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Reduce Next Year’s Tax Season Stress


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Rejoice! The 2018 tax filing season is finally over – and with it all the changes from under the Tax Cuts and Jobs Act of 2017. For some taxpayers, it was their first view of how the new tax law impacted them. And it wasn’t always pretty.

Well, how did it go for you? Stressful? Expensive?

If you live in a state with high income taxes or real estate taxes, your usual tax refund may not have come your way this year. On the other hand, the new tax law may have lowered your tax bill. But no matter where you live, seeing the new tax rules in action for 2018 gave you a better idea of what to expect for 2019.

Not knowing what to expect is stressful! Follow these tips to reduce stress next tax season:

Get Organized and Stay Up-to-Date

Use your 2018 tax return to identify the information you’ll need to accumulate during 2019 to prepare for next year. If a life event in 2019, such as buying a home, starting a business, or changing your marital status, you need to check out how it impacts your taxes. Keep up with your tax deductions and other paperwork you’ll need, and the task will be easier to do next year. Plus, if you need pay stubs and account statements to apply for a loan, it’s all ready for you.

Do a “Paycheck Checkup”

Did you owe a lot for 2018, or did you get a refund of the interest-free loan you gave Uncle Sam? An IRS Paycheck Checkup can help to make sure you don’t get an expensive surprise when you file your 2019 income taxes next year. Here’s their online tool to see if you need to change your withholdings https://www.irs.gov/paycheck-checkup Taxpayers with investment, self-employment or other non-wage income need to make quarterly estimated tax payments. Here’s a link to more details https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.

Right after you file last year’s taxes is the perfect time to see how to make next tax filing season less stressful. Whether you prepare your own taxes or use a tax professional, following these tips can reduce your stress and reduce the time that you spend filing your 2019 income tax returns.

Not Ready to File on April 15?

For the first time in a couple of years, the tax filing deadline is actually on April 15th. No more reprieves for weekends and holidays. Regardless of the date, the tax deadline seems far in the future until, all of a sudden, it’s here! If you’re in a panic because you haven’t started gathering your W-2s or you’re waiting for that final K-1, you could probably use some more time to file.

Not ready? Not a problem! You can get an automatic six-month tax filing extension. No need to provide a reason but it does take a little time and action to get it done right to avoid a late filing penalty.

Two important tips about getting a tax filing extension:

1. You Have to Apply

Individual taxpayers use IRS Form 4868 to request an automatic extension to file their federal income tax return. An extension can be filed on the IRS website, e-filed using approved tax software, or in paper form by midnight on the due date. If you are getting a refund or pay the amount due, your extension is automatically approved. But you still have to wait until your return is filed to get any tax refund. Extending your state taxes is usually automatic when you extend your federal return, unless you owe more in taxes.

2. You Must Pay What You Owe

Start by estimating your income tax liability based on the information you have. Use the IRS Form 4868 instructions or www.irs.gov to figure it out. Compare your estimated tax liability with your tax withholding or quarterly estimated payments and enter the numbers on the extension request form. If you owe more tax than you’ve paid in, the balance due must be paid with your extension request. Failure to pay will result in an underpayment penalty and interest on the unpaid amount, accrued daily until it’s paid. That really adds up.

Rushing at the last minute is stressful and causes mistakes. Better to give yourself more time. Need more details about estimating your 2018 tax liability and getting a tax filing extension? Go to the IRS website at https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return.

Still confused and need more help? Consult a qualified tax professional to help you out. The IRS has resources for that, too – https://www.irs.gov/tax-professionals/choosing-a-tax-professional

What If You Owe the IRS for 2018?


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You’ve probably heard in the news. Some taxpayers who usually get a refund are paying more taxes when they file for 2018. That nasty surprise is due to the IRS lowering tax withholding amounts and other changes from the 2017 Tax Cuts and Jobs Act.

