All posts by Denise

Tax Consequences for Self-Employed Individuals

Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming.

Business owners have many choices to make, and these decisions involve tax consequences that are not always foreseen. We can help you minimize your overall tax burden by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and exploring tax planning alternatives that are uniquely available to the self-employed.

Some frequently overlooked business expenses that you may be able to deduct include moving expenses, costs of travel away from home, entertainment expenses, and expenses related to a home office. Code Sec. 179 expense allowances on the purchase of new equipment can provide a significant deduction. In addition, there are multiple benefits when you employ your spouse, child, or other family member in the business.

There are some risks involved in adopting tax positions related to operating a business as an independent contractor. For example, the distinction between employee and independent contractor is an issue the IRS subjects to special scrutiny. As a self-employed individual, you must comply with these rules for yourself or for any workers that you hire.

If you are an employer, you must withhold income and employment taxes from an employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC, Miscellaneous Income. Failing to make the right classification, however, could result in additional taxes, interest and penalties.

The IRS offers an amnesty program called the Voluntary Classification Settlement Program (VCSP) to encourage employers to reclassify their workers as employees for employment tax purposes for future tax periods. Under the VCSP, employers are allowed to prospectively treat the workers as employees at a cost that is 10 percent of what is normally owed in a worker misclassification situation.

Complex rules and calculations are involved in many of the planning opportunities that are available to you. We will be happy to review your overall tax scenario in order to maximize your tax savings. Please contact our office at your earliest convenience to make an appointment.

Tax Issues for Higher-Income Individuals

We know that you have worked hard for your money and would like to reap the benefits to the greatest extent possible. Your ultimate goal is to sustain a successful wealth-building strategy while avoiding unnecessary and expensive tax consequences. We are interested in helping you achieve these objectives.

For the last few years, there has been talk of major tax reform that would place an increased tax burden on higher income individuals. President Trump proposed a tax reform plan that would reduce individual tax rates, abolish the alternative minimum tax (AMT) and federal estate tax, and more. Individual rates under the President’s proposal would be 10, 25 and 35 percent. At the same time, the President proposed to double the standard deduction and protect the home ownership and charitable gift tax deductions. The President also proposed to provide unspecified tax relief to families with children and dependents. The President’s proposal calls for a 15 percent corporate tax rate. The 15 percent rate would also be available to small and mid-size pass-through businesses, White House officials said.

Further, the President called for elimination of unspecified tax breaks for special interests. Democrats in Congress said the President’s plan favored high-income taxpayers and did not deliver enough tax breaks to lower and middle-income taxpayers. As tax reform moves into the latter half of 2017, the chances of a retroactive tax cut to include the 2017 tax year are lessened but not entirely removed from consideration. Tax planning for the balance of the year therefore should remain flexible.

Some of the issues that may impact your tax planning strategy for 2017 include:

  • your marginal tax rate;
  • personal exemption and itemized deduction phaseouts;
  • additional 0.9 percent Medicare tax on wages and self-employment income over threshold amounts;
  • net investment income tax of 3.8 percent for taxpayers with modified AGI exceeding threshold amounts;
  • a capital gain rate of 20 percent for taxpayers in the highest tax bracket;
  • gain exclusion for small business stock held for more than 5 years;
  • foreign account disclosure and reporting requirements and related enforcement penalties;
  • in-service rollovers to designated Roth accounts without the imposition of a 10-percent additional tax on early distributions;
  • IRA distributions to charity of up to $100,000;
  • strict rules about deducting passive activity losses (PALs); and
  • alternative minimum tax (AMT).

As you can see, the more complex issues faced by higher-income individuals create a challenging planning environment for the 2017 tax filing season.

 

Credit breach

Howdy! I’ve compiled this post in hopes it helps our clients who may be impacted by the recent Equifax security breach… I’m not a financial advisor nor an expert in all things credit. But I’ve been doing a lot of research and wanted to share with you what I’ve learned! 

— Denise

By now you probably have heard about the big security breach of Equifax, where some 143 million credit records were potentially stolen. And by “credit records” I mean Social Security, driver’s license and credit card numbers.

