. Think home office, supplies, business travel, certain meals, some health insurance (if you qualify), etc. These can help reduce taxable income—but you must document them carefully.
4. No Employer Benefits
   Things many people take for granted—employer-sponsored retirement matching, health insurance, unemployment insurance, paid leave—often go away. You either have to self-fund or arrange your own.
5. Recordkeeping and Accounting
   More critical as a 1099: invoices, receipts, mileage logs, home office allocation, etc. If audited, you’ll need good records proving business use, separate accounts, etc.
6. Variability and Risk
   Payment irregularity, lack of protections (job security, benefits), and sometimes more administrative overhead fall on you. Also, misclassification risks (if a company treats you like a W-2 employee but calls you a 1099) can lead to legal issues for both parties.

Washington State & Remote Work: What’s the Situation?

Washington doesn’t have a state income tax, which simplifies some parts of tax filing for both W-2 and 1099. But that doesn’t remove the complexity around payroll/contractor status.

Here are a few things particular to Washington:

• Misclassification is a real risk: Washington state law (including Dept. of Labor & Industries and Employment Security Department) has rules that can deem someone to be an employee even if they’re labeled a contractor or if the nature of the work matches more of a W2 relationship.
• Industries especially susceptible: gig economy, tech (remote work), transportation, construction are areas where contractors are common, but also where misclassification often occurs.
• Remote work complicates things: With remote work, many companies think “Oh, they’re remote so we’ll treat them like contractors.” That’s not enough under IRS or Washington law. What matters is control, degree of oversight, and how the relationship is structured. Remote doesn’t automatically equal 1099.
• Benefits of WA’s lack of state income tax are limited for contractors: you still have to handle unemployment insurance, state and federal payroll taxes, and potential business licensing if running as a sole proprietor or LLC.

What Life Looks Like After Switching from W2 to 1099

Here are real-life changes to expect (and plan for) if your job changes from W2 to 1099:

• You’ll get paid differently: no automatic withholdings. You’ll receive gross amounts and must allocate for your own taxes.
• Cash flow matters more: budget for slower periods, late payments, and quarterly tax due dates.
• You’ll probably need to build up reserves for taxes, health insurance, retirement, etc.
• Insurance, retirement, and benefits become your responsibility: unless the company provides contractor benefits, you usually have to self-manage.
• Greater flexibility; greater responsibility: more control over hours or approach, but also no guaranteed salary, stability, or set benefits.
• Documentation and contracts become more important: have strong written agreements, invoices, proof of expenses and business expenses.

Should You Agree to the Switch?

Here are some scenarios where going 1099 might make sense—and others where staying W-2 or insisting you be treated as a W-2 might be better:

When 1099 might be OK or even better:

• You’re doing project-based work, short-term assignments, or consulting.
• You have multiple clients, or expect you will.
• You have the financial discipline (or infrastructure) to manage taxes, benefits, and business expenses.
• You can deduct a lot of business expenses, so your taxable income is significantly reduced.

When you should push back or ask questions:

• The company wants you to follow a strict schedule, use their equipment, or be controlled like an employee, these are signs you should be W2.
• You want stability, benefits, and protections (residual, retirement, health, etc.).
• If misclassification is risky for your state (including penalties for both you and the employer).
• If you can’t or won’t manage the extra financial admin.

What to Do If You’re Unsure or Have Already Switched

• Get a second opinion from a tax pro or employment lawyer, preferably one versed in WA or your state’s laws.
• Review your contract and your actual working arrangement: hours, control, benefits, tools, etc. Do they look more like a W2?
• Estimate your tax burden carefully (including self-employment tax, quarterly payments, deductions) so you know what you’d owe.
• Ensure proper documentation (expense receipts, invoices, mileage, contracts) to protect yourself.
• Explore forming a business entity (LLC, S Corp) if that helps with taxes or liability—but be aware that it doesn’t automatically fix classification issues.

Switching from W2 to 1099 can offer more freedom and potential tax advantages, but also carries a lot more risk and responsibility. Washington State’s legal environment, especially with remote work, makes classification a nuanced issue, not something companies or contractors should take lightly.

If you’re considering such a switch (or it’s already happened), it’s worth sitting down with a trusted CPA or employment lawyer to map out the financial costs vs. benefits.

You deserve clarity, not just more paperwork or unexpected bills.

The post When Your Employer Switches You from W2 to 1099: What Changes, What to Watch Out For appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

Let’s clear things up and then talk about what small business owners can do to maximize their tax savings.

