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The IRS Is Not Always Right

A letter in the mailbox with the IRS as the return address is sure to raise your blood pressure. Here are some tips for handling the situation if this happens to you:

  • The IRS is Not Always Right imageStay calm. Try not to overreact to the correspondence. They are often in error. This is easier said than done, but remember the IRS sends out millions of notices each year. The vast majority of them correct simple oversights or common filing errors.
  • Open the envelope. You would be surprised at how often people are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to simply open the correspondence.
  • Carefully review the letter. Understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with its findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but its assessment of your situation is often wrong.
  • Respond timely. The correspondence should be very clear about what action the IRS believes you should take and within what timeframe. Delays in responses could generate penalties and additional interest payments.
  • Get help. You are not alone. Getting assistance from someone who deals with this all the time makes going through the process much smoother.
  • Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most of these IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.
  • Use certified mail. Any responses to the IRS should be sent via certified mail. This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties and additional interest on your tax bill.
  • Don't assume it will go away. Until a definitive confirmation that the problem has been resolved is received, you need to assume the IRS still thinks you owe the money. If no correspondence confirming the correction is received, a written follow-up will be required.

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I Owe Tax on That? 5 Surprising Taxable Items

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are five taxable items that might surprise you:

1040 Amount Owed

  1. Scholarships and financial aid. Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful — if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research).

    Tip: When receiving an award, review the details to determine if any part of it is taxable. Don’t forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.

  2. Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records.

    Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.

  3. Unemployment compensation. Unfortunately the IRS doesn’t give you a break on the taxes for unemployment income. Unemployment benefits you receive are taxable.

    Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.

  4. Crowdfunding. A popular method to raise money for new ventures or to support a special cause is crowdfunding through websites. Whether or not the funds are taxable depends on two things: your intent for the funds and what the giver receives in return. Generally, funds used for a business purpose are taxable and funds raised to cover a life event (e.g., special causes or medical assistance) are considered a gift and not taxable to the recipient.

    Tip: Prior to using these online tools to raise money, review the terms and conditions and ask for a tax review of what you are doing. If you need to account for taxes, reserve some of what you raise for this purpose.

  5. Cryptocurrency. Cryptocurrencies like Bitcoin are considered property by the IRS. So if you use cryptocurrency, you must keep track of the original cost of the coin and its value when you use it. This information is needed so the tax on your gain or loss can be properly calculated. Remember, the tax rate on property can vary if you own the cryptocurrency more than a year, so record all dates.

    Tip: For those considering replacing cash with things like Bitcoin, you need to understand the gain or loss complications. For this reason, many people using cryptocurrency do so for speculative investment purposes.

When in doubt, it’s a good idea to keep accurate records so your tax liability can be correctly calculated and you don’t get stuck paying more than what’s required. Please call if you have any questions regarding your unique situation

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Smart Tactics to Manage Student Debt

According to the Federal Reserve, U.S. student loan debt is now $1.5 trillion with more than 44 million borrowers. Only mortgage debt currently has bigger numbers among types of consumer debt. Even worse, more than 10 percent of these loans are past due. Here are some tactics to help make student debt easier to manage:

  • Know the loan terms. Not all student debt is created equal. Understanding the terms of all your student loans is important. With this knowledge, select the correct loan option and know which loan to pay first. Things you should know about each loan include:

    • The interest rate
    • The term of the loan
    • Amount of any up front fees
    • Pre-payment penalties (if any)
    • When interest and payments start
    • Payment amounts
    • Payment flexibility
    • How the interest is calculated
     

    Suggestion: Create a spreadsheet with a student loan in each column. Then note the terms under each loan. This will create a strong visual of your situation and show you which loans are most important.

  • Avoid accruing interest. Some student loans accrue interest while you are in school. With the compounding of this interest, your student loan amount continues to grow with each passing year before repayment begins. Banks love this — you should not.

    Suggestion: Figure out how to make some or all of the interest payments while in school. This will not only lock the amount you owe, it will reduce the amount of overall loan payments.

  • Graduates walking into debt

    Pay a little extra in the early days. The math of loans benefits banks in the early years of the repayment period. This is because the vast majority of interest is paid in the first years of repayment. By the time you get to the last year of repayment, payments are primarily the principal balance and interest is nil.

    Suggestion: Pay extra every month as soon as payments start. While this seems impossible as you enter the workforce, even $25 extra per month can dramatically reduce the amount of total payments you make over the life of your loan. For example, a $25 extra payment on a 10-year $50,000 student loan with 5 percent interest would cut six months off the loan, save $834 in interest, AND save $3,180 in future loan payments!

  • Make small cuts elsewhere. Having a hard time finding a few extra dollars to make extra payments? Consider observing and then changing your spending habits.

    Suggestion: Purchase one less latte a week. Drop one monthly service from a bill. Eat in more often. Then use these savings as a bonus payment on your student loan principal.

While student debt is often an unavoidable outcome of getting a college education, it can be minimized if actively managed. Small changes can yield results if planned for in advance

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Retirement Plans—Temporary Form 5500 Relief for Multiple Employer Plans

 Under Section 103(g) of ERISA, Multiple Employer Plans (MEPs) are required to file complete and accurate lists of participating employers with their Form 5500. Recognizing that a substantial number of MEPs weren't in full compliance with this requirement, the Employee Benefits Security Administration (EBSA) is providing temporary relief. Specifically, the EBSA won't reject a Form 5500 or Form 5500-SF filed on behalf of a MEP for the 2017 (or prior) plan year, or seek to assess civil penalties against the plan administrator, solely based on incomplete or inaccurate participating employer information, provided that annual reports filed for the 2018 and following plan years comply with ERISA requirements. In addition, the EBSA is granting MEPs a special extension of up to 2 1/2 months to file their 2018 annual report. They should check the "special extension" box under Part I, Line D of the 2018 Form 5500 /5500-SF and enter "FAB 2019-01" as the description. MEPs using this special extension don't need to file a Form 5558 with the IRS. Field Assistance Bulletin No. 2019-01.

Tax-exempt Organizations—Educational Organization Regulation Held Invalid by Minnesota District Court: The taxpayer was the parent organization of several hospitals, clinics, and the Mayo Clinic College of Medicine and Science. After conducting an audit, the IRS concluded that the taxpayer owed tax on certain income received from partnerships because it was not an educational organization . According to Reg. 1.170A-9(c)(1), an organization cannot qualify as an educational organization unless education is its primary function and noneducational activities are merely incidental to its educational activities. The IRS argued that the taxpayer's primary function was health care, not education. The taxpayer maintained that its educational and patient care activities were essential to each other and inextricable. A Minnesota District Court sided with the taxpayer, holding that Reg. 1.170A-9(c)(1) was invalid. By adding the primary-function and merely-incidental tests, the regulation unlawfully contained requirements Congress did not intend to include in the statute. Mayo Clinic , 124 AFTR 2d 2019-XXXX (DC MN).

Source :  Thomson Reuters

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IRS Has Begun Sending Letters to Virtual Currency Owners

The IRS has begun sending letters (Letters 6173, 6174, and 6174-A) to taxpayers who (1) potentially failed to report income and pay the resulting tax from virtual currency transactions or (2) did not properly report such transactions. The letters are for educational purposes only and direct taxpayers to review their tax filings; amend returns where appropriate; and pay any back taxes, interest, and penalties. According to the IRS, more than 10,000 taxpayers will receive these letters by the end of August. The letters are part of the IRS's Virtual Currency Compliance campaign, which seeks to boost compliance in this area through taxpayer education, audits, and criminal investigations. The IRS anticipates issuing additional legal guidance on virtual currency in the near future. News Release IR 2019-132.

Source: Thomson Reuters

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IRS Releases Draft 2019 Tax Return for Seniors

The Bipartisan Budget Act of 2018 directed the IRS to issue a simplified income tax return for senior citizens (age 65 or older) starting with the 2019 tax year. Recently, the IRS released a draft of the new two-page form (Form 1040-SR. The form is similar to Form 1040-EZ (which is no longer used); however, use of the form is not restricted based on taxable income or the fact that income includes Social Security benefits, qualified retirement plan distributions, or investment income. In addition, the form may be used by seniors with dependents. Displayed at the bottom of page 1 of the form is a chart that lists standard deduction amounts by filing status. A copy of the draft Form 1040-SR for 2019 is available at www.irs.gov/pub/irs-dft/f1040s--dft.pdf .

 

Applicable Federal Rates for August: The Section 7520 rate for August 2019 is 2.2%, while the Applicable Federal Rates (AFRs) are as follows (Rev. Rul. 2019-17):

 

  Annual Semiannual Quarterly Monthly
Short-term (≤ 3 years) 1.91% 1.90% 1.90% 1.89%
Mid-term (> 3 years but ≤ 9 years) 1.87% 1.86% 1.86% 1.85%
Long-term (> 9 years) 2.33% 2.32% 2.31% 2.31%
 

 

Source :  Thomson Reuters

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Procedure—Signed Form 4549 Was an Informal Refund Claim

Following an IRS audit, the taxpayer's representative filed a Form 4549 (Income Tax Examination Changes) that showed a refund due. The IRS, however, sent the taxpayer a refund for a lesser amount due to cancellation of indebtedness income. To obtain the balance of the refund, the taxpayer, with the help of the Taxpayer Advocate Service, submitted Form 982 [Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)]. In response, the IRS issued Letter 105C (Claim Disallowance Letter). In a recent Chief Counsel Advice (CCA), the IRS concluded that (1) the signed Form 4549 constituted an informal refund claim; (2) Form 982 was an additional claim; and (3) Letter 105C disallowed the Form 982 claim, not the Form 4549claim. Because of this, the period of limitation never began to run on the Form 4549 claim. Therefore, the IRS was not precluded from issuing a refund. CCA 201921013.

