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.

What to Expect from a Tax Preparer

Changes to the tax law enacted in December 2017 means we’ll be dealing with a lot of new rules this filing season. Tax filing “simplification” means that all the individual forms for 2018 look different than ever before. As a result, more taxpayers than ever before could be looking for a tax preparer, even people who have always filed their own tax returns. But just any tax preparer isn’t good enough, especially this year!

You are responsible for the contents of your tax return, even if you pay someone to prepare and file it for you. It’s essential that you engage a qualified tax preparer who has the right experience and knowledge of your tax situation. The tax industry is unregulated; anyone can hang up her or his “Tax Preparer” shingle. So how do you find a qualified tax preparer to meet your needs?

First, get referrals from colleagues, family and friends about who prepares their taxes. Ask them why they like their tax preparer. Briefly interview two or three of the tax preparers that sound like a good fit, including these three questions:

How Do You Keep Up with Changing Tax Laws?

Tax laws are constantly changing, as we know. It’s important to work with a tax professional who keeps up, so you don’t have to. Your tax preparer should describe attending conferences, webinars, or other methods she or he uses to stay current.

What are Your Experience and Credentials?

Working with a credentialed tax professional, like an Enrolled Agent or Certified Public Accountant, provides confidence that your taxes are being prepared accurately. Also ask for examples of tax situations and complex issues where she or he has experience. The answers will indicate whether your needs will be addressed.

How Do You Communicate with your Clients?

Discuss whether the tax preparer meet regularly with clients, how confidential documents are shared and stored, and whether the person is available for you if a tax-related question or issue comes up outside of “normal” tax season. Make sure you feel comfortable with the tax professional’s style, manner and process.

It’s important to have a qualified tax preparer that is prepared to meet your needs. Feeling confident and comfortable with the answers to these three questions is a good sign that your taxes will be prepared accurately and consider all the new tax rules.

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?

2018 Tax Planning – The New Tax Law Will Impact Your Return

It’s summer! Know what that means? Time at the beach? Sure! Road trip? Absolutely! Summer camp? Well, almost… Summer Camp for Tax Professionals, aka the IRS Tax Forum, just happened here in Washington, DC. It’s perfectly timed between the April and October tax filing deadlines, with a chance to learn about tax trends, changes, and issues from the IRS and experienced tax professionals.

 

Timing was better than ever this year because of all the sessions on the Tax Cuts and Jobs Act that was passed in December 2017. The 2018 IRS Tax Forum provided details about how the new tax law will impact nearly every household and business in the nation. Tax professionals also got insight on new security and compliance procedures implemented by the IRS, state agencies and tax software vendors to reduce identity theft and fraud.

 

2018 IRS Tax Forum sessions covered a range of updates and issues, including:

 

  • Changes to employer tax withholding tables that do not consider the taxpayer’s specific situation. This could result in an expensive surprise next tax filing season.
  • New qualifying dependent credits and higher income limits for taking dependent and child tax credits. These credits partially offset elimination of personal exemptions.
  • Itemized deduction limits for state-level taxes and mortgage interest.
  • Elimination of moving and miscellaneous itemized deductions.
  • Clarification about eligibility for the new Qualified Business Income deduction for Sub S Corporations and Partnership clients (i.e., pass-through businesses).
  • New requirements for Sub S Corporations and Partnerships to track and report stock and loan basis.
  • Changes to depreciation and expensing rules for business assets.

 

There’s more. Too much for one blog post. Now is a great time for every taxpayer to check into how the new tax law will impact her or his tax bill for 2018. In a few months, it will be too late to make a change.

 

If you’re up for re-visiting your tax projections yourself, there’s plenty of online help. Guidance to project taxable income, tax withholding, deductions and tax liabilities is at the IRS website, https://www.irs.gov/individuals/irs-withholding-calculator for employees and https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes for business owners.

 

Not sure you want to DIY your taxes? Want help figuring out how the Tax Cuts and Jobs Act will impact you? Get a referral for a qualified tax professional, preferably one who went to Summer Camp for Tax Professionals, aka the IRS Tax Forum.