Tax Brackets Are Marginal, Not Flat

Here’s the key insight:
When you move into a higher bracket, only the income above the threshold gets taxed at that higher rate–which is an important distinction, it’s not all of your income.

For example, let’s say your taxable income is $50,000. Here’s how it breaks down under a simplified bracket system:

• The first $11,000 is taxed at 10%, which comes to $1,100.
• The next $33,725 (income from $11,001 to $44,725) is taxed at 12%, which equals $4,047.
• The remaining $5,275 (income from $44,726 to $50,000) is taxed at 22%, which adds up to $1,161.

When you add it all together, your total tax bill is $6,308.

Even though your income puts you into the 22% bracket, only a portion of your income is taxed at 22%. Your effective tax rate is closer to 12.6%.

Even though this taxpayer falls into the 12% bracket, their effective tax rate is closer to 11%, because the lower income portion is still taxed at the lower 10% rate.

This is why earning more money is always better; you never lose money by crossing into a new bracket.

Why This Matters for Small Business Owners

As a business owner, understanding marginal tax brackets can help you make smarter decisions. Here’s how:

1. Income Timing
If you expect a higher tax year ahead, you may want to accelerate expenses into the current year or defer income until the next year. This can help keep more income in lower brackets.

2. Deduction Stacking
Some deductions (like Section 179 or bonus depreciation for equipment purchases) can dramatically reduce your taxable income, possibly keeping you in a lower bracket. Strategic planning matters here.

3. Retirement Contributions
Contributing to retirement accounts like a SEP IRA, Solo 401k, or SIMPLE IRA can reduce taxable income today–potentially keeping you in a lower bracket while building long-term wealth.

4. Health Savings Accounts (HSAs)
If you qualify, HSA contributions lower taxable income and avoid FICA taxes if run through payroll. Again, these savings may keep more of your income taxed at lower rates.

5. Entity Structure Planning
Sometimes, the way your business is structured (LLC, S Corp, partnership) can influence how much of your income is subject to self-employment tax and how it flows through to your personal return. Done right, this can minimize bracket creep.

The Big Picture

Tax brackets aren’t a punishment. They’re a graduated system, designed so you only pay higher rates on the portion of income above each threshold.

For small business owners, this means you can:

• Confidently grow revenue without fear of “losing money to taxes.”
• Use deductions, retirement accounts, and income planning to manage which brackets you land in.
• Focus on net profitability rather than obsessing over the bracket label.

If you’ve just had the “aha!” moment that tax brackets don’t work the way you thought, you’re already ahead of many business owners. The next step is putting that knowledge into practice with proactive planning.

The post How Tax Brackets Actually Work (& How to Make Them Work for You) appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

What Is a 1099 Form?

A 1099 form is an IRS document used to report non-employee compensation and other types of income. For example, if your business hires independent contractors or freelancers, you may need to issue a Form 1099-NEC (Non-employee Compensation) to report payments of $600 or more during the year.

Other types of 1099s, like the 1099-MISC or 1099-K, are used for different purposes, such as reporting rents, royalties, or third-party payments.

Do S Corporations Receive 1099 Forms?

Generally, S corporations do not receive 1099-NEC or 1099-MISC forms for payments made to them. The IRS exempts corporations (both C corps and S corps) from 1099 reporting requirements in most cases.

Exceptions to the Rule:

There are some exceptions where an S corporation might still receive a 1099 form:

• If the payment is for legal services, regardless of the recipient’s business structure.
• Certain payments made in a business-to-business setting, such as medical or healthcare services, may also require a 1099 form, even if the recipient is an S corporation.

Do S Corporations Need to Issue 1099s?

Yes, S corporations are generally required to issue 1099-NEC forms to contractors and vendors if:

• Your business pays an independent contractor $600 or more during the year for services.
• The contractor is not incorporated (e.g., they are a sole proprietor, a single-member LLC, or a partnership).

You typically don’t issue 1099s to other corporations, including S corporations or C corporations, unless the exceptions mentioned earlier apply (e.g., payments for legal services).

What About LLCs?

LLCs (Limited Liability Companies) are unique because their treatment under 1099 rules depends on their tax classification.

Single-Member LLCs:

• Single-member LLCs are taxed as sole proprietors by default unless they elect otherwise.
• You must issue a 1099-NEC if you pay them $600 or more for services.

Multi-Member LLCs:

• Multi-member LLCs are taxed as partnerships by default, and you are typically required to issue a 1099-NEC for payments of $600 or more.

