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Employee Retention Tax Credit

Fri, 11 Nov 2022 16:05:53 GMT

Employee Retention Tax Credit

As a small business (under 500 employees), you may qualify for the Employee Retention Tax Credit (ERTC).

With the ERTC, tax credits of up to $26,000 per employee may be claimed if qualified. With 10 employees, that’s $260,000. That’s a lot!!

Key point. If you have not claimed the ERTC, you can amend your 2020 and 2021 payroll tax returns for the credit.

Time Period to Claim is Ending In a Few Months

Three Ways to Qualify

Decline in gross receipts (on a quarterly basis, by more than 50 percent in 2020 compared with 2019, and by more than 20 percent in 2021 compared with 2019)
Government order that caused a full or partial shutdown (think physical space)
Government order that caused more than a nominal effect (think modification of activity)

When Is The ERTC Deadline

The ERTC deadline is March 12th, 2023. Businesses have three years after the program ends to look back at wages paid from March 12, 2020 to October 1, 2021, to determine eligibility. The Infrastructure Investment and Jobs Act notes an exception for wages paid by a recovery startup business. For those businesses, the original deadline of January 1, 2022, remains in place but is now past.

Two Types of ERTC Qualifications: Receipts and Government Orders

First, if you can qualify for the ERTC under the gross receipts test, go that route. It’s easy to prove. And you get the ERTC for the full quarter.

With the shutdown or modification because of a government order, you get the ERTC only for the days that you suffered a full or partial suspension or suffered more than a nominal effect on your business. For example, if you suffered for 27 days, you can qualify for the credit for those 27 days.

If you can’t qualify under the 50 percent or 20 percent decline in gross receipts tests, your only alternative is the government order.

What Government Order Creates the ERTC for You?

If you can establish that your business was fully or partially suspended because of a federal, state, or local government order, you are eligible on a day-by-day basis for the ERTC during those periods of full or partial suspension. Given the possibility of tax credits equal to $5,000 per employee in 2020 and $21,000 per employee in 2021, this is worth pursuing.

Remember 2020 and 2021. It’s hard to think that your business did not suffer due to a federal, state, or local government order during this COVID-19 pandemic. Even if you are an essential business, you likely suffered to some degree.

Here’s a short list of how a government order could have caused your full or partial shutdown:

You had to limit your hours of operation.
You had to temporarily shut down operations.
You had to close your workplace to some or all of your employees.
Your employees were subject to a curfew and could not work during normal work hours.
Your business had to shut for periodic cleaning and disinfecting.
The government order caused a supply chain disruption that caused you to cut back operations.

Full or Partial Shutdown Safe Harbor

You likely have no trouble identifying the full shutdown caused by a federal, state, or local government order. One thing to remember, as mentioned before: when you qualify for the ERTC under the full or partial shutdown, you earn the ERTC only for the shutdown period.

To determine if your business suffered a partial suspension of operations from a government order, you need to have had more than a nominal portion of your business suspended. The question follows: “What is a nominal portion?” Say thanks to the IRS. Rather than rely on facts and circumstances, you can rely on the IRS safe-harbor 10 percent definition of nominal portion.

It works like this.

The effect of the government order is deemed to constitute more than a nominal portion of your business operations if either:

The gross receipts from that portion of the business operations are not less than 10 percent of the total gross receipts (both determined using the gross receipts for the same calendar quarter in 2019), or
The hours of service performed by employees in that portion of the business are not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019).

Example. A 2020 government order requires Sam to shut down his bar and restaurant to sit-down service. Sam looks at his 2019 quarterly results and finds that his sit-down service was 73 percent of his gross receipts for that quarter. During the 61 days that Sam was shut down by this government order, he qualifies for the ERTC.

The full or partial shutdown is about a physical space change. You can also qualify for the ERTC if the government order caused a modification to your business.

Nominal-Effect Safe Harbor for a Modification to Your Business

Unlike the partial shutdown, where you can identify affected operations by physical space, the nominal-effect safe harbor comes into play when there’s a modification required by a federal, state, or local COVID-19 governmental order that has more than a nominal effect on your business operations. For example:

The government order limited your use of the physical space (e.g., keeping people and tables six feet apart).
The government order limited the size of gatherings, which affected your business (e.g., no more than 10 people in the store).

Here, you are faced with a facts-and-circumstances situation.

But again, you can thank the IRS for another safe harbor. The IRS deems that the federal, state, or local COVID-19 government order had a more-than-nominal effect on your business if it reduced your ability to provide goods or services in the normal course of your business by not less than 10 percent.

Example. Linda’s restaurant had to reduce its dining capacity from 100 to 60 patrons because of a government order. For this period, Linda qualifies for the ERTC because she suffered more than a 10 percent reduction in the restaurant’s ability to service customers.

If you have some ERTC possibilities and want my help, please call me on my direct line at 908-898-0031 or 973-896-4189. Our services are being priced as a flat fee, which saves you money as other firms are taking anywhere between 20% – 30% of what you get back. I guarantee that our pricing model WORKS FOR YOU!!!

Harry E. Hunter

President

Hunter Consulting

September 19, 2022

Impact of Hurricane Ida on Tax Filing Dates

Tue, 14 Sep 2021 15:57:53 GMT

Impact of Hurricane Ida on Tax Filing Dates

It has been a period of time since I last published a blog but I am hoping that this starts more frequent publications. I would like to thank everyone for their well wishes during my rehab from surgery and for the understanding when I was out of the office. I did my best to try and keep up with everything while I was home.

This write up deals with Hurricane Ida and the relief that is being afforded to taxpayers in designated federal disaster areas. I hope that Hurricane Ida did not cause any damage to you or your property. If you were affected by Ida, please give me a call and we can discuss what relief if any you may get from the tax code. For the residents of the State of New Jersey, if you reside in any of the following counties, the IRS is offering specific filing relief to you – whether individually or a business. These counties were made part of the New Jersey Disaster Declaration as of September 11, 2021:

Bergen
Essex
Gloucester
Hudson
Hunterdon
Mercer
Morris
Passaic
Somerset
Union

If you have a tax return that is due after August 26, 2021 the return is not due until January 3, 2022. This covers business that have a valid extension or individuals that have a valid extension. In addition, estimated tax payments due on September 15, 2021 is now due January 3, 2022.

Your zip code will be used by the IRS to identify if you are in a federally declared disaster area. You do not have to do anything if your zip code is part of the aforementioned counties. If you do not live in New Jersey you can concur with the FEMA website to see if your area has been designated a federal disaster area due to the effect of Hurricane Ida which would then afford you the relief offered by the IRS. I am currently waiting for notification that all computer software has been updated for this relief. Please be patient if this affects you.

Feel free to reach out to me to discuss your situation. Be safe and well everyone.

Harry E. Hunter

President

Hunter Consulting

Coronavirus and Taxes Part 11

Wed, 01 Jul 2020 15:55:28 GMT

Coronavirus and Taxes Part 11

Will the Paycheck Protection Program Get Extended?

Through June 30, the PPP approved 4,856,647 loans totaling just under $561 billion with an average loan size of just over $107 thousand through 5,459 different lenders.

The Paycheck Protection Program expired on June 30, 2020. The program expired with almost $130 billion unused. The question came up - What is to come of that money? We may have the answer. In a total surprise move, the US Senate by unanimous consent passed a five-week extension of the PPP just before the application window to the program expired. The House of Representatives needs to pass the measure and President Trump would have to sign it for the extension to take effect. Congress is slated for a two-week recess at the end of the week. Right now, it is unsure if this will get done before the extension.

Loan applications for the program ended at midnight on June 30 but if this gets approved and signed into law, the program will be extended until August 8.

PPP Statistics

PPP Loan Overview

This successful program created by Congress is part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. The legislation authorized the Treasury Department to use the SBA’s small business lending program to fund forgivable loans of up to $10 million per borrower allowing qualifying businesses to cover payroll, mortgage interest, rent, and utilities. The loans are available to small businesses that were in operation on February 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans. The key component of the program is the ability to get the loan forgiven. The forgiven rules were modified on June 5 with the Paycheck Protection Program Flexibility Act of 2020. Please see my update “Coronavirus and Taxes Part 10” dated June 9 for more details.

Tax Returns

Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. The tax filing date is July 15 (automatic extension can take you out to October 15). You can scan your documents into a PDF and email to me at HunterTaxConsulting@gmail.com. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

July 1, 2020

Coronavirus and Taxes Part 10

Tue, 09 Jun 2020 15:51:58 GMT

Coronavirus and Taxes Part 10

Paycheck Protection Program Loan Forgiveness Changes - AGAIN

Borrowers were required to spend at least 75% of the loan on payroll expenses (Payroll is defined as payroll, state payroll taxes (not Federal), group health insurance and pension/retirement contributions) for the loan to be forgivable. No more than 25% could go toward utilities, business mortgage interest or rent.

The rules to the Paycheck Protection Program keep changing faster than I can write about it. On Friday June 5, I published the changes that were signed into law that day by the President. On Monday (yesterday) the US Treasury Department and the Small Business Administration clarified certain aspects of the law. Before I go into those changes it is important to understand that these changes may actually be contrary to the law signed on June 5. Further clarification may come as a technical corrections bill.

Pre June 5

June 5

The new legislation signed on Friday softens the requirement allowing 60% of the proceeds go toward payroll. When the changes to the program were announced on Friday, the 60% payroll requirement was stated to be a cliff- either you use at least 60% for payroll to get qualified for forgiveness or if you don’t spend at least 60% you do not qualify for forgiveness. New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

June 8

A new PPP forgiveness application is forthcoming to reflect the announce clarifications made by the U.S. Treasury Department and the Small Business Administration. These clarifications include:

Business owners who apply less than 60% of the funding toward paying their staff are still eligible for partial forgiveness of the loan.
Originally, borrowers had two years to repay their loans at an interest rate of 1%. The Treasury and the SBA are giving borrowers five years if their loan was approved by the SBA on or after June 5. On Friday it was stated that you could get your two-year loan changed to five years just by asking – now this may not happen. You may ask but the lender makes the final decision. Speculation is that 1% loans are not what the banks want on their books and may not approve the change to five years.
Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

As the mud in the water continues to settle, I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

June 9, 2020

Coronavirus and Taxes Part 9

Fri, 05 Jun 2020 15:48:21 GMT

Coronavirus and Taxes Part 9

Paycheck Protection Program Loan Forgiveness Changes, All for the Good, and Update on Stimulus Payments

As of June 3, the SBA reported that 4.5 million firms had received approvals for loans totaling $510.6 billion. About $130 billion remain from the second round of $320 billion that Congress approved for PPP. The initial round of $349 billion was tapped in just 13 days.

More Relief on the Way? There are two bank lobbying organizations asking Congress to automatically forgive small Paycheck Protection loans of less than $150,000. The lobbying groups are arguing that blanket forgiveness of small loans would save recipients substantial time and money. Using a $150,000 threshold, 26% of all PPP loan dollars would qualify for automatic forgiveness representing 85% of PPP loan recipients. “Their time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork,” the banking trade groups wrote. In addition, the blanket loan forgiveness would also help banks reduce cost as the amount of servicing on these loans would not be needed.
Is this the end to the changes to the PPP program? I doubt it as I still expect technical corrections. As always stay tuned.

Well that didn’t take long. I wrote on May 23 that there will probably be changes to the forgiveness rules of the Paycheck Protection Program. Well it happened as the Paycheck Protection Flexibility Act was signed into law on June 5.

Washington, a town not known for speed, saw this happen quickly as the initial eight-week window recently expired for the first recipients of PPP loans.

Following is a summary of the revised rules:

Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
The rules reduce the amount to be spent on payroll to 60% from 75% but is now a cliff - borrowers must spend at least 60% on payroll or none of the loan will be forgiven.
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
The bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program's expiration to begin making payments.
The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

All of this was in response to business’ that complained that they could not spend their loan money in such a short time frame as they were still closed and workers did not have much to do.

In addition, Congress emphasized that the application deadline remains June 30.

SBA Funds Remaining

Stimulus Payment Update

As my part 7 update (Coronavirus and Taxes - Part 7) explained the schedule as to when to expect your stimulus check, it turns out that about 4 million are being sent stimulus payments by prepaid debit card instead of a paper check.

Excuse me? – I was expecting a paper check. Be alert that if you were expecting a paper check or direct deposit, you may be receiving an unmarked envelope with a stimulus debit card instead.
What Are Economic Impact Payment Cards? Economic Impact Payment (EIP) cards are Visa-branded debit cards issued by the government and stocked with your stimulus check money. This started the week of May 18. If the IRS did not have your banking account information and their tax return was process in Andover or Austin processing center, they may get the Visa Card. The prepaid debit card resembles a regular debit card bearing the words "Visa" and "debit" on the front and the issuing bank, is MetaBank, N.A. The card will arrive in a plain envelope from Money Network Cardholder Services. Review your mail carefully to ensure you don't toss it in the trash. You'll need to activate your card by visiting EIPCard.com or calling 1-800-240-8100.

Tax Returns

Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email (HunterTaxConsulting@gmail.com) to me. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

June 5, 2020

Coronavirus and Taxes Part 8

Thu, 28 May 2020 15:40:19 GMT

Coronavirus and Taxes Part 8

Paycheck Protection Program Loan Forgiveness, The Requirements, and What You Need to Know

The SBA released the 11 page PPP Loan Forgiveness Application. The application covers three different forgiveness calculations: Payroll, Headcount and Other Expenses in determining how much of the loan qualifies for forgiveness.

Disclosure of the payroll and qualifying non-payroll costs that the business has spent over the eight-week period since it received its PPP funds.
Calculation of the reduction in the forgiveness amount if you have reduced pay for employees greater than 25 percent or if you have not brought back the same number of full-time equivalent employees (FTE). The FTE rule requires a business to reduce its forgiveness request if it does not bring back the same number of employees that it had pre-pandemic. The application does provide for a waiver of this reduction if the business failed to bring back its same employee count during its eight-week period but later brought back the same number of employees by June 30, 2020. In my opinion this may be area of concern in the calculation. If you disclosed number of employees on the application not the number of FTE’s you may have a reconciled item that may work against you.
The 75 percent payroll cost test, which states that the forgiveness request must be comprised of 75 percent payroll costs. The other 25 percent can only be rent, lease, mortgage interest debt and utilities.

NOTE: This is a longer than usually newsletter but the information in this newsletter is of extreme importance to those that have a PPP loan. Please read it all to understand your role in getting your PPP loan forgiven. You need to understand these rules and be prepared to file the application immediately following the end of the eight-week period before the rules change for the worse.

For those who received a loan from the SBA’s Paycheck Protection Program (PPP) understood that getting this loan came with the potential of having the loan converted to a grant and being partially or fully forgiven. The SBA has released the Loan Forgiveness Application. Those applications will start being filed by the first recipients of the loans in approximately two weeks. The earliest that you may file for forgiveness is 8 weeks after receiving the loan.

As a quick review the loan amount was calculated based upon your average monthly payroll, multiplied by 2.5. It is important to remember that the program’s goal was for businesses to maintain its payroll and headcount. The intention of the loan was not for general working capital. There are certain other “essential” expenses covered by the loan – the “0.5” part of the loan calculated amount. In summary 75% of the loan was to be used for payroll and 25% for rent, lease, business mortgage interest and utility expenses.

As we all know the “devil is in the details.” Let’s take a look to see how much of the loan you may qualify to get forgiven. For the amount of the loan not forgiven, you pay it back over 18 months (it is a two-year loan with the first six months not requiring payment, all at 1% interest). The forgiveness application is filed with your lender not the SBA and the lender has 60 days to notify you of the amount forgiven. Be aware the IRS has ruled that business expenses covered by the forgiven amount of the loan, cannot be deducted as a business expense. More on this later.

The Application

Covered Period and Alternative Covered Period (covered period)

The application allows a borrower to select as the covered period either the 8-week (56-day) period from the first disbursement date of the PPP loan or, if more convenient to align with a borrower’s payroll schedule, an alternative 8-week period that begins on the first day of the borrower’s first pay period following the loan disbursement. Whichever period the borrower selects must be used consistently through the application. Note that while the borrower may choose to use the alternative covered period for payroll, it may not do so for nonpayroll costs.

Definition of Other Expenses

When the CARES Act was passed it was unclear whether the lease of personal property was an amount that could be included in rent, and thus forgiven. The forgiveness application specifically states that rent includes the following: “Business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (business rent or lease payments).”

While office and storefront and other real property was going to be included, the application now makes it clear that personal property items such as copiers, servers, autos and other common items of personal property that are leased by a business can be includable in the non-payroll costs that may be forgiven. Similarly, a business “mortgage interest payment” includes loans for real property and personal property, and as a result interest paid on loans for equipment, autos and other personal property items are includable and can be forgiven.

The application also defines utility expenses as “...electricity, gas, water, transportation, telephone or internet access, for which service began before February 15, 2020.” Most of these utility expenses are straightforward. What falls under transportation is uncertain, but SBA guidance appears to define transportation costs as gas and other auto expenses that would usually be part of the auto deductions on the business-tax return. Services purchased through the internet i.e. cloud storage or other subscriptions are not part of utility expense.

All eligible non payroll costs must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.

Average FTE Calculation

In determining FTE before the pandemic and during the eight-week period, the SBA has given two alternative methods of calculation:

The first option is to take the average number of hours paid each week for each employee, divide by 40 and round the total to the nearest 10th. The maximum number of hours per employee is 40 or 1 FTE. Since the calculation method tracks each employee by the hours they worked, and since it is the same method used pre-pandemic and during the eight-week period, it will fairly reflect the businesses payroll costs and the hours worked without having to worry about whether an employee makes the cut as a full-time equivalent or if they are part-time.
The SBA is also allowing for a simpler method that assigns 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer than 40 hours. While this may work for some small businesses, there can be some losers in this method, as you may have someone who worked 35 hours who is now only being counted at 0.5 under the simple method but would be 0.9 under the traditional method.

There are exceptions to your FTE calculations. Employees who were laid off or furloughed may not wish to be rehired. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness. To qualify for this exemption:

You must have made a written offer to rehire in good faith
You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
You must have documentation of the employee’s rejection of the offer

If any of the following conditions apply to an employee, you may also qualify for an exemption:

Fired for cause
Voluntarily resigned
Voluntarily requested and received a reduction of their hours

Employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.

Reminder: If you spend 75% of your loan on payroll but do not have the same pre pandemic FTE your forgiveness will be reduced based upon the percentage reduction of your FTE. For example, if your loan was $50,000 (75% for payroll - $37,500; 25% for other costs - $12,500) and you use the full $50,000 as stated during the covered period and your pre pandemic FTE was 10 but your covered period FTE is 7, your forgiveness will be $35,000 (70%).

Documentation of Payroll Costs

For payroll costs, the business must outline these on Schedule A Worksheet and must identify each employee paid during the eight-week period. The business must also identify employees paid at an annualized rate below $100,000 in 2019 on one schedule and employees paid at an annualized rate over $100,000 on another schedule. The business owner’s compensation is included on a separate line on the forgiveness application, but still calculates into the application like any employee. No employee or owner can have cash/wage compensation that is forgiven greater than the annualized eight-week amount of $15,385. This cap does not include health insurance and retirement contributions paid by the business for employees. Self-employed individuals do not get the benefit of health insurance or retirement contribution (see Owner Compensation Replacement section for explanation).

To document the payroll costs, the SBA is requiring each of the following:

Bank accounts or third-party payroll service reports documenting the cash compensation paid to employees.
Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the covered period. For tax forms, the SBA is requesting payroll tax forms (usually 941) and state quarterly wage and unemployment filings.
Payment receipts, cancelled checks or account statements documenting the amount of employer contributions to employee health insurance and retirement plans.

Owner Compensation Replacement

So far as discussed is how to get the payroll part of the PPP forgiven if you have employees. But what about those who don’t have employees – the self employed or sole proprietor. A concept called owner compensation replacement was introduced to help answer that exact question. When you qualified for your loan you took your net profit from 2019 and divided it by 12 and received 2.5 times that amount as the maximum amount of the loan you qualified for PPP. This is basically 10 weeks of your net profit. Since as a sole proprietor, you likely do not have payroll to spend those funds on, owner compensation replacement will help you receive forgiveness. If you are subject to owner compensation replacement you can automatically receive eight weeks’ worth of net profit forgiven – this is the owner compensation replacement concept. In order for the funds to be fully forgiven, the remainder of your PPP funds will need to be spent on the approved expenses previously discussed. The SBA rules emphasize there is no forgiveness provided for retirement or health insurance contributions made for self-employed individuals (independent contractors or sole proprietors) or General Partners, under the reasoning that “such expenses are paid out of their net self-employment income.” Net self-employment income is determined after reduction for contributions made towards employee retirement and health insurance expenses on the Form Schedule C and Form 1065. Such filers are not allowed to take deductions for contributions to their own retirement plan or health expenses, which is apparently the reasoning that the SBA is following for not allowing self-employed individuals or partners in a partnership to take health insurance and retirement plan costs into account.