Source: Thomson Reuters

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IRS to End Tax Transcript Faxing and Third-party Service

Beginning 6/28/19, the IRS will stop faxing tax transcripts to taxpayers and third parties, including tax professionals. This change affects both individual and business transcripts. Individual taxpayers still have several options to obtain a transcript, including the "Get Transcript Online" and "Get Transcript by Mail" applications. Practitioners can obtain masked transcripts through the e-Services' Transcript Delivery System or request that the IRS mail a transcript to the taxpayer's address. In addition, effective 7/1/19, the IRS will no longer provide transcripts requested on Form 4506 , Form 4506-T, and Form 4506T-EZ to third parties. This change, however, does not affect use of the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process. Third parties that need transcripts can use the IRS's Income Verification Express Service or request transcripts directly from taxpayers. News Release IR 2019-101 .

Source: Thomson Reuters

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TIGTA Assesses IRS's Implementation of Deemed Repatriation Tax

Under IRC Sec. 965, which was added by the Tax Cuts and Jobs Act (TCJA), U.S. shareholders of a specified foreign corporation are subject to a deemed repatriation tax. In a recent report, the Treasury Inspector General for Tax Administration (TIGTA) assessed the IRS's implementation of the tax. It found that the retroactive components of the tax presented significant challenges for the IRS, especially when taxpayers made payments in excess of the Section 965 portion of their 2017 income tax liability. TIGTA recommended that if the IRS is unable to refund excess remittances, it should take steps to (1) inform taxpayers that the excess was applied to the deferred Section 965 portion of their liability and (2) update taxpayers on the status of their liability, including when the next installment is due. The IRS agreed with TIGTA's recommendations and initiated corrective actions. The full report can be accessed at www.treasury.gov/tigta/auditreports/2019reports/201934033fr.pdf .

Source:Thomson Reuters

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Income Tax—IRS Issues Final Regulations on Certain Property Transfers to RICs and REITs

The IRS has issued final regulations (TD 9862) that impose corporate-level tax on certain transactions in which property of a C corporation becomes the property of a Real Estate Investment Trust (REIT). The final rules affect Regulated Investment Companies (RICs), REITs, C corporations the property of which becomes the property of a RIC or REIT, and their shareholders. According to the IRS, the regulations are necessary to carry out the repeal of the General Utilities doctrine and prevent abuse of the Protecting Americans from Tax Hikes Act of 2015. In publishing the regulations, the IRS declined to adopt certain modifications suggested by commentators, including a plan concept for the automatic deemed sale rule. The final regulations are effective 6/7/19. Reg. 1.337(d)-7 .

Source: Thomson Reuters

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Employee Benefits—IRS Comments on the Taxability of Per Diem Reimbursements

 In a recent Information Letter, the IRS was asked to consider a waiver or other action on the taxation of per diem reimbursements for employees and contractors. The agency declined to act, explaining that Congress would need to take legislative action to change the current rules. In general, per diem reimbursements are not taxable if the taxpayer is away from home on a temporary work assignment. If the employee is assigned to a single location that is not his or her regular location, and the assignment is realistically expected to last (and does in fact last) for one year or less, the assignment is temporary. On the other hand, if an assignment away from home in a single location is expected to last for more than one year, the assignment is indefinite and not temporary, regardless of whether it exceeds one year. Information Letter 2019-0003.

Source : Thomson Reuters

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Watch Out! 7 Vacation Costs That Sneak Up on You

Going on vacation is a time to get away, relax and enjoy new experiences. But if you don’t pay close attention, extra costs can sneak up on you like tiny money-stealing ninjas. Here are seven sneaky vacation costs to watch out for:

Piggy bank in chaise lounge at beach

  1. Covert airfare increases. Airline pricing algorithms are programmed to store your browsing history to see if you’ve been looking at flights. If you have, they will bump up the price. Before searching, clear your internet history and switch to private (or incognito) mode on your web browser. When you are finally ready to book the flight, do so using a different computer from a new location to be sure that you’re avoiding this artificial price increase.
  2. Stealthy resort fees. The nightly base rate for a fancy resort will often compare favorably to a standard hotel in the same location. This is an intentional pricing tactic used by resorts to get their rooms on the initial search results page. Don’t be fooled! These same resorts will add a daily resort fee on the back end of your bill to cover the extra amenities they offer. The extra fee might be worth it to you, but it’s better to understand the full cost of the stay before making your reservation.
  3. Useless rental car insurance. Rental car companies will try to sell you insurance to cover damages you may cause during the rental period. Often, the auto insurance you already have will extend to the rental car. In these cases, the extra insurance isn’t necessary. Before renting a car, check with your insurance company to see if a rental will be covered.
  4. Bloated baggage fees. You probably already know that airlines may charge for checking a bag, but do you know they will charge extra if a bag is too heavy? Exact weight can vary by airline or location, so check the weight limits before you go and weigh any heavy bags using a bathroom scale.
  5. Crafty parking costs. Downtown hotels in big cities charge as high as $75 per night for parking! Research alternative parking options near your hotel or compare the cost of using rideshare options before committing to the hotel rate.
  6. Sly extra driver charges. Rental car companies will charge an extra daily fee to have a second driver listed on the rental. If possible, commit to one person to handle all the driving on your vacation.
  7. Tricky foreign transaction fees. Traveling abroad and paying an extra fee for every purchase will add up in a hurry. Before you go, check your credit cards and bank accounts to see if they charge foreign transaction fees. If they do, shopping for another card or account that doesn’t charge fees might make sense.

Some vacation fees can’t be avoided, but many of them can if you know where to look. Implement a plan to navigate the fees in the planning stages of your trip to avoid dealing with them during your vacation.

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You Know You Need Tax Planning If...

Effective tax planning helps you make smart decisions now to get the future outcome you desire — but you need to make sure you don’t miss anything. Forget to account for one of these situations and your tax plans will go off the rails in a hurry:

Stacks of coins with items on top

  1. Getting married or divorced. One plus one does not always equal two in the tax world. Marriage means a new tax status, new deduction amounts and income limits, and a potential marriage penalty. The same is true for divorce, but with added complexity. Untangling assets, alimony, child support and dependents are all considerations worthy of discussion.
  2. Growing your family. While bringing home a new child adds expenses to your budget, it also comes with some tax breaks. With a properly executed plan, you can take home the savings now to help offset some of those new costs. If you are adopting, you get an additional tax credit to help with the adoption expenses.
  3. Changing jobs or getting a raise. Earning more money is great, but if you're not careful, you might be surprised by the tax hit. Each additional dollar you earn gets taxed at your highest tax rate, and might even bump you to the next tax bracket. If you are switching jobs, the change also includes things like new benefit packages to consider.
  4. Buying or selling a house. Whether you’re a first-time homebuyer, you’re moving to your next house, or you’re selling a house, there will be tax implications resulting from the move. Knowing how your taxes will be affected ahead of time will help you make solid financial decisions and avoid surprises. If you’re looking to buy or sell investment property, even more tax issues come into play.
  5. Saving or paying for college. There are so many different college tax breaks, it can be tricky to determine which ones might make the most sense for your situation. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, the Coverdell Education Savings Account, 529 plans and student loan interest deductibility.
  6. Planning for retirement. Everyone needs to plan for retirement, but each situation is different. Some of the factors to keep in mind include employment status, current income, available cash, future earnings and tax rates, retirement age and Social Security. Putting all of these variables into one analysis will paint a clearer picture of your retirement strategy and provide a way forward.

Don’t make the mistake of omitting key details from your tax plan. Call now to schedule a tax-planning meeting.

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Get Your Life Back! Ideas to Unplug

With endless movies, TV shows and video games available to us 24/7, it’s become too easy to spend all our free time on electronic devices. If you and your family are looking for ways to unplug this summer, consider these ideas: Unplugged cords Turn off notifications. Hey! Guess what? Bill just posted a photo of his dinner! And look at this! Minneapolis just set the world record for the largest pillow fight! Let’s be honest, most alerts you get on your phone are meaningless, yet we allow them to steal our attention several times a day. Review your phone settings and turn off all non-essential notifications to keep you focused on the things that are important to you. Ration your screen time. Limiting time in front of a screen is important for both you and your kids. Setting daily screen limits is a good way to keep your media consumption under control and allow for guilt-free time when you just want to scroll through social media or watch a movie. Make a summer reading goal. Set a goal (with prizes at the end!) for yourself and your children to read a certain number of books before Labor Day. According to the Chicago Tribune, because reading is an active activity (not passive, like watching TV), “it reduces stress, promotes comprehension and imagination, alleviates depression, helps you sleep, and may contribute to preventing Alzheimer’s.” Schedule phone-free activities. Plan a get-together like a picnic or BBQ, but with a catch — phones need to be checked at the door. That way you and your guests can focus on each other without the constant distraction of a phone. If some of the guests don’t know each other, even better! They might leave the party with a few new friends. Start a new outdoor hobby. Getting outside is a great way to separate yourself from your electronics. By finding an outdoor hobby that interests you, like hiking, gardening or camping, you’ll have an activity that takes your attention away from your phone and provides added benefits, like exercise and vitamin D. By getting your electronic habits to a manageable level, you’ll free up more time and energy to live this summer to the fullest.

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2018 Audit Rates Don't get complacent...

article image

The IRS reported audit rates declined last year for the seventh year in a row and reached their lowest level since 2002. That’s good news for people who don’t like to be audited (which is everybody)!

But don’t get complacent. A closer look at the IRS data release reveals some audit pitfalls you should know about.

Audit Rate Statistics for Individuals

Audit rates for 2019

Source: IRS Data Books

Observations

  • Fewer audit examinations obscure the reality that you may still have to deal with issues caught by the IRS’s automated computer systems. While not as daunting as a full audit, you'll need to keep your records handy to address any problems.
     