Tax Basics for New Business

 

Today, I spoke with my absolute favorite kind of new client – a new business owner who wants to make sure she is covering all her bases when it comes to business taxes. Entrepreneurs who plan and ask for qualified professional advice have a better-than-average chance of meeting their goals.

 

All business owners need to know about taxes. All kinds of taxes: income, employment, sales and use, and property. Plus, if the business has sales or other business activities in more than one state, it has to follow the tax rules for each state. Needless to say, that involves more details than I can fit into this blog.

 

Here are the four basic tax areas that small businesses need to know:

 

  1. Income Tax

Net business income is subject to federal and state income taxes. For sole proprietors, net income is figured on Schedule C, which is part of the IRS Form 1040 for individual tax return. Net income is total business income minus the “reasonable and customary” expenses necessary to operate and sustain the business.

 

  1. Employment Tax

Payroll taxes of 15.3% must be paid on business wages or on net business income from self-employment using Schedule SE on the owner’s return. Non-owner employees must have taxes withheld and remitted to the IRS, state and Social Security Administration. Contractors to whom $600 or more is paid during the year are required to receive IRS Form 1099 to report their earnings.

 

  1. Sales Tax

State taxes are assessed on sales of products and some services, depending on the jurisdiction. Internet and mail order sales are subject to tax depending on the location of the seller and purchaser, and applicable laws. Businesses that operate in more than one jurisdiction, like my new client, must collect, report, and remit taxes in all applicable states.

 

  1. Business Property Tax

Tangible personal property used in a business is subject to property tax, usually collected at the local, or county, level. Taxed property includes furniture, machinery, tools, and all computer and peripheral equipment hardware and all operational software.

 

One business “tax” often overlooked by new businesses is a getting the appropriate business license for each jurisdiction in which it operates. Every business needs to be registered and licensed at the state and local level.

 

I am looking forward to meeting again with my new client next week. Entrepreneurs who plan and get professional advice not only meet their goals – they are fun to help.

 

TIME FOR YOUR MID-YEAR TAX CHECK-UP

Does it seem like you just took down the Christmas tree? Well, believe it or not, 2018 is half over! That means the tax year is half over, too. Only six months to avoid getting an expensive surprise when filing your taxes next year.

 

Doing a mid-year tax withholding checkup is even more important this year than it was before. Changes in the Tax Cuts and Jobs Act passed in December 2017 could impact your 2018 tax bill dramatically, depending on your family size and make-up, income level and location.

 

So what are the tax law changes that taxpayers should be aware of? Three areas are likely to make your 2018 tax bill look a lot different from 2017:

 

  1. Itemized Deductions – Deductions for state and local income, sales, and property taxes are limited to a total of $10,000. Home mortgage interest is limited on new mortgages to balances of $750,000. Deductions are eliminated for home equity interest unless used to purchase or improve a home. Non-disaster personal casualty losses, tax preparation and investment fees are eliminated. One bit of good news for high income taxpayers — the itemized deduction phase-out is eliminated.

 

  1. Personal Exemptions and Standard Deduction – The $4,050 per person personal exemption is eliminated. That will hit some families pretty hard. Losing personal exemptions hasn’t come up much in the news, but taxpayers will definitely notice when filing in 2019. Doubling the standard deduction has been a huge news headline. For example, married couples filing jointly will get a $24,000 standard deduction for 2018, instead of $12,700 for 2017. Millions of taxpayers will find that the standard deduction is more beneficial than itemizing.

 

  1. Tax Bracket – Six of seven individual tax brackets are reduced. Most taxpayers will benefit from the new rates, which range from 10% to 37%. Even after calculating the impact of losing some itemized deductions and all personal exemptions, lowering the rate results in a lower overall tax for many taxpayers. However, some taxpayers who were in the 33% marginal tax bracket will find themselves in the 35% marginal bracket in 2018. This unfavorable change will mainly affect singles and heads of households with taxable income between $200,000 and $400,000.

 

All of these changes means that it’s even more important to check on your tax withholding and plan ahead for next tax season. Tax projection calculators are available to help determine what your new income tax bill will look like. Of course, www.irs.gov is a great resource. The Tax Policy Center also posted a tool that appears easy to use – http://tpc-election-calculator.urban.org/.

