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Year End Reflections and Plans for 2019

Year end is the perfect time to reflect on and celebrate accomplishments made during 2018. Yes, year-end is time to enjoy your success. It’s also a great time to plan for the accomplishments you want to achieve in 2019. Whether you are expanding or launching something new, setting objectives is your starting point.

First, identify a few specific areas of your organization you’d like to change or improve in 2019. Want higher profits, cash flow or client base? Need a new employee or system? No change or improvement will happen without a plan to get it done, starting with clear and detailed objectives.

Follow these three tips for objectives that give you a head start toward the finish line:

Gather the Numbers

Quantify all the applicable aspects of your objective. This task will require some research

and could entail making estimates and assumptions. For example, how much profit or client growth do you want to achieve? Can you express that growth as a dollar amount and as a percentage? How much would a new system or employee cost? How much of that cost would be one-time and how much would be ongoing? The more numbers you can nail down or estimate, the better.

Be Realistic

Keep market conditions and your resource capacity in mind when setting growth objectives. It’s important to be realistic in order to ensure that your objectives are achievable. Setting unrealistic objectives is not only discouraging, it can result in allocating resources – aka time and money – on activities that are unlikely to succeed. Better to target those resources on realistic, achievable objectives.

Adjust As Needed

No matter how well you research, estimate and focus on the achievable, any view of future events is imperfect. Market conditions and other factors that you depended on when setting your objectives could change. Periodically assess progress on meeting your objectives. Are you on track? Why or why not? Based on those answers, you may need to make some adjustments to the objectives that you set at the beginning of the year.

Year end is the perfect time to reflect on and celebrate the year’s accomplishments and to plan for the objectives you want to set for next year. Identify specific things you’d like to change, set detailed and clear objectives, and you’ll have a great head start to improve your organization in 2019.

Last Minute Tax Tips for 2018

Less than two weeks left to go before the year ends. Wow! You meant to do some tax planning for 2018. Is it too late now? Believe it or not, there’s still time to implement some planning moves that can improve your tax situation for 2018 and the future.

Here are four last minute tax tips you can jump on and still enjoy the holidays:

Make HSA contributions

If you are an eligible individual under the health savings account (HSA) rules for December 2018, you are treated as having been eligible for the entire year and can make a full year’s deductible contribution for 2018. The maximum contribution provides a deduction of $3,450 for individual coverage and $6,900 for family coverage. Taxpayers age 55 or older also get an additional $1,000 catch-up amount.

Nail down stock losses 

Consider realizing losses for stock you planned to divest anyway. Those losses can offset gains from other stock or investment asset sales. Losses that exceed gains may be deducted up to $3,000, $1,500 for married taxpayers filing separately.

Apply a bunching strategy to deductible contributions and/or payments of medical expenses 

Beginning in 2018, many taxpayers who claimed itemized deductions in prior years will no longer benefit from doing so because the standard deduction has been increased and many itemized deductions have been cut back or abolished. A bunching strategy can help you get around these new limits — by accelerating or deferring discretionary medical expenses and/or charitable contributions into the year where they will do some tax good.

Use IRAs to make charitable gifts 

If you are age 70½ or older, own IRAs, and are thinking of making a charitable gift, consider arranging for the gift to be made by way of a qualified charitable contribution, a direct transfer from the IRA trustee to the charitable organization, up to $100,000. The transferred amount isn’t included in gross income or allowed as a deduction on your tax return. A qualified charitable contribution before year end is a particularly good idea for retired taxpayers who do not need all of their as-yet undistributed required minimum distribution (RMD) for living expenses.

Yes, it’s late in the year for tax planning, but not entirely too late. Implementing one or more of these last minute tax tips will improve your tax situation for 2018 and future years. Makes the holidays even merrier, doesn’t it?

Do I Need to Keep That?

It happened again last week. A tax client e-mailed me to ask for a copy of her 2016 income tax returns. She was refinancing her home and the lender had asked for two years of tax information. As required, I had sent a file copy of her tax returns after they were electronically filed. She apparently did not save it.

I was happy to send her another copy. But what were her options if I was not available to help? What if she had prepared her own returns and not kept a copy? Is this really a big deal?

The short answer is “yes”. Taxpayers should keep a copy of their past tax returns and supporting documents for at least three years. Taxpayers claiming certain securities or debt losses should keep their tax returns and documents for at least seven years.

Here are five tips about prior-year tax records:

  1. Save time – Keeping copies of prior year tax returns saves time. Often, prior-year tax information is needed to file a current year tax return or to answer questions from the IRS.
  2. Validate identity – Taxpayers using tax filing software for the first time may need their adjusted gross income (AGI) amount from their prior year’s tax return to verify their identity. Learn more at Validating Your Electronically Filed Tax Return.
  3. Order a transcript – A tax transcript that summarizes tax return information and includes AGI can be ordered for free from the IRS. Transcripts are available for the current tax return, plus the past three tax years. Plan ahead, though, because delivery typically takes five to 10 days from the time the IRS receives the request.
  4. Get an actual tax return copy – This option costs $50 per copy and requires taxpayers to complete and mail Form 4506 to the appropriate IRS office listed on the form.
  5. Verify tax payments – Good news! You don’t need a transcript or return copy to find out if you owe the IRS. Taxpayers can verify payments or amounts owed in the last 18 months. Just click on this link – view their tax account.