  • Average rates are declining, but audit chances are still high on both ends of the income spectrum: no-income and high-income taxpayers.
     
  • No-income taxpayers are targets for audits because the IRS is cracking down on fraud in refundable credits designed to help those with low income, such as the Earned Income Tax Credit (EITC).
     
  • High-income taxpayers have long been a target for IRS audits, but saw a big decline in audit rates in 2018. Still, taxpayers with over $500,000 in income have more than double the chance of being audited than lower income taxpayers. Not only do these taxpayers tend to have more complicated tax returns, but the vast majority of federal income tax revenue comes from them.
     
  • Complicated returns are more likely to be audited. Returns with large charitable deductions, withdrawals from retirement accounts or education savings plans, and small business expenses (using Schedule C) are more likely to be the target of an IRS audit.

Stay Prepared

Always retain your tax records and support documents for as long as you need them to substantiate claims on a return. The IRS normally has a window of three years from the filing date to audit a return, but this can be extended if the agency believes there’s any fraudulent activity.

If you receive an audit letter from the IRS, it’s best to reach out for assistance as soon as possible.

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3 Things to Know About Summer Job Taxes

Summer brings warm weather, fun outdoor activities and new opportunities to earn some additional income. However, taxes on seasonal income need to be handled with care, whether they're related to your child’s first job or an extra income opportunity for you. Here are some tips to help you manage the taxes on your summer earnings:

  1. Students should take advantage of tax-free earnings limits. If you anticipate making less than the annual standard deduction ($12,200 for single in 2019), none of your earnings are subject to federal taxes! If possible, earn at least that amount each year to maximize your tax-free earnings. Remember, if you can be claimed as a dependent on someone else’s tax return, the limits for tax-free unearned income such as interest and dividends are lower.

    Tip: If your annual earnings will be less than the standard deduction, you can claim EXEMPT on your Form W-4. That prevents federal income taxes from being withheld from your paycheck.
     
  2. Independent contractors need to make estimated payments. As an independent contractor, you are responsible for paying all the taxes on your earnings. To do this, you make quarterly estimated tax payments to the IRS using Form 1040-ES. In addition to federal and state taxes, independent contractors need to pay a self-employment tax of 15.3 percent of earnings.

    Tip: Track your expenses and save receipts. By doing this, you can subtract eligible expenses like mileage, supplies and uniforms from your gross earnings. Use this lower income number to calculate your self-employment tax and correctly estimate your income tax obligation.
     
  3. Closely monitor tax withholdings. As an employee, your employer withholds taxes based on what you claim on Form W-4. Unfortunately, the tax tables used by this form to calculate your withholdings do not account for seasonal jobs. This typically results in paycheck withholdings being too low for supplemental income workers and too high for students working during the summer.

    Tip: If you anticipate earnings in excess of the standard deduction, you will need to request proper withholdings. A safe approach to determine the correct amount is to claim 0 or 1 on your Form W-4 and see what your first paycheck looks like. From there, a tax forecast that involves your entire year’s earnings will help you adjust this amount up or down.

With a little tax planning, you can ensure that your summer job provides the income you are looking for without the disappointment of unexpected taxes. Please call if you have any questions.

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IRS Announces Six-year Plan to Modernize IT Systems

In a recent News Release, the IRS announced a six-year plan to modernize its information technology systems. The plan centers on the taxpayer experience, core taxpayer services and enforcement, modernized IRS operations, and cybersecurity and data protection. Among other things, the IRS hopes to (1) standardize customer workflows; (2) reduce wait times with customer callback technology, online notices, and live online customer support; and (3) make implementation of new tax provisions more straightforward. The plan, which will be executed in two three-year phases, is expected to cost between $2.3 billion and $2.7 billion. The IRS will provide regular reporting to Congress and oversight organizations as it works with partners in the tax community to carry out the plan. For more information, visit www.irs.gov/pub/irs-utl/irs_2019_integrated_modernization_business_plan.pdf . News Release IR 2019-77 .

Source :  Thomson Reuters

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IRS Makes Corrections to Final QBI Regulations

 The IRS has made corrections to final regulations on the new Qualified Business Income (QBI) deduction under IRC Sec. 199A. (The regulations were originally published in the Federal Register on 2/8/19.) The corrections are minor, mostly addressing grammatical errors. In addition, the IRS has determined there is good cause to bypass the 60-day delay in the effective date of the corrected regulations. Given that IRC Sec. 199A is currently effective, a 60-day delay would be unnecessary and contrary to the public interest. The corrections are effective on 4/17/19 and are applicable on or after 2/8/19. TD 9847 .

IRS LB&I Division Adopts Three Additional Compliance Campaigns:  The IRS's Large Business and International (LB&I) division employs an audit strategy that focuses on specific issues, or "campaigns." Since the beginning of the program, LB&I has identified 50 compliance campaigns. The division has now approved the following three additional campaigns: (1) transactions in which a foreign captive subsidiary performs services exclusively for a parent corporation or other members of a multinational group; (2) tax noncompliance and information reporting associated with offshore bank accounts; and (3) Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) that are incorrectly sent to the IRS without being attached to a tax return. These campaigns were identified through LB&I data analysis and suggestions from IRS employees. More information can be found at www.irs.gov/businesses/corporations/irs-announces-the-identification-and-selection-of-three-large-business-and-international-compliance-campaigns .

Source : Thomson Reuters

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IRS Provides Guidance on Qualified Residential Rental Projects

In a recent Revenue Procedure, the IRS has provided guidance on the general public use requirements for qualified residential rental projects financed with tax-exempt bonds under IRC Sec. 142(d). Specifically, the guidance coordinates the general public use requirements with provisions applicable to the low-income housing credit under IRC Sec. 42. As such, a qualified residential rental project will not fail to meet the general public use requirements applicable to exempt facilities solely because of occupancy restrictions or preferences that favor certain tenants (like military veterans). The IRS has determined this rule is necessary because low-income housing credits and exempt facility bonds are often used together to finance residential rental projects. However, the guidance doesn't affect the rules applicable to bonds that finance other exempt facilities. The Revenue Procedure applies to bonds sold before, on, or after 4/3/19. Rev. Proc. 2019-17.

Source :  Thomson Reuters

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Save Those Receipts! These tips are money in your pocket

When it comes to taking qualified deductions on your tax return, having proper documentation to prove your expense is a must. Here are some typical areas that taxpayers often fall short, costing them plenty during tax filing season and during IRS audits:

  1. Cash donations to charity. To deduct and support your donation to a qualified charity you must have valid documentation. Donations of cash need to be supported by a canceled check or a receipt from the organization. Donations of $250 or more MUST have written acknowledgment from the charity at the time of the donation — a canceled check and bank statement are not sufficient.
  2. Non-cash contributions. Additional support is required for non-cash donations to prove the value. This includes creating a detailed list of items donated, their condition, and estimated fair market value. While this level of detail is not required for small donations, it is always a good practice to take photos and create a detailed listing of items donated.
  3. Investment purchases and sales. If you bought or sold an investment you will need to know the original cost. Today’s regulations require brokers to report the cost of sales to the IRS. Many of these historic costs are reported incorrectly. Please review your broker accounts and correct any errors. It is very difficult to defend yourself in an audit when records reported to the IRS are in error.
  4. Copies of divorce decrees, alimony and child support agreements.There are often conflicts between two taxpayers regarding who is claiming a child on their tax return. Do you have the necessary proof to defend your position? The same is true with alimony and child support. Keep these documents in a safe place and be ready to use them if necessary.
  5. Copies of financial transactions. Keep copies of documents from any major financial transaction. This includes real estate settlement statements, refinancing documents and any records of major purchases. These documents are necessary to ensure your cost (basis) in the property is properly recorded. The documents will also help identify any tax-related items like mortgage insurance, property taxes, points and possible sales tax paid.
  6. Mileage logs. Tracking deductible miles is probably one of the most commonly overlooked documentation requirements. Properly recording charitable, medical and business miles can really add up to a large deduction. If the record is not available, the IRS is quick to disallow your deduction.

If you are not sure whether a document is important, it’s best to retain it and file it in a way that you can easily retrieve it if needed at a later time.

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What Does the IRS Have on You? Here is how you can find out..

There are multiple situations where you need to find out what the IRS knows about you. It could be for the purpose of obtaining a loan, refinancing your house, or continuing your citizenship status. Possibly you are a few years behind on filing tax returns and need to know where to start. Or maybe you lost a return and simply need a copy for your personal records. Here are three items that will help you see what the IRS has on file for you:

  • Tax return transcripts and account transcripts: A tax return transcript is a summary document that shows most line items and amounts from your original return. It also includes the forms and schedules filed with the return. A tax account transcript has basic high level information such as return type, filing status and adjusted gross income. It will also show if an amendment has been filed. Both types of transcripts are available for the current tax year and the prior three years (ten years for account transcripts), and are often acceptable proof of income for loans, mortgages and financial aid. Transcripts from the IRS are free and can be viewed online or mailed to your home within 5-10 days.
  • Copies of tax returns: If a transcript is not sufficient, you can request an actual copy of the tax return as far back as six years. The current fee per copy is $50 and can take 75 days to receive. The fee is waived if you live in a federally declared disaster area.
  • Freedom of Information Act (FOIA) document request: If you are looking for IRS records besides your returns, a FOIA request might be for you. Per the IRS, “the FOIA applies to records either created or obtained by an agency and under agency control at the time of the FOIA request.” In order to receive the documents, submit a detailed request and conduct the necessary fee calculation. According to the FOIA, the IRS must provide records unless they fall under a handful of exemptions or exclusions. Examples of exemptions are records that have classified information or are involved in an ongoing investigation. The fee and response time varies by the scope of the request. A FOIA request is a good place to start if you have past due tax returns that need to be filed or are at odds with the IRS regarding an audit decision.