To calculate the amount of owner compensation replacement eligible for your claim for forgiveness, take the 2019 net profit from your Schedule C and multiply that by 8/52 or 0.154. You will have to submit your Schedule C to your lender for documentation.

The updated guidance provided by the SBA does not allow for self-employed individuals to claim the entire amount of the PPP fund as income replacement. You still need to show the expenses for rent, lease, mortgage interest and utilities.

Still Unknown

It is unclear if owner’s compensation replacement will be applicable to all entities that don’t have a payroll. As this is currently the only information that has been released for self-employed people it may be assumed that this will carry over to other type of non-payroll entities that received the PPP. Hopefully there will be more guidance on this forthcoming.

Documentation of Rent, Lease, Mortgage Interest, and Utilities

To document the approved non-payroll costs of rent, lease, mortgage interest and utilities, the SBA is requiring existence of the obligation/service prior to February 15, 2020 and evidence of payments during the eight-week period.

To document rent or lease payments, a copy of the lease agreement must be produced showing it was in force before February 15, 2020. To document the payments, the small-business owner will need to produce copies of account statements from its landlord/lessor showing the payments or cancelled checks evidencing the payments made during the eight-week period.

The documentation required for utility payments includes an invoice or statements from February 2020 showing the utility service in place. To document payments made during the eight-week period, the business can use account statements showing the payments made, cancelled checks or bank-account statements showing the payment.

Accuracy

Attention to detail and a correctly completed forgiveness application will be key to ensuring the maximum amount forgivable. Understanding what is in the application now will greatly increase a small business's chances of receiving maximum PPP loan forgiveness. While there are still unanswered questions, reviewing the PPP forgiveness loan application is a big step forward.

SBA Review

Borrowers that, together with their affiliates, received PPP Loans in excess of $2 million are required to check a box on the application indicating as such. Presumably, this will be used to flag applications required to be reviewed by the SBA. The SBA has stated that loans under $2 million will not be subject to audit. In addition, the SBA is requiring that any borrower who has any form of loan forgiveness must keep its loan records and documentation for six years from when the loan is paid in full.

Certifications and Materials

Borrower must certify (among other certifications) that the forgiveness amount was used only for eligible expenses, has been appropriately reduced (for compensation or average FTE reductions), does not include non-payroll costs in excess of 25%, and does not exceed 8-weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner (capped at $15,385 per individual). The application also reinforces that there are potential criminal charges for false claims in connection with the information provided in the application or supporting documents or if funds were knowingly used for unauthorized purposes.

Taxes

Amounts forgiven are not taxable income to the borrower. However, the IRS has held that a borrower whose PPP loan is forgiven may not deduct the expenses that relate to the forgiven amount. This is a backdoor attempt of taxing the loan proceeds. There are some bipartisan efforts to reverse that decision but it is not yet clear if they will be successful. Commentary has stated that this is in direct contradiction to what the CARES Act intended. I would expect that sometime before the end of the year there will be a technical corrections bill from Congress clarifying these types of matters.

Extension of the Covered Period

When the Senate adjourned for the Memorial Day recess a proposal to increase the covered period to 16 weeks from eight weeks was pending. It would also allow businesses to use the loans to purchase personal protective equipment for employees and to pay for other "adaptive investments" needed to reopen safely.

The proposal is different than one that the House plans to pass. The House legislation would extend the covered period to 24 weeks, eliminate the requirement that 75 percent of the money be spent on payroll — a provision left out of the Senate compromise.

The Senate bill also includes new legal protections for banks that relied on borrower certifications and documentation when making the loans. Stay tuned for more information on this.

Please understand that this newsletter was created and put together from documents that I researched. The one thing that has been constant with this program has been change. I will not be surprised if changes come out especially after the initial forgiveness applications are filed and reviewed. Remember the final say as to your forgiveness sits with your lender. The lender is incentivized by the SBA to make sure this is done correctly – loan granted according to the rules and forgiven according to the rules. I would expect that you may get some guidance from your lender when it is your time to file for forgiveness. As always, I am making myself available to those that need help – clients and non-clients alike.

Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email (HunterTaxConsulting@gmail.com) to me. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

May 24, 2020

Coronavirus and Taxes Part 7

Sat, 09 May 2020 15:23:37 GMT

Coronavirus and Taxes Part 7

Stimulus Payment Update

There is a schedule as to when you can expect your check. First, if you are getting your stimulus payment via direct deposit you should have received it by April 17, 2020. If you are getting a check, it is based upon your ADJUSTED GROSS INCOME. The following is the schedule as to when you should expect your payment. All other checks (for those without tax information on file) are schedule for payment by September 11.

The federal government has been sending out the stimulus checks to people who qualify to receive the payment. As I stated previously these checks will be sent to you based upon your 2018 tax return if you have not yet filed your 2019 tax return. If you are single and your ADJUSTED GROSS INCOME is under $75,000 you will receive at $1,200 stimulus payment. If you are married and your ADJUSTED GROSS INCOME is under $150,000 you will receive $2,400. If you have a dependent child under age 17 you will receive an additional $500 for each qualifying child. If your income is above the aforementioned limits your stimulus payment will be reduced $5 for every $100 above the limit until your income reaches $99,000 for a single taxpayer or $198,000 for a married taxpayer where you would not qualify for a stimulus check.

The payments are being made based upon banking information you have on file with the IRS. When you filed your 2018 or 2019 tax return and you got a refund and provided banking information for a direct deposited, the IRS will use that information to process your stimulus payment. If you do not have banking information on file, you will receive a check. If you want to give the IRS your banking information, please see below for more information.

WHEN DO I GET MY CHECK?

HOW DO I GET MY STIMULUS PAYMENT BY DIRECT DEPOSIT?

If the IRS does not have your banking information on file you can still receive it via direct deposit but you now must act quickly. The IRS announced on May 8 that the last day you can give the IRS your banking information will be noon Wednesday May 13. If you don’t provide your banking information you will receive a check according to the schedule listed above.

To provide the IRS your banking information you need to go the IRS website and click on the Get My Payment tab. When you click on the tab you will need to have your most recent filed tax return to provide certain information. The IRS will verify your identity with certain information from your tax return. After validating your identity, you will then be able to provide your banking information for your stimulus payment. Direct deposit will speed up the receipt of your payment.

RETURNING A STIMULUS PAYMENT

If you received a stimulus payment in error it is not yours to keep. The government wants it back. In newly released guidance, the IRS confirmed that some stimulus payments were sent by mistake to nonresident aliens, incarcerated people, and deceased taxpayers. It's now asking those recipients, or their family members, to return the money.

As for married filing jointly taxpayers, money was automatically sent to the bank account or address on the joint tax return without being cross-checked against other records to confirm whether both spouses are still living. The IRS says that the living spouse is entitled to keep their portion of the stimulus payment — which would be half of the total amount. The same goes for spouses of people in prison who may have received the full payment permitted for joint filers.

While the IRS wants the money back, they have not outlined any consequences for not returning a stimulus check it sent by mistake. There's a good chance some people who got stimulus checks in error may have already spent the cash.

The newly released guidance says you "should" return the money "immediately," but there's no official mandate. The CARES Act has no claw back provision allowing the IRS to take back money it has already disbursed during the coronavirus national emergency.

If you received an erroneous paper check, here's what to do:

Write "void" in the endorsement section on the back of the check.
Write a note to include with the check explaining why it's being returned.
Mail the check and the note to the IRS location based on the state you live in. The list of addresses is available on the IRS website.

If you got a direct deposit, or you already cashed the paper check you received, here's what to do:

Submit a personal check or money order payable to "U.S. Treasury" and write "2020EIP" along with the recipient's and send to the IRS address corresponding to your state. The list of addresses is available on the IRS website.
Indicate your Social Security number or individual taxpayer identification (TIN) number.
Write a note to include with the check explaining why it's being returned.

Lastly, I hope that you and your family are well and are remaining safe. As I previously stated in other emails, in trying to keep in compliance with social distancing guidelines, I am offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email to me. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

May 9, 2020

Coronavirus and Taxes Part 6

Sun, 05 Apr 2020 15:09:51 GMT

Coronavirus and Taxes Part 6

State Filing Extension Date Update and the SBA Loan Programs

The following is a list of NEW tax return filing due dates for each state for individual returns. This list is current as of this writing but can change:

May 15: Mississippi
June 1: Virginia
June 15: Indiana, New Hampshire, Washington, Puerto Rico
July 15: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, DC, Delaware, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, North Carolina, North Dakota, Nebraska, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Wisconsin, West Virginia
July 20: Hawaii
July 31: Iowa

The above dates do not necessarily reflect the filing dates of business returns, sales tax returns, payroll tax returns, estates and trusts or estimated tax dates. The due date on these returns should be checked against the respective states website.

In my Coronavirus and Taxes Part 5 update I dealt with the stimulus payment that was created by the passing of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Before I start with an update as to the SBA Loan part of the ACT it is important to understand that this information is changing daily. Information that was shared in earlier procurements may have changed. Please use this information as a guide and it may not be the definitive rules.

State Filing Extensions

SBA Loans

A significant part of the ACT is the expansion of existing Small Business Administration Loan programs. The goal of the SBA loan programs is to help business with their payroll, keep employees employed and assist in the paying of rent, mortgage interest, utilities and other operating expenses.

The SBA has vowed to make the application process simple.

Economic Injury Disaster Loan (EIDL) EIDL Application

The EIDL program is a program that you can apply for directly on the SBA website to get a $10,000 loan that will be treated as a grant and can be used to help you pay for your payroll, materials, mortgage or lease, utilities or other operating expenses. This application is simple and should take you no more than 15 minutes to file. The SBA says you will be funded within three days if approved.

Paycheck Protection Program (PPP) (PPP Application)

This part of the program is funded and capped at $350 billion and is aimed at providing small American businesses with eight weeks of cash flow assistance through 100% federally guaranteed loans (apply early so you don’t get shut out). If you are a small business with less than 500 employees, a nonprofit organization or 501 (c)(19) veterans organization affected by the coronavirus you may apply for this program.

The loan has a maturity rate of 2 years with an interest rate of 0.5%. First loan payment is not due for six months and no collateral or personal guarantees are required. There are no fees.

The loan covers expenses dating back to February 15 through June 30, 2020. The loan has the possibility of being forgiven turning it into a non-taxable grant.

To qualify sole proprietorships will need to submit schedules from their filed tax or to be filed tax return showing income and expenses from the sole proprietorship. Independent contractors will need to submit Form 1099 MISC. Other business types will need to submit payroll tax filing as reported to the IRS.

When you apply for the loan you must acknowledge that the funds will be used to retain workers and maintain payroll or make your mortgage, lease payments, and utility payments. Funds used for other purposes will not be eligible to be converted to a grant. The maximum amount you can received is 2.5 times your average monthly payroll cost up to a maximum of $10 million. (April 1, 2019 through March 31, 2020). Payroll costs include salaries, wages, tips, vacation, medical or sick leave, health benefits, retirement benefits, employer social security and Medicare and state and local wage taxes. It must exclude any employee and affiliated social security and Medicare taxes of any employee making greater than $100,000. If you are a seasonal employer the lender will use a 12-week period ending June 30, 2019. If your business did not exist before June 30, 2019, the lender will look at your January and February 2020 costs.

You have to apply for this loan through an SBA lender not the SBA. Check with your bank to see if they are an SBA lender. Applications can be accepted starting April 3, 2020.

To get this loan forgiven you need to keep excellent records. A recommendation is to keep these funds and expenses in separate bank account. Eight weeks after your loan signing date you may apply for loan forgiveness. The following expenses can be forgiven:

Payroll – salary, wage, vacation, parental, family, medical or sick leave benefits;
Mortgage Interest as long as the mortgage was signed before Febraruy15, 2020;
Rent as long as the lease agreement was in effect before February 15, 2020
Utilities as long as the service began before February 15, 2020.

The lender has 60 days o make a decision on your forgiveness application from the time you make the submission. The conditions of loan forgiveness is your commitment of maintaining the average monthly number of full-time equivalent employees equal or above the average monthly number of full-time equivalent employees during the previous one year. The amount that can be forgiven will be reduced in proportion to any reduction in the number of employees retained and if any wages were reduced by then a 25%. If employees are rehired that were previously laid off at the beginning of the period or any decreased salaries were restored you will not be penalized for having a reduction in employees or wages as long as this is done by June 30, 2020.

SBA Disaster Loan Program

The SBA Disaster Loan Program is usually reserved for people affected by a natural disaster but the ACT is including COVID-19 relief as part of the program. You can borrow up to $2 million at 3.5% (2.75% for nonprofits) and up to 30-year payback (note the terms are subject to change). This loan can be used to keep your business operating during the pandemic. This program is applied through the SBA’s Disaster Loan Assistance Portal.

Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email to me. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

April 2, 2020

Coronavirus and Taxes Part 5

Mon, 30 Mar 2020 15:00:11 GMT

Coronavirus and Taxes Part 5

The Stimulus Payment, Other Clarifications, and Frequently Asked Questions

These payments being sent to taxpayers that meet certain income qualification based upon filing status. Generally, a single filing taxpayer (who cannot be claimed as dependent of another taxpayer) with adjusted gross income of $75,000 or less will received a $1,200 payment from the government. A married filing jointly taxpayer with adjusted gross income of $150,000 or less will receive a $2,400 payment. Taxpayers filing as head of household with adjusted gross income of $112,500 or less will received a $1,200 payment. In addition, for each qualifying child, there will be a $500 payment.

On Friday March 27, 2020 Congress sent to President Trump and he signed a massive 880 page plus bill called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The ACT is a compilation of various stimulus related activities for individuals and business to help the economy recover from the devastating effect that the Coronavirus pandemic is having.

The cornerstone of the ACT is the pending stimulus checks that the government will be sending out to taxpayers. This article is dedicated to this part of the ACT. While I have tried to put together a clear and concise overview there are still some issues that are unclear. As more is learned about the details, I will do my best to keep everyone informed.

What are these payments?

My income is greater than the aforementioned limits what happens?

If you are a single filing taxpayer and your adjusted gross income is greater than $75,000 your payment will be reduced $5 for every $100 over $75,000. If your adjusted gross income is greater than $99,000 you will not receive a stimulus payment.

If you are a married filing jointly taxpayer and your adjusted gross income is greater than $150,000 your payment will be reduced $5 for every $100 over $150,000. If your adjusted gross income is greater than $198,000 you will not receive a stimulus payment.

If you are a head of household taxpayer (generally a single parent with children) and your adjusted gross income is greater than $112,500 your payment will be reduced $5 for every $100 over $112,500. If your adjusted gross income is greater than $136,500 you will not receive a stimulus payment.

What is a qualifying child?

A qualifying child is your dependent child who is under 17 years of age. It is unsure what will happen to your child payment if your child should turn 17 after 2018. The IRS does have the data to calculate your child’s age in 2018 but it is unknown if they will just be adding a year to your child’s age on your 2018 return or not. Based upon the program in 2008, if a stimulus check was larger than it should have been, there was no way to pay back the extra money. Currently it is unknown the IRS position on this.

What if I had a child in 2019, but I haven't filed my 2019 return yet?

If you had a baby last year, but you haven't filed your 2019 return, you might be worried about losing $500 because the IRS is not yet aware. If you have a child now that is not reflected on your 2018 return, you will be able to account for the child when you file your 2020 return next year and get the $500 credit. In fact, if your stimulus check is less than what you are entitled to receive for any reason, you can make up the difference with an extra tax credit on your 2020 return.

What tax year is the basis for my income?

To understand this first it is important to understand that this payment is an advancement of a new credit on your 2020 tax return. Since the 2020 return cannot be filed yet, the government is going to use your 2019 tax return if you filed. If it has not been filed yet, the government will use your 2018 tax return.

How will I get paid?

When you filed your latest tax return the government will send you the payment in the same form that you received your refund (either check or direct deposit). If your banking information has changed since you filed the tax return, the government will mail out a check once they receive a “rejection” notice from the bank on the payment.

Are the checks taxable?

It appears that these checks will not be taxable. But there is a catch. These payments are an advancement of a credit that you will be receiving on your 2020 tax return. It is that income that will really determine if you were eligible for this advanced payment. If you receive the payment but may not have qualified since filing your 2020 tax return what will happen to that payment is still unknown as we are waiting for IRS guidance on this. What is known if that you did not get the payment for whatever reason but did qualify or if the payment amount you received is lower than what you should get that will be adjusted when you file the 2020 tax return.

When will you receive these payments and what if my address has changed?

The goal is for the payments to start going out the week of April 6. Based upon history when the government last did this in 2008, those payments went out in batches and took as long as eight weeks for all the payment to be made. Most experts believe that the week of April 6 is too ambitious of a timeframe and that the middle to the end of April may be a more realistic. Within 15 days of mailing your check (or directly depositing it into your bank account), you will receive a notice in the mail indicating the method of payment, the amount of payment, and an IRS phone number to call if you didn't receive your payment. Both the payment (paper check) and notice will be mailed to your last known address the IRS has on file. If you have recently moved, you should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure correspondence and payments from the IRS will be sent to your new address.

I only get Social Security and I don’t file a tax return; do I still qualify?

People on Social Security are eligible to receive the stimulus payment as long as their total income does not exceed the limit. As long as you received an SSA-1099 form (the Social Security benefit statement), the federal government will be able to send a payment via the usual way you get your Social Security payment. Retirees and people on disability are both eligible for the special payment.

How many Americans will get these payments?

It is estimated that 83% of tax filers or 125 million people will receive a stimulus payment.

Do I have to have a Social Security number to get a check?

You must have a Social Security number to receive a stimulus check. Your spouse and any child receiving $500 must also have a social security number. An individual taxpayer identification number (ITIN) is not good enough.

There are two exceptions to this rule. First, an adopted child can have an adoption taxpayer identification number (ATIN) instead of a Social Security number. Second, for married members of the U.S. armed forces, only one spouse needs to have a Social Security number.

Will the IRS take my check if I owe back taxes?

Stimulus money is generally not subject to reduction or offset to pay back taxes or other debts owed to the federal government.

Other Clarifying Items

Since the writing of the four previous articles here are a few more clarifying items that have been released:

Estimated Tax Payments: The first, second and third estimated tax payment for 2020 with due dates of April 15th, June 15th and September 15th are now due October 15th. The fourth payment remains unchanged at January 15, 2021.
Early Withdrawal Penalty: For individuals affected directly by COVID-19, the 10% early withdrawal penalty is waived for IRA and workplace-based retirement plan distributions up to $100,000 in 2020. The tax due on the distribution is payable over three years. The ability to repay the distribution is also over the next three years. This relief applies for anyone diagnosed with COVID-19, who has a spouse or dependent diagnosed, or who experiences financial hardship as a result of being quarantined, laid off or having reduced work.
Required Minimum Distribution Rules (RMD): The Act temporarily suspends the RMD for 2020.
Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email to me. Also, they can be mailed to my PO Box.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

Coronavirus and Taxes Part 4

Tue, 24 Mar 2020 14:43:04 GMT

Coronavirus and Taxes Part 4

As of this writing we are all still waiting for Congress to come to an agreement on an economic stimulus package due to the Coronavirus – COVID-19. While there has been a lot of different proposals floated in the press, I make it a practice to only discuss what is known not what is speculated. As someone once said to me Facts are our Friends.

