Category Archives: Blog

Deducting Mortgage Interest Under The New Tax Reform

The recent tax reform contains two big changes to how much you can deduct in mortgage interest for tax years 2018 through 2025:

  1. During this seven-year period, you may not deduct any interest on prior or current home equity debt, with certain exceptions.
  2. Also during this seven-year period, the maximum amount you may treat as acquisition debt for homes purchased after December 15, 2017, is $750,000.

Exception alert. Your home equity loan may include acquisition or home-improvement debt, and that debt continues as deductible under the recent tax reform rules.

Example. Billy took out a $90,000 home equity loan in 2015. He used $50,000 to remodel portions of his home and used the remaining $40,000 for his daughter’s college tuition. Billy’s total home mortgages never exceeded $1.1 million. Under the new law, Billy may deduct 5/9 of his home equity loan interest in 2018.

Acquisition debt. When you buy your main home or a second home and take out mortgages secured by those homes, your mortgages are called acquisition debt. You can add acquisition debt when you improve your main or second home, and that new debt is secured by the home you improved.

Refinancing alert. Your acquisition debt does not increase when you refinance unless you use the new monies to improve the home.

Example. Tom bought a home in 2010 and took out a $250,000 mortgage that he secured with the home. In 2018, Tom has paid down his mortgage to $215,000, and his home has increased in value to $400,000. Tom refinances the home and takes out a new mortgage in the amount of $300,000, secured by the home.

If Tom uses none of the new money to improve his home, his mortgage interest deduction in 2018 is based on the $215,000 of mortgage principal that remained as of the date of his refinancing.

To put this in perspective, your original acquisition debt never increases on that original home. To increase your debt eligible for the home mortgage interest deduction, you need to use the new debt to improve the home.

Ceilings. Because of tax reform, you now have two possible 2018 ceilings on your home mortgages that are eligible for the mortgage interest deductions.

$1.1 million. For indebtedness incurred before December 15, 2017, you may not deduct interest on more than $1.1 million in mortgages ($1 million in acquisition debt and $100,000 in home equity debt used for acquisition or improvements). The original $1.1 million ceiling is grandfathered for acquisition and improvement loans in existence before December 15, 2017.

Example. Sam took out his mortgages during 2013. Sam faces the $1.1 million ceiling in 2018.

$750,000. For home mortgage indebtedness incurred on or after December 15, 2017, you may deduct interest on no more than $750,000 of home mortgages.

Example. Jim took out his mortgage in 2018. He faces the $750,000 ceiling.

Exception. If you entered into a written, binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and you complete the purchase before April 1, 2018, you fall into the $1.1 million ceiling category.

As you can see these are pretty large changes that impact how much you can deduct in mortgage interest.

Jesse Lothamer J.D., C.P.A., E.A.

Lothamer Tax Resolution

How to Beat an IRS Penalty

You hate IRS penalties, right? Everyone does!

There are a lot of strategies we can use on your behalf to potentially defeat an IRS penalty.

Thanks to the courts, though, we now have a brand-new way to beat an IRS penalty. It’s Section 6751(b) of the Internal Revenue Code.

This provision can get you out of a penalty – even if you are truly liable for it under the law – if the IRS didn’t follow proper legal procedures before assessing it.

Code Section 6751(b) says that the IRS cannot assess a penalty unless an IRS supervisor or higher-level official designated by the Treasury secretary personally approved the determination in writing.

If the IRS does not follow this administrative requirement, then the IRS erroneously assessed the penalty, and we can have it abated for you.

This provision does not apply to

  • individual and C corporation late-filing and late-payment penalties,
  • individual and C corporation estimated tax payment penalties, or

any other penalty automatically calculated through electronic means.

This abatement also does not apply to FBAR penalties. Title 31 of the United States Code authorizes FBAR penalties, and the penalty abatement provision we’re talking about covers only Title 26 penalties (i.e., penalties under the Internal Revenue Code).

Some of the penalties that Section 6751(b) applies to include:

  • Accuracy-related penalties
  • Civil fraud penalties
  • Daily delinquency penalties (e.g., Form 990)
  • Information return penalties (e.g., Form 1099, Form W-2)
  • International information return penalties (e.g., Form 8938, Form 5471)
  • Partnership and S corporation late-filing penalties
  • Tax return preparer penalties
  • Trust fund recovery penalties
  • Valuation penalties

If you need us to help you with figuring out if these penalties could impact your back taxes,  give Lothamer a call.

Jesse Lothamer J.D., C.P.A., E.A.

Lothamer Tax Resolution



Tax Implications of Accepting Bitcoins as Payment

Are you considering accepting bitcoins as payment? If so, you should know the tax implications of accepting bitcoins in your business and the major pros and cons of doing so. I’m going to use an example to explain this.