No matter what your tax situation is, it’s good to know what your options are if the time comes that you need to get information from the IRS. Please call if you need help making a request.

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All Social Security Benefits Are Considered for Premium Tax Credit:

In 2014, the taxpayer enrolled in an ACA health insurance marketplace plan and received monthly advanced Premium Tax Credit (PTC) payments under IRC Sec. 36B to cover a portion of the cost. Also in 2014, the taxpayer received Social Security benefits in a lump sum, relating to both 2013 and 2014. The IRS assessed a deficiency of excess advanced PTC payments, determining the Social Security benefits put the taxpayer over the income limit under IRC Sec. 36B(c)(1). The taxpayer then amended the 2014 tax return to make a Section 86(e) election. This election limits the amount of prior-year Social Security benefits included in gross income in a subsequent year to not exceed the increase in gross income that would have resulted if the amount had been received in the prior year. The amended return reported a reduced deficiency amount from the election. However, the Tax Court ruled that, for purposes of the PTC, the total amount of Social Security benefits received in a tax year is included in gross income to determine PTC eligibility, regardless of a Section 86(e) election. Levon Johnson, 152 TC No. 6 (Tax Ct.).

 

Income Tax

 

IRS Suspends Two Spin-off Rulings Pending Study: In Rev. Rul. 57-464, the IRS held that ownership of a storage building and certain rental activities didn't meet the Section 355 Active Trade or Business (ATB) requirement for a tax-free spin-off. Similarly, in Rev. Rul. 57-492, the IRS held that an oil exploration and production operation failed to qualify as an ATB. These rulings imply that income generation is needed for a business to meet the ATB requirement. In a recent Revenue Ruling, the IRS suspended Rev. Ruls. 57-464 and 57-492 pending completion of a special study. The purpose of the study is to determine whether a business can qualify as an ATB if entrepreneurial activities, as opposed to investment or other nonbusiness activities, take place with the purpose of earning income in the future, but no income has yet been collected. Rev. Rul. 2019-9 .

 

Income Tax

 

Struggling Sole Proprietor Able to Deduct Mortgage Interest:

 

 The taxpayer was the sole proprietor of a software development company. In 2005 and 2006, he took out a mortgage to purchase two vacant lots that would serve as the business's headquarters. However, after losing a major customer, the business sold some of the undeveloped properties. On his 2010 and 2011 income tax returns, the taxpayer deducted mortgage interest on a Schedule C. The IRS disallowed the deductions, claiming that (1) the deduction was limited to investment income (which was zero) or (2) the expense was nondeductible personal interest. The Tax Court disagreed with the IRS, holding that the properties were allocable to the taxpayer's trade or business. Therefore, the mortgage interest deduction was properly taken into account in computing the taxpayer's adjusted gross income. Thad Pugh, TC Summ. Op. 2019-2 (Tax Ct.).

 

IRS Dirty Dozen List Includes Abusive Tax Shelters:

 In a recent News Release, the IRS has announced that using abusive tax shelters and structures to avoid taxes remains on the "Dirty Dozen" list of tax scams to avoid for 2019. The agency is focusing on three schemes that distort legitimate tax planning tools to produce benefits that are too good to be true. The first scheme uses multiple layers of trusts and offshore shell companies to hide the true ownership of assets and income or to disguise the substance of transactions. The second scheme relies on abusive micro captive insurance companies. The last scheme involves using syndicated conservation easements to obtain charitable contribution deductions and corresponding tax savings that significantly exceed the amount a taxpayer invested. The IRS reminds taxpayers who participate in these schemes that they may face prosecution, civil litigation, and stiff penalties. News Release IR 2019-47.

Source : Thomson Reuters/PPC

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The Tax-Free Retirement Savings Option Is a Roth IRA right for you?

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If you are looking for tax-free income and more flexibility during retirement, perhaps you should look into investing in a Roth IRA. While Roth IRA contributions are not sheltered from current taxes like contributions to traditional IRAs, they offer other tax benefits during retirement.

The Roth IRA advantage

  • Retirement withdrawals (including earnings) are tax-free. As long as you wait to take distributions until you are 59 ½ or older, the full amount of your Roth account is tax-free!
  • Save taxes on other earnings. During retirement, withdrawals from traditional IRAs increase your taxable income. This can bump other earnings into a higher tax bracket and potentially increase the taxability of your Social Security benefits. Conversely, Roth withdrawals are not reported as income, keeping tax rates as low as possible.
  • More flexibility during retirement. Once you turn 70 ½, the IRS requires that you take required minimum distributions (RMDs) from traditional IRAs. If you don’t, you'll get hit with a 50 percent penalty! There is no such requirement for Roth IRAs. You can leave (and even contribute) funds to grow in the account as long as you want.
  • Contributions can be withdrawn tax-free at any age. If you have financial hardship and need to make an early withdrawal, only the earnings in a Roth are subject to a 10 percent early withdrawal penalty. Meaning, Roth contributions can be withdrawn tax-free and penalty-free at anytime. This is because you use after-tax funds to make your original Roth contributions. This is not the case with traditional IRAs — the full withdrawal is subject to the penalty if you make it before you turn 59 ½.

The Roth IRA is not for everyone

While there are many reasons to consider contributing to a Roth IRA, they are not for everyone. Here are some factors to consider:

  • Income limits. While there are no income limits if you wish to roll funds from other accounts into a Roth IRA, there are income limits to contribute to a Roth IRA. For 2018 they are $135,000 single ($137,000 in 2019) and $199,000 married ($203,000 in 2019).
  • 5-year account requirement. To receive the full tax-free benefit of Roth investment earnings, you must have your Roth account for five years before making withdrawals.
  • Future tax uncertainty. While no one knows what the future holds, keeping tabs on tax trends is an important aspect of retirement planning. Increasing or decreasing tax rates may ultimately determine the best type of retirement investment for you. In addition, the government has the power to change the taxability of your IRA if they deem it necessary.

If you are looking to maximize your savings for 2018, you still have until April 15, 2019 to contribute into an IRA.

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Tax Scam Alert! Defend Yourself Now

Now is the time for tax fraud and theft. As the IRS continues to neutralize these threats, scammers are developing improved tactics to steal your identity and tax refund. Here is a recap of what the IRS is seeing this year:

  • More sophisticated email scams. A recent IRS alert warns taxpayers to be on the lookout for new, sophisticated email phishing scams. Thieves may use these fraudulent emails to try to access your personal data through a hyperlink or trick you into providing financial information. This year, thieves are better able to make emails look like they are coming directly from the IRS.
    Your defense: The IRS will not contact you via email asking for personal or financial information so do not provide it! If you receive a suspicious email, don’t click any links or open any attachments. Simply forward the message to phishing@irs.gov and delete it.
  • More realistic phone scams. Scammers are going to great lengths to impersonate the IRS by providing fake badge numbers and appearing as the IRS on your caller ID. They may threaten you with a lawsuit or with arrest, demanding that you make an immediate payment over the phone.
    Your defense: If you get a call from someone claiming to be the IRS, hang up immediately. The IRS does not call and ask for information over the phone. Even if you think it’s actually the IRS, get the caller's name and badge number. Then hang up and call back directly to the IRS at 1-800-829-1040. Do not call back on a phone number provided to you by the caller!
  • Evolving identity theft scams. Scam artists are now going around you to get your information. For example, a popular scam is to send a phishing email to your employer's human resources department with the intention of getting your W-2 information. Once they have enough of your information, they can file a fake tax return and send the refund to their bank account. The problem is, you won’t have any idea it happened until you file your tax return and the IRS rejects it.
    Your defense: To combat this threat, file your tax return as soon as possible to shrink the filing window available to crooks.

Criminals make a lot of money on tax scams, so they will keep trying to figure out new ways to get your information. Even while the IRS is working to stop the threats, you are your best defense. Stay alert, be skeptical and protect your information. Should you think your information is stolen, please ask for help. The IRS has staff to help correct your situation and will place you in their identity theft protection program.

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Tips to Protect Yourself From Tax Scams

Too many people downplay the threat of identity theft because it hasn't been witnessed or experienced firsthand. This false sense of security can leave you exposed, especially during tax season. Here are some tips to keep your identity safe from scammers:

Tax Scam warning signs

  1. Be naturally suspicious. Understand that there are people out there trying to get your information, and others willing to pay for it. With that knowledge, be suspicious of anyone asking for personal information — especially your Social Security number (SSN). Even when a known vendor asks for your SSN, ask what they will be using it for and refuse most requests unless you deem it necessary.
  2. File your tax return as soon as possible. A popular tax scam is to file a fake tax return and deposit the refund into the thief’s account, all before you get the chance to file your own return. You close the door on scammers once your tax return is filed with the IRS.
  3. Shred (don't just crumple) your documents. Get in the habit of shredding all paperwork before it’s thrown out to keep personal information from falling into the wrong hands. If you don’t own a shredder, contact your bank or other local community services as they often offer free shredding services on specific days.
  4. Keep your Social Security card safe. Only carry your Social Security card with you when it’s needed for a specific purpose. Your wallet or purse is not a good permanent spot for your card. Any criminal would have a treasure trove of personal data if it were to get lost or stolen along with your driver’s license and credit cards.
  5. Periodically check your credit reports. The three major collection agencies (Experian, Equifax and TransUnion) are legally required to provide you with a free credit report each year. Take advantage of this service and review the reports. Correct any errors and use this report to monitor your accounts for any potential identity theft.

Be smart when handling your personal information. Don’t get caught off guard by identity theft, especially by being careless. If you think you are a victim of a tax scam, alert the IRS right away and go to identitytheft.gov for more information.

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Every Business Needs Cash!

5 keys to better cash management

Focusing solely on sales and profits can create a surprise for any business when there is not enough cash to pay the bills. Here are five key principals to improve your cash management.