Families First Coronavirus Response Act

So here is what we know right now. Congress passed and the president signed into law on March 18, 2020 the Families First Coronavirus Response Act (ACT). Here is a brief summary of how this affects employers and employees. The ACT creates the Emergency Paid Sick Leave Act and expands the Emergency Family and Medical Leave Act. The following only serves as a summary and you should consult the law for all details to see if everything is applicable to your situation:

Emergency Paid Sick Leave: The ACT provides for paid sick leave to all employees due to COVID-19 related issues. The ACT provides that employees of eligible employers (key term) can receive up to 80 hours of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis. All employees are immediately eligible for paid sick leave.
Emergency Family and Medical Leave: The ACT provides for an employee who is unable to work because of a need to care for an individual subject to quarantine, care for a child whose school is closed or a child care provider is unavailable for reasons related to COVID-19. The first 10 days are unpaid but an employee can use accrued paid leave. After the 10-day (2-week period) employers become obligated to pay full time workers 2/3 of their regular rate of pay for up to ten weeks. Part time employees are paid 2/3 of their regular rate of the average number of hours worked over the prior 6 months. Furthermore, the ACT protects the employee’s job and the employee must get back their same job or an equivalent position. There are exceptions to this rule.
Eligible Employers: Eligible employers are business and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the ACT. Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.
Employer Credits: The Eligible employers will be able to claim credits on qualifying leave they provide. The employer can collect a tax credit equal to 100% of qualified emergency sick leave and family leave payments paid by an employer for each calendar quarter included in the credit is health insurance costs. Self-employed individuals receive an equivalent credit. Needless to say, the employer will need to keep proper documentation to provide proof.
Employer Fund Easing: The employer is allowed to retain and access funds that they would otherwise pay the IRS in payroll taxes. If these funds are not sufficient to cover the cost, the IRS has indicated that a form to seek an expedited advance will be released by month’s end.
Effective Dates: The effective dates for the ACT are April 2, 2020 through December 31, 2020.

As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

March 26, 2020

Coronavirus and Taxes Part 3

Mon, 23 Mar 2020 14:38:03 GMT

Coronavirus and Taxes Part 3

In what I believed should have been announced from the outset was announced today: The IRS filing date of April 15 is now July 15. This is not a deferment period to pay but the actual due date for 2019’s individual income tax returns. While there has not been any written guidance from the IRS as of this writing, I am assuming that everything I mentioned in yesterday’s pronouncement remains the same.

Remember if you believe you are due a tax refund file as soon as possible to get your money back.

This change by the IRS only affects the Federal filing. Currently there is no change to the state filings for New Jersey and New York.

The IRS announced today that they have temporarily closed all Taxpayer Assistance Centers and discontinued face to face service throughout the country until further notice. The IRS says they will still continue to process tax returns.

The United States has enacted the Families First Coronavirus Response Act, which will require employers with fewer than 500 employees to provide paid leave to employees who are impacted by COVID-19 and offer tax credits to employers that do so. The law takes effect no later than April 2, 2020 and expires on December 31, 2020.

The law contains three sections of particular interest for employers:

Emergency Paid Sick Leave Act
Emergency Family and Medical Leave Act Expansion
Tax Credits for Paid Sick and Paid Family and Medical Leave

If you need more information on this please let me know.

I will do my best to keep everyone informed as to changes that affect your taxes. Feel free to reach out to me to discuss your situation. Be safe everyone.

Coronavirus and Taxes Part 2

Thu, 19 Mar 2020 14:36:02 GMT

Coronavirus and Taxes Part 2

As a follow up to my March 18, 2020 posting, the IRS has issued guidance concerning the extension to pay your taxes due to the Coronavirus. When I published the March 18 blog we knew two things were certain: Tax returns are still due by April 15 and if you owe taxes you will have a 90-day interest free penalty free period to pay the tax – due by July 15 – (“The Deferment Period”).

With the IRS guidance here is what we can add to the list of certainty:

You must file your tax return by April 15 or file an extension – whether you are taking advantage of the Deferment Period or not
If you do not file a tax return or extension by April 15, the late filing penalty may be assessed
The April 15 estimated tax payment (first estimated tax payment for 2020 taxes) is due on July 15
As the pronouncement doesn’t mention the following, assume that all 2016 amended returns that are to be filed need to be filed by April 15, 2020 in order to get the refund from 2016

The IRS is encouraging all taxpayers to file a tax return as soon as possible so that if you are due a refund you can get the refund as quickly as possible. The IRS announced that as of March 6, 52.7 million of the 65 million income tax returns filed have received refunds averaging $3,012.

There is now legislation pending to extend the tax filing in New Jersey from April 15, 2020 to June 30, 2020. The legislation passed in the State Assembly and now is in the State Senate. Presently there is no movement on moving the New York tax due date. You can monitor your particular state website to see if there is a change or you can click on this website by the American Institute of CPA’s for information. Do not assume state agencies are going to allow the same 90 day extension as the Federal Government. All taxpayers are ultimately responsible for filing and paying their taxes.

I will do my best to keep everyone informed if there are changes.

Feel free to reach out to me to discuss your situation. Be safe everyone.

Coronavirus and Taxes

Wed, 18 Mar 2020 14:32:02 GMT

Coronavirus and Taxes

I have wanted to communicate with you concerning the Coronavirus and the impact on your tax return but there has been nothing to report until now. Secretary of the Treasury Steven Mnunchin announced at a press conference on March 17, 2020 an extension for paying your taxes due to the Coronavirus pandemic.

Unfortunately, the announcement is as clear as mud and still raises some questions. Here are the facts as I see them as of this writing:

The announcement has not changed the deadline date for filing your individual tax return. Tax returns are still due by April 15.

If you owe taxes you will have a 90-day interest free penalty free period to pay the tax by July 14 (90 days from April 15) – (“The Deferment Period”).

Here are the issues as I see them right now:

What is unclear is what to do about quarterly estimated tax payments that are due on April 15 and June 15.
What happens if you owe money but don’t file by April 15.
If you file an extension on April 15 and file your tax return before the end of the deferment period and you owe taxes, do you still qualify for the deferred tax payment.
If you file an extension and then file your tax return by October 15, when does your obligation to pay your tax with the extension occur – April 15, 90 days later or October 15
If you are looking to amend your 2016 income tax return the deadline date to file that return is April 15, 2020. Will this be extended?

While I have my suspicion as to the answer to the above issues, I do not want to speculate in this space right now.

As of this writing, filing dates for New Jersey and New York have not changed. If you live outside these two states, please check your states’ department of taxation website to see if the filing date has been moved. This is fluid and can change at any time.

The potential of a payroll tax holiday, similar to the payroll tax holiday that happened during the financial crisis of 2008/2009 does not appear is going to happen. As of today, it is not part of the legislation that has been agreed to by the House of Representatives and the Treasury Department. I am monitoring the Senate version. What was announced at the aforementioned press conference is the issuance of payments to individuals to help those in needs and stimulate the economy.

In closing, it is very important to realize that the details around these programs are still being worked out and have not yet been announced. I will keep monitoring the IRS and the Treasury Department and if there is anything that needs to be reported concerning your taxes, I will let you know. In the meantime, lets follow the rules of social distancing and taking our normal hygiene to another level.

Feel free to reach out to me to discuss your situation. Be safe everyone.

Harry E. Hunter

President

Hunter Consulting

YOUR Tax and Accounting Authority

March 18, 2020

Need Help with Your 1099 Form? Deadline January 31st, 2020

Mon, 30 Dec 2019 14:28:47 GMT

Need Help with Your 1099 Form? Deadline January 31st, 2020

Are you a small business? Did you pay a sub-contractor, a landlord, an attorney during the past year? If you did you may be required to send those that you pay a 1099. The IRS has strict guidelines concerning these payments and has placed the burden on the payor to comply with IRS regulations. These IRS regulations attempt to close the tax gap - between taxes owed and actually paid. The statistics the IRS keeps shows when information is reported on a W-2 there is 99% compliance. Without reporting 56% do not report. To ensure an increase in compliance the IRS has increased penalties to ensure there is more compliance. Depending on how late you file the 1099 the penalty can be as high as $270 per form. Here is a summary of the requirements:

Pursuant to the Internal Revenue Service, a payer to a service provider must give that service provider a 1099 MISC if:

at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
any fishing boat proceeds,
gross proceeds of $600, or more paid to an attorney during the year, or
withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

If you believe that this may apply to you and you need assistance in generating the necessary documents, give my office a call as we can assist you in being in compliance. The deadline to send these out is January 31 – to both the service provider and the IRS.

Thank You

Wed, 24 Apr 2019 14:26:11 GMT

Thank You

This is one of those times when you will have to forgive me for not putting a lot of words out there. It may still take another day or two to get the mind right after the end of tax season. But let me start with two important words – thank you. Thank you for your trust and giving me the privilege to assist you during the tax filing season and throughout the year. Thank you for continuing to send referrals. The end of tax season is always a bit heartening even through the exhaustion. To have clients that return to my organization year after year, especially in this world of increasing options, is uplifting. It allows me to feel the value of what I provide and to strengthen those bonds that I make with many of my clients, and dare I even say friends. This is something that I feel every year, but it was augmented this year. The uncertainly of what one’s tax picture looked like was greater in the wake of the Tax Cuts and Jobs Act. For the most part, that uncertainty was quelled as some returns weren’t THAT different than previous years. And it’s always nice to give good news to people who worried that they may be receiving bad news – unfortunately that was far and in between the actual results for my client base. Most clients, though, received that bad news. I’m sure you have heard some of these stories through other means, so I will not elaborate much here. Just with the rule changes we had, there were bound to be some people on the bad side of them, and some ended up way on the bad side. Between the elimination of Miscellaneous Itemized Deductions affecting those that had the opportunity to deduct employee business expenses in the past and coupled with the limitation on State and Local Taxes (SALT) to $10,000 really harmed my client base. This by itself showed what I suspected: raise the tax bill for people living in our region. When you lose anywhere from $5000 to $40,000 in SALT it causes a major negative impact on your tax bill – one that decreased tax rates could not and does not offset the impact. Everyone lost the impact of exemptions. The illusion that raising the standard deduction was going to take care of this was not the case as the new standard deduction really included the exemptions. You didn’t get anything here – it was just marketed differently. If you were filing as Head of Household and you had two or more dependents in the past you lost. If you filed Married Filing Jointly and had more than two other dependents, you lost. The Tax Cuts and Jobs Act did not live up to its billing. Personally, I feel that the Tax Cuts and Jobs Act is poor legislation. It is a temporary law as most of the changes will go away after 2025. If you feel that the law should be changed the only way that happens is by an Act of Congress. You would need to contact your representatives and Senators and let them know how you feel. And yes, it wasn’t nearly as nice to deliver news to these people, but to have the ability to walk them through what changed, how it affected that final number, and to start thinking about what we could do to lessen the pain in the future was still heartening. Do not hesitate to contact me during the year to discuss your tax situation for 2019 and beyond. Let’s not wait until next year to have this discussion. This is because beyond the numbers is the comfort of knowing you are being taken care of and that someone has your back. That is something that I pride myself on here. But it is also something that I received from my clients. You are the ones who let me do what I do and the trust you place in me takes care of me. So yes, thank you. Now for another nap…

Thinking of Starting a Business

Tue, 09 Apr 2019 14:22:03 GMT

Thinking of Starting a Business

It’s not often during tax season that I feel like I get a chance to breathe, but I have had that chance over the past week. The political landscape has calmed as the lack of a shutdown threat has let the tax season progress in a more regular fashion. This means I have got to see some of my business tax clients, and it is always heartening to see people who have grabbed their own dreams and are pursuing them toward their own ends.

Throughout the year, I hear from people who are looking to jump into this world of starting their own business. This isn’t (only) to toot my own horn, but I find that those I speak to before they fully begin the endeavor fare better than those who are already mired in the world (and often looking for a rope to help pull them out). This is mostly because those who are the most successful are the ones who are the most prepared for what they are taking on.

You should start any business with passion, fervor, and vigor, but those are not enough to guarantee success. The Small Business Administration, though, has provided some more keys and recently put out a 10-step guide to starting a business . If this is something you are interested in, please take a look, for it gives a nice overview of things you might not know you should think about. And for those you are really interested, it allows you to drill down into the topics and learn more about them.

This list features big ideas (what will be your type of business structure?), fun ideas (what will be your business name?) and the mundane stuff you have to do (get federal and state tax IDs). It’s a great primer.

Please allow me to take a little extra time here to highlight the final entry in the list of getting a business bank account. For it is tax time, and those businesses that operate in a way that involves having to determine between personal and business transactions in the same account, well, they’re not having fun right now. A separate account is a simple action that can save so many headaches including potential issues with the IRS by having co-mingled personal and business dollars. Consideration of an accounting program is crucial to allow for concise and organized record keeping. As Quick Books is the leading accounting software for small business, look for assistance from a Quick Books Pro Advisor to help the set up and potential monthly assistance or as needed.

I also want to add another entry to the ideas, though. I understand that it’s usually not one of the first considerations when beginning a new venture, but also make sure you do a little bit of research when hiring your first employee. It’s not that difficult to start off paying a couple contractors to help you start, and it doesn’t need to be that difficult to bring on an employee once you grow, but it’s something you want to do in the right way to make sure you aren’t setting yourself up for any potential penalties.

Please use this information to brainstorm and look into things a little deeper if you have been thinking about starting your own business. Just know that you are bound to develop more questions, and when you do, we remain here to help you move further down the path.

Draw the Line: Business vs Personal Expense

Tue, 09 Apr 2019 14:18:02 GMT

Draw the Line: Business vs Personal Expense

A lot of people are talking about taxes this time of year, myself included. This talk comes in many different forms from many different directions. Maybe sometimes, though, we are missing some of the basic things.

This struck me recently when reading an article on the TaxProf Blog. This touts itself as a member of the Law Professor Blogs Network, so it often discusses some high-level things, which can be of interest to some, but are not things I generally like to talk about in this space. This recent work, though, had some of those basic points in it that I thought were worth remembering during filing season.

The first big point is the dividing line between personal and business taxes. Almost everyone understands that both individuals and businesses pay taxes and file tax returns, but the fact that items and expenses can only be in one or the other category might be lost. If you spent something while carrying on an activity geared toward profit, that is a business expense. If not, it is personal.

Now let me go into a spiel on the importance of having separate bank accounts for your personal and business expenses. If you are legitimately putting effort into a business, there are going to be expenses. No one likes to sit down with a bank statement and a highlighter and go through which of the expenses were actually for your business, though. There is computer software that can make this more manageable, but it is even easier when you have already made the dividing line with separate accounts. This comes with minimal cost and can fend off a large amount of aggravation.

The article talks about how there can be some difficulty distinguishing the business from the personal and this division helps with that. Even with separate accounts, though, just what is a deduction can become an issue. Another great point from this article is that the expenditures will either be deductible or non-deductible. This is not area where there is some gray area between the two. Something either falls into the rules or it does not. If you hear people talking about how certain machinations could turn something into a deduction, chances are that is not on the up and up. A good tax preparer can make you aware of deductions you did not know existed, but they cannot conjure up new ones.

The article then goes deeper into the weeds about the intricacies of when things turn from personal to business, and that is on the deeper level I don’t feel is appropriate for this space. I do, however, see more and more people pursuing small businesses of their own, or taking part in the gig economy, so I thought some of these basic facts were worth highlighting.

If the difference between the personal and the business is something you are struggling with as you prepare your 2018 tax information, let me help. Time is starting to run short on the filing season, but some appointments are still available. But then let’s talk again after the season to continue taking steps to make that dividing line between the two ever easier to navigate.

UPDATE: As a follow up to my blog over the weekend, HR 1558 better known as The Tax Payer Extension Act is currently in the House Ways and Means Committee. This the current status on this legislation.

Harry E. Hunter

President

Hunter Consulting

March 28, 2019

Someone Wants to See Your Tax Return

Mon, 25 Feb 2019 14:14:09 GMT

Someone Wants to See Your Tax Return

It’s that time of year again. It’s not the first time we’ve heard it, but talk is coming again about Donald Trump’s tax returns. With the Democrats holding power in the House of Representatives, the chance that those returns will be seen may be difficult to gauge with precision, but they are certainly greater than they were six months ago.

I wonder how this is going to play as we get deeper into the tax season. More people are going to be finding out just how the Tax Cuts and Jobs Act affects them, and you can be sure that the loudest voices are going to be the ones most drastically affected. So with more people talking about taxes, and possibly loudly talking about them, the president and his taxes will surely remain a talking point.

But just what would we find out if his returns are released?

First, the return would give only a rough look at how much Trump is actually worth. He claims it is billions of dollars at times, while detractors believe it to be a much smaller number. My bet would be that the truth lies – like it does with almost everything – somewhere in the middle. A tax return, though, deals in taxable income, not overall worth.

The returns do actually show some things, and a big one is just how much someone pays in taxes and where the income comes from. At a time now when there are going to be people out there talking about how much more they are paying under the TCJA, I imagine that many are going to hope that Trump was paying his fair share.

Rhetoric in some areas is sure to amp up that Trump’s tax plan was made to benefit the wealthy, and that the wealthy are given advantages that allow them to pay less tax than they should. This could become tricky for the president who in the past told ABC’s George Stephanopoulos that “I fight very hard to pay as little tax as possible,” back when his returns were an election issue.

It is important to note that this does not mean that Trump has done anything illegal, shady or underhanded. If the fact that he could pay next to nothing bothers someone, then the correct place to put the blame is on the system, not on someone working within that system. Even if it turns out that the system he helped implement further solidified his ability to pay little, one can say it’s wrong, but not illegal.

A tax return would also show how much money Trump gives to charity, which could also be a polarizing issue. Trump has claimed he is charitable, while others say the money he claims to donate is done through other organizations, where even if he is involved, it is not actually his money going to the charity.

So gear up for taxes to be news over the next few months for many reasons. And let this be a reminder that you need to handle your return, because even if the public doesn’t see it, the IRS wants to. And it just so happens that many slots are available now to make your appointment to do so before everything amps up. Let’s see how I can help you pay your fair share only and nothing more.

2018 Tax Season Begins

Fri, 15 Feb 2019 14:11:17 GMT

2018 Tax Season Begins

TAX SEASON HAS STARTED

It feels almost unreal, but it is true – tax time is finally here. The filing season officially opened on Monday, January 28, which came with the added benefit of happening after the cessation of the government shutdown. Now of course, if this means the IRS was back up to full speed on that Monday is unknown, and there is the lingering threat that we may only be a short time away from another shutdown. Regardless, though, we are full on into it being time to file.

This current tax season carries an extra touch of unreality because it seems that we have been getting ready for it even before last tax season began. As soon as the Tax Cuts and Jobs Acts was passed at the end of 2017, last year almost became a prologue to when everything changed in 2019.

So first, when the agency reopened, it warned of phone delays. Phone delays are always a part of dealing with the IRS, so if it found them worth nothing, then that is a promise of some serious delay.

Second, there is word that when the IRS fully opened up for business again, there were five million pieces of unopened mail to deal with. How that matches up with the claim that there would be no delay in getting refunds, I cannot quite comprehend. Heck, I cannot quite comprehend five million pieces of mail in the first place. It has been stated that it may take the IRS a year to catch up on this mail.

Then there is the IRS’s rather large list of FAQs for taxpayers following the shutdown. There was too much there for me to even go into in this space. But if you have any questions, click here to visit the agency’s website and see what they posted (under numerous headings, so further click through to the area that addresses your interest). If you need any further guidance, please do not hesitate to contact us.

Advisement

You should be aware that while tax rates have come been reduced it does not necessarily mean you will not owe money on April 15. It is being publicized on various media outlets that due to withholding rates changing due to the decreased tax rates you may owe money due to taking home more money in your pay check. And they say the tax code was simplified. Personally, for some, for others more complexity. Each situation is different.

And yes, it’s true that in some way everything has changed. In all likelihood, your tax return is not going to look the same as it did last year. In other ways, though, not all that much has changed.

A big thing that should not change is the way that you prepare to file your taxes. Over the last couple of weeks, you have probably started to receive necessary tax forms in the mail. Hold onto them all. For some out there, it is true that they may not be as crucial as they were in the past (e.g. charitable donations may not matter if you now are taking the larger standard deduction), but you will not know if they matter or not unless you give them a shot. It is a good general rule that you can never have too much documentation.

Along those lines, it is now also time to get the paperwork together that does not come in the mail. This could be receipts, utility bills, or anything else that you ever used to prepare your tax return in the past. Yes, after we do this latest return it may turn out that some of those things are no longer necessary, but again, we will not know until we put all the numbers together.

For that is another thing that has not changed, our commitment to seeing that you file a tax return that uses the system to your greatest advantage. We hope that in the past you have been extremely satisfied with our work, and are confident that has been the case. And we work to see that you continue to feel that way as we work together under the new rules.

So get all those documents together now so we can continue on this journey. I know that it feels early before we even get to February (which can also mean that you do not yet even have access to all those necessary documents), but April 15th comes faster than we expect. I mean, it happens every year and still always seems surprising. So be proactive, and know that the sooner you make your appointment with us to get that return done, the better chance you have to get in at the times most convenient to you.

At least this is all happening early in the tax season where we have time to navigate it before the time crunch gets heavier. At the same time, though, I urge you to use it as a reminder to not procrastinate starting your prep work, even this early.