Example. Carol is a freelance consultant. In exchange for her $1,500 invoice to a client, she receives 1.5 bitcoins. The bitcoin exchange rate at that time is $1,000 per bitcoin. Her payment processor charges 0.8 percent, up to a maximum of $8 per bitcoin transaction.

Two years later, Carol buys a $1,000 computer using 0.5 bitcoins. The exchange rate at the time is $2,000 per bitcoin.

Initial receipt. Carol receives property worth $1,500 in exchange for her services. The $1,500 value of the bitcoins is ordinary income to Carol (and subject to self-employment tax, since she received it in her trade or business).

Carol’s adjusted basis in the bitcoins received is the fair market value of $1,500 plus the $8 transaction fee, or $1,508. Because bitcoins are a capital asset (property), the transaction fee is added to its capital basis.

Computer purchase. Carol exchanged 0.5 bitcoins for the computer. Carol’s gain or loss on the transaction is the fair market value of the property received less her adjusted basis in the bitcoins.

Carol received a computer valued at $1,000 and gave up bitcoins with an adjusted basis of $503 (one-third of $1,508). Carol has a taxable gain of $497 and an adjusted basis of $1,005 in her remaining bitcoins.

The $497 gain is a tax-favored, long-term capital gain to Carol because she held the bitcoin property for more than a year.

Pros and Cons

Pro: Capital losses deductible. If you recognize a loss on a bitcoin transaction, then it is deductible from your other income, subject to the limitations applicable to capital losses. And if you are a noncorporate taxpayer, then you can carry forward any losses that you can’t use in the current year.

Pro: Taxable capital gains. Your bitcoins can appreciate in value, causing you to both gain extra income and pay taxes on that income. If you recognize a gain on a bitcoin transaction, then you have a short- or long-term capital gain on which you have to pay taxes. You may also have to pay the 3.8 percent net investment income tax on this gain. In cash transactions, you don’t have the possibility for profit or the complications of paying taxes.

Pro: Lower transaction fees. Stripe, a large third-party payment processor, processes bitcoin transactions for 0.8 percent of the gross amount, up to a maximum of $8 per transaction, compared with 2.9 percent plus $0.30 for credit card transactions (with no maximum).

If you receive a $2,000 payment for services rendered, your potential transaction costs are

  • $8.00 for a bitcoin transaction, and
  • $53.80 for a credit card payment.

Con: Basis tracking. Cash is cash and requires no special tracking. With bitcoin, you need to track the adjusted basis in your bitcoins and account for basis changes due to fractional sales.

Con: Liquidity. Once you get bitcoins, you may find it difficult to find others to transact with to use your bitcoins for goods and/or services.

You now have the big picture of how transacting business with bitcoins works.


Jesse Lothamer J.D., C.P.A., E.A.

Lothamer Tax Resolution

Winning Strategies For Small Business Owners

The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.

Rejoice if you operate your business as a sole proprietorship, partnership, or S corporation, because your 2018 income from these businesses can qualify for some or all of the new 20 percent deduction.

You also can qualify for the new 20 percent 2018 tax deduction on the income you receive from your real estate investments, publicly traded partnerships, and real estate investment trusts (REITs), and qualified cooperatives.

Basic Look

When can you as a business owner qualify for this new 20 percent tax deduction with almost no complications?

To qualify for the 20 percent with almost no complications, you need two things: First, you need qualified business income from one of the sources above to which you can apply the 20 percent. Second, to avoid complications, you need “defined taxable in-come” of

  • $315,000 or less if married filing a joint return, or $157,500 or less if filing as a single taxpayer.

Example. You are single and operate your business as a proprietorship. It produces $150,000 of qualified business income. Your other income and deductions result in defined taxable income of $153,000. You qualify for a deduction of $30,000 ($150,000 x 20 percent).

If you operate your business as a partnership or S corporation and you have the qualified business income and defined taxable in-come numbers above, you qualify for the same $30,000 deduction. The same is true if your income comes from a rental property, real estate investment trust, or limited partnership.

Some unfriendly rules apply to what Section 199A calls a specified service trade or business, such as operating as a law or ac-counting firm. But if the doctor, lawyer, actor, or accountant has defined taxable income less than the thresholds above, he or she qualifies for the full 20 percent deduction on his or her qualified business income.

In other words, if you were a lawyer with the same facts as in the example above, you would qualify for the $30,000 deduction.

Once you are above the thresholds and phaseouts ($50,000 single, $100,000 married filing jointly), you can qualify for the Section 199A deduction only when

  • you are not in the out-of-favor group (accountant, doctor, lawyer, etc.), and your qualified business pays W-2 wages and/or has property.