  1. Create a cash flow statement and analyze it monthly. The primary objective of a cash flow statement is to help you budget for future periods and identify potential financial problems before they get out of hand. This doesn't have to be a complicated procedure. Simply prepare a schedule that shows the cash balance at the beginning of the month and add cash you receive (from things like cash sales, collections on receivables, and asset dispositions). Then subtract cash you spend to calculate the ending cash balance. If your cash balance is decreasing month to month, you have negative cash flow and you may need to make adjustments to your operations. If it's climbing, your cash flow is positive.
     

    Bonus tip: Once you have a cash flow statement that works for you, try to automate the report in your accounting system. Or even better, create a more traditional cash flow statement that begins with your net income, then make adjustments for non-cash items and changes in your balance sheet accounts.

  2. Dollar sign illustration Create a history of your cash flow. Build a cash flow history by using historical financial records over the course of the past couple of years. This will help you understand which months need more attention.
  3. Forecast your cash flow needs. Use your historic cash flow and project the next 12 to 24 months. This process will help identify how much excess cash is required in the good months to cover payroll costs and other expenses during the low-cash months. To smooth out cash flow, you might consider establishing a line of credit that can be paid back as cash becomes available.
  4. Implement ideas to improve cash flow. Now that you know your cash needs, consider ideas to help improve your cash position. Some ideas include:
    • Reduce the lag time between shipping and invoicing.
    • Re-examine credit and collection policies.
    • Consider offering discounts for early payment.
    • Charge interest on delinquent balances.
    • Convert excess and unsold inventory back into cash.
  5. Manage your growth. Take care when expanding into new markets, developing new product lines, hiring employees, or ramping up your marketing budget. All require cash. Don't travel too far down that road before generating accurate cash forecasts. And always ask for help when needed.

Understanding your cash flow needs is one of the key success factors in all businesses. If your business is in need of tighter cash management practices, now is the perfect time to get your cash flow plan in order.

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How to Correct Common Financial Mistakes

You’re working at the office, getting stuff done around the house, or hanging out with family when — wham! — a phone call, email or text alerts you that something is wrong with your finances. When a negative financial event hits, don’t let it take you down. Here are some common mistakes and steps to remedy each situation:

  • You overdraw your bank account. First, stop using the account to avoid additional overdraft fees. Next, manually balance your account by reviewing all posted transactions. Look for unexpected items and fraudulent activity. Then, call your bank to explain the situation and ask that all fees be refunded. Banks are not obligated to refund fees, but often times they will. The next steps vary based on the reason for the overdraft, but ultimately your goal is to bring your account back to a positive balance as soon as possible.
  • Various people with shocked faces You miss a credit card payment. Make as big a payment as possible as soon as you realize you missed it. Time is of the essence with late credit card payments — the longer it goes, the more serious the consequences. Then call the credit card company to discuss the missed payment. You might be able to get a refund of the late fees, and perhaps a reversal of the interest charge.
  • You forget to file a tax return. Gather all your tax documents as soon as possible, and file the tax return even if you can't pay the taxes owed. This will stop your account from gathering additional penalties. You can then work with the IRS on a payment plan if need be. The sooner you file, the sooner the money will be in your bank account if you're due a refund. If you wait too long (three years or more), any potential refunds will be gone forever.
  • You lose your wallet. Start by calling all of your debit card providers, then your bank and the credit card companies. Next, set up fraud alerts with the major credit reporting companies and get a new driver's license. Finally, if you think it was stolen, file a report with the police.
  • You miss an estimated tax payment. Estimated payments are due in April, June, September and January each year. If you are required to make estimated payments and miss a due date, don’t simply wait until the next due date. Pay it as soon as possible to avoid further penalties. If you have a legitimate reason for missing the payment, such as a casualty or disaster loss, you might be able to reduce your penalty.

Remember, mistakes happen. When they do, stay calm and walk through the steps to correct the situation as soon as possible.

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Retirement Contributions Get a Boost in 2019

For the first time since 2013, the IRS is raising the contributions limits for IRAs. The maximum contribution for 401(k) accounts and IRAs is increasing by $500 for 2019. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2019. Check out the tables below for the new contribution limits and Social Security increases:

2019 Retirement and Social Security Contribution Limits

Don't forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.

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Last-Minute Tax Deductions There is still time to lower your tax bill!

There’s no time left to procrastinate! Now is the time to make last-minute tax moves to save you some money. Here are ideas to consider:

Sell loser stocks. Review your portfolio for stocks, mutual funds and other investments that are sitting in a loss position. If the investments are looking like they won’t be rebounding anytime soon, sell them and take advantage of the annual capital loss limit. Losses will first net against your capital gains, but the IRS will allow you to deduct up to $3,000 in excess losses against your ordinary income. Consider selling loser investments held less than one year first as they will offset short-term gains that are taxed at higher ordinary income tax rates.
Prepay your mortgage. As an individual taxpayer, deductions are allowed depending on when you pay them. You can take advantage of this at the end of the year. If you are planning to itemize your deductions, make your January house payment in December and get credit for the mortgage interest deduction this year. That’s 13 months of interest in one year just by making the payment a few days early.
Donate household items. You might have tax deductions hiding in your garage, closets or basement! Donations of household items and clothing are a great way to boost your charitable giving deduction. There are a few things to consider. The donation needs to be made to an eligible charity (called a 501(c)(3) organization). Documentation is required to substantiate your donation, so take a picture and get a receipt for all donations. All donations with a fair market value of $5,000 or more need a qualified appraisal.
Fund your 401(k). All contributions to a 401(k) deferral account will decrease your taxable income. So see if your employer will allow you to increase your 401(k) contributions. The contribution limit for 2018 is $18,500 or $24,500 if you are 50 or older ($19,000 or $25,000 if you are 50 or older in 2019). Even if a late contribution change is not allowed, now is a great time to set up next year's 401(k) contributions.
Make a donation from your IRA. If you are older than 70½ you can make a charitable distribution of up to $100,000 directly from your IRA to a qualified charity. The distribution is excluded from taxable income, so this is a great way to donate and take advantage of the higher standard deduction. Even better, this type of distribution qualifies as a required minimum distribution.
With the increase in standard deductions, year-end moves need to be analyzed more closely than in past years.

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It's Your Money. Get it Back NOW!

According to Credit Karma, over $40 BILLION of unclaimed property is currently being held by state governments. That's a staggering amount of money — enough to buy half of the National Football League franchises. Not included in that figure is property sitting with federal agencies and other organizations. So what exactly is unclaimed property and how do you find out if you have any? Here is what you need to know:

What is considered unclaimed property?

There are two main types of unclaimed property:

(1) IOUs. Money that is owed to you that you haven't claimed.

(2) Forgotten funds. Money sitting untouched in an account for an extended amount of time.

Specific types of unclaimed property include back wages, life insurance, pensions, tax refunds, bank accounts, money orders, gift certificates and security deposits. For example, many states require banks to turn over funds from checking accounts that have been dormant for over three years.

New and old 5 dollar bills

Tips for managing unclaimed property
  1. Search state and federal databases. Unfortunately, there is no master database to search for unclaimed property. There is a website called Missing Money endorsed by the National Association of Unclaimed Property Administrators (NAUPA) that can search most states at once, but each state maintains their own database. Be sure to check all states where you have been a resident. More information is provided online by the US government to help track down additional types of unclaimed property.
  2. Don't pay a company to search for you. Companies are willing to search for unclaimed property for you, but will charge a fee. All unclaimed property data is public information, so anything a search company can find, you can find as well. In most cases, it's best to conduct the search yourself.
  3. Watch out for scams. Be wary of any notices alerting you to unclaimed property that can be yours for a fee. Often times these scams will ask you to send them money with the promise of more money in return. The Federal Trade Commission (FTC) has some tips to help you spot an imposter.
  4. Take steps to avoid having your property become unclaimed. The best way to keep your property is to prevent it from becoming unclaimed in the first place. Some ways to do this is to actively manage bank accounts, notify companies when you move, close old accounts, and read all of your mail so you don't miss a claim notice.
  5. File your tax returns. Consider filing a tax return even if your income is below the requirements to file. Unclaimed refunds with the IRS usually happen when a tax return isn't filed with one of two situations: your employer withheld income tax from your wages or you qualify for a refundable portion of the Earned Income Tax Credit. The only way to know for sure is by filing a tax return for the year in question. If you have past tax returns to file, don't wait — overdue tax returns need to be filed within three years.

Any unclaimed property due to you is rightfully yours and should already be in your pocket. Perform regular searches to ensure that your funds aren't sitting in a government account.

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5 Annual Tax Essentials

The more things change the more they stay the same. This is especially true when it comes to reviewing your tax situation. Mark your calendar to review these essential items each year to ensure you are not missing something that could cause tax trouble when you file your tax return:

  1. Required minimum distributions
    If you are 70½ or older, you may need to take required minimum distributions (RMDs) from your retirement accounts. RMDs need to be completed by Dec. 31 every year after you turn the required age. Don't forget to make all RMDs because the fines are extremely hefty if you don't – 50 percent of the amount you should have withdrawn.
  2. Your IRS PIN
    If you are a victim of IRS identity theft you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive your PIN in the mail sometime in December. Save the PIN as it is required to file your Form 1040. If you would like to sign up for the PIN program, you can do so on the IRS website. Note that once you are enrolled in the program, there is no opt out. A PIN will be required for all future filings with the IRS.
  3. Retirement Contributions
    You may wish to make some last-minute contributions to qualified retirement accounts like an IRA. This can be $5,500 for traditional or Roth IRAs plus an additional $1,000 if you are 50 or older. Contributions to traditional IRAs need to happen by April 15, 2019 to be deducted on your 2018 tax return.
  4. Harvest Gains and Losses
    Profits and losses on investments have their own tax rates from 0 percent to as high as 37 percent. Knowing this, make plans to conduct an annual tax review of investment moves you wish to make. This includes:
    • Understanding investments held longer than one year have lower tax rates as long-term capital gains.
    • Trying to net ordinary income tax investment sales with long-term investment losses.
    • Making full use of the annual $3,000 loss limit on investment sales

Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.

