The labors of love you pour into your business may have a fair market value on the street, but how do you accurately translate your net worth?

Is it $100 an hour or does it range in the thousands? For the CEOs of some publically traded companies that number is often tens of thousands an hour.

But you won’t be able to calculate the value of your efforts until you have been paid.

What About Charity Donation?

Okay, we know, you’re worth every penny, but when you donate time to charity or you’re looking to deduct the cost of your time spent, it can cause confusion at tax time. For entrepreneurs who assume their sweat equity is deductable this can result in shock and disappointment.

The Startup Phase

Starting a new business is an exciting time for an entrepreneur. Ideas are taking shape and heart-held dreams are becoming tangible realities. But unless they’re backed by a substantial nest egg or loan, most businesses need time to produce enough cash flow to compensate the owner for development time.

Many business owners spend hours establishing their businesses before they even open the front door (virtual or otherwise). Ensuring their company’s viability doesn’t often happen overnight. Market testing and calculating pricing take time.

What’s the legal answer to this question?

Well, perhaps it can be found in a recently decided court case. The issue? Whether or not a taxpayer can deduct the value of sweat equity, i.e. services for which he/she is unpaid.

In short, a sole proprietorship reported a loss in his business providing services at no charge. The amount was substantial: $29,500. The taxpayer used this loss as a deduction against his income of $234,000 earned that year (2014). While he had not spent any actual money out of pocket, he argued that research was needed to succeed in his business; yes, sweat equity.

The court ruled against the taxpayer in this case because in order to take a deduction, one must pay or otherwise incur an expense to be eligible to deduct it. The labor itself is not within the meaning of Code Section 162.

Donating Time to Charity

What about taxpayers or business owners who donate their time to a charitable cause? We’ve already determined their time has value. Certainly, the court must allow for this type of deduction, right?

Well, no, not this one. Donations of services are not deductible charitable contributions. However, if business owners or taxpayers donate the value of their work in cash so the organization can hire someone else to do the work, it then becomes a tax-deductible donation.

Donated labor is not deductible even to nonprofits because in the normal earning cycle of a business, the net value of the services donated is zero.

For example, consider service on a nonprofit board. If you charge for the work, you would earn according to your pay scale. However, in donating your services you are not paid.

Now, there’s a way around it.

If the organization pays you for your service and you then donate it, you would be reporting it as income. You would owe and pay taxes on the money earned and then be able to deduct your cash donation. By not receiving the income, you avoid reporting the fees in additional revenue for the year, and you’ll also forego the charitable deduction. Either way, the result is the same.

While your personal valuation of sweat equity you put into your business may result in Fortune 500 positioning, it won’t help you reduce your tax bill.

Contact us today by calling (863) 295-9895 or request your free consultation online now. As a thank you for completing a tax consultation, we’ll provide a free tax planning book, The Tax Detective: Uncovering the Mystery of Small Business Tax Planning.

Auburndale, FL – Lynn A. Schmidt, EA, ARA, CTP, announced today that she is now a member of an elite group of professionals who has completed the American Institute for Certified Tax Planners’ training program, leading to the designation of Certified Tax Planner™.

“Taxpayers who really want to beat the IRS can’t wait for their accountant to work magic with a stack of receipts on April 15th,” says Schmidt “They need a plan for taking advantage of every deduction, credit, loophole, and strategy allowed.” This year alone I’ve been able to save business professionals between $5,262 and $462,812 in taxes….and that is for just one year!

“Traditional tax preparers focus on putting the right numbers in the right boxes, on the right forms,” says Dominique Molina, a San Diego-based CPA and Director of the American Institute of Certified Tax Planners. Schmidt says “Our program is different. We don’t just help our clients record history, we help them write it – with a complete menu of advanced tax planning concepts and strategies.” Schmidt goes on to say “good tax planning does not just happen by accident.”

The Certified Tax Planner™ program focuses on court-tested, IRS-approved strategies for minimizing Alternative Minimum Tax, maximizing deductions from real estate and passive activities, maximizing retirement savings, and similarly powerful strategies. As taxes rise to cover increased government spending, this sort of proactive planning will become even more important in the future.

To earn the designation, Schmidt completed an initial intense training program followed by ongoing, hands-on training, as well as, working through and strategizing on numerous tax plans. She has also agreed to abide by the AICTP Code of Ethics and complete 24 hours of tax planning continuing education each year. This specialized education is in addition to numerous hours of continuing professional education she completes each year in the areas of Tax, Retirement Planning, Senior Issues, and financial services strategizing and training.

Schmidt is also an Enrolled Agent, a federally licensed tax professional who has demonstrated technical competence in tax law, and is an Accredited Retirement Advisor (ARA). Enrolled Agents are the only taxpayer representatives licensed to practice by the United States Government. Most people think that tax season ends with April 15th. Schmidt contends that April 16th is actually the beginning of a “New Year” for tax planning and adding the Certified Tax Planner designation to her Enrolled Agent and Certified Tax Coach designations strengthens the tax planning skills that Schmidt has at her disposal to empower her clients to pay the “lowest, legal tax possible.”

Visit our Certified Tax Coach website at www.taxplannerfl.com today for more information.

Are you concerned about being stuck with large capital gain in 2018? What if there was a way to avoid it this year? How about for the next 10 years?

If you’re facing beefy tax payments because of capital gains, a new tax break may be worth exploring. The program is part of the Tax Cuts and Jobs Act. It’s called the Opportunity Zone Tax Incentive, and along with saving you money, it’s true purpose is to promote investors to push money into low-income areas to increase their value.

Where Are These Opportunity Zones Located?

An Opportunity Zone is a community nominated by the state and certified by the Treasury Department as qualifying for this special program. Approximately 8,700 Opportunity Zones qualify nationwide. All 50 states have certified zones that qualify, as do Washington DC and US territories.

How Does The Program Work?

Taxpayers who wish to take advantage of this program because they are facing large capital gain after the sale or exchange of appreciated property have a limited amount of time in which to take action. They have 180 days from the date of the sale or exchange to invest into a Qualified Opportunity Zone Fund. The fund is a vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property.

What happens to the return of principal? Taxpayers may reinvest it along with recognized capital gain. Only the portion attributable to the capital gain will be eligible for the tax exemption on further appreciation of the Opportunity Zone Investment.

Is the Opportunity Zone Fund Similar to Other Investments?

Just as in other investments, the value of an Opportunity Zone Fund investment may increase or decrease over the holding period. The investor may pay income on this investment. Keeping in mind that the purpose of the program is to improve designated low-income areas, the fund is expected to continue investing in the improvement of the property.

What About Cash Flow?

Once the property improvements are complete, the property may be leased or sold to third parties. At this time, cash flow may occur.

Are There Any Risks?

Investing in The Opportunity Zone Tax Incentive may or may not have risks associated. It’s new, and the IRS and Treasury Department are still gathering information on how the fund will work over time. Because of this, the level of risk is difficult to assess. However certain potential risks have been identified.

Among other things, risks may include market loss, liquidity risk, and business risk. Before you make any plans, note that investment in the new tax incentive may or may not be appropriate in your case. It’s best to consult with a tax professional to determine if it’s a fit for you. Contact one of our tax advisors for information.

Contact us today by calling (863) 295-9895 or request your free consultation online now. As a thank you for completing a tax consultation, we’ll provide a free tax planning book, The Tax Detective: Uncovering the Mystery of Small Business Tax Planning.