I do want to move away from the IRS now, though, and write about what we can do beyond taxes. Consider this an urging to not only get ready for tax season, but get ready for what you want to do after tax season.

This is the time of year when almost everyone is paying more attention to their finances. These early months see us recovering from the holiday season, possibly making some resolutions for how we will handle our money, then looking at some year-end numbers when it comes to taxes.

But come May, it is so easy to let all of that fade into the background.

So if you are reading this and thinking about what you need to gather for when we meet to discuss your tax return, why not also bring something that we can talk about for beyond tax season. We will already be discussing your financial picture, so why not look toward its future?

We may not have the skills to help you with every question that comes up in this realm, but we are confident that we can at least connect you with people who can help. It is likely, though, that we do have the skills to help you with those issues and get you where you need to be. And at that point, we are already breaking down some numbers, so it could be that the work has already started.

So what is there to lose? Bring us something extra about your future, and we will endeavor to add some comfort to that future. Don’t forget, call to make your annual appointment and we will get together soon.

February 2019 Update - Multistate Resident? Watch Out for Double Taxation

Fri, 01 Feb 2019 19:07:20 GMT

February 2019 Update - Multistate Resident? Watch Out for Double Taxation

Contrary to popular belief, there's nothing in the U.S. Constitution or federal law that prohibits multiple states from collecting tax on the same income. Although many states provide tax credits to prevent double taxation, those credits are sometimes unavailable. If you maintain residences in more than one state, here are some points to keep in mind.

Domicile vs. residence

Generally, if you're "domiciled" in a state, you're subject to that state's income tax on your worldwide income. Your domicile isn't necessarily where you spend most of your time. Rather, it's the location of your "true, fixed, permanent home" or the place "to which you intend to return whenever absent." Your domicile doesn't change - even if you spend little or no time there - until you establish domicile elsewhere.

Residence, on the other hand, is based on the amount of time you spend in a state. You're a resident if you have a "permanent place of abode" in a state and spend a minimum amount of time there - for example, at least 183 days per year. Many states impose their income taxes on residents' worldwide income even if they're domiciled in another state.

Potential solution

Suppose you live in State A and work in State B. Given the length of your commute, you keep an apartment in State B near your office and return to your home in State A only on weekends. State A taxes you as a domiciliary, while State B taxes you as a resident. Neither state offers a credit for taxes paid to another state, so your income is taxed twice.

One possible solution to such double taxation is to avoid maintaining a permanent place of abode in State B. However, State B may still have the power to tax your income from the job in State B because it's derived from a source within the state. Yet State B wouldn't be able to tax your income from other sources, such as investments you made in State A.

Minimize unnecessary taxes

This example illustrates just one way double taxation can arise when you divide your time between two or more states. Our firm can research applicable state law and identify ways to minimize exposure to unnecessary taxes.

Sidebar: How to establish domicile

Under the law of each state, tax credits are available only with respect to income taxes that are "properly due" to another state. But, when two states each claim you as a domiciliary, neither believes that taxes are properly due to the other. To avoid double taxation in this situation, you'll need to demonstrate your intent to abandon your domicile in one state and establish it in the other.

There are various ways to do so. For example, you might obtain a driver's license and register your car in the new state. You could also open bank accounts in the new state and use your new address for important financially related documents (such as insurance policies, tax returns, passports and wills). Other effective measures may include registering to vote in the new jurisdiction, subscribing to local newspapers and seeing local health care providers. Bear in mind, of course, that laws regarding domicile vary from state to state.

Fewer Taxpayers to Qualify for Home Office Deduction

Working from home has become commonplace for people in many jobs. But just because you have a home office space doesn't mean you can deduct expenses associated with it. Beginning with the 2018 tax year, fewer taxpayers will qualify for the home office deduction. Here's why.

Changes under the TCJA

For employees, home office expenses used to be a miscellaneous itemized deduction. Way back in 2017, this meant one could enjoy a tax benefit only if these expenses plus other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees and investment expenses) exceeded 2% of adjusted gross income.

Starting in 2018 and continuing through 2025, however, employees can't deduct any home office expenses. Why? The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the 2% floor for this period.

Note: If you're self-employed, you can still deduct eligible home office expenses against your self-employment income during the 2018 through 2025 period.

Other eligibility requirements

If you're self-employed, generally your home office must be your principal place of business, though there are exceptions.

Whether you're an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom, or your children do their homework there, you can't deduct the expenses associated with that space.

Deduction options

If eligible, you have two options for claiming the home office deduction. First, you can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. This requires calculating, allocating and substantiating actual expenses.

A second approach is to use the simplified option. Here, only one simple calculation is necessary: $5 multiplied by the number of square feet of the office space. The simplified deduction is capped at $1,500 per year, based on a maximum of 300 square feet.

More rules and limits

Be aware that we've covered only a few of the rules and limits here. If you think you may qualify for the home office deduction on your 2018 return or would like to know if there's anything additional you need to do to become eligible, contact us.

January 2019 Update - Laying the Groundwork for Your 2018 Tax Return

Tue, 01 Jan 2019 18:49:23 GMT

January 2019 Update - Laying the Groundwork for Your 2018 Tax Return

The Tax Cuts and Jobs Act (TCJA) made many changes to tax breaks for individuals. Let’s look at some specific areas to review as you lay the groundwork for filing your 2018 return.

Personal exemptions

For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates, might mitigate this increase.

Standard deduction

Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.

The TCJA nearly doubles the standard deduction for 2018 to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. (These amounts will be adjusted for inflation for 2019 through 2025.)

For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions, and perhaps even provide some additional tax savings. But for those with many dependents or who itemize deductions, these changes might result in a higher tax bill — depending in part on the extent to which they can benefit from enhancements to the child credit.

Child credit

Credits can be more powerful than exemptions and deductions because they reduce taxes dollar-for-dollar, rather than just reducing the amount of income subject to tax. For 2018 through 2025, the TCJA doubles the child credit to $2,000 per child under age 17.

The new law also makes the child credit available to more families than in the past. For 2018 through 2025, the credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for joint filers or $200,000 for all other filers, compared with the 2017 phaseout thresholds of $110,000 for joint filers, $75,000 for singles and heads of households, and $55,000 for marrieds filing separately. The TCJA also includes, for 2018 through 2025, a $500 tax credit for qualifying dependents other than qualifying children.

Installment Sales: A Viable Option for Transferring Assets

Are you considering transferring real estate, a family business or other assets you expect to appreciate dramatically in the future? If so, an installment sale may be a viable option. Its benefits include the ability to freeze asset values for estate tax purposes and remove future appreciation from your taxable estate.

Giving away vs. selling

From an estate planning perspective, if you have a taxable estate it’s usually more advantageous to give property to your children than to sell it to them. By gifting the asset you’ll be depleting your estate and thereby reducing potential estate tax liability, whereas in a sale the proceeds generally will be included in your taxable estate.

But an installment sale may be desirable if you’ve already used up your $11.18 million (for 2018) lifetime gift tax exemption or if your cash flow needs preclude you from giving the property away outright. When you sell property at fair market value to your children or other loved ones rather than gifting it, you avoid gift taxes on the transfer and freeze the property’s value for estate tax purposes as of the sale date. All future appreciation benefits the buyer and won’t be included in your taxable estate.

Because the transaction is structured as a sale rather than a gift, your buyer must have the financial resources to buy the property. But by using an installment note, the buyer can make the payments over time. Ideally, the purchased property will generate enough income to fund these payments.

Advantages and disadvantages

An advantage of an installment sale is that it gives you the flexibility to design a payment schedule that corresponds with the property’s cash flow, as well as with your and your buyer’s financial needs. You can arrange for the payments to increase or decrease over time, or even provide for interest-only payments with an end-of-term balloon payment of the principal.

One disadvantage of an installment sale over strategies that involve gifted property is that you’ll be subject to tax on any capital gains you recognize from the sale. Fortunately, you can spread this tax liability over the term of the installment note. As of this writing, the long-term capital gains rates are 0%, 15% or 20%, depending on the amount of your net long-term capital gains plus your ordinary income.

Also, you’ll have to charge interest on the note and pay ordinary income tax on the interest payments. IRS guidelines provide for a minimum rate of interest that must be paid on the note. On the bright side, any capital gains and ordinary income tax you pay further reduces the size of your taxable estate.

Simple technique, big benefits

An installment sale is an approach worth exploring for business owners, real estate investors and others who have gathered high-value assets. It can help keep a family-owned business in the family or otherwise play an important role in your estate plan.

Bear in mind, however, that this simple technique isn’t right for everyone. Our firm can review your situation and help you determine whether an installment sale is a wise move for you.

Assessing the impact

Many factors will influence the impact of the TCJA on your tax liability for 2018 and beyond. For help assessing the impact on your situation, contact us.

December 2018 Update - Use Capital Losses to Offset Capital Gains

Sat, 01 Dec 2018 18:52:51 GMT

December 2018 Update - Use Capital Losses to Offset Capital Gains

When is a loss actually a gain? When that loss becomes an opportunity to lower tax liability, of course. Now’s a good time to begin your year-end tax planning and attempt to neutralize gains and losses by year end. To do so, it might make sense to sell investments at a loss in 2018 to offset capital gains that you’ve already realized this year.

Now and later

A capital loss occurs when you sell a security for less than your “basis,” generally the original purchase price. You can use capital losses to offset any capital gains you realize in that same tax year — even if one is short term and the other is long term.

When your capital losses exceed your capital gains, you can use up to $3,000 of the excess to offset wages, interest and other ordinary income ($1,500 for married people filing separately) and carry the remainder forward to future years until it’s used up.

Research and replace

Years ago, investors realized it could be beneficial to sell a security to recognize a capital loss for a given tax year and then — if they still liked the security’s prospects — buy it back immediately. To counter this strategy, Congress imposed the wash sale rule, which disallows losses when an investor sells a security and then buys the same or a “substantially identical” security within 30 days of the sale, before or after.

Waiting 30 days to repurchase a security you’ve sold might be fine in some situations. But there may be times when you’d rather not be forced to sit on the sidelines for a month.

Fortunately, there’s an alternative. With a little research, you might be able to identify a security in the same sector you like just as well as, or better than, the old one. Your solution is now simple and straightforward: Simultaneously sell the stock you own at a loss and buy the competitor’s stock, thereby avoiding violation of the “same or substantially identical” provision of the wash sale rule. You maintain your position in that sector or industry and might even add to your portfolio a stock you believe has more potential or less risk.

If you bought shares of a security at different times, give some thought to which lot can be sold most advantageously. The IRS allows investors to choose among several methods of designating lots when selling securities, and those methods sometimes produce radically different results.

Good with the bad

Investing always carries the risk that you will lose some or even all of your money. But you have to take the good with the bad. In terms of tax planning, you can turn investment losses into opportunities — and potentially end the year on a high note.

Accelerating Your Property Tax Deduction to Reduce Your Tax Bill

Smart timing of deductible expenses can reduce your tax liability, and poor timing can increase it unnecessarily. One deductible expense you may be able to control to your advantage is your property tax payment.

You can prepay (by December 31) property taxes that relate to 2018 (the taxes must be assessed in 2018) but that are due in 2019, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to 2019 (they must be assessed in 2019) and deduct the payment on this year’s return. Also, beware of the dollar-amount limitation discussed below.

A big decision

Accelerating deductible expenses such as property tax payments is typically beneficial. Prepaying your property tax may be especially advantageous if your tax rate under the Tax Cuts and Jobs Act (TCJA) is expected to decrease in the next year. Deductions save more tax when tax rates are higher.

But not every tax rate has dropped for the 2018 tax year under the TCJA — the very lowest rate, 10%, has been retained, as well as the 35% rate (though the income brackets for these rates have changed). So, some taxpayers may not save any more by prepaying. Also, taxpayers who expect to substantially increase their income next year, pushing them into a higher tax bracket, may benefit by not prepaying their property tax bill.

Another important point is that, under the TCJA, for tax years 2018 through 2025 the itemized deduction for all state and local taxes is limited to $10,000 ($5,000 for married filing separately).

More considerations

Property tax isn’t deductible for purposes of the alternative minimum tax (AMT). So, if you’re subject to the AMT this year, a prepayment may hurt you because you’ll lose the benefit of the deduction. Before prepaying your property tax, make sure you aren’t at AMT risk for 2018.

Also, don’t forget that, for 2018 to 2025, the TCJA suspends personal itemized exemptions but roughly doubles the standard deduction amounts (for 2018) to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. This may affect your decision on whether to prepay.

Specific strategies

Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2018 (or should consider deferring to 2019)? Contact us. We can help you determine your optimal year-end tax planning strategies.

September 2018 Update - TCJA Draws a Silver Lining Around the Individual AMT

Sat, 01 Sep 2018 18:55:42 GMT

September 2018 Update - TCJA Draws a Silver Lining Around the Individual AMT

The Tax Cuts and Jobs Act (TCJA) didn’t eliminate the individual alternative minimum tax (AMT). But the law did draw a silver lining around it. Revised rules now lessen the likelihood that many taxpayers will owe substantial taxes under the AMT for 2018 through 2025.

Parallel universe

Think of the AMT as a parallel universe to the regular federal income tax system. The difference: The AMT system taxes certain types of income that are tax-free under the regular tax system and disallows some regular tax deductions and credits.

The maximum AMT rate is 28%. By comparison, the maximum regular tax rate for individuals has been reduced to 37% for 2018 through 2025 thanks to the TCJA. For 2018, that 28% AMT rate starts when AMT income exceeds $191,100 for married joint-filing couples and $95,550 for others (as adjusted by Revenue Procedure 2018-18).

Exemption available

Under the AMT rules, you’re allowed a relatively large inflation-adjusted AMT exemption. This amount is deducted when calculating your AMT income. The TCJA significantly increases the exemption for 2018 through 2025. The exemption is phased out when your AMT income surpasses the applicable threshold, but the TCJA greatly increases those thresholds for 2018 through 2025.

If your AMT bill for the year exceeds your regular tax bill, you must pay the higher AMT amount. Originally, the AMT was enacted to ensure that very wealthy people didn’t avoid paying tax by taking advantage of “too many” tax breaks. Unfortunately, the AMT also hit some unintended targets. The new AMT rules are better aligned with Congress’s original intent.

Under both old and new law, the exemption is reduced by 25% of the excess of AMT income over the applicable exemption amount. But under the TCJA, only those with high incomes will see their exemptions phased out, while others — particularly middle-income taxpayers — will benefit from full exemptions.

Need to plan

For many taxpayers, the AMT rules are less worrisome than they used to be. Let our firm assess your liability and help you plan accordingly.

Sidebar: High-income earners back in the AMT spotlight

Before the Tax Cuts and Jobs Act (TCJA), many high-income taxpayers weren’t affected by the alternative minimum tax (AMT). That’s because, after multiple legislative changes, many of their tax breaks were already cut back or eliminated under the regular income tax rules. So, there was no need to address the AMT.

If one’s income exceeds certain levels, phaseout rules chip away or eliminate other tax breaks. As a result, higher-income taxpayers had little or nothing left to lose by the time they got to the AMT calculation, while many upper-middle-income folks still had plenty left to lose. Also, the highest earners were in the 39.6% regular federal income tax bracket under prior law, which made it less likely that the AMT — with its maximum 28% rate — would hit them.

In addition, the AMT exemption is phased out as income goes up. This amount is deducted in calculating AMT income. Under previous law, this exemption had little or no impact on individuals in the top bracket because the exemption was completely phased out. But the exemption phaseout rule made upper-middle-income taxpayers more likely to owe AMT under previous law. Suffice it to say that, under the TCJA, high-income earners are back in the AMT spotlight. So, proper planning is essential.

Study Up on the Tax Advantages of a 529 Savings Plan

With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until heading off to college, is a Section 529 plan.

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So, these plans can be particularly powerful if contributions begin when the child is young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer applicable state tax incentives.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer-related items and, generally, room and board) are income-tax-free for federal purposes and, in many cases, for state purposes as well. (The Tax Cuts and Jobs Act changes the definition of “qualifying expenses” to include not just postsecondary school costs, but also primary and secondary school expenses.)

Additional benefits

529 plans offer other benefits, too. They usually have high contribution limits and no income-based phaseouts to limit contributions. There’s generally no beneficiary age limit for contributions or distributions. And the owner can control the account — even after the child is a legal adult — as well as make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions, which means you can make up to a $75,000 contribution (or $150,000 if you split the gift with your spouse) in 2018. In the case of grandparents, this also can avoid generation-skipping transfer taxes.

Minimal minuses

One negative of a 529 plan is that your investment options are limited. Another is that you can make changes to your options only twice a year or if you change the beneficiary.

But whenever you make a new contribution, you can choose a different option for that contribution, no matter how many times you contribute during the year. Also, you can make a tax-free rollover to another 529 plan for the same child every 12 months.

More to learn

We’ve focused on 529 savings plans here; a prepaid tuition version of 529 plans is also available. If you’d like to learn more about either type of 529 plan, please contact us.

Summer Employment – Completing the W 4

Mon, 04 Jun 2018 13:57:28 GMT

Summer Employment – Completing the W 4

It is that time of year. Your child is home from college or your high schooler is going to get a job for the summer. Whatever the job is your child is getting the child’s employer will have them complete some forms so they can get paid. These forms may be foreign to your child when they see it for the first time. The forms will ask them to fill out the number of allowances they are declaring for payroll purposes. As you may be aware an allowance is used to calculate how much tax should be withheld from a paycheck based upon the filing status.

For your child, assuming that their total income including wages, interest, dividends, capital gains etc. will not exceed $12,000 for all of 2018 it is not necessary to have any income tax withheld on their wages. When completing the IRS W-4 complete boxes 1 through 4 and then go to box 7 and write EXEMPT. Sign and date and give to the employer. This will prevent any Federal income tax to be withheld. Social Security and Medicare taxes will still be withheld.

For New Jersey residents, if your total income will be less than $10,000 (including interest, dividends, capital gains, etc. in addition to wages) you should complete a form NJ – W4. Complete box 1 and 2 and then skip to box 6 and write the word EXEMPT. Sign and date and give to the employer. Once again income tax will not be withheld but other New Jersey payroll taxes (Unemployment, Disability and Family Leave) will be withheld.

If you have any questions, please feel free to contact my office for assistance.

June 2018 Update - Deducting Home Equity Interest Under the Tax Cuts and Jobs Act

Fri, 01 Jun 2018 18:58:42 GMT

June 2018 Update - Deducting Home Equity Interest Under the Tax Cuts and Jobs Act

Passage of the Tax Cuts and Jobs Act (TCJA) in December 2017 has led to confusion over some longstanding deductions. In response, the IRS recently issued a statement clarifying that the interest on home equity loans, home equity lines of credit and second mortgages will, in many cases, remain deductible.

How it used to be

Under prior tax law, a taxpayer could deduct “qualified residence interest” on a loan of up to $1 million secured by a qualified residence, plus interest on a home equity loan (other than debt used to acquire a home) up to $100,000. The home equity debt couldn’t exceed the fair market value of the home reduced by the debt used to acquire the home.

For tax purposes, a qualified residence is the taxpayer’s principal residence and a second residence, which can be a house, condominium, cooperative, mobile home, house trailer or boat. The principal residence is where the taxpayer resides most of the time; the second residence is any other residence the taxpayer owns and treats as a second home. Taxpayers aren’t required to use the second home during the year to claim the deduction. If the second home is rented to others, though, the taxpayer also must use it as a home during the year for the greater of 14 days or 10% of the number of days it’s rented.

In the past, interest on qualifying home equity debt was deductible regardless of how the loan proceeds were used. A taxpayer could, for example, use the proceeds to pay for medical bills, tuition, vacations, vehicles and other personal expenses and still claim the itemized interest deduction.

What’s deductible now

The TCJA limits the amount of the mortgage interest deduction for taxpayers who itemize through 2025. Beginning in 2018, for new home purchases, a taxpayer can deduct interest only on acquisition mortgage debt of $750,000.

On February 21, the IRS issued a release (IR 2018-32) explaining that the law suspends the deduction only for interest on home equity loans and lines of credit that aren’t used to buy, build or substantially improve the taxpayer’s home that secures the loan. In other words, the interest isn’t deductible if the loan proceeds are used for certain personal expenses, but it is deductible if the proceeds go toward, for example, a new roof on the home that secures the loan. The IRS further stated that the deduction limits apply to the combined amount of mortgage and home equity acquisition loans — home equity debt is no longer capped at $100,000 for purposes of the deduction.

Further clarifications

As a relatively comprehensive new tax law, the TCJA will likely be subject to a variety of clarifications before it settles in. Please contact our firm for help better understanding this provision or any other.