LLCs Taxed as S Corporations:

• If an LLC elects to be taxed as an S corporation, it is treated like an S corporation for 1099 purposes.
• This means you generally don’t issue a 1099 to an LLC taxed as an S corp, unless payments fall under an exception (e.g., legal services).

When Are You Required to File 1099 Forms?

If your business pays $600 or more to independent contractors or certain vendors during the year, you’re required to issue 1099-NEC forms. Here’s what you should know:

1. Collect W-9 Forms:
   Before you pay a contractor or vendor, ask them to fill out a Form W-9, which provides their Taxpayer Identification Number (TIN) and tax classification. This will help you determine if you need to issue a 1099.
2. Issue the Form by January 31:
   You must provide 1099 forms to recipients by January 31 of the following year.
3. File with the IRS:
   You’ll also need to submit the forms to the IRS, typically using electronic filing systems like the IRS FIRE (Filing Information Returns Electronically) or a trusted tax software platform.

Summary: Who Needs a 1099?

Best Practices for Small Businesses

• Organize Records: Keep accurate payment records and ensure W-9 forms are on file for every contractor and vendor you work with.
• Double-Check Vendor Status: Confirm whether each vendor or contractor is incorporated and what their tax classification is.
• Use Tax Software: Consider using tax software or a professional tax preparer to simplify the 1099 process.

Understanding your responsibilities for issuing and receiving 1099s can save your business from penalties and ensure smooth year-end tax reporting. For any uncertainties, consult a tax professional or trusted advisor.

Image by Steve Buissinne from Pixabay

The post Do S Corporations and LLCs Need to Handle 1099s? appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

Understanding Your Tax Status

• Sole Proprietorship: If you’re the only owner of your practice, it’s likely a sole proprietorship. You’ll report your business income and expenses on Schedule C of your personal tax return.
• Partnership or LLC: If you have partners or co-owners, your practice might be a partnership or Limited Liability Company (LLC). These entities have their own tax returns, but the income or loss is passed through to the owners’ personal tax returns.
• S Corporation: For larger practices or those with significant employee benefits, an S Corporation can offer tax advantages. It’s a pass-through entity that avoids double taxation, but there are specific eligibility requirements.

Key Tax Considerations for Private Practices

As a sole proprietor or partner, you’ll be subject to self-employment tax, which includes Social Security and Medicare taxes. However, you can deduct business expenses, such as rent, utilities, office supplies, employee wages, and professional fees. Rent in particular can be cost saving as many private practices operate out a shared space. Additionally, a portion of the common area expenses (like maintenance, utilities and property taxes) are also deductible.

But what about a home office deduction?

While the home office deduction can be a helpful way to reduce your taxable income, there are a few reasons why it might not be as advantageous as deducting actual expenses:

1. Limited Deduction: The home office deduction is subject to certain limitations. You can only deduct a portion of your home expenses based on the square footage of your home office. This can be less beneficial if your home office occupies a significant portion of your home.
2. Simplified Method: The IRS offers a simplified method for calculating the home office deduction. This method allows you to deduct a flat rate per square foot of your home office. However, the flat rate can be less than your actual expenses.
3. Alternative Deductions: In some cases, deducting actual expenses related to your home office (e.g., utilities, repairs) might be more advantageous. This is especially true if you have significant expenses that exceed the standard deduction.
4. Overall Tax Situation: Your overall tax situation can influence whether the home office deduction is beneficial. If you have other deductions that are already maximizing your tax savings, the home office deduction might not provide significant additional benefits.

What expenses are deductible running a mental/behavioral private practice?

The list is long, but essentially anything related to your practice. So for instance, books and professional publications are deductible. Office supplies, including notebooks, computers, & furniture are tax deductible, but this is the part that can get complicated and it’s why it’s integral to work with a professional accountant. If you want to deduct things like “white noise” and “potpourri” to create a calming environment for clients, then they might be considered as a deductible expense.

Now of course, this goes down the slippery slope because then what about purchases an Apple Vision or VR headset; is that tax deductible? Ultimately, here’s some key factors:

• Primary Use: The device must be primarily used for business purposes.
• Documentation: You’ll need to maintain documentation to support the business use of the device.
• Depreciation Method: The depreciation method will depend on the type of asset and its useful life.

Ultimately, if the device is used primarily for business purposes, such as providing therapy sessions in immersive environments or for professional development, it can be considered a business asset. This means that you can generally deduct the cost of the device over its useful life through depreciation.