Do you know if you’re one of those “lucky” 143 million people? If not, I highly recommend you visit https://www.equifaxsecurity2017.com to find out. Scroll to the bottom of the page and choose, “Potential Impact” which will take you to this screen:

Click “Potential Impact” one more time. It’ll take you to this screen, where you need to fill out two simple things: your last name and the last six digits of your social security number. Note: if you’ve recently gotten married and are going by your spouses’ last name, but you’ve not filed a name change with anyone yet, you’ll want to put your maiden name.

Now, hope you DON’T get this message:

But if you do, congratulations! Your credit is at risk. Oh wait, that’s not something to be happy about. Sorry…

So… now what?

Well, you have a lot of options, including do nothing – but that’s not the option I’d recommend.

First off, Equifax is offering free enrollment in their “Trusted ID Premier.” Now, granted, a part of me is leery of trusting the guys who put me at risk to now keep me safe, but it’s SOMETHING. TransUnion and Experian offer similar programs.

By the way, as if this couldn’t get any better, scammers are also sending phishing emails trying to get information by posing as the credit bureaus wanting to help you. So make sure you double and triple check anything you get in email for its legitimacy.

Speaking of the other two bureaus, though, this is an excellent reminder to check your credit reports! Did you know you get to check them for free once a year? I knew that, but I just never actually do it. Shame, shame, right? Especially since its FREE, and it could save me a lot of heartache down the road when I want to apply for a mortgage or buy a new vehicle.

Head on over to annualcreditreport.com and request your credit reports. Now, keep in mind, I did this yesterday, and due to the volume of traffic to Equifax’s site, I could not pull that one. But I did get to review my other two credit reports.

IF YOU FIND SOMETHING… you need to take the steps to get any incorrect information removed. If you suspect Identity Theft, head over to IdentityTheft.gov. Otherwise, you’ll need to start the process of contacting the credit bureaus and having things removed. All the information how to do this is on all three credit bureau’s websites. (Equifax, Experian, Transunion) I’ve had to do this once, and it was a simple letter submitted to the credit bureau that took care of everything. I think you can do it online now, though. It’s not hard, its just time consuming. You’ll need to have patience as you go through this.

Many people I know are choosing to put a freeze on their credit.

What does this mean? Well, I’m glad you asked because I asked the SAME THING.

Directly from the FTC website:

“Also known as a security freeze, this tool lets you restrict access to your credit report, which in turn makes it more difficult for identity thieves to open new accounts in your name. That’s because most creditors need to see your credit report before they approve a new account. If they can’t see your file, they may not extend the credit.” https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

Important things to note: a credit freeze does not stop you from using your current lines of credit, nor does it stop thieves from stealing current credit information. So you’ll still need to monitor your current credit card statements and bank statements for fraudulent charges. Like that person who decided to try to buy $500 worth of clothes in a boutique in Florida, but luckily your card is maxed out already so they were declined but you still need to destroy your current card and get a new one. Oh wait, that was me. But you get the idea.

SO how do you freeze your credit? Well, you’ll have to contact ALL THREE credit bureaus to do so. Also from the FTC:

Equifax — 1-800-349-9960
Experian — 1 888 397 3742
TransUnion — 1-888-909-8872

You’ll need to supply your name, address, date of birth, Social Security number and other personal information. Fees vary based on where you live, but commonly range from $5 to $10.

After receiving your freeze request, each credit reporting company will send you a confirmation letter containing a unique PIN (personal identification number) or password. Keep the PIN or password in a safe place. You will need it if you choose to lift the freeze.

Keep in mind, freezing credit won’t be the answer for everyone. If you know you’re about the buy a house, need to set up utilities at a new home or apartment, or perhaps your job requires checking your credit (yeah, that happens), you may want to think twice about it. While you can thaw your credit when you need it, you could be looking at expense and time lost doing so…

If you do not freeze your credit, what else can you do?

Keep a close watch in your credit.

Many credit cards offer credit score updates and credit monitoring as part of their services. For example, Capital One offers CreditWise, Discover offers a FICO Credit Scorecard (and recently started offering credit monitoring), Bank of America and Chase also offer FICO monitoring. Many include it in their apps, so you can check your credit from your phone regularly. While this may not be as pro-active as a credit freeze, it’ll allow a faster response and resolution to any identity theft issues.

FILE YOUR TAX RETURN EARLY.

You knew we’d get to this eventually, right?