So what do you do if you owe the IRS? Here are your options:

Electronic Debit With Your Return

The quickest and easiest method for paying taxes due when you file is to set up an electronic debit/withdrawal from your checking or savings account. The IRS (and some states) will even let you file now and post-date the payment up until the due date. You can set up the debit through your tax software, or ask your paid tax preparer to set it up for you.

Mail Payment Voucher with a Check

Snail mail is still available to pay your taxes, at least for now. When you electronically file your taxes (which is highly recommended to tamp down on identity theft and human error), indicate that you are paying by check using a payment voucher, or IRS 1040-V. Use your tax software (or ask your paid preparer) to prepare the coupon with the mailing address and your Social Security Number pre-printed on it. Mail the coupon and a check with your Social Security Number, “1040” and the tax year in the memo line.

Direct Pay at the IRS Website

The IRS is great at using technology to make it easy to pay your taxes. Go to https://www.irs.gov/payments/direct-pay and follow the instructions for the payment option that works best for your situation. Best of all, it’s free.

Installment Plan

Not enough money to pay of your taxes now? The IRS offers an installment payment plan. A short-term plan for up to 120 days has no set-up fee. Longer term plans are available for a fee. It just takes a few minutes to apply at this link https://www.irs.gov/payments/online-payment-agreement-application. You’ll get an immediate notification of whether your application is approved.

Owing more when you file your 2018 taxes is bad news. Some good news that will help soften the blow – the number of options that the IRS (and some states) offers for you to pay up. Whether you can pay it all now or need some more time, there’s an option that will meet your situation.

Nonprofit Financial Oversight

Nonprofit leaders have a big job. On top of overseeing the delivery of programs and services, they are responsible for overseeing the organization’s financial health. It’s called fiduciary responsibility — ensuring that funds are effectively used, and reporting finances in a transparent and reliable way to donors and other stakeholders.

All of that responsibility can be daunting, especially for smaller organizations. Nonprofits sometimes need help navigating through the steps to perform effective financial stewardship over funds that donors have entrusted them with.

Help is coming soon at my April 18th free Lunch and Learn at the Foundation Center (recently merged with GuideStar). This one-hour session includes topics to promote effective financial stewardship and oversight, and tips on how to make it work at your nonprofit organization.

Believe it or not, we plan to touch on these five topics in only one hour:

  • Fiduciary Roles and Responsibilities – The duty to act in the best interest of the organization, including Duty of Care, Duty of Loyalty and Duty of Good Faith, as well as avoiding conflicts of interest.
  • Financial Policies and Procedures – Defines the framework for accepting, managing and spending the funds entrusted by donors, and delineates between Board and management roles and responsibilities.
  • Budgeting – Plans for the appropriate use of funds to deliver programs and services, and to operate and sustain the organization; as well as to define the amount of funds required from diversified sources.
  • Financial Reporting and Monitoring – Stewardship and oversight necessary to fulfill fiduciary responsibility to use funds effectively and plan appropriately, including monthly reports that should be reviewed.
  • Annual Financial Statement Audit and IRS Form 990 Information Return – Annual reporting requirements to comply with IRS laws and regulations, and to report how funds are used to donors and other stakeholders.

Can you tell that it’s going to be a jam-packed hour? Interested?  Register now at this link –

Hope to see you there!

Donations are Not Always Deductible

picture of someone in white sweather holding out crumbled euro dollars
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Under the new tax law, donations to a qualified charity are still deductible for taxpayers who itemize their deductions using IRS Schedule A. Taxpayers who take the standard deduction because it is higher than itemizing don’t get a tax benefit from their giving.

Based on the tax returns I’ve prepared so far this season, taxpayers have not changed their level of generosity, but they don’t always know when their giving could be deductible. There’s a lot of confusion about the meaning of terms like “qualified charity” and “donation”. To help clarify, this week’s blog is dedicated to charitable donations and when they are – or are not – deductible.

What is a Qualified Charity?

