Month: June 2025

If your S or C corporation owns a vehicle that you also use personally, there are important tax rules you need to follow—and smart planning can help you save significantly.

Let’s say you use a corporate vehicle 80 percent for business and 20 percent for personal use. The IRS doesn’t allow “free” personal use. You either

• include the value as W-2 income, which increases your tax burden; or
• reimburse the corporation, which often results in lower taxes and no payroll tax implications.

Here’s why this matters: if structured correctly, your corporation can deduct 100 percent of the vehicle’s costs, including depreciation, fuel, insurance, and maintenance—even with some personal use. But there are conditions.

If business use falls below 50 percent, your corporation loses access to accelerated depreciation methods such as Section 179 and bonus depreciation and must use straight-line depreciation instead.

To value your personal use on vehicles that cost more than $61,200, your corporation must use either the IRS’s lease valuation table or a fair-market lease equivalent—plus the actual cost of fuel.

Failing to handle this properly—especially if you wait until after year-end—can create tax headaches, including amended W-2s or non-deductible dividends.

The good news? We can help you get this right. From computing personal use to setting up year-end reimbursements and ensuring full corporate deductions, we’ll make sure your vehicle is a tax asset—not a liability.

If you want to discuss your personal use of your corporation’s vehicle, please call me directly at 408-778-9651.

• By Leon Clinton
• June 17, 2025

Did you receive a Form 1099-NEC that overstates your income? You’re not alone—and it could mean you’re paying more taxes than you owe.

This problem often arises at year-end when a business issues a 1099-NEC based on what it paid rather than what you received. For example, if you were paid in January for the previous December’s work, the payor might include that income on the prior year’s 1099-NEC—even though you didn’t receive the funds until the following year. Legally, that’s incorrect.

Once issued, 1099 errors can be hard to fix. If you’re stuck with an incorrect form, here’s what you should do:

• Try to get the payor to issue a corrected 1099—we can help you draft the request with the supporting IRS regulation.
• If that fails, report the full amount on your return to match the 1099, then offset the overstatement in “Other Expenses” with a brief explanation.
• Keep documentation—like the postmarked envelope of the actual payment, or email correspondence—proving the payment was received after year-end.

This approach can help you avoid an IRS mismatch letter or an IRS audit, while still accurately reporting your income.

Don’t let a payor’s mistake increase your tax bill. If you’ve received a questionable 1099-NEC, we’ll help you determine the correct income, prepare the supporting documentation, and ensure your return is properly filed.

If you want to discuss incorrect 1099-NECs, please contact me directly at 408-778-9651.

• By Leon Clinton
• June 13, 2025

How would you like to owe the IRS a $150,000 penalty because you failed to file a simple two-page form? It can happen all too easily if you have a solo 401(k) or another self-employed retirement plan.

If you’re self-employed and you have a qualified retirement plan, such as a solo 401(k) for yourself (and your spouse, if applicable), Form 5500-EZ must be filed with the IRS once the assets in the plan exceed $250,000. The form is usually due July 31 each year.

You—the business owner—are the plan administrator or plan sponsor and the one responsible for filing Form 5500-EZ. You can use a third-party administrator to manage your plan, complete Form 5500-EZ, and even file it with the IRS, but you continue to have, in the absence of a rare contractual arrangement, the legal responsibility for a correctly and timely filed 5500-EZ.

Beware. If you fail to file Form 5500-EZ, the potential penalties are substantial: $250 per day, up to a maximum of $150,000 for each plan.

Fortunately, it’s easy to avoid the big penalties. The IRS has an amnesty program called the Late Filer Penalty Relief Program. All you have to do is simultaneously file all the Form 5500-EZs you failed to file and pay a fee. The fee is $500 for each delinquent return, up to a maximum of $1,500 per plan. $1,500 is not free, but it is likely much less than the non-filing penalty.

You won’t qualify for the amnesty program if the IRS has assessed a late filing penalty against you and issued a penalty notice. In this event, your only recourse is to attempt to get the IRS to remove the penalty for reasonable cause. If you’re successful, you won’t have to pay the IRS anything. Grounds for relief include natural disasters, inability to obtain records, serious illness or death, or other reasons showing your failure to file was not due to a lack of ordinary business care and prudence.

You can forgo the amnesty program and make a reasonable cause request if the IRS has not assessed the penalty. If you win reasonable cause relief, you won’t pay the IRS fee. But this is risky. If the IRS denies your reasonable cause request, you’ll no longer qualify for amnesty because the IRS will assess the penalty for the delinquent return(s).

If you want to discuss IRS Form 5500-EZ, please call me directly at 408-778-9651.

• By Leon Clinton
• June 11, 2025