The bottom line is simple. Save time and aggravation by keeping prior-year tax information. Most taxpayers should keep tax returns and supporting documents for at least three years, seven years for taxpayers with securities transactions or losses. Keeping these records yourself prevents all the time and effort to get them from your tax preparer or the IRS.

Children and Dependents under the New Tax Law

One of the news headlines about the 2017 Tax Cuts and jobs Act was the elimination of personal exemptions, which took away a $4,050 tax deduction for each taxpayer, spouse and qualified dependent. Families with several children were pretty unhappy to hear about losing that hefty tax deduction, and even unhappier to wait for the IRS regulations to understand how this change would impact their tax bill.

Well, the wait is over. In November 2018, the IRS issued notices and regulations to clarify the new tax law regarding the Child Tax Credit, the Additional Child Tax Credit, and the new Credit for Other Dependents. Here are the details you’ll need to understand for your 2018 income tax return:

  • Child Tax Credit

Beginning in 2018, you may able to claim the Child Tax Credit if you have a qualifying child under the age of 17 and meet other qualifications, like the tests for support and residency. The maximum amount for the Child Tax Credit is $2,000 per qualifying child. Each qualifying child must have a Social Security Number issued by the Social Security Administration before the tax return due date, including extensions.

  • Additional Child Tax Credit

Qualifying taxpayers may take up to $1,400 of an Additional Child Tax Credit for each qualifying child under the age of 17. This credit is refundable, meaning that the credit may give you a refund even if you don’t owe any federal taxes.

  • Credit for Other Dependents

Dependents who can’t be claimed for the Child Tax Credit may still qualify for the Credit for Other Dependents of up to $500. Examples include children 17 years of age or older or parents for whom you provide 50% or more of financial support. This credit is non-refundable, meaning that it can only be used to offset tax liability. No refund is provided if taxes are not due or the credit is greater than the taxes due.

Not sure if your dependents qualify you for the Child Tax Credit, the Additional Child Tax Credit, or Credit for Other Dependents? The IRS has you covered. Use their Interactive Tax Assistant to see if you’re eligible.

Will You Owe Tax Penalties for 2018?

Tax withholding tables and tax rates changed in February 2018, due to the 2017 Tax Cuts and Jobs Act. Doing a “Paycheck Checkup” was promoted by the IRS and in the news all year to help taxpayers avoid an expensive surprise when filing their 2018 income tax returns in 2019. You’ve been meaning to Checkup on your Paycheck, but it’s already late November.

Will you have to pay a tax penalty if you owe? Maybe not…

To avoid a penalty for 2018, your tax paid or withheld must total 90% of your 2018 tax liability, or 100% of your 2017 tax liability, whichever is lower. Since 2010, the number of taxpayers assessed underpayment penalties and interest has increased by 40%, from 7.2 million a year to 10 million. Interest on unpaid amounts is calculated based on IRS rates, and accrues daily until the amount due is paid. That really adds up!

Here are four ways to avoid tax penalties:

  1. Increase tax withholdings from wages for the rest of the year by submitting a new IRS Form W-4 and a new state withholding authorization with your employer. Reducing the number of exemptions that you claim increases the amount of tax withheld. Don’t overdo it! Avoid over withholding and giving Uncle Sam an interest-free loan until you get your 2018 refund.
  2. Pay estimated taxes if you expect to owe at least $1,000, after tax withholdings and refundable credits. Estimated tax payments are normally due on April 15, June 15, September 15 and January 15 of the following year, unless the due date falls on a weekend or holiday. Paying amounts due stops the clock on 2018 interest accruals for those balances.
  3. Taxpayers who receive income unevenly during the year can make estimated tax payments as funds are earned or received. That means if most of your income comes in during the last few months of the year, you can make lower estimated tax payments earlier in the year and higher payment amounts later in the year.
  4. Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled or retired. Do your homework to see if you belong in one of these categories.

 

Think that the IRS loves to charge penalties? No! They want to help taxpayers avoid penalties. Tools are available for a Paycheck Checkup at https://www.irs.gov/paycheck-checkup.

Automation Saves Money and Time

Would your organization save money by doing more in less time, with greater accuracy? Would having complete, accurate reports available at the push of a button save time and inform decision making? Could reducing errors and identifying suspicious activity minimize financial losses?

Yes, yes and yes!

Increasing productivity, reducing errors, informing decisions and minimizing losses all happen when organizations automate their processes and controls. Automation is the single best way to effectively manage and get visibility to an organization’s finances and operations. Plus, organizations with a higher percentage of automated controls have better safeguards to protect assets and lower the risk of fraud.

Sure, automating is an investment. But the cost of the technology has come way down, while the tools have gotten more powerful. Advanced automation is now accessible even to smaller organizations, and the return on investment is high. Automation, when well-planned and implemented, not only reduces errors and identifies risk. It frees your team to focus on high-value work, keeping them interested and engaged.