However, it’s important to consult with a tax professional to determine the specific deductibility and depreciation methods that apply to your situation. They can help you assess whether the purchase qualifies as a business expense and provide guidance on the appropriate tax treatment.

Best Practices for Filing Your Taxes

• Keep Accurate Records: Maintain detailed records of all income, expenses, and transactions. This will help you accurately calculate your tax liability and support your deductions.
• Consult with a Tax Professional: A tax professional can provide expert advice on your specific tax situation, help you identify potential deductions, and ensure compliance with tax laws.
• Stay Updated on Tax Changes: Tax laws can change frequently, so it’s important to stay informed about any updates that may affect your practice.
• Consider Tax Planning: Proactive tax planning can help you minimize your tax liability and optimize your financial situation.

By understanding these key considerations and following best practices, you can effectively file your taxes as a private practice owner and ensure compliance with tax laws.

Image by Free Photos from Pixabay

The post Filing Taxes for Your Private Practice appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

1. Depreciation and Amortization

Depreciation is a tax deduction that allows you to recover the cost of tangible assets over their useful lives. For senior living facilities, this includes:

• Building and its components: Walls, floors, ceilings, and other structural elements.
• Furniture and fixtures: Beds, chairs, tables, and other furnishings.
• Medical equipment: Wheelchairs, walkers, oxygen tanks, and other medical devices.
• IT equipment: Computers, servers, and network equipment.
• Kitchen equipment: Stoves, ovens, refrigerators, and dishwashers.
• Laundry equipment: Washers, dryers, and other laundry machines.

Note: Things like handicap bars and IVs would typically be considered part of the building or furniture, and would be depreciated accordingly. Durable medical equipment (DME) might have a shorter useful life and could be depreciated more quickly.

Meanwhile, amortization is a similar process used for intangible assets, which are assets that lack physical substance. For senior living facilities, common intangible assets include:

• Goodwill: The value of the business’s reputation, customer relationships, and other intangible assets.
• Patents and trademarks: Intellectual property that gives the business exclusive rights to use or sell a product or service.
• Leasehold improvements: Improvements made to leased property that increase its value.

Note: The kindness of nursing staff, while valuable, is not considered an intangible asset for tax purposes. Goodwill, on the other hand, can be a significant asset for a senior living facility, representing the value of its reputation and the trust it has built with residents and their families.

2. Employee-Related Taxes (Fringe Benefits)

For instance, there’s the Fringe Benefits Tax, wherein certain benefits are taxable. While many employee benefits are tax-free, some, such as employer-provided health insurance premiums over a certain threshold, are subject to the fringe benefits tax. This becomes especially critical since most healthcare industries have generous health insurance plans so understanding the fringe benefits tax is crucial.

Additionally, under certain conditions, healthcare facilities can provide meals and lodging to employees without triggering income tax or FICA taxes. To qualify, the meals and lodging must be provided for the convenience of the employer and on the employer’s premises.

There’s also continuing education expenses (which is great for LPNs looking to become RNs), in addition to medical expense reimbursements. Employers can reimburse employees for out-of-pocket medical expenses, up to certain limits, without triggering income tax or FICA taxes.

3. Tax Credits and Incentives

If your facility conducts research or development activities, consider claiming research credits. Research credits are tax benefits provided to businesses that engage in R&D activities. While this does not directly impact good will (see point 1), this can indirectly impact goodwill. For example, if a company’s research and development efforts lead to significant breakthroughs or innovations, it may enhance its reputation and increase its customer base. This could, in turn, increase the value of its goodwill.

Additionally, there’s usually energy credits for any energy-efficient improvements, such as solar panels or LED lighting.

Meanwhile, though less common given the high level of care, specialized equipment and regulatory requirements, there are some skilled nursing facilities (SNFs) that can qualify for low-income housing credits.

Usually, these facilities cater to specific populations, such as veterans or individuals with disabilities, and may receive government subsidies to help keep costs down.

4. Medicare and Medicaid Reimbursement

Cost Reports: Understand the requirements for filing cost reports to determine Medicare and Medicaid reimbursement.

Of course, there was also the Provider Relief Fund (PRF). The PRF was a federal government program established to provide financial assistance to healthcare providers impacted by the COVID-19 pandemic. It was designed to help these providers prevent, prepare for, and respond to the virus, as well as to maintain their operations during the crisis.

While the PRF has since concluded its distribution of funds, healthcare providers who received PRF payments may still be subject to reporting requirements and potential repayment obligations.