 

  1. Last-Minute Tax Moves
    While your last-minute tax move opportunities may be limited, here are a few ideas worth considering:
    • Make donations to your favorite charities to maximize your itemized deductions.
    • Consider contributions of up to $100,000 from retirement accounts to qualified charities if you are older than 70½.
    • Make tax efficient withdrawals from retirement accounts if you are over 59½.
    • Delay receipt of income or accelerate expenses if you are a small business.
    • Take advantage of the annual $15,000 gift-giving limit.

Understanding your current situation and having a plan will make for a smooth tax filing process and maximize your tax savings.

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New 2019 contribution limits create retirement saving opportunity

For the first time in six years, limits for IRAs are rising. 401(k) accounts and IRAs will see an increase of $500 in contribution maximums for 2019. Check out the table below for the details:

IRA 2019 Contribution Limits table

How can you take advantage?

Contributing the full amount allowable to a retirement plan will maximize your tax savings and increase your compound interest earnings potential. Need help making these contributions a reality? Here are some ideas:

  • Contribute your raise or bonus. A great time to contribute to a retirement plan is when you receive a raise or bonus. It allows you to take some or all of the additional income and invest in your future without changing your current lifestyle. Your investment will go even further if your employer offers a plan that matches your contribution.
  • Cut your spending. Start by reviewing your ongoing expenses and creating a budget. Maybe you have a subscription you can cancel or a service provider you can contact to negotiate a lower rate. Then look for ways to reduce your spending on day-to-day expenses – like food, for example. Some ideas to lower food costs are bringing lunch to work, skipping the coffee shop, limiting dinner out at restaurants and shopping at less expensive grocery stores. Use this money to fund your account.
  • Add a side job. At some point, there are only so many expenses you can cut. Picking up some side income might be the way to go. Whether it’s a part-time retail job or starting your own small business, the additional income might be enough to get you to your savings goal. ​
  • Automate your contributions. Most plans offer a way to contribute automatically. If you have a plan through work, check to see if it has an auto-escalation feature that increases contributions over time. If you are investing in an individual plan, set up auto contributions to pull from your bank account on a monthly basis.

Working through these ideas now gives you a great chance to take advantage of the benefits of funding new or existing retirement accounts. Why not take full advantage of the tax benefits they provide? Please call if you have any questions

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2019 Social Security Changes Announced

The Social Security Administration announced a 2.8 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2019. The increase is the largest in seven years, and is based on the rise in the Consumer Price Index over the past 12 months ending in September 2018.

For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 3.5 percent this year, to $132,900. A recap of the key amounts is outlined here:

2019 Key Social Security Benefits

2019 Social Security Benefits

What does it mean for you?

  • Up to $132,900 in wages will be subject to Social Security taxes, up $4,500 from 2018. This amounts to $8,239.80 in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
  • For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,461 per month in 2019 – an average increase of $39 per month.
  • SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2018 to 2019.

2019 Social Security and Medicare Rates

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax

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Five Common Retirement Mistakes

Here are five common retirement planning mistakes and steps you can take to avoid them.

1. Not having a plan

Surprisingly, most do not know how much money is needed for retirement. A retirement plan should consider how long you expect to live, establish an estimate of the amount of money you will need, and consider your desired lifestyle during retirement. Your plan should have measurable goals that can then be broken down into a reasonable way to reach them.

Action item. If you have a plan, review it for possible revisions. If you do not, consider getting one put together as soon as possible.

2. Not starting early enough

One of the most powerful tools for a well-funded retirement is to start saving for your retirement at an early age. The sooner you start saving the better off you will be.

Action item. Open a retirement account and start saving now. Increase the percent of your pay that you place in tax-advantaged retirement saving accounts. This includes IRAs, 401(k)s, and other plans.

3. Not maximizing employer contributions

Many employers have plans available to help their employees save for retirement. If your company has a pension plan, understand how it works and how much you can expect to receive upon retirement. If your company has a retirement plan contribution-matching program, take full advantage of this free money by making minimum contributions required to receive this employer match.

Action item. Review your employer-provided retirement saving options. Maximize the benefits they are providing.

4. Taking the all or nothing approach

Do you plan on working during retirement or avoiding work at all costs? Do you plan on having a pension or Social Security covering all your retirement needs or none of it? Too often retirees plan the extremes, but reality is something in between. For example, if you are someone who plans to have your pension plan fail and Social Security go broke, you may be taking too conservative an approach.

Action item. Create a range of retirement funding scenarios, not just the worst case or best-case scenario. Consider no work or part-time work. Consider some contribution from Social Security and potential pension income if your employer has a program.

5. Not understanding the true nature of your retirement

Are you being realistic in your future retirement plans? Have you correctly estimated the cost of health insurance? Have you really thought about the impact of relocating to a warmer climate? How important is living close to family and friends? Will you really downsize your home after the kids leave?

Action item. If you have a retirement plan that includes relocating or traveling to far off places, consider test-driving this idea before you implement it. You may be surprised at the result.

Retirement should be something to look forward to, and with a little planning it can be a reality for most of us.

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Salvage that Sunken Uncollectible Debt Victims of reneged payment agreements might have a tax deduction

There are few things as frustrating as not being paid what is owed to you. If it becomes clear the debt is not going to be paid, you might be able to recoup some of the lost money via a tax deduction. The IRS has two classifications for bad debt: business and non-business, each with its own deductibility rules.

Business bad debt

In order to be considered a deductible business bad debt, the IRS states that the debt must be closely related to your trade or business. Business bad debt is typically unpaid customer invoices, but it can also include business-related loans. To qualify as a deduction, these two statements must be true:

  • The amount is already included as income or as an asset
  • The debt is considered to be partially or completely worthless

There are many ways to determine the worthlessness of a debt, but at a minimum, you should be able to produce a recap of collection efforts. You need to show the IRS that you did everything you could to collect the debt. If you determine the bad debt is valid, you can deduct it as a business expense.

Non-business bad debt

All bad debt not defined as business-related, is classified as non-business. For a non-business bad debt deduction, the debt must be considered 100 percent worthless. There is no partial deduction available. In addition, you need to prove that the debt is a loan intended to be repaid and not a gift – especially if loaned to a friend or family member. The best way to prove this is with a signed agreement.

If you determine the bad debt is valid, you can report the amount as a short-term capital loss. The loss is subject to capital loss limitations and you need to submit a statement with your tax return that includes the following:

  • Description of the debt
  • Amount of the debt and when it became due
  • Name of the debtor
  • Business or family relationship between you and debtor
  • Efforts you made to collect the debt
  • Why you decided the debt was worthless

While no one wants to be in a position to write off debt, it’s nice to know that you can at least benefit from a tax deduction. If you find yourself in this situation or are planning to loan funds in the future, call to set up a plan of attack.

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Understanding Tax Terms: Pass-through Entities What are they? Why should you care?

Small business owners have a number of options on how to organize their business for tax purposes. Many small, single owner, businesses are not incorporated, and are deemed "sole proprietors", in the eyes of the IRS. Other business entities, like C corporations, are taxed as a separate entity with distributions to owners taxed a second time as dividends. Still others are deemed "pass-through" entities like S corporations, Partnerships and Limited Liability Companies (LLC).

Pass-through entities

Pass-through entities do not pay taxes at the company level. Instead, the business tax return reports the net income to the IRS, but then distributes the taxable income to their respective owners via a K-1 tax form. Each individual owner then reports their share of the K-1 net income on their individual tax return and pays the tax on this and any other personal income.

Generally, business owners like pass-through entities because:

  • The business income is taxed once instead of twice as in the case of C corporations.
  • The business format provides owners a level of legal protection that is not available by doing business as a sole proprietor.

What you should know

  • Individual tax rates. Changes in individual tax rates have an impact on the amount of tax paid by all small businesses that are organized as pass-through entities.
  • New 20 percent deduction. Starting in 2018, a new 20 percent qualified business income deduction is available for pass-through entities and sole proprietorships. There are limitations and other complexities involved, but the bottom line is many small business owners will see a tax break.
  • Can you pay the tax? Small pass-through businesses must pay income tax on all their business profits. However, the business entity is NOT required to distribute cash from the company to help pay the tax. So pass-through owners could see a tax bill without money to pay the tax.
  • Minority shareholder caution. Minority shareholders in pass-through entities are doubly cursed. They not only may not receive distributions to pay taxes due, but they are often precluded from selling their shares, and they do not have enough ownership to require distribution of funds through shareholder voting.
  • Very popular business entity type. According to the IRS the S corporation formation is a popular business entity type with 4.6 million S corporations in 2014 – roughly twice the amount of C coporations. LLCs are quickly becoming the new entity of choice with growth from 120,000 in 1995 entities to over 1 million entities today.

If you have any questions regarding your current small business organization or are looking to start a small business and need help choosing the best entity for your situation, please call.

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Find Your Sleep Sweet Spot

We've all heard it before — sleep is important, and you probably aren't getting enough of it. But did you know that too much sleep can be just as harmful? The Mayo Clinic recommends the ideal sleep range at 7-9 hours per night for adults. According to the National Sleep Foundation, here are some tips to create your ideal night's sleep.