Qualified charities include humanitarian, religious, educational, scientific, and cruelty-prevention organizations. Crowd funding, political contributions and association dues are not included. Except for religious organizations, qualified charities must apply for and be granted Tax Exempt Status by the IRS. Tax Exempt organizations have annual IRS reporting requirements. A list of qualified charities is posted in the IRS’ “Tax Exempt Organizations Search” tool at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

What is a Donation?

Donations can be financial or non-financial items such as clothing, household goods, vehicles, stock, or real estate. Financial donations to a qualified charity are a deductible, reduced by the value or anything received in exchange, such as a meal. In general, clothing and household items can only be deducted if they are in good usable condition. The deduction amount is based on the “thrift shop” value. Donated vehicles, art work and other non-financial donations valued at more than $500 are subject to more rules and limits.

What Donations are Deductible?

Financial and non-financial donations must be acknowledged contemporaneously in writing by the charity. Acknowledgements reflect which organization received the donation and when to support any deduction taken. Donations of $250 or more must be supported by a letter from the charity stating the date and amount of the donation, the charity’s reduced by the value of anything in received by the donor in return, such as a fundraising dinner.

Many taxpayers continue to donate to charity, whether it’s deductible or not. Knowing what donations qualify for a deduction helps maximize those tax benefits that are still eligible under the new tax law.

Arlington Library Helps Businesses Learn About Tax Changes

Picture of a MacBook Pro displaying a pink screen on a desk. A silver cup of coffee on the left side with a pile of papers and a silver pen on the right. The background is a clutered desk with a wall full of notes.

Picture of a MacBook Pro displaying a pink screen on a desk. A silver cup of coffee on the left side with a pile of papers and a silver pen on the right. The background is a clutered desk with a wall full of notes.

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The Arlington County Public Library showed its love and support for local business last week by hosting my workshop, “Your Business and the 2017 Tax Cuts and Jobs Act”. They really packed the house with business owners who had lots of fantastic questions. My job – provide equally fantastic answers.

The new tax law is jammed with changes that businesses need to be aware of. We only covered a few changes that impact “pass-through” businesses – sole proprietorships, partnerships, or Subchapter S corporations. We had to be pretty general. Based on the evening’s discussion, attendees left armed with even more detailed questions to ask their own tax preparers.

I can’t replicate the energy in that library conference room here, but I can share a few facts from the workshop that you can use for your business:

  • Qualified Business Income Deduction – Qualifying pass-through businesses may be eligible for a deduction of 20% of qualifying net business income (i.e., excluding interest and other income not derived from sales or fee revenue). For owner/employees with income over $315K (married filing joint) or $157.5K (all other filers), the deduction could be limited.
  • Higher Asset Depreciation Limits – For assets placed in service after 2017, businesses can elect to expense any section 179 property in the year the property is placed in service.  The maximum deduction is increased from $500K to $1 million, and the phase-out threshold is increased from $2 million to $2.5 million.
  • Employer Deduction for Fringe Benefits – A number of employer deductions are disallowed, including activities generally considered to be entertainment, amusement, or recreation; membership dues for clubs organized for business, pleasure, recreation, or other social purposes; and expenses associated with transportation fringe benefits or for commuting.
  • Pass-through Loss Limits – For some taxpayers, losses from pass-through businesses after 2017 cannot be used to offset other income, such as investments, Starting in 2018, the net operating loss deduction is limited to 80 percent of taxable income.

My evening at the Arlington County Public Library was a lot of fun for me. I hope that everyone else also had fun and felt more aware of business tax law changes. Thanks to the Library Staff and incredible Research Librarian for making this event happen for the community!

Your Refund is Not Your Tax Liability

Piece of paper that says "TAX" with hand holding pen
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The Internal Revenue Service reports that so far this tax filing season, refunds are 9% down from last year. Reasons for this vary, but much of the change is attributed to the new tax law. Tax withholdings for federal taxes were reduced overall back in February 2018. If you didn’t do a “Paycheck Checkup” to compare your withholdings with your projected tax liability, the bottom line on your 2018 tax return could be a lot different than in the past.