5. Charitable Contributions

Senior living facilities can make a variety of charitable contributions to support their communities and improve the lives of those in need. Here are some examples:

• Donations to local organizations:
  • Non-profit organizations: Support organizations focused on senior services, healthcare, education, or social welfare.
  • Veterans’ groups: Contribute to organizations that support veterans and their families.
  • Religious organizations: Donate to local churches, synagogues, or mosques.
• In-kind donations:
  • Medical equipment: Donate unused or surplus medical equipment to local healthcare providers.
  • Supplies: Donate supplies, such as food, clothing, or toiletries, to local charities.
  • Services: Offer services such as transportation or meals to local organizations.
• Volunteer programs:
  • Employee volunteerism: Encourage employees to volunteer their time to local organizations.
  • Resident volunteerism: Facilitate opportunities for residents to volunteer in the community.
• Community outreach programs:
  • Health screenings: Provide health screenings or educational programs to the community.
  • Community events: Host or participate in community events, such as food drives or fundraisers.
  • Partnerships with local businesses: Collaborate with local businesses to support community initiatives.

By making charitable contributions, senior living facilities can demonstrate their commitment to social responsibility and strengthen their relationships with the community.

6. Net Operating Loss (NOL) Carryover

Net Operating Losses (NOLs) occur when a business’s expenses exceed its income in a given year. In such cases, the excess loss can be carried back or carried forward to offset taxable income in other years. This can result in a tax refund or reduce future tax liabilities.

The specific rules for carrying back and carrying forward NOLs have changed over time, depending on the tax laws in effect. However, generally, NOLs can be:

• Carried back: This means applying the NOL to offset taxable income in previous years, potentially resulting in a tax refund.
• Carried forward: This means applying the NOL to offset taxable income in future years, reducing future tax liabilities.

The number of years for which NOLs can be carried back or forward varies depending on the tax law in effect. For example, there have been periods when NOLs could be carried back for a certain number of years and carried forward for an indefinite period.

Some of the specific benefits include:

• Tax refunds: Carrying back NOLs can result in immediate tax refunds, providing much-needed cash flow.
• Reduced future tax liabilities: Carrying forward NOLs can help mitigate future tax burdens, especially during periods of high profitability.
• Tax planning: Understanding the carryback and carryforward rules allows businesses to strategically plan their tax liabilities and optimize their financial performance.

As far as limitations and considerations, here are the following:

• Phased-in deduction: In some cases, the use of NOLs to offset taxable income may be subject to a phased-in deduction, which limits the amount of NOLs that can be used in a given year.
• Corporate tax rate changes: Changes in the corporate tax rate can impact the effectiveness of NOL carrybacks and carryforwards.
• Tax law changes: The rules governing NOLs can change over time, so it’s important to stay updated on the latest tax legislation.

7. Section 179 Deduction

Maximize your deductions by taking advantage of the Section 179 deduction for qualifying equipment purchases. Section 179 is a tax deduction that allows businesses to deduct the cost of qualifying equipment purchases in the year they are placed in service.

For senior living facilities: This can include medical equipment (e.g., wheelchairs, walkers, oxygen tanks), IT equipment (computers, servers), kitchen equipment, laundry equipment, and other business assets.

Ultimately, it encourages investment in new equipment, offers immediate tax savings, and improved cash flow.

Key points to remember:

• Deduction limits: The maximum deductible amount changes annually.
• Qualifying equipment: The equipment must be used for business purposes and not considered a luxury item.
• Phase-out: The deduction may be reduced if the total cost of qualifying equipment exceeds a certain threshold.

By understanding these key tax considerations, senior living facility owners can optimize their financial performance and ensure compliance with tax laws.

Image by sarcifilippo from Pixabay

The post Top 7 Things Senior Living Owners Need to Know About Taxes appeared first on Huddleston Tax CPAs | Accounting Firm In Seattle.

Direct Tax Contributions

While undocumented immigrants do not have Social Security numbers, they still engage in economic activities that generate tax revenue. Many work in cash-based industries, such as construction, agriculture, and domestic services. These individuals often pay sales taxes on goods and services, as well as property taxes through their rent payments. Additionally, some undocumented immigrants may file taxes under the Individual Taxpayer Identification Number (ITIN) program, which allows them to report income and claim certain deductions.

Indirect Tax Contributions

Undocumented immigrants also contribute to the economy in indirect ways that generate tax revenue. They consume goods and services, stimulating economic growth and creating jobs. When businesses hire undocumented workers, they pay corporate taxes and payroll taxes. Furthermore, undocumented immigrants often use public services, such as roads, schools, and healthcare, which are funded by taxpayers.