Three Common Types of IRS Tax Penalties

Around this time of year, many people have filed and forgotten about their 2017 tax returns. But you could get an abrupt reminder in the form of an IRS penalty. Here are three common types and how you might seek relief:

1. Failure-to-file and failure-to-pay

The IRS will consider any reason that establishes that you were unable to meet your federal tax obligations despite using “all ordinary business care and prudence” to do so. Frequently cited reasons include fire, casualty, natural disaster or other disturbances. The agency may also accept death, serious illness, incapacitation or unavoidable absence of the taxpayer or an immediate family member.

If you don’t have a good reason for filing or paying late, you may be able to apply for a first-time penalty abatement (FTA) waiver. To qualify for relief, you must have: 1) received no penalties (other than estimated tax penalties) for the three tax years preceding the tax year in which you received a penalty, 2) filed all required returns or filed a valid extension of time to file, and 3) paid, or arranged to pay, any tax due. Despite the expression “first-time,” you can receive FTA relief more than once, so long as at least three years have elapsed.

2. Estimated tax miscalculation

It’s possible, but unlikely, to obtain relief from estimated tax penalties on grounds of casualty, disaster or other unusual circumstances. You’re more likely to get these penalties abated if you can prove that the IRS made an error, such as crediting a payment to the wrong tax period, or that calculating the penalty using a different method (such as the annualized income installment method) would reduce or eliminate the penalty.

3. Tax-filing inaccuracy

These penalties may be imposed, for example, if the IRS finds that your return was prepared negligently or that there’s a substantial understatement of tax. You can obtain relief from these penalties if you can demonstrate that you properly disclosed your tax position in your return and that you had a reasonable basis for taking that position.

Generally, you have a reasonable basis if your chances of withstanding an IRS challenge are greater than 50%. Reliance on a competent tax advisor greatly improves your odds of obtaining penalty relief. Other possible grounds for relief include computational errors and reliance on an inaccurate W-2, 1099 or other information statement.

May 2018 Update - Get an Early Tax "Refund" by Adjusting Your Withholding

Tue, 01 May 2018 19:01:16 GMT

May 2018 Update - Get an Early Tax "Refund" by Adjusting Your Withholding

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there’s a way to begin collecting your 2018 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Choosing to adjust

It’s particularly important to check your withholding and/or estimated tax payments if:

You received an especially large 2017 refund,
You’ve gotten married or divorced or added a dependent,
You’ve bought a home,
You’ve started or lost a job, or
Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even more than once within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax throughout the year on a timely basis, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2019 deadline.

Getting help

One timely reason to consider adjusting your withholding is the passage of the Tax Cuts and Jobs Act late last year. In fact, the IRS had to revise its withholding tables to account for the increase to the standard deduction, suspension of personal exemptions, and changes in tax rates and brackets. If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

Foreign Accounts Call for Specific Reporting Requirements

In an increasingly globalized society, many people choose to open offshore accounts to deposit a portion of their wealth. When doing so, it’s important to follow the IRS’s strict foreign accounts reporting requirements. In a nutshell, if you have a financial interest in or signature authority over any foreign accounts, including bank accounts, brokerage accounts, mutual funds or trusts, you must disclose those accounts to the IRS and you may have additional reporting requirements.

To do so, your tax preparer will check the box on line 7a of Schedule B (“Interest and Ordinary Dividends”) of Form 1040 — regardless of the account value. If the total value of your foreign financial assets exceeds $50,000 ($100,000 for joint filers) at the end of the tax year or exceeds $75,000 ($150,000 for joint filers) at any time during the tax year, you must provide account details on Form 8938 (“Statement of Specified Foreign Financial Assets”) and attach it to your tax return.

Finally, if the aggregate value of your foreign accounts is $10,000 or more during the calendar year, file FinCEN (Financial Crimes Enforcement Network) Form 114 — “Report of Foreign Bank and Financial Accounts (FBAR).” The current deadline for filing the form electronically with FinCEN is April 15, 2018, with an automatic extension to October 15.

Failure to disclose an offshore account could result in substantial IRS penalties, including collecting three to six years’ worth of back taxes, interest, a 20% to 40% accuracy-related penalty and, in some cases, a 75% fraud penalty. For further information, contact us.

April 2018 Update - Child Credit to Get Even More Valuable

Sun, 01 Apr 2018 19:10:04 GMT

April 2018 Update - Child Credit to Get Even More Valuable

The child credit has long been a valuable tax break. But, with the passage of the Tax Cuts and Jobs Act (TCJA) late last year, it’s now even better — at least for a while. Here are some details that every family should know.

Amount and limitations

For the 2017 tax year, the child credit may help reduce federal income tax liability dollar-for-dollar by up to $1,000 for each qualifying child under age 17. So if you haven’t yet filed your personal return or you might consider amending it, bear this in mind.

The credit is, however, subject to income limitations that may reduce or even eliminate eligibility for it depending on your filing status and modified adjusted gross income (MAGI). For 2017, the limits are $110,000 for married couples filing jointly, and $55,000 for married taxpayers filing separately. (Singles, heads of households, and qualifying widows and widowers are limited to $75,000 in MAGI.)

Exciting changes

Now the good news: Under the TCJA, the credit will double to $2,000 per child under age 17 starting in 2018. The maximum amount refundable (because a taxpayer’s credits exceed his or her tax liability) will be limited to $1,400 per child.

The TCJA also makes the child credit available to more families than in the past. That’s because, beginning in 2018, the credit won’t begin to phase out until MAGI exceeds $400,000 for married couples or $200,000 for all other filers, compared with the 2017 phaseouts of $110,000 and $75,000. The phaseout thresholds won’t be indexed for inflation, though, meaning the credit will lose value over time.

In addition, the TCJA includes (starting in 2018) a $500 nonrefundable credit for qualifying dependents other than qualifying children (for example, a taxpayer’s 17-year-old child, parent, sibling, niece or nephew, or aunt or uncle). Importantly, these provisions expire after 2025.

Qualifications to consider

Along with the income limitations, there are other qualification requirements for claiming the child credit. As you might have noticed, a qualifying child must be under the age of 17 at the end of the tax year in question. But the child also must be a U.S. citizen, national or resident alien, and a dependent claimed on the parents’ federal tax return who’s their own legal son, daughter, stepchild, foster child or adoptee. (A qualifying child may also include a grandchild, niece or nephew.)

As a child gets older, other circumstances may affect a family’s ability to claim the credit. For instance, the child needs to have lived with his or her parents for more than half of the tax year.

The New Deal on Employee Meals (and Entertainment)

Years and years ago, the notion of having a company cafeteria or regularly catered meals was generally feasible for only the biggest of businesses. But, more recently, employers providing meals to employees has become somewhat common for many midsize to large companies. A recent tax law change, however, may curtail the practice.

As you’re likely aware, in late December 2017 Congress passed and the President signed the Tax Cuts and Jobs Act. The law will phase in a wide variety of changes to the way businesses calculate their tax liabilities — some beneficial, some detrimental. Revisions to the treatment of employee meals and entertainment expenses fall in the latter category.

Before the Tax Cuts and Jobs Act, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. But meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule now also applies to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be completely nondeductible.

If your business regularly provides meals to employees, let us assist you in anticipating the changing tax impact.

Powerful tool

Tax credits can serve as powerful tools to help you manage your tax liability. So if you may qualify for the child credit in 2017, or in years ahead, please contact our firm to discuss the full details of how to go about claiming it properly.

February 2018 Update - Making 2017 Retirement Plan Contributions in 2018

Thu, 01 Feb 2018 19:14:48 GMT

February 2018 Update - Making 2017 Retirement Plan Contributions in 2018

The clock is ticking down to the tax filing deadline. The good news is that you still may be able to save on your impending 2017 tax bill by making contributions to certain retirement plans.

For example, if you qualify, you can make a deductible contribution to a traditional IRA right up until the April 17, 2018, filing date and still benefit from the resulting tax savings on your 2017 return. You also have until April 17 to make a contribution to a Roth IRA.

And if you happen to be a small business owner, you can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for your company’s tax return, including extensions.

Deadlines and limits

Let’s look at some specifics. For IRA and Roth IRA contributions, the maximum regular contribution is $5,500. Plus, if you were at least age 50 on December 31, 2017, you are eligible for an additional $1,000 “catch-up” contribution.

There are also age limits. You must have been under age 70½ on December 31, 2017, to contribute to a traditional IRA. Contributions to a Roth can be made regardless of age, if you meet the other requirements.

For a SEP, the maximum contribution is $54,000, and must be made by the April 17th date, or by the extended due date (up to Monday, October 15, 2018) if you file a valid extension. (There’s no SEP catch-up amount.)

Phase-out ranges

If not covered by an employer’s retirement plan, your contributions to a traditional IRA are not affected by your modified adjusted gross income (MAGI). Otherwise, when you (or a spouse, if married) are active in an employer’s plan, available contributions begin to phase out within certain MAGI ranges.

For married couples filing jointly, the MAGI range is $99,000 to $119,000. For singles or heads of household, it’s $62,000 to $72,000. For those married but filing separately, the MAGI range is $0 to $10,000, if you lived with your spouse at any time during the year. A phase-out occurs between AGI of $186,000 and $196,000 if a spouse participates in an employer-sponsored plan.

Contributions to Roth IRAs phase out at mostly different ranges. For married couples filing jointly, the MAGI range is $186,000 to $196,000. For singles or heads of household, it’s $118,000 to $133,000. But for those married but filing separately, the phase-out range is the same: $0 to $10,000, if you lived with your spouse at any time during the year.

Essential security

Saving for retirement is essential for financial security. What’s more, the federal government provides tax incentives for doing so. Best of all, as mentioned, you still have time to contribute to an IRA, Roth IRA or SEP plan for the 2017 tax year. Please contact our firm for further details and a personalized approach to determining how to best contribute to your retirement plan or plans.

When an Elderly Parent Might Qualify as Your Dependent

It’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for an adult-dependent exemption to deduct up to $4,050 for each person claimed on your 2017 return.

Basic qualifications

For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Social Security is generally excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with one or more siblings and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption in this situation.

Important factors

Although Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Also, if your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the burden

An adult-dependent exemption is just one tax break that you may be able to employ on your 2017 tax return to ease the burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

Living with Tax Reform

Fri, 12 Jan 2018 13:52:52 GMT

Living with Tax Reform

Often throughout the year when I write about taxes, I know that many people don’t really want to hear about such things. I keep doing it, though, because I know that if I bring up topics that someone is worried about, we can help them. It may not be for everyone, but it is very important for someone. Lately, however, it seems that everyone is thinking and talking about taxes.

I can thank Congress for that as it passed the Tax Cuts and Jobs Act at the end of last year, just before people have to start thinking about taxes as we enter filing season. That combination has been a type of perfect storm that has raised so many questions. I don’t want to spend my time this week answering any specific questions, but I did want to address the situation in general. Tax Reform is all dependent on how it will affect you personally. Being the in the northeast, we will have to learn how to live with tax reform.

First, if you feel confused by any of this, that is okay. One of the reasons people do not always enjoy thinking about taxes, after all, is that they are complicated. So sure, the recent legislation is complicated, but taxes have always been so. It is not as if a new world has been established that you will not be able to navigate. (And you know someone who can help you get through, too, don’t you?)

Second, know that all the new rules do not apply to the taxes you will soon be filing for 2017. Anything you did last year to keep yourself in the position you wanted to be in when it came to taxes will still have been good moves. If you are worried about how any new rules will affect you in the future, however, let’s talk. It is still January, so we have time to plan in ways that will have you where you want to be under the new rules.

Last, if instead you find yourself in a position where you have not paid much attention to the whole situation, that can be okay. Through all of this, the fact that many people will experience minimal impact can be lost, but do not ignore it out of fear and anger. When looked at through partisan eyes, some think the new act is the path to prosperity, and others believe it is sending us to ruin. If you look at it through practical eyes, however, it just means there are new rules governing what your tax obligation will be.

The latest act has involved lots of changes, but it did not institute a wholly new system. You have made it through the tax system in the past, and you will make it through again. There is no new standard that is going to put anyone in a position where they can no longer meet or understand their obligations.

This does not mean that everyone needs to like the fact that this legislation passed, but all now must follow it. Anger and fear will only clouds things as we do so. I have been here for you before, when taxes could be a complicated and confusing mess, and I remain here for you now, when taxes can still be a complicated and confusing mess.

January 2018 Update - Highlights of the New Tax Reform Law

Mon, 01 Jan 2018 19:17:56 GMT

January 2018 Update - Highlights of the New Tax Reform Law

The new tax reform law, commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.

Below are highlights of some of the most significant changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Individuals

Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025
Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025
Elimination of personal exemptions — through 2025
Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025
Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
Elimination of the deduction for interest on home equity debt — through 2025
Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) — through 2025
Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
Elimination of the AGI-based reduction of certain itemized deductions — through 2025
Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025
Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025

Businesses

Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
Repeal of the 20% corporate AMT
New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
Other enhancements to depreciation-related deductions
New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
New limits on net operating loss (NOL) deductions
Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
New rule limiting like-kind exchanges to real property that is not held primarily for sale
New tax credit for employer-paid family and medical leave — through 2019
New limitations on excessive employee compensation
New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

More to consider

This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions. Contact your tax advisor to learn more about how these and other tax law changes will affect you in 2018 and beyond.

Help Prevent Tax Identity Theft By Filing Early

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 17 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 15.

But there’s another date you should keep in mind: the day the IRS begins accepting 2017 returns (usually in late January). Filing as close to this date as possible could protect you from tax identity theft.

Why it helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major complications to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

What to look for

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2017 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2017 interest, dividend or reportable miscellaneous income payments. So be sure to keep an eye on your mailbox or your employer’s internal website.

Additional bonus

An additional bonus: If you’ll be getting a refund, filing early will generally enable you to receive and enjoy that money sooner. (Bear in mind, however, that a law requires the IRS to hold until mid-February refunds on returns claiming the earned income tax credit or additional child tax credit.) Let us know if you have questions about tax identity theft or would like help filing your 2017 return early.

December 2017 Update - 5 Common Mistakes When Applying For Financial Aid

Fri, 01 Dec 2017 19:22:36 GMT

December 2017 Update - 5 Common Mistakes When Applying For Financial Aid

Given the astronomical cost of college, even well-off parents should consider applying for financial aid. A single misstep, however, can harm your child’s eligibility. Here are five common mistakes to avoid:

Presuming you don’t qualify. It’s difficult to predict whether you’ll qualify for aid, so apply even if you think your net worth is too high. Keep in mind that, generally, the value of your principal residence or any qualified retirement assets isn’t included in your net worth for financial aid purposes.
Filing the wrong forms. Most colleges and universities, and many states, require you to submit the Free Application for Federal Student Aid (FAFSA) for need-based aid. Some schools also require it for merit-based aid. In addition, a number of institutions require the CSS/Financial Aid PROFILE®, and specific types of aid may have their own paperwork requirements.
Missing deadlines. Filing deadlines vary by state and institution, so note the requirements for each school to which your child applies. Some schools provide financial aid to eligible students on a first-come, first-served basis until funding runs out, so the earlier you apply, the better. This may require you to complete your income tax return early.
Failing to list schools properly. The FAFSA allows you to designate up to 10 schools with which your application will be shared. The order in which you list the schools doesn't matter when applying for federal student aid. But if you're also applying for state aid, it's important to know that different rules may apply. For example, some states require you to list schools in a specified order.
Mistaking who’s responsible. If you’re divorced or separated, the FAFSA should be completed by the parent with whom your child lived for the majority of the 12-month period ending on the date the application is filed. This is true regardless of which parent claims the child as a dependent on his or her tax return.

The rule provides a significant planning opportunity if one spouse is substantially wealthier than the other. For example, if the child lives with the less affluent spouse for 183 days and with the other spouse for 182 days, the less affluent spouse would file the FAFSA, improving eligibility for financial aid.

These are just a few examples of financial aid pitfalls. Let us help you navigate the process and explore other ways to finance college.

Ensuring Your Year-End Donations Are Tax-Deductible

Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:

Checks. The date you mail it.
Credit cards. The date you make the charge.
Pay-by-phone accounts. The date the financial institution pays the amount.
Stock certificates. The date you mail the properly endorsed stock certificate to the charity.

To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions. The IRS’s online search tool, “Exempt Organizations (EO) Select Check,” can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it here . Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2017 tax bill.

November 2017 Update - Mutual Funds and Taxes

Wed, 01 Nov 2017 19:26:38 GMT

November 2017 Update - Mutual Funds and Taxes

Many people overlook taxes when planning their mutual fund investments. But you’ve got to handle these valuable assets with care. Here are some tips to consider.

Avoid year-end investments

Typically, mutual funds distribute accumulated dividends and capital gains toward the end of the year. But don’t fall for the common misconception that investing in a fund just before a distribution date is like getting “free money.”

True, you’ll receive a year’s worth of income right after you invest. But the value of your shares will immediately drop by the same amount, so you won’t be any better off. Plus, you’ll be liable for taxes on the distribution as if you had owned your shares all year.

You can get a general idea of when a particular fund anticipates making a distribution by checking its website periodically. Also make a note of the “record date” — investors who own fund shares on that date will participate in the distribution.

Invest in tax-efficient funds

Actively managed funds tend to be less tax efficient. They buy and sell securities more frequently, generating a greater amount of capital gain, much of it short-term gain taxable at ordinary income rates rather than the lower, long-term capital gains rates.

Consider investing in tax-efficient funds instead. For example, index funds generally have lower turnover rates. And “passively managed” funds (sometimes described as “tax managed” funds) are designed to minimize taxable distributions.

Another option is exchange-traded funds (ETFs). Unlike mutual funds, which generally redeem shares by selling securities, ETFs are often able to redeem securities “in kind” — that is, to swap them for other securities. This limits an ETF’s recognition of capital gains, making it more tax efficient.

This isn’t to say that tax-inefficient funds don’t have a place in your portfolio. In some cases, actively managed funds may offer benefits, such as above-market returns, that outweigh their tax costs.

Watch out for reinvested distributions

Many investors elect to have their distributions automatically reinvested in their funds. Be aware that those distributions are taxable regardless of whether they’re reinvested or paid out in cash.

Reinvested distributions increase your tax basis in a fund, so track your basis carefully. If you fail to account for these distributions, you’ll end up paying tax on them twice — once when they’re paid and again when you sell your shares in the fund.

Fortunately, under current rules, mutual fund companies are required to track your basis for you. But you still may need to track your basis in funds you owned before 2012 when this requirement took effect, or if you purchased units in the fund outside of the current broker holding your units.

Do your due

Tax considerations should never be the primary driver of your investment decisions. Yet it’s important to do your due diligence on the potential tax consequences of funds you’re considering — particularly for your taxable accounts.

Sidebar: Directing tax-inefficient funds into nontaxable accounts

If you invest in actively managed or other tax-inefficient funds, ideally you should put these holdings in nontaxable accounts, such as a traditional IRA or 401(k). Because earnings in these accounts are tax-deferred, distributions from funds they hold won’t have any tax consequences until you withdraw them. And if the funds are held in a Roth account, those distributions will escape taxation altogether.

Non Deductible Expenses – Political Contributions and Others

Thu, 26 Oct 2017 13:51:10 GMT

Non Deductible Expenses – Political Contributions and Others

There are many hot phrases coming out of this presidential campaign cycle, but it is not all crooked locker room talk. Taxes have also been getting lots of attention, and not just when it comes to which candidate’s plan you prefer. If you go to Google and type in “are political” the first suggestion is “are political contributions tax deductible?”

And sometimes the best part of my job is when it is really easy.

The answer is simply “no.” And the IRS’ wording on the subject doesn’t leave any room for debate:

"You can't deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate aren't deductible."

For anyone wondering then, there is your answer. There is no ambiguity in the IRS wording. Although I have to note the irony that you can deduct donations to many organizations whose goal is to do good. As many have heard me say the tax code is designed for two purposes: raising revenue for the country and influencing social policy – charitable contributions. That may say something about the quality of work that our political system does.

Really, it is just more that the IRS does not see political action as a deductible expense. After all, you generally also cannot deduct expenses incurred for trying to influence legislation, participating in political campaigns or communicating with executive branch officials to influence their actions.