 

Whichever tax calculator tool that you choose, don’t wait to do your mid-year tax withholding checkup. It will be time to put up the Christmas tree again sooner than you think!

 

 

New Qualified Business Income Deduction

Headlines about the new tax law and its impacts are daily news. Some of the tax law changes are clear and easy to understand. Other changes are incredibly unclear and difficult to interpret. One particularly ambiguous tax law change is the new deduction for “qualified business income” contained in the 2017 Tax Cuts and Jobs Act. It’s so confusing that the AICPA requested “immediate guidance” from the IRS last month.

 

The new deduction is the lesser of 20% of qualified business income or 50% of W-2 wages paid by pass-through businesses that operate as a sole proprietor (reported on Schedule C), partnership, Subchapter S Corporation, or owner of rental property (reported on Schedule E). Sounds pretty simple, but it’s really not.

 

More guidance will be coming at some point, but business owners often can’t wait to make decisions. Based on what is now known, businesses need to look closely at three considerations to know whether they are eligible to take the new qualified business income deduction:

 

  1. Excluded Businesses

Right off the bat, specified businesses are excluded from taking this new deduction. Businesses providing accounting, legal, consulting, and architect services are specifically excluded. Businesses that “rely on the skills and expertise of the owner or employees” are also excluded. That last part is certainly open to interpretation, and one of the reasons the AICPA’s requested IRS guidance.

 

  1. Income Level

The deduction of 20% of qualified business income is subject to a dollar limit, based on the owner’s filing status. For example, the dollar limit for a single individual is $157,500 and $315,000 for married couples filing a joint tax return. At first glance, this sounds pretty awesome, but required adjustments could reduce the limit.

 

  1. Wages Paid

After calculating 20% of qualified business income, compare it to 50% of total wages paid to employees. Sole proprietors don’t pay themselves wages, so this deduction is not available to them unless they pay wages to employees. Remember, it’s a “lesser of” situation, so if one option is zero, no deduction. Understanding the type of business entity and how workers are paid is essential to getting this right.

 

The number of complexities and variables to consider about qualified business income and the new tax deduction for pass-throughs are too long and dense to cover here. Plus, the IRS still needs to issue guidance to help business owners — and their accountants – make informed decisions and file their taxes next year. So stay tuned!

New Tax Withholdings

The IRS issued new tax withholding tables for employers in January 2018, designed to reflect the new tax law passed in December 2017. By now, you’ve probably seen the results in a higher net paycheck. Seems like a pretty nice deal. But will you feel the same way next tax season?

 

The new tax withholding tables may not account for all of your income and deductions, which could result in under- or over-withholding income taxes compared to your tax liability. You could end up giving the government an interest-free loan — your refund. Or, you could end up having to pay a chunk of money when you file. You could even owe interest and penalties!

 

How can you avoid all of that? Compare your withholdings and any estimated tax payments to your projected tax liability. More easily said than done.

 

You have two options for verifying that your taxes are covered for next tax season:

 

  1. Do It Yourself (DIY)

Most people have all the information needed to figure out if their tax withholdings are enough to cover their tax liability. Pay stubs or online pay information reflect how much you earn and have withheld each pay period and year-to-date. Apply a little arithmetic to the pay information, and you can figure out your income and withholdings for the year. Have a completed copy of your most recent tax return handy. Information on that return can help you estimate income and other items for 2018.

 

It’s really important to know about the new tax law changes to estimate your 2018 income and deductions. To help with that, the IRS published a Withholding Calculator at https://www.irs.gov/payments/tax-withholding so taxpayers can make sure they have the right amount of withholding.

 

  1. Get Professional Help

No, not that kind of professional help. I mean help from a tax professional. The IRS Tax Calculator may be a great tool for taxpayers with simple situations. People with more complicated financial situations might need to meet with a tax preparer to get insight on how 2018 will differ from 2017 because of the new tax law. Sure, you’ll pay a fee for that service, but peace of mind is extremely valuable.

 

Avoid expensive surprises next tax season by figuring out now whether your tax withholdings will cover your 2018 income tax liability. Whether you Do It Yourself or get help from a tax professional, you’ll have peace of mind that your taxes are covered.