The Myth of Free Riders

The notion that undocumented immigrants are “free riders” who benefit from public services without contributing to the tax base is a common misconception. As demonstrated above, undocumented individuals do contribute to the tax system, albeit in ways that may not be immediately apparent. Moreover, studies have shown that undocumented immigrants often pay more in taxes than they receive in government benefits.

Without a SSN, undocumented workers often pay payroll taxes including social security and medicare, but they’re ineligible from receiving the benefits of them. This means they don’t benefit form Social Security, Medicare or Medicaid.

This also makes undocumented immigrants more susceptible to identity theft. Which is doubly challenging since they have significantly less resources to take action.

The Challenges of Tax Enforcement

Enforcing tax laws on undocumented immigrants can be challenging due to their fear of deportation and the lack of documentation. Many undocumented workers may be reluctant to report their income or seek professional tax assistance for fear of being discovered and deported. This can make it difficult for the IRS to accurately track and collect taxes from this population.

Policy Implications

The debate over undocumented immigration and taxation has significant policy implications. Some argue that undocumented immigrants should be granted a pathway to citizenship in exchange for paying back taxes and fulfilling other civic responsibilities. Others contend that undocumented immigration should be curtailed to prevent further strain on public resources.

While there is no easy solution to the complex issue of undocumented immigration, understanding the tax contributions of these individuals is essential for informed policymaking. By recognizing the economic contributions of undocumented immigrants, policymakers can develop more equitable and effective immigration policies.

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Mixing Business and Personal Expenses

It’s tempting to blur the lines between personal and business spending, especially in the early stages. But using business funds for personal purchases like meals or entertainment can trigger IRS scrutiny and potential penalties. Keeping meticulous records and separate accounts for business and personal finances is crucial.

Confusion around Deductible Expenses

Knowing what you can and can’t deduct from your business taxes can be complex, particularly for new entrepreneurs. Common issues include over-claiming personal expenses as business costs, misunderstanding home office deductions, or neglecting legitimate deductions like business travel or software subscriptions. Investing in proper bookkeeping or consulting with a tax professional can help ensure you’re maximizing your deductions accurately.

Obviously, as a small business owner, you know, the old “9 to 5” becomes a thing of the past. You’re always working. As a result, the separation can become more challenging due to the following:

Overlap in Activities & Shared Resources

Often, small business owners wear multiple hats and work on their business ventures during personal time, making it hard to distinguish between business-related tasks and personal activities. For example, checking emails or making business calls during evenings or weekends might involve personal devices and resources, blurring the lines as to what is deductible and what percentage that is.

Using personal phones, laptops, or even home office space for business purposes can easily lead to intermingling of expenses. It’s tempting to charge a business call made on your personal phone or claim a portion of your home internet bill as a business expense.

Where this gets even more complicated is the emotional attachment.

Productivity over Emotional Drive

As a business owner, maybe you don’t consider yourself overly emotional, but it’s a bit of the caregiver’s dilemma. The “caregiver’s dilemma” being when people sacrifice and spend more on who they care for and neglect their own needs.

For example, maybe you’ve had a crummy TV with faulty cable connections — you know, when discolored vertical lines run down your screen. Maybe you want to a new TV, but haven’t been able to justify the purchase for yourself. Now, however, you’re thinking, well wait-a-minute, I could use a better TV for Zoom meetings. So now, instead of a personal expense, you justify it as contributing to your business growth, blurring the line between professional and personal spending.

Lack of Systems and Processes

Without proper bookkeeping practices, small business owners might rely on receipts or personal memory to track expenses, which can be prone to errors and inconsistencies. This makes it difficult to accurately categorize expenses and identify the true nature of each spending.

When you add to this, not having dedicated business checking and credit card accounts, then it’s doubly easy to mix personal and business transactions. Regardless of if you file quarterly or annually, this can lead to confusion and difficulty in tracing back expenses.

Putting off bookkeeping tasks or struggling with organization can contribute to neglecting expense separation. This can lead to a buildup of mixed expenses and make it even harder to sort them out later.

Finally, some entrepreneurs, especially those starting out, might lack the financial knowledge or awareness of tax regulations related to expense categorization and deductions. This can lead to unintentional mixing of personal and professional expenses due to misunderstanding of what’s deductible.