Looking at these political maneuverings got me to thinking that it might be worth looking at other things that are not tax-deductible. So to that end, you should not be counting on the positive tax ramifications of the following:

Wristwatches. In the IRS’ wisdom-filled words, “You can’t deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties.”
Health Spa Expense. If your job also requires that you be in good physical condition to perform your duties, you still do not get to deduct any spa expenses.
Travel Expense for Other Individuals. There are plenty of legitimate reasons for deducting expenses when traveling for business. There are many fewer legitimate reasons for why you had to pay for your wife and family to accompany you.
Lunches with Co-Workers. In a similar vein, if you have traveled away from home for business, those meals can be deductible. When it just hits noon at the office, however, hitting a restaurant with the co-worker from the next cubicle is not a deductible expense.
Commuting Expenses. Similarly, the cost of traveling away from home on business is likely deductible. The car ride to and from the regular office every day, though, is not – no matter how long you spend in traffic.

There are obviously many more that I could get into here. There are also some categories of deduction where I could just pick one and write an entire article pulling apart the nuances of what is and what is not deductible. What this highlights is the usefulness (or dare I say, need) of having someone who understands the rules on your side. So if you are curious about what expenses you have incurred this year are actually deductible, this is a good time to start getting answers to those questions and making some moves before the end of the year if your tax situation needs help.

October 2017 Update - Wills and Living Trusts

Sun, 01 Oct 2017 19:31:52 GMT

October 2017 Update - Wills and Living Trusts

Well-crafted, up-to-date estate planning documents are an imperative for everyone. They also can help ease the burdens on your family during a difficult time. Two important examples: wills and living trusts.

The will

A will is a legal document that arranges for the distribution of your property after you die and allows you to designate a guardian for minor children or other dependents. It should name the executor or personal representative who’ll be responsible for overseeing your estate as it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing your property after you die.) To be valid, a will must meet the legal requirements in your state.

If you die without a will (that is, “intestate”), the state will appoint an administrator to determine how to distribute your property based on state law. The administrator also will decide who will assume guardianship of any minor children or other dependents. Bottom line? Your assets may be distributed — and your dependents provided for — in ways that differ from what you would have wanted.

The living trust

Because probate can be time-consuming, expensive and public, you may prefer to avoid it. A living trust can help. It’s a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. On your death, the person (such as a family member or advisor) or institution (such as a bank or trust company) you’ve named as the successor trustee distributes the trust assets to the beneficiaries you’ve named.

Assets held in a living trust avoid probate — with very limited exceptions. Another benefit is that the successor trustee can take over management of the trust assets should you become incapacitated.

Having a living trust doesn’t eliminate the need for a will. For example, you can’t name a guardian for minor children or other dependents in a trust. However, a “pour over” will can direct that assets you own outside the living trust be transferred to it on your death.

3 Strategies for Handling Estimated Tax Payments

In today’s economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, you might be at risk of penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:

1. Know the minimum payment rules

For you to avoid penalties, your estimated payments and withholding must equal at least:

90% of your tax liability for the year,
110% of your tax for the previous year, or
100% of your tax for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if married filing separately).

2. Use the annualized income installment method

This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income — especially if it’s skewed toward year end. Annualizing calculates the tax due based on income, gains, losses and deductions through each “quarterly” estimated tax period.

3. Estimate your tax liability and increase withholding

If, as year end approaches, you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters.

Finally, beware that you also could incur interest and penalties if you’re subject to the additional 0.9% Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments. Please contact us for help with this tricky tax task.

Foundational elements

These are just a few of the foundational elements of a strong estate plan. We can work with you and your attorney to address the tax issues involved.

September 2017 Update - Understanding the Differences Between Healthcare Accounts

Fri, 01 Sep 2017 19:36:49 GMT

September 2017 Update - Understanding the Differences Between Healthcare Accounts

Health care costs continue to be in the news and on everyone’s mind. As a result, tax-friendly ways to pay for these expenses are very much in play for many people. The three primary players, so to speak, are Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs).

All provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three types of accounts? Here’s an overview of each one:

HSAs

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,400 for self-only coverage and $6,750 for family coverage for 2017. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSAs

Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,600 in 2017. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2½-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRAs

An HRA is an employer-sponsored arrangement that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Please bear in mind that these plans could be affected by health care or tax legislation. Contact our firm for the latest information, as well as to discuss these and other ways to save taxes in relation to your health care expenses.

5 Keys to Disaster Planning For Individuals

Disaster planning is usually associated with businesses. But individuals need to prepare for worst-case scenarios, as well. Unfortunately, the topic can seem a little overwhelming. To help simplify matters, here are five keys to disaster planning that everyone should consider:

1. Insurance

Start with your homeowners’ coverage. Make sure your policy covers flood, wind and other damage possible in your region and that its dollar amount is adequate to cover replacement costs. Also review your life and disability insurance.

2. Asset documentation

Create a list of your bank accounts, titles, deeds, mortgages, home equity loans, investments and tax records. Inventory physical assets not only in writing (including brand names and model and serial numbers), but also by photographing or videoing them.

3. Document storage

Keep copies of financial and personal documents somewhere other than your home, such as a safe deposit box or the distant home of a trusted friend or relative. Also consider “cloud computing” — storing digital files with a secure Web-based provider.

4. Cash

You may not receive insurance money right away. A good rule of thumb is to set aside three to six months’ worth of living expenses in a savings or money market account. Also maintain a cash reserve in your home in a durable, fireproof safe.

5. An emergency plan

Establish a family emergency plan that includes evacuation routes, methods of getting in touch and a safe place to meet. Because a disaster might require you to stay in your home, stock a supply kit with water, nonperishable food, batteries and a first aid kit.

August 2017 Update - Roth IRA Rollover Opportunity

Tue, 01 Aug 2017 19:39:49 GMT

August 2017 Update - Roth IRA Rollover Opportunity

Are you a highly compensated employee (HCE) approaching retirement? If so, and you have a 401(k), you should consider a potentially useful tax-efficient IRA rollover technique. The IRS has specific rules about how participants such as you can allocate accumulated 401(k) plan assets based on pretax and after-tax employee contributions between standard IRAs and Roth IRAs.

High-earner dilemma

In 2017, the top pretax contribution that participants can make to a 401(k) is $18,000 ($24,000 for those 50 and older). Plans that permit after-tax contributions (several do) allow participants to contribute a total of $54,000 ($36,000 above the $18,000 pretax contribution limit). While some highly compensated supersavers may have significant accumulations of after-tax contributions in their 401(k) accounts, the tax law income caps block the highest paid HCEs from opening a Roth IRA.

However, under IRS rules, these participants can roll dollars representing their after-tax 401(k) contributions directly into a new Roth IRA when they retire or no longer work for the companies. Thus, they’ll ultimately be able to withdraw the dollars representing the original after-tax contributions — and subsequent earnings on those dollars — tax-free.

An example

Participants can contribute rollover dollars to conventional and Roth IRAs on a pro-rata basis. For example, suppose a retiring participant had $1 million in his 401(k) plan account, $600,000 of which represents contributions. Suppose further that 70% of that $600,000 represents pretax contributions, and 30% is from after-tax contributions. IRS guidance clarifies that the participant can roll $700,000 (70% of the $1 million) into a conventional IRA, and $300,000 (30% of the $1 million) into a Roth IRA.

The IRS rules allow the retiree to roll over not only the after-tax contributions, but the earnings on those after-tax contributions (40% of the $300,000, or $120,000) to the Roth IRA provided that the $120,000 will be taxable for the year of the rollover.

Alternatively, the IRS rules allow the retiree to delay taxation on the earnings attributable to the after-tax contributions ($120,000) until the money is distributed by contributing that amount to a conventional IRA, and the remaining $180,000 to the Roth IRA.

Under each approach, the subsequent growth in the Roth IRA will be tax-free when withdrawn. Partial rollovers can also be made, and the same principles apply.

Golden years ahead

HCEs face some complex decisions when it comes to retirement planning. Let our firm help you make the right moves now for your golden years ahead.

Shifting Capital Gains to Your Children

If you’re an investor looking to save tax dollars, your kids might be able to help you out. Giving appreciated stock or other investments to your children can minimize the impact of capital gains taxes.

For this strategy to work best, however, your child must not be subject to the “kiddie tax.” This tax applies your marginal rate to unearned income in excess of a specified threshold ($2,100 in 2017) received by your child who at the end of the tax year was either: 1) under 18, 2) 18 (but not older) and whose earned income didn’t exceed one-half of his or her own support for the year (excluding scholarships if a full-time student), or 3) a full-time student age 19 to 23 who had earned income that didn’t exceed half of his or her own support (excluding scholarships).

Here’s how it works: Say Bill, who’s in the top tax bracket, wants to help his daughter, Molly, buy a new car. Molly is 22 years old, just out of college, and currently looking for a job — and, for purposes of the example, won’t be considered a dependent for 2017.

Even if she finds a job soon, she’ll likely be in the 10% or 15% tax bracket this year. To finance the car, Bill plans to sell $20,000 of stock that he originally purchased for $2,000. If he sells the stock, he’ll have to pay $3,600 in capital gains tax (20% of $18,000), plus the 3.8% net investment income tax, leaving $15,716 for Molly. But if Bill gives the stock to Molly, she can sell it tax-free and use the entire $20,000 to buy a car. (The capital gains rate for the two lowest tax brackets is generally 0%.)

July 2017 Update - Which Type of Mortgage Loan Meets Your Needs?

Sat, 01 Jul 2017 19:45:34 GMT

July 2017 Update - Which Type of Mortgage Loan Meets Your Needs?

Few purchases during your lifetime will be as expensive as buying a home. Whether it’s your primary residence, a vacation home or an investment property, how you choose to pay for it can have a significant impact on your financial situation over time. If you’re considering a mortgage loan, understanding the main categories of mortgages — fixed-rate and adjustable-rate — and the situations they’re best designed for will help you match the right type for your needs.

Fixed-rate loans offer stability

A fixed-rate mortgage, as its name suggests, is a loan whose interest rate remains constant for the life of the loan — typically 15 or 30 years. One of the primary benefits of a fixed-rate loan is that it provides a measure of certainty about one of the biggest expenses in your monthly budget. With interest rates likely to rise after an extended period of historically low rates, you won’t have to worry about potentially higher payments in the future if you select a fixed-rate loan.

That said, if interest rates were to fall again, your fixed-rate loan would leave you unable to take advantage of the shift unless you refinance, which might involve fees. You’re also paying a premium for the stability offered by a fixed-rate mortgage. You could consider a 15-year fixed-rate loan, which would charge a lower rate than a 30-year loan, but the tradeoff will be higher monthly payments.

ARMs provide flexibility

Adjustable-rate mortgages (ARMs) typically offer a fixed interest rate for an initial period of years. This rate, which is usually lower than that of a comparable fixed-rate mortgage, resets periodically based on a benchmark interest rate. For example, a 5/1 ARM means that your interest rate is fixed for the first five years and then will adjust every year after that.

Paying less interest in the beginning frees your cash for other investments. You might also take advantage of an ARM if you’re confident that you’ll have more money in the future than you do today, or if you plan on selling your house before or soon after the initial fixed-rate period expires. When considering an ARM, you’ll need to assess your ability to keep up with potentially higher payments — say, if the initial period expires, your rate goes up and you’re unable to sell the home, or if your income changes.

The best for you

The right loan type depends, naturally, on your financial position. But whether you’re buying a primary residence, vacation home or investment property also plays a role. Regardless of which type of home you’re purchasing, having a basic knowledge of the loan types can help ease the buying process. Let our firm assist you in evaluating the best mortgage for your needs.

Know Your Tax Hand When it Comes to Gambling

A royal flush can be quite a rush. But the IRS casts a wide net when defining gambling income. It includes winnings from casinos, horse races, lotteries and raffles, as well as any cash or prizes (appraised at fair market value) from contests. If you participate in any of these activities, you must report such winnings as income on your federal return.

If you’re a casual gambler, report your winnings as “Other income” on Form 1040. You may also take an itemized deduction for gambling losses, but the deduction is limited to the amount of winnings.

In some cases, casinos and other payers provide IRS Form W-2G, “Certain Gambling Winnings” — particularly if the entity in question withholds federal income tax from winnings. The information from these forms needs to be included on your tax return.

If you gamble often and actively, you might qualify as a professional gambler, which comes with tax benefits: It allows you to deduct not only losses, but also wagering-related business expenses — such as transportation, meals and entertainment, tournament and casino admissions, and applicable website and magazine subscriptions.

To qualify as a professional, you must be able to demonstrate to the IRS that a “profit motive” exists. The agency looks at a list of nonexclusive factors when making this determination, including:

Whether the taxpayer conducts the gambling activity in a “businesslike” manner,
The quantity of time spent gambling, and
How much income is earned from nongambling activities.

But don’t “go pro” for the tax benefits, since doing so is a major financial risk. If you enjoy the occasional game of chance, or particularly if you’re considering gambling as a profession, please contact our firm. We can help you manage the tax impact.

IRS Scam Alert

Fri, 23 Jun 2017 13:44:43 GMT

IRS Scam Alert

It almost seems like a monthly rite of passage when the latest tax scam comes up that I have to cover in this spot. I almost can’t believe it sometimes, but as long as the IRS keeps putting out warnings, I feel it is my job to pass them along. At least with this latest one, it gives me the opportunity to highlight many of the things to look out for all at once.

First, the new scam starts with receiving a phone call claiming that you must make a payment through a prepaid debit card that is apparently linked to the Electronic Federal Tax Payment System (EFTPS). The system exists, and talking of it seems to lend credence to the scammer’s claim. The reality, though, is that it does not utilize this one magic mode of payment.

Second, there is a claim made that payment must be made immediately to avoid arrest. Although the process of working through a tax issue may never be fun, it is never that quick, and rarely that dire.

Also, the scam caller claims that there were previous attempts to contact the taxpayer via certified mail that were returned as undeliverable. Never pay heed to such words, for you should always assume that the first word you get from the IRS about any potential problem will come in writing.

Finally, the call comes with warnings to not contact a tax preparer, attorney, or local IRS office before making the payment. That’s because those are the people who could lead you to finding out that the whole thing is not legitimate.

Those are the four prongs of the latest attack, which has been reported across the country, but they all share some things in common.

Scam artists are out to play on fear. Each piece of this scam tries to build on the fear of reprisals while offering a way to make it end as quickly as possible.

If anyone, for any reason, ever asks for payment in a form of currency that can’t be traced, there is something illegitimate going on. Even if it is to purchase an opportunity that seems too be good to be true, remember it is because it is too good to be true. And why would the IRS not accept a check or a wire from your bank account? I mean, wouldn’t that direct payment from a bank account be faster than adding another middle-man transaction?

And if the federal government is able to track you down by phone, apparently has your legal information on a tax return, why couldn’t it get a letter into your hands first?

Finally, why would someone not want you to be in contact with the very people who are most knowledgeable about what is supposedly going on? If it was legitimate, wouldn’t they want to involve those who can help things reach an endpoint?

Listen to those questions that come up in your mind, and if you ever fear you may be becoming a potential victim of fraud, do contact someone, for I can help.

June 2017 Update - In Down Years, NOL Rules Can Offer Tax Relief

Thu, 01 Jun 2017 19:49:31 GMT

June 2017 Update - In Down Years, NOL Rules Can Offer Tax Relief

From time to time, a business may find that its operating expenses and other deductions for a particular year exceed its income. This is known as incurring a net operating loss (NOL).

In such cases, companies (or their owners) may be able to snatch some tax relief from this revenue defeat. Under the Internal Revenue Code, a corporation or individual may deduct an NOL from its income.

3 ways to play

Generally, you take an NOL deduction in one of three ways:

Deducting the loss in previous years, called a “carryback,” which creates a refund,
Deducting the loss in future years, called a “carryforward,” which lowers your future tax liability, or
Doing a little bit of both.

A corporation or individual must carry back an NOL to the two years before the year it incurred the loss. But the carryback period may be increased to three years if a casualty or theft causes the NOL, or if you have a qualified small business and the loss is in a presidentially declared disaster area. The carryforward period is a maximum of 20 years.

Direction of travel

You must first carry back losses to the earliest tax year for which you qualify, depending on which carryback period applies. This can produce an immediate refund of taxes paid in the carryback years. From there, you may carry forward any remaining losses year by year up to the 20-year maximum.

You may, however, elect to forgo the carryback period and instead immediately carry forward a loss if you believe doing so will provide a greater tax benefit. But you’ll need to compare your marginal tax rate — that is, the tax rate of the last income dollar in the previous two years — with your expected marginal tax rates in future years.

For example, say your marginal tax rate was relatively low over the last two years, but you expect big profits next year. In this case, your increased income might put you in a higher marginal tax bracket. So you’d be smarter to waive the carryback period and carry forward the NOL to years in which you can use it to reduce income that otherwise would be taxed at the higher rate.

Then again, as of this writing, efforts are underway to pass tax law reform. So, if tax rates go down, it might be more beneficial to carry back an NOL as far as allowed before carrying it forward.

Whatever the reason

Many circumstances can create an NOL. Whatever the reason, the rules are complex. Let us help you work through the process.

Sidebar: AMT effect

One tricky aspect of navigating the net operating loss (NOL) rules is the impact of the alternative minimum tax (AMT). Many business owners wonder whether they can offset AMT liability with NOLs just as they can offset regular tax liability.

The answer is “yes” — you can deduct your AMT NOLs from your AMT income in generally the same manner as for regular NOLs. The excess of deductions allowed over the income recognized for AMT purposes is essentially the AMT NOL. But beware that different rules for deductions, exclusions and preferences apply to the AMT. (These rules apply to both individuals and corporations.)

Renting Out Your Vacation Home? Anticipate the Tax Impact

When buying a vacation home, the primary objective is usually to provide a place for many years of happy memories. But you might also view the property as an income-producing investment and choose to rent it out when you’re not using it. Let’s take a look at how the IRS generally treats income and expenses associated with a vacation home.

Mostly personal use

You can generally deduct interest up to $1 million in combined acquisition debt on your main residence and a second residence, such as a vacation home. In addition, you can also deduct property taxes on any number of residences.

If you (or your immediate family) use the home for more than 14 days and rent it out for less than 15 days during the year, the IRS will consider the property a “pure” personal residence, and you don’t have to report the rental income. But any expenses associated with the rental — such as advertising or cleaning — aren’t deductible.

More rental use

If you rent out the home for more than 14 days and you (or your immediate family) occupy the home for more than 14 days or 10% of the days you rent the property — whichever is greater — the IRS will still classify the home as a personal residence (in other words, vacation home), but you will have to report the rental income.

In this situation, you can deduct the personal portion of mortgage interest, property taxes and casualty losses as itemized deductions. In addition, the rental portion of your expenses is deductible up to the amount of rental income. If your rental expenses are greater than your rental income, you may not deduct the loss against other income.

If you (or your immediate family) use the vacation home for 14 days or less, or under 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a rental property. In this instance, while the personal portion of mortgage interest isn’t deductible, you may report as an itemized deduction the personal portion of property taxes. You must report the rental income and may deduct all rental expenses, including depreciation, subject to the passive activity loss rules.

Brief examination

This has been just a brief examination of some of the tax issues related to a vacation home. Please contact our firm for a comprehensive assessment of your situation.

May 2017 Update - Watch Out for IRD Issues When Inheriting Money

Mon, 01 May 2017 19:53:12 GMT

May 2017 Update - Watch Out for IRD Issues When Inheriting Money

Once a relatively obscure concept, income in respect of a decedent (IRD) can create a surprisingly high tax bill for those who inherit certain types of property, such as IRAs or other retirement plans. Fortunately, there are ways to minimize or even eliminate the IRD tax bite.

How it works

Most inherited property is free from income taxes, but IRD assets are an exception. IRD is income a person was entitled to but hadn’t yet received at the time of his or her death. It includes:

Distributions from tax-deferred retirement accounts, such as 401(k)s and IRAs,
Deferred compensation benefits and stock option plans,
Unpaid bonuses, fees and commissions, and
Uncollected salaries, wages, and vacation and sick pay.

IRD isn’t reported on the deceased’s final income tax return, but it’s included in his or her taxable estate, which may generate estate tax liability if the deceased’s estate exceeds the $5.49 million (for 2017) estate tax exemption, less any gift tax exemption used during life. (Be aware that President Trump and congressional Republicans have proposed an estate tax repeal. It hasn’t been passed as of this writing, but check back with us for the latest information.)

Then it’s taxed — potentially a second time — as income to the beneficiaries who receive it. This income retains the character it would have had in the deceased’s hands. So, for example, income the deceased would have reported as long-term capital gains is taxed to the beneficiary as long-term capital gains.

What can be done

When IRD generates estate tax liability, the combination of estate and income taxes can devour an inheritance. The tax code alleviates this double taxation by allowing beneficiaries to claim an itemized deduction for estate taxes attributable to amounts reported as IRD. (The deduction isn’t subject to the 2% floor for miscellaneous itemized deductions.)