Tips to Find Your Ideal Night's Sleep
  • Perform a sleep test. Start in the middle of the range with eight hours and count backwards from when you want to wake up in the morning. For example, if you want to wake at 7 a.m., go to bed at 11 p.m.. If your alarm wakes you up, go to bed 15 minutes earlier the next night. Take 7-10 days to tinker with the timing until you start to wake up shortly before your alarm. After a while you might be able to ditch the alarm.
  • Paper moon and stars
  • Use a sleep tracker. Most smart watches have a sleep tracking function. It might be hard to get used to sleeping while wearing a watch, but it can provide information for how long it takes for you to fall asleep, track your sleep cycles, and report how often you wake up during the night. Knowing these facts can help you refine your sleep plan.
  • Avoid screens before bed. Your brain is trained to equate light with being awake. In the hour or so before you want to be asleep, try to avoid bright lighting and electronic screens. Scrolling through your smartphone or tablet can increase the time it takes you to fall asleep.
  • Create your ideal sleep environment. There are many aspects to your sleep environment you can adjust to increase your quality of sleep including lighting, temperature, white noise and bedding. Experiment with different options to see if they improve your sleep quality.
  • Know when to get help. While these ideas may help you optimize your sleep, you should seek professional help if your sleep cycle is creating problems. According to the Cleveland Clinic, you should seek medical attention if you are experiencing severe daytime fatigue, you have high blood pressure, you are waking up several times per night or you are dependent on medication to help you sleep.

Even if you come up with the perfect plan, life happens and there will be times when you get less sleep. Just ask a friend with a new baby or when you are sick with a cold! But it's still good to have a plan for when life goes back to normal. Understanding your body's sleep requirements and making a few adjustments will help you develop a plan and maintain a healthy balance.

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Fraud? Negligence? Know the Difference!

Each year the IRS opens thousands of investigations looking for possible tax fraud. In 2017 alone, the Criminal Investigation (CI) arm of the IRS identified $2.5 billion in potential tax fraud with a 91.5 percent conviction rate. While the IRS takes tax fraud seriously, they also understand that mistakes happen. Here is what you need to know.

Description: IRS sign

Tax Fraud or Negligence?

Fraud. The IRS defines tax fraud as intentional wrongdoing, on the part of the taxpayer, with the specific purpose of evading a tax known to be owing. To be considered fraud, taxes must be owed and there must be deceitful intent. If convicted of tax fraud, penalties can be hundreds of thousands of dollars and may include prison time.

Negligence. On the other hand, tax negligence is an unintentional mistake. Common mistakes are wrong names or Social Security numbers, math miscalculations and errors in figuring credits or deductions. Most of these mistakes happen when individuals calculate taxes on their own. While a mistake is not usually considered fraudulent, it can create additional penalties and interest if the mistake results in more taxes owed.

Areas to be extra cautious

The majority of returns with false information will be considered a mistake, not fraud, due to a lack of nefarious intent. Even still, it's good to know when to be extra cautious to avoid unneeded scrutiny of your tax return. Here are some common areas the IRS is on the lookout for fraud:

  • Underreporting income. Income that doesn't get reported is usually from some form of non-wage income like a side job or contractor arrangement. Make sure you have documentation of all payments received by you. Be very suspicious if you are paid in cash. All income, regardless of the source, needs to be reported.
  • Including personal expenses as business deductions. Intentionally padding business deductions with non-deductible personal expenses can be deemed tax fraud. If you have a business, ensure that you have a separate bank account for your business transactions to avoid extra questions. For all deductions, keep your receipts in an organized fashion to prove the expense if necessary.
  • Concealing information during an audit. Going through an audit can be an unnerving event. Don't add to the pain by intentionally hiding information from an auditor and unknowingly creating a fraudulent situation. If you are selected for an audit, the first thing to do is get help!

The tax code is complex and the IRS understands this. Missing information from taxpayers is often considered an accident unless there is reason to believe it is intentional. If you have a situation you are concerned about, don't hesitate to call.

 

 

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Hustling for Extra Income Don't Forget the Taxman!

Conduct an online search of the phrase "side hustle" and you will find websites with countless ideas on how you can make some money on the side. The ideas range from carpet cleaning to podcasting. What a lot of these sites fail to inform you, is the tax implications that come from the additional income. Here are five tips to help you stay on top of your side hustle taxes:

Pencil sharpened at both ends
  1. Business or hobby? When reviewing your activity, the first determination made by the IRS is whether the arrangement is a business or a hobby. There are several factors the IRS uses, but the big one is: does the activity make a profit or intend to make a profit? The IRS will presume the activity is a business if a profit is made during at least three of the last five years. Once business versus hobby is determined, differing tax rules will apply. In short, expenses paid for operating a business are tax deductible. Hobby expenses are not.
  2. All income must be reported. Income from side hustles can come from a variety of sources. Regardless of where the money comes from or how much it is, it needs to be reported on your taxes. If you are working for a company, you will get a 1099 (if you are paid more than $600) or a W-2.
  3. Keep good records and save receipts. Being organized and having good records will do two things: ensure accurate tax reporting and provide backup in the event of an audit. Log each receipt of income and each expense. Save copies of receipts in an organized fashion for easy access. There are multiple programs and apps to help with this, but a simple spreadsheet may be all that you need.
  4. Make estimated payments. If you are running a profitable side business you will owe additional taxes. In addition to income tax, you might owe self-employment tax as well. Federal quarterly estimated tax payments are required if you will owe more than $1,000 in taxes for the year. Even if you think you will owe less than that, it's a good idea to set a percentage of your income aside to avoid a surprise when you file.
  5. Get professional tax help. There are many other tax factors that can arise from side income such as business entity selection, sales tax, state taxes and more. Call to set up a time to work through your situation and determine the best course of action moving forward. Knowing you have someone to help with your tax obligations will free you to focus on your extra income generating activity.

Creating a "side hustle" can be fun, rewarding and bring in additional income to help with expenses or add funds for other activities. Just make sure you understand how the income will be taxed to avoid an unwanted surprise.

As always, should you have any questions or concerns regarding your situation please feel free to call.

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What Does the IRS Have on You? Here is how you can find out...

There are multiple situations where you need to find out what the IRS knows about you. It could be for the purpose of obtaining a loan, refinancing your house, or continuing your citizenship status. Possibly you are a few years behind on filing tax returns and need to know where to start. Or maybe you lost a return and simply need a copy for your personal records. Here are three items that will help you see what the IRS has on file for you:

  • Tax return transcripts and account transcripts: A tax return transcript is a summary document that shows most line items and amounts from your original return. It also includes the forms and schedules filed with the return. A tax account transcript has basic high level information such as return type, filing status and adjusted gross income. It will also show if an amendment has been filed. Both types of transcripts are available for the current tax year and the prior three years (ten years for account transcripts), and are often acceptable proof of income for loans, mortgages and financial aid. Transcripts from the IRS are free and can be viewed online or mailed to your home within 5-10 days.
  • Copies of tax returns: If a transcript is not sufficient, you can request an actual copy of the tax return as far back as six years. The current fee per copy is $50 and can take 75 days to receive. The fee is waived if you live in a federally declared disaster area.
  • Freedom of Information Act (FOIA) document request: If you are looking for IRS records besides your returns, a FOIA request might be for you. Per the IRS, “the FOIA applies to records either created or obtained by an agency and under agency control at the time of the FOIA request.” In order to receive the documents, submit a detailed request and conduct the necessary fee calculation. According to the FOIA, the IRS must provide records unless they fall under a handful of exemptions or exclusions. Examples of exemptions are records that have classified information or are involved in an ongoing investigation. The fee and response time varies by the scope of the request. A FOIA request is a good place to start if you have past due tax returns that need to be filed or are at odds with the IRS regarding an audit decision.

No matter what your tax situation is, it’s good to know what your options are if the time comes that you need to get information from the IRS. Please call if you need help making a request.

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Reminder: Third Quarter Estimated Taxes Due Now is the time to make your estimated tax payment

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third quarter due date is now here.

Due date: Monday, Sept. 17, 2018

SPECIAL NOTICE: With major tax law changes in place for 2018, forecasting your tax obligation is more important than ever. If you need a review of your situation consider doing so immediately to avoid any surprises at tax time.

Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. A quick payment at the end of the year may not help avoid the underpayment penalty.

W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough funds to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.

Self-employed. Remember to account for the need to pay your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.

Don't forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you're required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

* If your income is over $150,000 ($75,000 if married filing separately), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.

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Education: Tax Changes You Need to Know

As students gear up to head back to school, there are some changes to education deductions that could save or cost you more in taxes and even raise college tuition costs. Here is what you need to know to get up to speed:

What is gone

Continuing Education as an itemized deduction: In previous years, you could deduct expenses paid for job-related continuing education as a miscellaneous itemized deduction. This deduction has been eliminated. However, if your employer will pay for the education, they can cover up to $5,250 tax-free.

Home equity line of credit (HELOC) interest for education expenses: A popular method of generating cash to pay for school expenses is taking out a HELOC. Beginning in 2018, you can only deduct HELOC interest if you use the loan proceeds to buy, build or substantially improve your home. This means that if you plan to obtain HELOC for purposes of paying for education expenses, the interest will not be deductible.

What's new

529 plans cover K-12 tuition: Funds from Section 529 savings plans can now be used tax-free to pay for up to $10,000 in K-12 private school tuition per year. Books, supplies or other K-12 expenses are not included in this change, but they are still eligible as legitimate college expenses. Be careful — not all states have adopted the K-12 inclusion, so they might still be taxable at the state level.

Endowment tax of 1.4 percent on certain private colleges: Congress added an investment income tax on private colleges that have large endowments. The tax is expected to impact roughly 30 schools, including Stanford, Harvard and Notre Dame. The effects of the new tax are yet to be determined. However, tuition may increase or reduced financial aid award amounts may be implemented to offset the cost.

Apple on latop and books

What stays the same

Student loan interest deduction: You may deduct up to $2,500 in student loan interest in 2018 as an adjustment to income. To qualify, your adjusted gross income must be below $80,000 ($165,000 for married couples). Phaseouts start to apply at $65,000 ($135,000 for married couples).