Automation will not replace your team. There will always be a need for skilled financial and operations professionals to assess the results of automated reports and any anomalies that are identified. Manual processes and controls greatly enhance the opportunities for fraud and abuse to occur and go undetected, draining money from the organization. Organizations that have a high percentage of automation have a more comprehensive approach that increases confidence that organizational assets are safeguarded.

Automation allows organizations to quickly analyze huge volumes of data from multiple systems, flagging potential fraud patterns as they happen. Instead of a laborious, hands-on process of performing spot checks on random samples of data, software runs continuously in the background, doing the tedious work of scanning everything from emails to purchase orders, looking for patterns and anomalies, and flagging outliers for further investigation.

Organizations that fall into the low end of the range on the percentage of automated processes and controls should take out some time to look at the available software tools that can help crunch much more data, more thoroughly, in less time. Some options are affordable for small businesses and nonprofits. Once automated controls are in place, you’ll wonder how you ever got by without them.

 

Will the IRS Be Ready for the 2019 Tax Season?

Believe it or not, the 2019 tax season is almost here! The Internal Revenue Service has been working for months to be ready to process more than 150 million tax returns that will be filed for the 2018 tax year. Meeting the deadline could be tight — hundreds of forms, instructions, and publications required updating because of the Tax Cuts and Jobs Act, passed in December 2017.

We are still waiting to see all the new forms, but the IRS circulated a copy of the new Form 1040 to the tax community not long ago. The new 1040— about half the size of the current version— would replace the “old” Form 1040, Form 1040A and Form 1040EZ. Consolidating the three “old” versions allows all taxpayers to use the same form.

Here’s what you can expect to see on your 2018 individual income tax return:

  1. The new Form 1040 uses a “building block” approach that reduces the return to one simple form that is supplemented with additional schedules if needed. Taxpayers with simple tax situations will only file this new 1040 with no additional schedules.
  2. Several additional new schedules have been developed to supplement the new Form 1040 to report other income, adjustments, credits, and items that appeared on the longer, “old” version of the Form 1040.
  3. The new schedules are designated by numbers instead of letters. Here’s a quick overview of the new schedules and what they are for:
    • Schedule 1 is for taxpayers with additional non–wage sources of income or adjustments to income, such as IRA contributions, student loan interest, and health savings account contributions.
    • Schedule 2 is for taxpayers with additional taxes, such as alternative minimum tax or excess advance premium tax credit repayment.
    • Schedule 3 is for nonrefundable tax credits such as the foreign tax credit, education credits or residential energy credit.
    • Schedule 4 is where taxpayers will add up certain taxes, such as self-employment tax, and household employment taxes.
    • Schedule 5 is to add up tax payments, such as estimated tax payments or amounts paid with an extension.
    • Schedule 6 is used to report a foreign address or appoint a third-party designee to discuss the tax return with the IRS on your behalf.

Will the IRS be ready for the 2019 tax filing season? If changes to the Form 1040 are any indication, it could be a tight dash to the deadline. Have questions? Check out www.irs.gov or call your tax professional.

Real Estate and the New Tax Law

If you’ve been house hunting recently, you know that it’s pretty complicated. Negotiating a price and getting mortgage financing are time consuming and challenging tasks. Throw in the new Tax Cuts and Jobs Act and it’s confusing, too. The new tax law passed in December 2017 changed a lot of the rules that drive your decisions about real estate. Not knowing about the new tax rules could mean an expensive surprise derails your plans.

Not sure where to turn? Well, you’re in luck because I’m co-presenting a workshop with Arlington Community Federal Credit Union on Thursday, December 6, 2018, where all of your most complicated questions will be answered. The workshop is designed to raise the awareness of prospective and existing real estate owners about how the new tax law impacts decisions for purchasing and financing a home or rental property.

Three experienced professionals – a real estate agent, mortgage lender and tax practitioner (yes, that would be me) – share their insights based on questions and issues they encounter day-to-day with their clients. Participants are encouraged to bring their own questions about real estate purchasing, financing and related tax matters and hear what the subject matter experts have to say.

Some of the highlights we will address include:

  • The home mortgage interest deduction for purchases after December 31, 2017, is limited to $750,000 of indebtedness for first and second residences, including home equity used for home purchase/improvement. This will impact a significant percentage of taxpayers in the DC area and other relatively expensive real estate markets, like San Francisco.

 

  • The combined deduction for state and local income, sales and property taxes is limited to $10,000. This limit will significantly impact many high-income taxpayers and home owners in states with high real estate tax rates, such as New Jersey and New York.

 

  • Lower individual income tax rates reduce the tax savings aspect of home ownership. On the other hand, real estate is often an appreciating asset. With careful planning, real estate can be a great security blanket in retirement after the mortgage is paid off.

 

  • The new tax law does not impact real estate held for investment or business. No worries about the new individual tax deduction limits for mortgage interest and state/local taxes. Nice to know that some things stay the same.

 

Want to know more? Join us on Thursday, December 6, 2018, from 6:00 – 7:00 PM and learn about how the new Tax Cuts and Jobs Act impacts your real estate purchase and financing decisions. Register here: https://bit.ly/2BYekUj