The estate tax attributable to IRD is equal to the difference between the actual estate tax paid by the estate and the estate tax that would have been payable if the IRD’s net value had been excluded from the estate.

Suppose, for instance, that you’re the beneficiary of an estate that includes a taxable IRA. If the estate tax is $150,000 with the retirement account and $100,000 without, the estate tax attributable to the IRD income is $50,000. But be careful, because any deductions in respect of a decedent must also be included when calculating the estate tax impact.

When multiple IRD assets and multiple beneficiaries are involved, complex calculations are necessary to properly allocate the income and deductions. Similarly, when a beneficiary receives IRD over a period of years — IRA distributions, for example — the deduction must be prorated based on the amounts distributed each year.

We can help

If you inherit property that could be considered IRD, please consult our firm for assistance in managing the tax consequences. With proper planning, you can keep the cost to a minimum.

Reviewing the Innocent Spouse Relief Rules

Married couples don’t always agree — and taxes are no exception. In certain cases, an “innocent” spouse can apply for relief from the responsibility of paying tax, interest and penalties arising from a spouse’s (or former spouse’s) improperly handled tax return. Although it isn’t easy to qualify, potentially affected taxpayers should review the rules.

Applicants may qualify for various forms of relief if they can meet the applicable IRS conditions. One factor that’s considered is whether the applicant received any significant direct or indirect benefit from the tax understatement. For instance, an applicant’s case could be weakened if he or she had used unreported income to pay extraordinary household expenses.

The IRS will also look at the distinctive aspects of the case. The fact that a spouse applying for relief has already divorced his or her partner is significant. Whether the applicant was abused physically or mentally will also play a role, as will whether he or she was in poor mental or physical health when the return(s) in question was signed. In addition, the IRS will consider whether the applicant would experience economic hardship without relief from a significant tax debt.

Generally, an applicant must request innocent spouse relief no later than two years after the date the IRS first attempted to collect the tax. But other forms of relief may still be available thereafter. Please contact our firm for more information.

April 2017 Update - ABLE Accounts Can Help Support the Disabled

Sat, 01 Apr 2017 19:57:18 GMT

April 2017 Update - ABLE Accounts Can Help Support the Disabled

The Achieving a Better Life Experience (ABLE) Act of 2014 created a tax-advantaged savings account for people who have a qualifying disability (or are blind) before age 26. Modeled after the well-known Section 529 college savings plan, ABLE accounts offer many benefits. But it’s important to understand their limitations.

Tax and funding benefits

Like Section 529 plans, state-sponsored ABLE accounts allow parents and other family and friends to make substantial cash contributions. Contributions aren’t tax deductible, but accounts can grow tax-free, and earnings may be withdrawn free of federal income tax if they’re used to pay qualified expenses. ABLE accounts can be established under any state ABLE program, regardless of where you or the disabled account beneficiary live.

In the case of a Section 529 plan, qualified expenses include college tuition, room and board, and certain other higher education expenses. For ABLE accounts, “qualified disability expenses” include a broad range of costs, such as health care, education, housing, transportation, employment training, assistive technology, personal support services, financial management, legal expenses, and funeral and burial expenses.

An ABLE account generally won’t jeopardize the beneficiary’s eligibility for means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI). To qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.”

Assets in an ABLE account aren’t counted, with two exceptions: 1) Distributions used for housing expenses count, and 2) if the account balance exceeds $100,000, the beneficiary’s eligibility for SSI is suspended so long as the excess amount remains in the account.

Notable limitations

ABLE accounts offer some attractive benefits, but they’re far less generous than those offered by Sec. 529 plans. Maximum contributions to 529 plans vary from state to state, but they often reach as high as $350,000 or more. The same maximum contribution limits generally apply to ABLE accounts, but practically speaking they’re limited to $100,000, given the impact on SSI benefits.

Like a 529 plan, an ABLE account allows investment changes only twice a year. But ABLE accounts also impose an annual limit on contributions equal to the annual gift tax exclusion (currently $14,000). There’s no annual limit on contributions to Sec. 529 plans.

ABLE accounts have other limitations and disadvantages as well. Unlike a Sec. 529 plan, an ABLE account doesn’t allow the person who sets up the account to be the owner. Rather, the account’s beneficiary is the owner.

However, a person with signature authority — such as a parent, legal guardian or power of attorney holder — can manage the account if the beneficiary is a minor or otherwise unable to manage the account. Nevertheless, contributions are irrevocable and the account’s funders may not make withdrawals. The beneficiary can be changed to another disabled individual who’s a family member of the designated beneficiary.

Finally, be aware that, when an ABLE account beneficiary dies, the state may claim reimbursement of its net Medicaid expenditures from any remaining balance.

Worth exploring

If you have a child or relative with a disability in existence before age 26, it’s worth exploring the feasibility of an ABLE account. Please contact our firm for more details.

So You Just Filed Your Taxes - Could an Audit Be Next?

Like many people, you probably feel a great sense of relief wash over you after your tax return is completed and filed. Unfortunately, even professionally prepared and accurate returns may sometimes be subject to an IRS audit.

The good news? Chances are slim that it will actually happen. Only a small percentage of returns go through the full audit process. Still, you’re better off informed than taken completely by surprise should your number come up.

Red flags

A variety of red flags can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return. This is often the employer’s mistake or occurs following a merger or acquisition.

In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things may increase the likelihood of an audit, such as:

Running a traditionally cash-oriented business,
Having a relatively high adjusted gross income,
Using valid but complex tax shelters, or
Claiming certain tax breaks, such as the home office deduction.

Bear in mind, though, that no single item will cause an audit. And, as mentioned, a relatively low percentage of returns are examined. This is particularly true as the IRS grapples with its own budget issues.

Finally, some returns are randomly chosen as part of the IRS’s National Research Program. Through this program, the agency studies returns to improve and update its audit selection techniques.

Careful reading

If you receive an audit notice, the first rule is: Don’t panic! Most are correspondence audits completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate.

Read the notice through carefully. The pages should indicate the items to be examined, as well as a deadline for responding. A timely response is important because it conveys that you’re organized and, thus, less likely to overlook important details. It also indicates that you didn’t need to spend extra time pulling together a story.

Your response (and ours)

Should an IRS notice appear in your mail, please contact our office. We can fully explain what the agency is looking for and help you prepare your response. If the IRS requests an in-person interview regarding the audit, we can accompany you — or even appear in your place if you provide authorization.

Tax Return Procrastination

Thu, 16 Mar 2017 13:42:07 GMT

Tax Return Procrastination

Last week, reports came out that fewer people were filing their taxes than had at the same point of calendar year 2016. Bloomberg released an article that theorized taxpayer confusion was one of the reasons for this. Although the current political climate makes that more likely this year than others, it is not like taxes made sense to everyone in past years.

Talk of tax plans, health care, tax reform and repeal and replace, though, is making many wonder more about how everything is going to shake out and what our tax pictures will look like next year (and this includes myself and my associates). Your responsibilities this year are set, though, so if you have been putting off filing, it is time to start moving on that, especially as our calendar tends to fill up fast time of year.

No matter how things fall in the future, though, it would involve a serious revamping to make the tax code something that is easy to understand. This is why one hears so much rhetoric about just how large and unwieldy our country’s tax code is.

So with all this talk of reform, just how big is that code?

Some of the biggest and most recent work on this subject appears to have been done by the Washington Examiner at the end of last tax season. It uses numbers from Dutch-based Wolters Kluwer to say the code has expanded from 400 pages in 1913 to over 74,000 in 2014, and that includes a jump from a number of just over 60,000 pages in 2004.

The only problem is that this isn’t really the right number.

First of all, the tax code should be something that you can actually have and access, no? Well maybe not you, but someone (let’s say your trusted neighborhood tax professional), should have access to it and have it be something that is actually useable. 70,000 pages would not fit within it, as I cannot even quite imagine just what a 70,000 book (or series of books) would look like. Think about it, that would be 70 volumes of 1,000 pages each, which is simply ridiculous.

Instead, read this quote from Andrew Grossman in a 2014 article on slate.com about this topic:

"So, how long is it? In the 2013 edition, the last page is numbered 4,037. Now, that’s not exactly right either, for two reasons: The book starts at page 100, and then skips 500 pages in its numbering (don’t ask me why), and this volume (like all other volumes I’ve ever seen) contains both the present-day tax laws and prior versions of the tax law. That is because tax lawyers like me often find it useful to refer to prior versions of the law. But the compilation of those old laws isn’t really the 'tax code'—it’s just a resource for lawyers. I’d estimate that the old law takes up about 800 pages. So let’s say the tax code is about 2,600 pages long. It’s like 2½ times the length of Stephen King’s It—except you replace 'scary clown' with 'accounting methods.'"

Now that sounds much more reasonable, and Grossman even goes on to try to figure out where the 70,000 number comes from. He finds that it began with equating the “CCH Standard Federal Tax Reporter,” with the US tax code. And although that tome does contain the tax code, it also includes history, commentary, regulations, etc. on tax law in general.

This still does not mean that understanding the tax code is easy, but it’s not as wildly complicated as some would have us believe, and that is worth knowing. It is also worth knowing someone who understands the code no matter its size, so if you still have questions or needs for your 2016 return, don’t hesitate to contact me. I remain available to assist you at any time.

March 2017 Update - Got Nexus? Find Out Before Operating In Multiple States

Wed, 01 Mar 2017 20:01:10 GMT

March 2017 Update - Got Nexus? Find Out Before Operating In Multiple States

For many years, business owners had to ask themselves one question when it came to facing taxation in another state: Do we have “nexus”? This term indicates a business presence in a given state that’s substantial enough to trigger the state’s tax rules and obligations.

Well, the question still stands. And if you’re considering operating your business in multiple states, or are already doing so, it’s worth reviewing the concept of nexus and its tax impact on your company.

Common criteria

Precisely what activates nexus in a given state depends on that state’s chosen criteria. Triggers can vary but common criteria include:

Employing workers in the state,
Owning (or, in some cases, even leasing) property there,
Marketing your products or services in the state,
Maintaining a substantial amount of inventory there, and
Using a local telephone number.

Then again, one generally can’t say that nexus has a “hair trigger”. A minimal amount of business activity in a given state probably won’t create tax liability there.

For example, an HVAC company that makes a few tech calls a year across state lines probably wouldn’t be taxed in that state. Or let’s say you ask a salesperson to travel to another state to establish relationships or gauge interest. As long as he or she doesn’t close any sales, and you have no other activity in the state, you likely won’t have nexus.

Strategic moves

As with many tax issues, the totality of facts and circumstances will determine whether you have nexus in a state. So it’s important to make assumptions either way. The tax impact could be significant, and its specifics will vary widely depending on just how the state in question approaches taxation.

For starters, strongly consider conducting a nexus study. This is a systematic approach to identifying the out-of-state taxes to which your business activities may expose you. The results of a nexus study may not necessarily be negative. You may find that your company’s overall tax liability is lower in a neighboring state. In such cases, it may be advantageous to create nexus in that state by, say, setting up a small office there. If all goes well, you may be able to allocate some income to that state and lower your tax bill.

Taxation and profitability

“The grass is always greener on the other side of the fence”, so the saying goes. If profitability beckons in another state, please contact our firm for help projecting how setting up shop there might affect your tax liability.

Sidebar: Service companies, beware of market-based sourcing

Nexus has been and remains the primary focus of companies considering whether and how they’d be taxed across state lines. (See main article.) But, recently, many states have established “market-based sourcing” for determining the tax liability of service companies that operate within their borders.

Under this approach, if the benefits of a service occur and will be used in another state, that state will tax the revenue gained from said service. “Service revenue” generally is defined as revenue from intangible assets — not the sales of tangible personal property.

Thus, in market-based sourcing states, the destination state of a service is the relevant taxation factor rather than the state in which the income-producing activity is performed (also known as the “cost of performance” method).

Four Tips for Donating Artwork to Charity

Individuals may want to donate artwork so it can be enjoyed by a wider audience or available for scholarly study or simply to make room for new artwork in their home. Here are four tips for donating artwork with an eye toward tax savings:

1. Get an appraisal

Donations of artwork valued at over $5,000 require a “qualified appraisal” by a “qualified appraiser”. IRS rules detail the requirements. In addition, auditors are required to refer all gifts of art valued at $20,000 or more to the agency’s Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s critical to provide a solid appraisal to support your valuation.

2. Donate to a public charity

Donations to a qualified public charity (such as a museum or university) potentially entitle you to deduct the artwork’s full fair market value. If you donate to a private foundation, your deduction will be limited to your cost. The total amount of charitable donations you may deduct in a given year is limited to a percentage of your adjusted gross income (50% for public charities, 30% for private foundations) with the excess carried forward for up to five years.

3. Beware the related-use rule

To qualify for a full fair-market-value deduction, the charity’s use of the artwork must be related to its tax-exempt purpose. Even if the related-use rule is satisfied initially, you may lose some or all of your deductions if the artwork is worth more than $5,000 and the charity sells or otherwise disposes of it within three years of receipt. If that happens, you may be able to preserve your tax benefits via a certification process. (For further details, please contact us.)

4. Consider a fractional donation

Donating a fractional interest allows you to save tax dollars without completely giving up the artwork. Say you donate a 25% interest in your art collection to a museum for it to display for three months annually. You could then deduct 25% of the collection’s fair market value and continue displaying the art in your home or business for most of the year.

The rules for fractional donations, and charitable contributions of artwork in general, can be tricky. Plus, tax law changes affecting deductions may occur in the coming year. Contact our firm for help.

Issues That Can Trigger an Audit or Examination

Wed, 01 Mar 2017 13:17:08 GMT

Issues That Can Trigger an Audit or Examination

On February 15, 2017 I posted a blog on What Triggers an Audit. Because of the concerns that taxpayers have around this topic, I am continuing to share with you more information about audits as it remains - as it should be - a hot-button topic this time of year. It was reported last week that the number of audits the IRS is carrying out continues to decrease, but remember they are far from nonexistent.

That report seems to be what triggered this recent article on Forbes.com , which goes into ways to try to avoid being audited. Much of what is in that article is similar to my recent writing on the subject, but there were some new additions that I think are worth highlighting.

The first comes under the heading of “Call Home,” referring primarily to the number of college students away from home who may be filing their own tax returns, possibly for the first time. If they are doing such a thing, what will they mark when it comes to whether they are a dependent on someone else’s tax return? And most importantly, will it match what their parents claim? This is something that a phone call will figure out in a few minutes. That time commitment is quite worth it to make sure that everyone’s return says the same thing.

The next heading I want to mention is “Don’t make up stuff.” Granted, this is as obvious as it sounds, but I enjoy the story shared to highlight the issue – a client at audit who claimed expenses (without receipts) with all round numbers, but not just to the nearest dollar, to the nearest hundred or thousand. It serves as a warning that if numbers look made up, the IRS will know it. If putting something on your return makes you uneasy, you probably shouldn’t’ do it.

There is, however, another topic in the article with which I wanted to raise some issue, and that is “Be as normal as possible.” Now sure, if your only goal is to not be audited, yes, you should be as normal as possible, for outlying numbers are ones that can raise red flags when the IRS is reviewing returns. But even if being as normal as possible may keep you from an audit, I don’t think you should withhold anything legitimate on a return, even if it lies outside the norm .

So think of the college student and his parents whose audit issues could be avoided with a couple of questions. Think of the business owner who didn’t keep good records and ran with guesses and estimates because they thought they were entitled to something. And then think of someone facing an audit because they knew they were due to more of a tax break than most in their situation.

Who would you rather be?

I think we will all pick the last of the three, and that is because they are the one who filed their return with not only confidence, but with the necessary knowledge. It’s a good thing you already know a tax professional that you can trust, isn’t it?

Affordable Care Act Status, AKA Obamacare

Wed, 22 Feb 2017 13:13:24 GMT

Affordable Care Act Status, AKA Obamacare

During the election season I never touched on politics. Since I never thought it was my place to take sides, I stayed on the sidelines. Now there is a different issue that has come up and it has come up from a campaign promise of President Trump. As this action by President Trump can affect ones taxes and financial situation, I believe it is appropriate for me to comment about this impact but I will remain non-committal as to my position.

As most have hopefully realized by now, there is a connection between your tax return and the Affordable Care Act/Obamacare (and since I have seen recent data that says many don’t realize it, please know that those are two names for the same thing). Since President Trump’s first executive order displayed his intentions to undo any aspects of the ACA that he could as quickly as possible, it is not surprising that us in the tax world are closely watching this.

Unfortunately, we are largely in another wait-and-see area now, though. We have just moved into a further shade of gray (of which I hear there are at least 50, some of them darker) because the executive order doesn’t lay out definite action steps. Instead it states that agencies and authorities, “shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

So how is the IRS handling this and how does it affect your current tax filing?

Well, you should currently not make any changes and not wait to file your taxes. Hopefully, that’s clear enough to move us back toward black and white areas.

There are a couple of other definites we can say, too. First, the IRS was rejecting returns earlier in the season that did not include information related to health coverage. Now, however, lacking that information is no longer resulting in an automatic rejection.

This does not mean that there will not be penalties for those who did not carry health insurance without qualifying for an exemption. And that penalty can be big, $695 per adult and up to $2,085 per family, or 2.5% of the family income, whichever is greater. As the IRS has warned, new legislation – an Act of Congress- will be required to change those aspects of the ACA.

The debate over the Affordable Care Act is going to continue for the foreseeable future and changes to it seem likely, though I would not hazard a guess just how far they will proceed. No matter how quick they come, though, we are already deep into the 2016 tax season, with returns already being accepted and refunds given. I would be totally surprised to see any legislation having an effect on this tax filing season.

What will this mean next year - tune in next year to know that. In the meantime, proceed as you would have before the election and inauguration and know that we will be here along the way to help you with any questions you may have about this confusing situation.

What Triggers an Audit?

Wed, 15 Feb 2017 13:08:34 GMT

What Triggers an Audit?

I suppose it is not surprising that this is the time of year when people most think about the potential of a tax audit. After all, many like to ignore all thoughts of taxes through much of the year, only letting them rise to the forefront when forced to file a return.

It also gets avoided, because it is the most frightening aspect of paying taxes. Again, no one gets too overjoyed when they see the amount of money they send to the government on an annual basis, but it is even worse when mysterious agents decide to take extra steps in an attempt to gather even more money from you. This can be especially worrisome, and unexpected, when it comes years after the return in question. I don’t want to be the bearer of bad news, but as the carrier of a little dose of reality, you may want to take note of this recent Forbes article that speaks of how audits can be started on returns that are up to six years old.

The rarity of audits is difficult to determine, for there are so many factors involved, and just what can trigger one is also impossible to nail down. Regardless of the answers, though, the best way to ease the tension of the possibility of coming under one is to work with a professional tax advisor that you trust (wink, wink, nudge, nudge). That way, even if you face this situation, you know that your return was correctly handled, and the only thing the audit should result in is inconvenience.

Tied in with that are common-sense things that can be done with a tax return that decrease the overall chances of an audit, there is another article from Forbes that tackles the idea from that point of view. Essentially, it largely comes down to the idea that you should fully be taking advantage of all that you are entitled to, but if you feel like you’re pushing the limits of what is reasonable (or even legal), then it is much more likely someone else looking at that return will agree with that feeling.

I would like to highlight one piece, though, about watching out for Forms 1099. These come in many different varieties, some of which may even surprise you when they arrive in your mailbox. But know that if you received one, the government knows about it too, so you can’t hide it.

I know that a lot of these more vague ideas about what could trigger an audit are not enough for some, and you want to know just what could make one happen, so here is one final article that goes a little more into it, and even has some concrete numbers on the chances of an audit.

For those who don’t want to read the whole article, or for those who just prefer to receive news through my golden words, here is a brief summary:

First, your chances of an audit are higher if you’re self-employed. This makes sense as the government has less of a chance to track your income throughout the year. There are also more deductions open to someone in that situation, making more things the IRS may want to check up on. For purposes of this, self-employed is being defined as filing a Schedule C (sole proprietor or sole member LLC). If you file as a Corporation (C or S Corp) you have decreased your odds of getting audited because you are really not self-employed but employed by the corporation.
Second, the IRS knows the value of deductions someone in your financial situation claims on average, so if you’re an outlier claiming much more, they may question it. Again, this does not mean that you should not claim anything that is a legitimate deduction (let’s say you’re more charitable than most, you deserve the perks that come with those good deeds), but you will want to be able to back up all that you are claiming.
Finally, those on the extreme ranges of the income spectrum also run higher chances of an audit. These are further things that look out of the ordinary, after all, so the government may want to know why things look strange.