As you can see, there’s much to this new 2018 tax deduction.

Jesse Lothamer J.D., C.P.A., E.A.

February 2018 Newsletter

Tax Identity Theft Isn’t Limited to Individual Returns

The Internal Revenue Service issued a bulletin in December 2017 warning small businesses to be vigilant against a growing number of tax identity thefts against employers. It was noted that the IRS saw a large increase in the number of fraudulent forms 1120, 1120S and 1041 as well as Schedules K-1, as well as partnership, estate and trust returns. In the past, identity thieves were using stolen Employer Identification Numbers (EINs) to create fake W-2 forms that they use to when filing false individual returns and using the EINs to open lines of credit or obtain credit cards.  Now they are using company names and EINs to file fraudulent business returns. To help combat the thieves, starting in 2018, the IRS is now asking business and tax practitioners to provide additional information such as:

  • Name and SSN of the person authorized to sign the corporate return;
  • Payment history of estimated tax payments, how they were made, and the amount paid;
  • To list if there is a parent company and the name;
  • Give additional information based on the deductions claimed; and
  • Business filing history — listing any other business related tax forms filed.

 Business Owner Fails to Pay Employment Taxes

Steve Lopez, owner of two businesses in West Virginia, pled guilty in Federal Court to charges of failing to pay employment taxes. From 2008 to 2012, Lopez owned Ready Transport Services, a taxi service company as well as RTS Ice Cream, Coffee and Candy Shop.  Although Lopez withheld social security, Medicare and income taxes from his employee’s paychecks, he failed to pay approximately $393,851 in taxes owed to the IRS, as well as his employer’s share of those taxes. Lopez is scheduled to be sentenced in March 2018.  He faces a maximum sentence of 5 years plus supervised release, restitution and monetary penalties.

Thank you! 

Thanks to YOU, the word is spreading. Thanks to my clients and friends who graciously referred me to their friends, clients and relatives last month! I enjoy building my business based on the positive comments and referrals from people just like you. I just couldn’t do it without you!

Lothamer Referral Program

  1. Refer a friend, family, neighbor or coworker……
  2. …..and they call our office and purchase our Transcript & Stay on Collection Service…..
  3. …..You will get a $100.00 gas card!!  

Phone # 1-800-619-8277      Email –             Text – 1-877-955-9020 

If you get a questionable notice, phone call, have unfiled tax returns or unpaid taxes feel free to call or email Lothamer at 517-484-1040, toll free at 1-800-619-8277 or

                                      Your IRS Questions Answered Here…

Question: : I have a huge tax amount owing, the IRS is harassing me and I need help.  I got a quote from another company at a much lower price.  Why should I go with you?

Answer:    :  If someone quoted you a much lower fee, think about this: do you think an experienced tax resolution CPA, EA or attorney worth their “salt” would work for peanuts? – Especially given the fact that IRS Representation is a highly valued skill set.  You usually get what you pay for.  This is your financial life we’re talking about here and the stakes are very high. If you needed heart surgery, would you shop around for the least expensive surgeon or would you get the very best you can find?  The same holds true for dealing with the Internal Revenue Service. IRS problems have a way of ruining all aspects of your life, your marriage, relationships with your children and family members, your employment, ability to buy a house, a car, money for retirement or even have a bank account. You want the best possible person for the job, not the cheapest. Your IRS debt doubles every 6-8 years du e to the daily compounding effect of interest and penalties and the IRS has at least 10 years to collect from you  – handing this off to the lowest bidder in town is probably not a wise decision.  You’ll have peace of mind and sleep better at night knowing that we’re working hard on your case to not only protect you form asset and income seizures but to also  get you the lowest possible settlement, allowed by law!

We here at Lothamer Tax Resolution will make sure all your rights are protected!

Recent Lothamer results of Offer in Compromise settlements:

Amount of Tax Owed           Settlement Amount           Total Amount Saved              Offer #

$81,134.08                       $1,385.00                           $79,749.08                9072-1

$74,101.68                       $1,385.00                           $72,716.68                9072-2

$53,022.01                       $1,000.00                           $52,022.01                  6156

$215,700.32                     $65,416.00                         $152,284.32                 4062

               Call us 8 am – 6pm            877-TAX-BILL                    

                                          Are You My Next Client of the Month?

This month’s Client of the Month is Michael of Holly, MI.

Michael commented how he was impressed with the knowledge of our Lothamer staff during his time here. From his initial consultation till then end he was equally impressed with the efficiency of his case manager.  Michael also shared how pleased with both the quaility of the service and the results, and would highly recommend our services.

Congratulations Michael !!!

                               You might be my next Client of the Month too!

                           Watch for your name here in an upcoming month.