American Opportunity Tax Credit and Lifetime Learning Credit: These two educational tax benefits are available once again. Here's a chart with basic information on these options:

Education credits table

As a reminder, when you make payments for any education expenses, make sure to keep your receipts and retain any Forms 1098T sent to you from qualifying schools.

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Combat Employee Turnover

With unemployment at historically low rates, retaining employees is harder than ever. Here are some tips to help your business maintain a thriving workforce:

Item Invest in current employees. One of the key opportunities for business success is continual investment in your current workforce. If you have employees with potential to grow, offer training and continuing education to help them realize that potential. With online courses, this is now easy to do without a major disruption in day-to-day activities. These courses can be as general as teaching supervisory skills or obtaining accreditation in a chosen field. Then when there is a need to be filled, often times it can be filled internally with a committed employee.
Item Convert contractors to employees.Utilizing contractors is a great strategy to handle overflow work. You can then have current employees manage the consultant's work to develop their supervisory skills. At the same time you can vet contractors to see if they could take an expanded role as a full-time employee. Many contractors prefer to be independent, but that is not always the case. Circumstances change and the security of being an employee might be intriguing.
Job happy face
Item Review compensation and benefits packages. Conduct an annual review to ensure that your company is offering competitive salaries and benefits. This will help protect your business against current employees seeking greener pastures. Consider giving impromptu pay increases and spot awards to top employees to show your appreciation. Also look at being creative with benefits and vacation packages.
Item Explore the benefits of internships. An internship program can not only help you identify your next employees, it can help develop your current employees. While it can be seen as a hardship by your current workforce, it can be a rewarding way to cement your employee's knowledge and value to the organization as they are seen as a teacher. Plus you may find your next group of potential hires.
Item Assess your corporate culture. Employees want to enjoy going to work every day. Consider conducting an anonymous survey of your current employees to see what they like and get ideas for possible improvements.

With some planning and a little creativity, keeping your business running efficiently can be achieved even in times when employee retention can be challenging.

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Hidden Back to School Tax Deductions

Summer is coming to a close and the back-to-school advertising blitz is underway. Hidden in some of those school expenses are tax deductions you can take advantage of. Here are some ways you can save:

  1. Watch for tax deductions on the supply list. Often schools send a list of requested supplies for the school year. Some of the items on the list are clearly for personal use (such as an eraser or a ruler) while other items on the list are often for school use and classroom use (such as 24 pencils or paper towels). Keep track of these non-cash classroom/school donations for possible charitable deductions.
  2. Donate funds versus taking the raffle ticket. Raffles, subscription drives and silent auctions are fun ways schools raise money. To maximize your ability to deduct your donations, forgo the possible prize. Then the entire donation is clearly deductible. Remember to ask for a receipt when making the donation.
  3. Don't forget your out-of-pocket expenses for your volunteer activities. Perhaps you donate your time at school functions, donate books to the school library, or help assist the teaching staff. Your out-of-pocket expenses and your mileage should be tracked for charitable deduction purposes.
  4. Teachers, save your out-of-pocket expenses. A recent survey found that 94 percent of teachers spend their own money on classroom supplies — some as much as $1,000 per school year. Teachers are allowed to deduct $250 on their tax return even if they claim the standard deduction.
  5. Use checks, not cash. If you usually provide donations to the school in the form of cash (like providing additional money to help other kids go on field trips) make those donations in the form of a check. The check will serve to help prove your donation.

Bonus Savings Tip: When you get the school supply list, compare prices from online retailers to local brick-and-morter stores. You might be able to save some money — especially if you are buying for multiple kids. If you don't have time to wait for them to ship, see if a local retailer will match the price.

Finally, don't forget to review state rules for educational expenses. There are often credits available for out-of-pocket school expenses and other educational expenses.

 
 

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Achieve Tax Resolution with an Offer in Compromise

An offer in compromise is the IRS’ tax resolution debt settlement program. It’s a program for taxpayers who owe the Internal Revenue Service more money than they can afford to pay.

It’s the IRS’s version of a “fresh start” when it comes to tax debt. If approved, the IRS accepts a lesser amount (sometimes a fraction of what’s owed) to settle your debt. However, it isn't always easy to gain approval due to its strict criteria. Your odds for acceptance increase significantly when you have experience negotiating with the IRS.

The IRS considers your income, assets, expenses, ability to pay, and whether paying the full amount would cause financial hardship.

Information You Need to Submit an Application for an Offer in Compromise

It's important to remember that the IRS wants its money and will only accept an offer in compromise if it thinks it wouldn't receive any money otherwise. You must be current with all filing and payment requirements to apply. Additionally, you cannot be in the process of filing bankruptcy.

You can find more information about the IRS Offer in Compromise on the IRS website here.  If you want help with your back tax problem, contact us today for a consultation. [https://www.makemytaxes.com]

After supplying the IRS with your name, address, social security number, and the amount of tax debt you would like it to consider for this program, you need to supply details about your income, assets, and expenses. In addition to wages, your personal income can include:

  • Business profit
  • Self-employment income
  • Rental income
  • Child support or alimony
  • Interest on investments

Your assets can include things such as:

  • Stocks and bonds
  • Resale value of your personal vehicles
  • Market value of your home
  • Balance of your retirement savings accounts
  • Balance of bank accounts, including checking, savings, and investments

For the expense section, you should only include items you pay regularly. These may include:

  • Rent or mortgage
  • Child support or alimony
  • State and federal taxes
  • Daycare costs
  • Costs to maintain a vehicle
  • Auto, health, and life insurance

Compiling this information and completing the application correctly can be challenging even for tax practitioners who don’t have expertise in dealing with the IRS. Your CPA or tax advisor most likely doesn’t have experience with resolving back tax issues. That’s why we recommend working with a specialized tax resolution professional like us to better understand this option and increase your chances of approval

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What To Do If You Are Audited by the IRS

Filing a tax return is a responsibility that all people need to follow to stay compliant with the IRS. While most people will be able to file their taxes and receive a tax return, those with more complex tax situations, or are simply a bit unlucky, could face an audit from the IRS.

If you receive notification that you are to be audited, there are several things that you should do to make the process easier and ensure you get through it without any penalty.

Confirm the Audit

Millions of people every year receive some form of notification from the IRS that is calling something into question. While most people may overreact and assume it requires a full-blown audit, there is a chance that they just need one piece of information to finalize their review. Before doing anything, you should carefully review the letter and confirm with the IRS whether or whether or not you're going through a full audit.

Gather Information

If it turns out you are to be audited, the next thing you need to do is gather and provide as much information as possible. You will need to collect all of your tax-related forms including your W-2 statements, bank account statements, mortgage account statements, and anything else related to income or any form of tax deduction. Having all of this organized and ready for the IRS will lead to a quicker review and determination.

Speak with Accountant

If you hired an accountant to prepare your taxes, or if you paid for an audit support service, you should reach out to them immediately.  They will help you to gather the information you need and present it in a format that the IRS is seeking.  They will also be able to answer any specific questions that the IRS may have, which can take a lot of the work off your shoulders.  

Be Polite and Courteous

Going through an audit with the IRS is a stressful experience. Furthermore, it can be easy to feel defensive and angry towards the IRS agent. However, it would be a big mistake to be rude or not provide all the information they are seeking.

Instead, you should focus on being polite and courteous and give as much information as promptly as possible. That will keep you on good terms with IRS during the entire process and will increase your chances of receiving a satisfactory review. 

Undergoing an audit can be stressful and challenging.  However, there are several things that you can do after you get your notification of the review that will reduce your risk of penalty and make it a less stressful experience.  You should contact your qualified tax professional to see what resources are available for you during an audit.

 

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Common Tax Increase Surprises I did not owe that last year!

Picture this: For the past few years you've received your tax return and have had a small but nice refund. Now imagine your surprise, when next year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to a taxpayer as it is to hear it. Here are some situations to watch for that can increase your tax liability:

New tax laws. The Tax Cuts and Jobs Act is the most impactful tax reform in years. While the goal of the legislation is to reduce taxes, there are several changes that could cause you to pay more taxes, including:

  • Removal of the personal exemption
  • Capping of the state and local tax deduction (SALT) at $10,000
  • Removal of the deduction for home equity loan interest not used to buy, build or improve your home
  • Removal of the deduction for unreimbursed employee expenses and other miscellaneous expenses

A spouse passes away. The tax surprise related to this event tends to hit older taxpayers the hardest. In the year of death the tax impact is not usually felt. The year following death, the tax surprise hits hard because of the following tax changes:

  • Lower standard deductions
  • You move from a joint filing status to single (or head of household)

A child is no longer eligible. As children get older they grow out of lots of things — clothes, interests and tax credits. Here are some age requirements for popular tax benefits:

  • Child and Dependent Care Credit: under age 13
  • $1,000 Child Tax Credit in 2017 (raising to $2,000 in 2018): under age 17
  • Earned Income Tax Credit: under age 19 (24 if a qualified student)

Earnings with Social Security benefits. If you are recently retired, start collecting Social Security Benefits, and then begin working part-time, you are also in for a tax surprise. These extra earnings could not only make your benefits taxable, it could result in a reduction of benefits received.

Other life events. Other life events could provide a tax surprise for you. While some may have positive tax consequences, like a new birth, or becoming the head of household, others might surprise you and result in additional tax. Other common life events include retirement, death and entering/leaving school.

Capital gains surprises from mutual funds. Often sales of investments are a planned event. Unfortunately, many mutual funds sell assets and then you receive a capital gain statement with a surprise taxable event.

Want to avoid these surprises? Spend some time now reviewing your anticipated tax situation for 2018. By doing so, perhaps a planned “pleasant” surprise can be in store for you next year.

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