Many taxpayers focus on whether they get a refund or owe more in taxes when it’s time to file. However, that is not the best indicator of your actual tax liability. Depending on a big refund to pay off bills or take a vacation also might not be the best way to manage your finances.

Think about it. Getting a tax refund means that you let the government use your money all year long before letting you have it. In other words, a refund is an interest-free loan to Uncle Sam. Does your bank lend you money for free? No! So why should you loan money to anyone – least of all the government – for free?

So how do you avoid making an interest-free loan or having to pay a lot at tax time? You’ve got to do two things – calculate your tax liability and withholdings, and compare the two amounts. Here are some tools to help you do it:

  • The IRS Withholding Calculator https://www.irs.gov/individuals/irs-withholding-calculator guides you through the steps to figure out your tax liability for 2019. Before using the calculator, make sure you understand how the IRS defines its terminology, know your pay frequency and note any life or work changes that impact your taxes (e.g., marital status).
  • If you owed additional tax for 2018, you may have to pay estimated tax for 2019. Estimated payments should be made if you expect to owe at least $1,000 in tax for 2019, and if you expect your total withholdings and refundable credits to be less than the smaller of 90% of your 2019 tax liability or 100% of your 2018 tax liability. More details are at https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Your refund is not an indicator of your tax liability. Potentially, it’s an interest-free loan to the government that prevents you from using your own money. Doing a “Paycheck Checkup” get control over your taxes for next year and avoid making an interest-free loan or having to pay a lot next tax filing season.

Library Workshop on Tax Changes for Individuals

Last week, I had a fabulous opportunity to speak to a very attentive audience at the Arlington County Public Library about individual tax changes due to the 2017 Tax Cuts and Jobs Act. Libraries are a tremendous community resource. I felt privileged to be part of their program to help our neighbors gain awareness of the new taxes law and its impact.

We covered a lot of ground in 90 minutes (plus questions). The material was pretty general, geared toward increasing awareness the many tax changes impacting individual taxpayers. The impact of those changes varies based on individual income, family size, geography and other factors.

Six of the factoids from my presentation could be valuable information for you:

  • Good news! Tax brackets are reduced for the top six of seven individual tax brackets. Most taxpayers benefit from the new, lower rates. However, some taxpayers in the 33% marginal tax bracket move up to 35% in 2018 (e.g., singles $200-400K).
  • The decision whether to itemize or take the standard deduction has completely changed. The standard deduction is doubled, and some taxpayers will get a higher deduction be taking it. Another benefit is preparing a simpler tax return, without Schedule A. For those who still itemize, the itemized deduction phase-out for high-income taxpayers is eliminated.
  • Personal exemptions are eliminated. As a “consolation prize” a credit of up to $500 per qualified dependent is available. Qualified dependent does not include your spouse.
  • Taxpayers who itemize deductions will see many changes. One big change is the new $10,000 deduction cap that was imposed on the total of all state and local taxes. If you don’t have that memorized, that total  includes state income taxes, real estate taxes and personal property taxes,
  • Qualified residence loan interest is limited to $750,000 of total indebtedness for first and second homes acquired after December 15, 2017 ($375K if married filing separately). Indebtedness that existed prior to that date is “grandfathered” and not subject to the new limit.
  • Miscellaneous itemized deductions are generally eliminated, including employee business expenses, tax preparation fees, investment advisory fees, and safe deposit box fees. Moving expense deductions are also eliminated other than for active duty military.

I thoroughly enjoyed my time at the Arlington County Public Library helping a very engaged group of interested taxpayers gain awareness of individual tax changes. This important information was enthusiastically received. Thanks to the Library and its incredible Research Librarian for making this event happen for the community!