Remember telling the IRS that these are not “crazy” numbers as expenses or deductions is not a defensible defense during an audit. Documentation is what counts. If you cannot document it you should not be claiming it.

What you most want is for your return to be legitimate and result in you paying as few taxes as you are allowed, so contact me if you have not already so that we can ensure that is done for your latest return.

Accounting and Cyberspace

Thu, 02 Feb 2017 13:03:00 GMT

Accounting and Cyberspace

Now that we are out of the holiday season and entering tax season lets look back on a phenomena of the holiday shopping season. In this holiday-season lookback, we can at least start to give some hope to those who are finding it difficult to come by.

This optimism can come in the economic realm, where numbers show that spending over the holiday season grew at a 3.4% rate. The growth was fueled by the 14% increase in online sales

This does not surprise me, as more and more people I know get the most value from their Amazon Prime membership around the holidays. We all know people that have done ALL of their holiday shopping online is no longer rare and these numbers seem only bound to grow.

It stands to reason then that at the same time that those numbers are increasing, I have also noticed a marked decrease in the amount of people who worry about shopping online. Even those in older generations (traditionally the ones least accepting of new technology) no longer seem to have many qualms about inputting a credit card number online to make a purchase.

With all those dynamics in place, though, it does still surprise me that some people are still hesitant about embracing online accounting. If society is already pushing more and more of their transactions into cyberspace, why hold back from embracing that next step?

From my end, I not only have been moving to learn about such new types of accounting, but am impressed at what it allows me to do. Many of the traditional issues one has with an accountant, after all, happened with communication breakdowns and the ensuing waiting those breakdowns cause. If I am waiting on a couple answer to easy questions, of a few receipts, and my client is then waiting in turn for me to address them once received, those bits of time add up and can hold books and my records from being finalized when they’re 98% of the way there.

Now, however, there are more ways to this communication to happen, more access to books on both sides of the relationship, and thus more ways to finish things quicker.

With that, reporting happens faster. With that, reporting is more powerful because it more accurately reflects what is happening in your business or personal life as of the moment. Wiith that, why would one not want to embrace these new technologies?

Those who do not want to make the cloud accounting jump seem to most hesitant about security concerns. I hope then that this little anecdote about how much holiday shopping happens online helps illuminate why this need not be a giant concern. Sure, no one can ever 100% guarantee complete cyber security, but with that many online transactions happening, they are clearly coming with a level of security with which we are comfortable.

So if you have been reticent about making the cloud accounting jump in the past, we understand. But if it is something you would like to explore, I would love to hear from you now and see what I can do to help. Remember as a Certified QuickBooks Pro Advisor, your small business can always have professional help available at all times.

February 2017 Update - Facing the Tax Challenges of Self-Employment

Wed, 01 Feb 2017 20:04:23 GMT

February 2017 Update - Facing the Tax Challenges of Self-Employment

Today’s technology makes self-employment easier than ever. But if you work for yourself, you’ll face some distinctive challenges when it comes to your taxes. Here are some important steps to take:

Learn your liability

Self-employed individuals are liable for self-employment tax, which means they must pay both the employee and employer portions of FICA taxes. The good news is that you may deduct the employer portion of these taxes. Plus, you might be able to make significantly larger retirement contributions than you would as an employee.

However, you’ll likely be required to make quarterly estimated tax payments, because income taxes aren’t withheld from your self-employment income as they are from wages. If you fail to fully make these payments, you could face an unexpectedly high tax bill and underpayment penalties.

Distinguish what’s deductible

Under IRS rules, deductible business expenses for the self-employed must be “ordinary” and “necessary.” Basically, these are costs that are commonly incurred by businesses similar to yours and readily justifiable as needed to run your operations.

The tax agency stipulates, “An expense does not have to be indispensable to be considered necessary.” But pushing this grey area too far can trigger an audit. Common examples of deductible business expenses for the self-employed include licenses, accounting fees, equipment, supplies, legal expenses and business-related software.

Don’t forget your home office!

You may deduct many direct expenses (such as business-only phone and data lines, as well as office supplies) and indirect expenses (such as real estate taxes and maintenance) associated with your home office. The tax break for indirect expenses is based on just how much of your home is used for business purposes, which you can generally determine by either measuring the square footage of your workspace as a percentage of the home’s total area or using a fraction based on the number of rooms.

The IRS typically looks at two questions to determine whether a taxpayer qualifies for the home office deduction:

Is the specific area of the home that’s used for business purposes used only for business purposes, not personal ones?
Is the space used regularly and continuously for business?

If you can answer in the affirmative to these questions, you’ll likely qualify. But please contact our firm for specific assistance with the home office deduction or any other aspect of filing your taxes as a self-employed individual.

Phaseouts and Reductions: A Tax-Filing Reminder

As tax-filing season gets into full swing, there are many details to remember. One subject to keep in mind — especially if you’ve seen your income rise recently — is whether you’ll be able to reap the full value of tax breaks that you’ve claimed previously.

What could change? If your adjusted gross income (AGI) exceeds the applicable threshold, your personal exemptions will begin to be phased out and your itemized deductions reduced. For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (joint filer) and $155,650 (married filing separately). These are up from the 2015 thresholds, which were $258,250 (single), $284,050 (head of household), $309,900 (joint filer) and $154,950 (married filing separately).

The personal exemption phaseout reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s AGI exceeds the applicable threshold (2% for each $1,250 for married taxpayers filing separately). Meanwhile, the itemized deduction limitation reduces otherwise allowable deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold (not to exceed 80% of otherwise allowable deductions). It doesn’t apply, however, to deductions for medical expenses, investment interest, or casualty, theft or wagering losses.

If your AGI is close to the threshold, AGI-reduction strategies (such as making retirement plan and Health Savings Account contributions) may allow you to stay under it. If that’s not possible, consider the reduced tax benefit of the affected deductions before implementing strategies to accelerate or defer deductible expenses. Please contact our firm for specific strategies tailored to your situation.

Really – I Have to Pay Taxes on This? – Form 1099

Fri, 20 Jan 2017 13:00:36 GMT

Really – I Have to Pay Taxes on This? – Form 1099

There are a number of different 1099 forms and chances are pretty good that at least one will be making its way into your mailbox (be it the actual one at the curb or a virtual one) over the coming weeks. These forms cover a large range of money that you may have received during the year and include things from interest income to dividends to tax refunds to real estate transactions. The most mysterious of these, however, may be the 1099-MISC from that reports miscellaneous income.

I think that many have their first introduction to this form come in a negative way. Wait, what’s this? I have to report this money that I got months ago, and only now pay taxes on it?

Well, yes. And you may have to pay self-employment tax on this income.

Beyond that, however, there may be money that you received over the last year that did not result in someone needing to send you that 1099 form, but chances are to be completely legal, the IRS would require you to still report that income if you want your return to be valid in their eyes.

Yes, it may feel unfair that you have to pay taxes on this money. Yes, it may feel strange that with any money you ever receive, you should default to thinking that taxes will be owed on it. This, though, is just another one of those topics that show why it is best to have a tax professional on your side when you try to navigate these waters.

Growing up, I thought of these forms as what people received for their side hustle; they had a real job they went to from Monday to Friday, did something else smaller to supplement their income, and this form showed up at the beginning of year when it was time to account for that. More and more people, however, are finding their way through the modern economy with only income of this 1099 nature.

The Bureau of Labor Statistics published data in August that said nearly 15 million people are self-employed. This makes up about 10 percent of U.S. workers, which is a number that I found rather surprising. Granted, my profession brings me into contact with many people who are working in such a way and need help to make sure they are handling their finances correctly, but I had no idea how large a portion of the work force these people constituted.

On one side of this, I am thrilled by it. The idea that one can plot their own way through life, choose what they want to do, and succeed in doing so lines up with much of what we believe is inherently great in our country. On the other side, however, I am afraid that this might mean there is a great number of people blazing this path who are unaware of just what their tax burden is. Sadly, lacking this knowledge could lead to the end of the dream where you blaze your own course.

So if you are someone worried about what your upcoming tax bill is going to look like, or just what money you made that will be taxed, this is the time to tackle those questions. At least now you are giving yourself some time to get the money together if you are facing a large bill you did not count on. And, as always, I am always here to help you answer all those questions.

January 2017 Update - DAFs Bring an Investment Angle to Charitable Giving

Sun, 01 Jan 2017 20:07:54 GMT

January 2017 Update - DAFs Bring an Investment Angle to Charitable Giving

If you're planning to make significant charitable donations in the coming year, consider a donor-advised fund (DAF). These accounts allow you to take a charitable income tax deduction immediately, while deferring decisions about how much to give — and to whom — until the time is right.

Account attributes

A DAF is a tax-advantaged investment account administered by a not-for-profit "sponsoring organization", such as a community foundation or the charitable arm of a financial services firm. Contributions are treated as gifts to a Section 501(c)(3) public charity, which are deductible up to 50% of adjusted gross income (AGI) for cash contributions and up to 30% of AGI for contributions of appreciated property (such as stock). Unused deductions may be carried forward for up to five years, and funds grow tax-free until distributed.

Although contributions are irrevocable, you're allowed to give the account a name and recommend how the funds will be invested (among the options offered by the DAF) and distributed to charities over time. You can even name a successor advisor, or prepare written instructions, to recommend investments and charitable gifts after your death.

Technically, a DAF isn't bound to follow your recommendations. But in practice, DAFs almost always respect donors' wishes. Generally, the only time a fund will refuse a donor's request is if the intended recipient isn't a qualified charity.

Key benefits

As mentioned, DAF owners can immediately deduct contributions but make gifts to charities later. Consider this scenario: Rhonda typically earns around $150,000 in AGI each year. In 2017, however, she sells her business, lifting her income to $5 million for the year.

Rhonda decides to donate $500,000 to charity, but she wants to take some time to investigate charities and spend her charitable dollars wisely. By placing $500,000 in a DAF this year, she can deduct the full amount immediately and decide how to distribute the funds in the coming years. If she waits until next year to make charitable donations, her deduction will be limited to $75,000 per year (50% of her AGI).

Even if you have a particular charity in mind, spreading your donations over several years can be a good strategy. It gives you time to evaluate whether the charity is using the funds responsibly before you make additional gifts. A DAF allows you to adopt this strategy without losing the ability to deduct the full amount in the year when it will do you the most good.

Another key advantage is capital gains avoidance. An effective charitable-giving strategy is to donate appreciated assets — such as securities or real estate. You're entitled to deduct the property's fair market value, and you can avoid the capital gains taxes you would have owed had you sold the property.

But not all charities are equipped to accept and manage this type of donation. Many DAFs, however, have the resources to accept contributions of appreciated assets, liquidate them and then reinvest the proceeds.

Requirements and fees

A DAF can also help you streamline your estate plan and donate to a charity anonymously. Requirements and fees vary from fund to fund, however. Please contact our firm for help finding one that meets your needs.

Need to Sell Real Property? Try an Installment Sale

If your company owns real property, or you do so individually, you may not always be able to dispose of it as quickly as you'd like. One avenue for perhaps finding a buyer a little sooner is an installment sale.

Benefits and risks

An installment sale occurs when you transfer property in exchange for a promissory note and receive at least one payment after the tax year of the sale. Doing so allows you to receive interest on the full amount of the promissory note, often at a higher rate than you could earn from other investments, while deferring taxes and improving cash flow.

But there may be some disadvantages for sellers. For instance, the buyer may not make all payments and you may have to deal with foreclosure.

Methodology

You generally must report an installment sale on your tax return under the "installment method." Each installment payment typically consists of interest income, return of your adjusted basis in the property and gain on the sale. For every taxable year in which you receive an installment payment, you must report as income the interest and gain components.

Calculating taxable gain involves multiplying the amount of payments, excluding interest, received in the taxable year by the gross profit ratio for the sale. The gross profit ratio is equal to the gross profit (the selling price less your adjusted basis) divided by the total contract price (the selling price less any qualifying indebtedness — mortgages, debts and other liabilities assumed or taken by the buyer — that doesn't exceed your basis).

The selling price includes the money and the fair market value of any other property you received for the sale of the property, selling expenses paid by the buyer and existing debt encumbering the property (regardless of whether the buyer assumes personal liability for it).

You may be considered to have received a taxable payment even if the buyer doesn't pay you directly. If the buyer assumes or pays any of your debts or expenses, it could be deemed a payment in the year of the sale. In many cases, though, the buyer's assumption of your debt is treated as a recovery of your basis, rather than a payment.

Complex rules

The rules of installment sales are complex. Please contact us to discuss this strategy further.

Divorce Effect on Taxes

Wed, 05 Oct 2016 12:53:48 GMT

Divorce Effect on Taxes

They say the three hardest things for a person to go through is the passing of a loved one, losing a job and getting divorced. This blog will deal with the latter. Quite often - or maybe it is just quite often to those of us in the accounting profession - one hears jokes about the tax incentives behind marriage. And yes, like all good humor, there is some truth behind it.

Never - and this is because it’s rarely a joking matter - does one hear about the tax ramifications of a divorce, though. I do not want to be a downer (contrary to how other stereotypical jokes portray accountants), but wanted to spend a little time giving a few things to think about it if you or anyone you know find yourselves in this situation. Please keep in mind that everyone’s divorce situation is different and each one has different financial complications. What is good for one may not be good for someone else. As legal guidance is in your best interest, professional financial guidance is also in your best interest.

SOCIAL SECURITY NUMBER

This is crucial even beyond your tax picture. When any life event leads to you changing your name, be sure to notify the Social Security Administration. If the name on your tax return doesn’t match the name that the SSA has for you, there could be problems processing your return.

HEALTH CARE CONSIDERATIONS

As most are already aware, the Affordable Care Act (Obamacare) requires people to have health insurance coverage or face tax penalties. Most people have taken care of this, but most people also don’t foresee situations where they will lose that coverage. This can happen during a divorce. That situation, though, qualifies as a life event that allows one to get coverage during a special enrollment period without waiting until the end of the year.

Apart from the potential losing of coverage, keeping your health insurer notified of name changes, life events, social security number changes, etc., is also something that should be done.

CHILD SUPPORT and ALIMONY

Child-support payments are not deductible and any child support received is not taxable. Alimony, however, works in the opposite manner. If you are paying alimony, that money can be deductible whether or not you itemize deductions. Not surprisingly then, alimony received is taxable.

IRA CONTRIBUTIONS

Here things start to get a little more complicated. If a divorce is completed by the end of a year, you will not be able to deduct contributions that you made to your former spouse’s traditional IRA. If you have your own, though, then you still may be able to deduct those contributions.

That final bit is not the only potential difficulty, though. I do not think this is the place to get too deep into too many of those issues, but just be aware they exist. As quick examples, any tax credits that were involved with a shared qualified health plan will have to be allocated between both you and your former spouse’s returns. And since alimony received is taxable, that might mean that the tax you paid during the year may no longer cover you obligations. If you are receiving alimony, you may be subject to estimated tax payments. Please feel free to call to discuss.

Overall, a divorce may result in the most complicated tax return you have ever submit. Yes, I know it is already a disconcerting, life-altering experience and no one wants to be reminded of it or continue to feel its ramifications. You also don’t want to ignore it, however, for if you do the effects will just linger longer. That means it is best to put someone on your side who knows how to handle these situations, makes sure they are correctly addressed, and can help you move beyond them.

As always, I am very happy to be your advocate who assist you in getting there.

Personal Touch Accounting and Tax

Fri, 16 Sep 2016 20:10:30 GMT

Personal Touch Accounting and Tax

Now that Labor Day has passed, summer is over (sorry to depress you) and the autumn has begun, the big national tax preparation chains are starting to ramp up for tax season. (Well I am too, but my marketing budget is much lower, so you may not notice nearly as much.)

Those large companies are not yet casting their large nets as they fish for schools of new clients. They remain active, though, and are now looking for their next batch of tax professionals to prepare tax returns.

That’s right, someone who is only now starting to learn about tax law could be preparing taxes in four months. And I even came across a program where they can learn all they need in a single week!

I do not want to degrade these companies or their workers, as I never begrudge anyone how they make their living. I do, however, believe that this system should not engender the most customer confidence.

In my opinion, taxes (and maybe all businesses) are best done with a bit of a personal connection. I have clients who come back to me year after year and this allows me to understand their situations and appreciate who they are beyond the numbers on their tax returns. I want to help them, and I want to help them so much that I in see them again next year (and in some cases, that next meeting won’t even take a year).

I believe there is a level of comfort and confidence bred in those types of relationships that cannot be matched in a situation where you walk in and wait for the next available representative. Imagine that representative may only be a few months on the job I provide more experience than that. With over 35 years of experience, my commitment to taxes is yearlong and is not a hobby.

All of these thoughts come with a clear bias. When it comes to my finances, though, I know which situation I would rather embrace. And when clients make the same decision, I am committed to making them realize they made the right choice.

As a little bit of an addendum to the above, here is a slight story about how confusing the IRS can be, and how navigating their rules can be difficult:

Recently news came out that the IRS was going to make information about Offers in Compromise available online. A little background may be necessary for those who are not familiar with the subject. Offer in Compromise is a program through which those with outstanding tax bills can work out a deal to settle the debt for a lower amount.

Those OICs that were accepted have been public record for decades, but were only accessible to those who were willing to put in some effort. This is because the IRS would create a hard copy and then ship it to one of seven locations around the country. If someone then wants to view the file, they still have to make an advance appointment.

Yes, this is not an agency that makes things easy. I however, like to make things easy for you when it comes to your dealings with it. It is the personal touch that will always set me apart from everyone else.

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Employee Retention Tax Credit

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Two Types of ERTC Qualifications: Receipts and Government Orders

What Government Order Creates the ERTC for You?

Full or Partial Shutdown Safe Harbor

Nominal-Effect Safe Harbor for a Modification to Your Business

Impact of Hurricane Ida on Tax Filing Dates

Impact of Hurricane Ida on Tax Filing Dates

Coronavirus and Taxes Part 11

Coronavirus and Taxes Part 11

Will the Paycheck Protection Program Get Extended?

PPP Statistics

PPP Loan Overview

Tax Returns

Coronavirus and Taxes Part 10

Coronavirus and Taxes Part 10

Paycheck Protection Program Loan Forgiveness Changes - AGAIN

Pre June 5

June 5

June 8

Coronavirus and Taxes Part 9

Coronavirus and Taxes Part 9

Paycheck Protection Program Loan Forgiveness Changes, All for the Good, and Update on Stimulus Payments ﻿

SBA Funds Remaining

Stimulus Payment Update

Tax Returns

Coronavirus and Taxes Part 8

Coronavirus and Taxes Part 8

Paycheck Protection Program Loan Forgiveness, The Requirements, and What You Need to Know

The Application

Covered Period and Alternative Covered Period (covered period)

Definition of Other Expenses

Average FTE Calculation

Documentation of Payroll Costs

Owner Compensation Replacement

Still Unknown

Documentation of Rent, Lease, Mortgage Interest, and Utilities

Accuracy

SBA Review

Certifications and Materials

Taxes

Extension of the Covered Period

Coronavirus and Taxes Part 7

Coronavirus and Taxes Part 7

Stimulus Payment Update

WHEN DO I GET MY CHECK?

HOW DO I GET MY STIMULUS PAYMENT BY DIRECT DEPOSIT?

RETURNING A STIMULUS PAYMENT

Coronavirus and Taxes Part 6

Coronavirus and Taxes Part 6

State Filing Extension Date Update and the SBA Loan Programs

State Filing Extensions

SBA Loans

Economic Injury Disaster Loan (EIDL) EIDL Application

Paycheck Protection Program (PPP) (PPP Application)

SBA Disaster Loan Program

Coronavirus and Taxes Part 5

Coronavirus and Taxes Part 5

The Stimulus Payment, Other Clarifications, and Frequently Asked Questions

What are these payments?

My income is greater than the aforementioned limits what happens?

What is a qualifying child?

What if I had a child in 2019, but I haven't filed my 2019 return yet?

What tax year is the basis for my income?

How will I get paid?

Are the checks taxable?

When will you receive these payments and what if my address has changed?

I only get Social Security and I don’t file a tax return; do I still qualify?

How many Americans will get these payments?

Do I have to have a Social Security number to get a check?

Will the IRS take my check if I owe back taxes?

Other Clarifying Items

Coronavirus and Taxes Part 4

Coronavirus and Taxes Part 4

Families First Coronavirus Response Act

Coronavirus and Taxes Part 3

Paycheck Protection Program Loan Forgiveness Changes, All for the Good, and Update on Stimulus Payments