IRS training class is going on…..The teacher of the class says”….and then you smile and say… all together now…’that’s not deductable’.”

A visitor from Holland was chatting with his American friend and was jokingly explaining about the re, white and blue in the Netherlands flag. “Our flag sybolizes our taxes,” he said. “We get red when we talk about them, white when we get our tax bill, and blue after we pay them.”  ” That’s the same with us,” the American said, “Only we see stars, too.”

                                           I’d Like to Hear From You!

If you have an IRS issue, or just want to refer a friend, relative or client, we’d love to hear from you.

We at Lothamer Tax Resolution are experts in tax resolution and help taxpayers with their IRS

Problems every day.

                                             Call us at 800-619-8277

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Newsletter January 2018

Does your rental property activity meet the definition of a trade or business activity?

If yes, your rentals produce the best possible tax benefits.

In general, you report your rental properties on Schedule E of your tax return. When your activity rises to the level of a business, you continue to report the rentals on Schedule E, but with the business classification, you qualify for

  • tax-favored Section 1231 treatment;
  • business use of an office in your home;
  • business (versus investment) treatment of meetings, seminars, and conventions; and

Section 179 treatment of your business-use assets.

Rentals as a Business

In Levy, the court ruled that the trustees of this estate, by renting the real estate, were engaged in a trade or business. The court then went on to say this:

Courts have consistently held that the rental of real estate is a “trade or business” if the taxpayer-lessor engages in regular and continuous activity in relation to the property. It has been held that a taxpayer who rents only a single parcel of real estate is engaged in the “trade or business” of renting real estate if his activities are regular and continuous. The fact that the trustees employed agents to manage the real property does not make any difference.

Section 1231

The two big tax benefits of Section 1231 treatment are:

1. Tax law treats net Section 1231 losses as ordinary losses that you use to offset ordinary income.

Tax law treats net Section 1231 gains as long-term capital gains.

This gives you the best of both worlds: ordinary losses and long-term capital gains.

Home Office

In Curphey, the Tax Court ruled that Dr. Curphey’s ownership and management from his home of three condo units, two townhouses, and one single-family home rose to the level of a trade or business for purposes of his claiming the home-office deduction.

With respect to rental properties and Section 179 expensing, you need to pay attention to the following two rules, which can impact your expensing:

1. You may not claim Section 179 expensing on most assets used for residential rental properties.

To qualify for Section 179 expensing, you must purchase and place the property in use in the active conduct of your home business.


How to Stop Wage Garnishment in Michigan

Stopping a wage garnishment in the state of Michigan for taxes owed is a common issue for many Michigan residents. When a tax bill from the IRS or State of Michigan is unpaid or ignored, the IRS or State of Michigan Taxation agency can file a Wage Garnishment order, which requires a third-party wage provider to withhold some amount of wages as a means to repay a debt. The wage garnishment will stay in effect until the entirety of the tax debt is paid off, or the State of Michigan taxation agency or IRS agrees to a levy release. Continue reading

June 2017 Newsletter

Man Claims He Didn’t File Tax Returns Because of the Bible

James Schlosser of PA was convicted of failing to file tax returns for 21 years because he considered using a Social Security number akin to using the “mark of the beast” spelled out in the Bible. Schlosser failed to file returns from 1994 to 2014 on his earnings of approximately $2.3 million as a medical equipment salesman. The prosecution showed he funneled the income through foreign business trusts and corporations registered in Nevada. Schlosser could face 5 years in prison and $450,000 in fines. Continue reading

May 2017 Newsletter

Interesting Facts About the IRS

-When the IRS tax form 1040 was first introduced in 1914, it had only 3 pages including instructions. Today, it has 101 pages of instructions.

-The IRS requires you to declare all sources of illegal income (i.e. embezzlement)—they can’t prosecute you for the activity, but they can prosecute you if you don’t report the income. Continue reading

March 2017 Newsletter: Happy St. Patrick’s Day!

And Yet Another New Scheme; The Latest Tax Scam

Issuing an alert to tax professionals and taxpayers, the Internal Revenue Service is warning them about a new fake tax scam involving fake CP2000 notices. CP2000 notices are sent as part of the IRS’s Automated Under-Reporter Program when income reported from third party sources, such as employers or 1099’s does not match the income reported on a tax return. It is always sent to the taxpayer through the U.S. Postal Service. In the new scam, the fake CP2000 notice is sent as an attachment to an email, stating there is additional unpaid taxes owed relating to he Affordable Care Act. The notices appear to be issued from an Austin, TX address and includes the request that a check be mailed to an Austin post office box. The email also has a “payment” link within the email.

If you get a questionable notice feel free to call or email Lothamer at 517-484-1040, toll free at 1-800-619-8277 or

Continue reading