This is what can also lead many small business owners to make errors in filing their taxes. Because entrepreneurs are responsible for making regular estimated tax payments to the IRS based on their projected income, miscalculating these payments or failing to make them can lead to penalties and interest charges. Understanding estimated tax requirements and staying on top of them is essential.

Understanding your Tax Obligations

Overall, understanding your fiscal responsibilities, keeping organized records, and seeking professional guidance when needed can help you navigate the world of taxes and income reporting.

Remember, tax laws are complex and can vary depending on your specific business location and structure. Always consult with a qualified accountant or tax advisor for personalized guidance and to ensure you’re compliant with all regulations.

Photo by Jodie Cook on Unsplash

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Here’s what we know so far:

• Last year (2023), the IRS began accepting 2022 returns on January 23rd.
• This year, the official tax deadline is April 15th, 2024.
• Employers are required to send employees their W-2 and 1099 income tax forms by the end of January. 
  • So if you’re awaiting some tax forms, February 1 is when you should reach out if they haven’t been received yet.

While we don’t have a specific date yet, it’s safe to say you can likely start filing your taxes sometime in late January. Stay tuned for an official announcement from the IRS for the exact date.

So what can you do when you’re anticipating a change, say selling a house, or if you had a promotion + a raise, or say the opposite side, a job change with a PTO payout and potentially a period of filing for unemployment? Let’s dive in to what you can prepare up front.

1. If you sold a house in 2023

If you sold and bought a house within the same year (2023), your tax situation depends on a few key factors: capital gains/losses, home sale exclusions, adjustment for new income.

If you sold your house for more than you paid for it (including selling costs), you’ll have a capital gain. Typically, capital gains are taxed at federal rates, depending on your income bracket. If however, you sold your house for less than you paid for it, you’ll have a capital loss. While capital losses can typically offset capital gains, there are limitations on how much you can deduct each year.

Now if you the house you sold was your primary residence for at least two of the five years before the sale, you can exclude up to $250,000 of the profit from your taxable income ($500,000 if married filing jointly). This rule can significantly reduce your tax liability.

Meanwhile, if you bought a new primary residence of equal or greater value within two years of selling your old one, you can defer paying capital gains tax on the sale under a 1031 exchange. However, specific rules and requirements apply to qualify for this exchange.

Finally, there’s a basis adjustment for new home. For instance, if you rolled proceeds from selling your old house into a new one at a higher price, but didn’t qualify for a full exclusion or exchange, the cost basis of your new home is adjusted. This means your gain on the sale of your new home will be calculated based on the higher cost basis.

2. If you got a raise or bonus

Make sure you check if you’re now in a higher tax bracket. Your increased income from the promotion, raise, and bonus might push you into a higher tax bracket for 2023. Calculate your estimated tax liability to avoid surprises when filing.

Next, consider adjusting your tax withholding at your workplace. This is important so you don’t get caught with any surprises come tax time. For instance, if you feel your current withholdings aren’t capturing enough of your new income, then increase it to avoid owing taxes at filing time.

Finally, look into possible tax credits. Review if you’re eligible for any tax credits based on your new income level, such as the Earned Income Tax Credit or the Child Tax Credit.

3. If you lost a job or collected unemployment in 2023

Navigating job loss, severance, unemployment, and a new job in one year can be financially and emotionally challenging. Here’s what to expect regarding your 2023 taxes.

If you had severance pay, here are some elements to consider:

• Income Inclusion: Your severance pay is considered taxable income. You’ll receive a separate W-2 form from your former employer for the severance amount.
• Federal and State Taxes: Both federal and state income taxes will likely be withheld from your severance pay unless you opted out.
• Lump-Sum or Spreads: If your severance package allows spreading the payout over multiple years, consider consulting a tax advisor to optimize tax implications.

If you applied for unemployment benefits, you may have the following:

• Taxable Income: Unemployment benefits are generally considered taxable income at the federal level and may also be taxable in your state. You’ll receive a 1099-G form from the unemployment agency documenting your benefits received.
• Estimated Taxes: If you haven’t been paying estimated taxes throughout the year, you might owe taxes when filing your return. Consider increasing your tax withholding at your new job to avoid a lump sum payment later.

Finally, if you’ve landed a new job, then the main thing to consider is your tax withholdings. This way, you can ensure enough is withheld to cover your expected tax liability. You may also be eligible for deductions and credits:

• Job Search Expenses: You may be able to deduct certain job search expenses. This could include resume preparation costs or travel expenses for interviews, on your tax return.
• Health Insurance Costs: If you purchased health insurance while unemployed, you might be eligible for the premium tax credit to offset the cost.
• Earned Income Tax Credit (EITC): If you have earned income for the year, including the new job and unemployment benefits, you might be eligible for the EITC, which can provide a tax refund.

As always, reach out to Huddleston Tax CPAs for additional questions, nuances, and information.

Photo by Ben White on Unsplash

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That’s quite the deficit… how’d it get so bad?

Indeed it is! The RFC attributed the budget shortfall to a number of factors, including:

• The decline in property tax revenue due to the COVID-19 pandemic;
• The rising cost of living in Seattle, which is making it difficult for the city to attract and retain employees;
• The increasing demand for city services, such as homelessness and affordable housing.

So how are they going to fix the deficit?

The city of Seattle is currently considering a number of options to fix its budget hole. These options include:

• Raising taxes: The city is considering raising taxes on businesses and wealthy individuals. This could include a payroll tax, a tax on vacant homes, or a tax on luxury goods.
• Cutting spending: The city is also considering cutting spending on a variety of programs, including public safety, parks and recreation, and social services.
• Borrowing money: The city could also borrow money to cover the budget shortfall. However, this would add to the city’s debt burden.
• Finding new revenue sources: The city is also looking for new ways to generate revenue, such as by selling assets or entering into public-private partnerships.

In addition to the above, the city is also working to address the underlying causes of the budget shortfall, such as the rising cost of living and the increasing demand for city services. The city is working to attract new businesses and residents, which would generate more tax revenue. The city is also working to build more affordable housing and to provide more support for people experiencing homelessness.

Updates on Seattle’s Stabilization Efforts

In August of 2023, the Seattle Revenue Stabilization Workgroup sent out a report. The group was created to identify equitable financial solutions to the city’s budget shortfall. The group reviewed information about the city’s spending needs and trends, but was not asked to weigh in on changes in city spending or other structural changes.

The group identified a growing General Fund deficit, which is expected to reach $221 million in 2025 and $207 million in 2026 if the city continues to operate and maintain services at its current level.

The group screened potential revenue ideas using evaluation criteria, including impacts on disadvantaged communities and small businesses, and the ability to support and stimulate sustained economic growth.

The report acknowledges the ongoing work the city is doing to evaluate reductions in spending, identifies other policy choices within the city’s decision-making power, and highlights several suggested areas of future work to inform longer-term decisions.

Some of the key findings of the report are:

• The city’s budget shortfall is projected to grow significantly in the coming years.
• The city’s current tax system is regressive, meaning that it puts a disproportionate burden on low-income residents.
• There are a number of potential revenue options that could be used to address the budget shortfall, but each option has its own advantages and disadvantages.
• The city needs to take a comprehensive approach to addressing the budget shortfall, including both revenue increases and spending reductions.

The report concludes by recommending that the city continue to explore progressive revenue options and develop a long-term plan to address the budget shortfall.

How does this impact me?

Nothings’s official yet, but the Workgroup identified seven revenue options that they believe have the potential to generate significant new revenue for the City of Seattle. These options are:

1. Changes to the JumpStart Payroll Expense Tax;
2. City-level Capital Gains Tax;
3. High CEO Pay Ratio Tax;
4. Vacancy Tax;
5. Progressive Real Estate Excise Tax;
6. Estate Tax;
7. Inheritance Tax.

The Workgroup considered a number of factors when evaluating these options, including the potential revenue that could be generated, the impact on different income groups, and the administrative feasibility of implementing the tax.

The Workgroup concluded that the following options are the most promising:

• Changes to the JumpStart Payroll Expense Tax: This option has the potential to generate significant new revenue, and it is relatively easy to implement. However, it is important to carefully consider the impact of any changes on businesses and the overall economy.
• City-level Capital Gains Tax: This option is also progressive, meaning that it would disproportionately affect wealthy individuals. However, it is important to understand the potential impact of this tax on investment and economic growth.
• High CEO Pay Ratio Tax: This option is a relatively new idea, and there is limited data on its potential impact. However, it could be an effective way to address income inequality.

The Workgroup also acknowledged that there are other potential revenue options that could be considered, such as a tax on luxury goods or a tax on short-term rentals. However, these options were not considered to be as promising as the options listed above.

The Workgroup’s report concludes by recommending that the City further explore the potential of these revenue options. The City should also consider the impact of any new taxes on businesses and the overall economy. Ultimately, the decision of whether to implement any new taxes is up to the City Council.

Image by Monika Neumann from Pixabay

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