Look, we’ve dealt with many clients who have had identity theft happen. We’ve dealt with clients whose CHILDREN have had identity theft happen. This is not fun for anyone! Suddenly your tax return is being rejected. You can’t claim your dependents because someone else already did. And now you have to file a paper return, and you need special PIN numbers and… oh my goodness it’s a headache for all involved.

So that’s why we urge anyone potentially impacted by this breach to plan on filing their tax return as early as possible in 2018. The sooner you file, the less likely it is that a thief can file a fraudulent return under your name and SSN to claim a refund. It’s not a guarantee, but its worth trying.

There are countless articles coming out daily with advice on how to handle this Equifax breach. Keep on top of those articles through Google News here: https://news.google.com/news/search/section/q/equifax/equifax?hl=en&ned=us

In this modern technology-driven age we’re facing these sort of security breaches and invasions of privacy all the time. I’m certainly not an expert on all of this, but I’ve been trying to keep up with the latest and hope this post helps our clients at least have a place to start in dealing with this issue.

Declared Natural Disasters and Emergencies Tax Help

When natural disasters occur, as has happened recently with Hurricanes Harvey and Irma, the last thing you want to stress over is filing taxes. The Comptroller’s office understands, and they have compiled information for evacuees and relief workers on how to request an extension for reporting and paying taxes.

Follow this link to see all your options if you are one of the thousands affected:

https://comptroller.texas.gov/taxes/resources/disaster-relief.php

 

New phone scam warning from the IRS


The Internal Revenue Service today warned people to beware of a new scam linked to the Electronic Federal Tax Payment System (EFTPS), where fraudsters call to demand an immediate tax payment through a prepaid debit card. This scam is being reported across the country, so taxpayers should be alert to the details.

In the latest twist, the scammer claims to be from the IRS and tells the victim about two certified letters purportedly sent to the taxpayer in the mail but returned as undeliverable. The scam artist then threatens arrest if a payment is not made through a prepaid debit card. The scammer also tells the victim that the card is linked to the EFTPS system when, in fact, it is entirely controlled by the scammer. The victim is also warned not to contact their tax preparer, an attorney or their local IRS office until after the tax payment is made.

“This is a new twist to an old scam,” said IRS Commissioner John Koskinen. “Just because tax season is over, scams and schemes do not take the summer off. People should stay vigilant against IRS impersonation scams. People should remember that the first contact they receive from IRS will not be through a random, threatening phone call.”

EFTPS is an automated system for paying federal taxes electronically using the Internet or by phone using the EFTPS Voice Response System. EFTPS is offered free by the U.S. Department of Treasury and does not require the purchase of a prepaid debit card. Since EFTPS is an automated system, taxpayers won’t receive a call from the IRS. In addition, taxpayers have several options for paying a real tax bill and are not required to use a specific one.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add “IRS Telephone Scam” in the notes.

For anyone who owes tax or thinks they do:

The IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds.

For more information, visit the “Tax Scams and Consumer Alerts” page on IRS.gov. Additional information about tax scams is available on IRS social media sites, including YouTube videos.

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Information from :  https://www.irs.gov/uac/newsroom/irs-warns-of-new-phone-scam-involving-bogus-certified-letters-reminds-people-to-remain-vigilant-against-scams-schemes-this-summer

Making mileage tracking easier

One of the biggest struggles we find as tax preparers is helping clients track their mileage each year. It’s hard to remember when you get in your vehicle to write down your mileage! However, writing off business or medical mileage is a great way to help you save on your tax bill.

Earlier last year, we were given the opportunity to test the unlimited version of the smartphone app MileIQ for possible promotion as a way to help our clients track their mileage. Having tested other apps and finding the lacking, we accepted the offer somewhat skeptically.

Much to our (pleasant!) surprise, we were presented a solid app that helps us track our mileage without even thinking about it.

So how does it work?

MileIQ runs in the background of your smartphone at all times and it detects when you’re traveling and where you travel through GPS technology. It does the majority of work for you. All you have to do is classify drives afterwards as personal or business with the swipe of your finger. You can further classify drives as what you were doing exactly (for example, shopping, doctors visits, client visits, meetings, etc.) and what vehicle you were in, if you have multiple vehicles.

You can choose to have the app send you a notification when you have drives to categorize, or you can just remember periodically to go back into your app and doing several days worth of drives at once.

As you categorize drives, you’ll see a running total at the top of the screen as to how much money you’ve “made” driving, and how many miles you’ve gone over time. At the end of the year, you can run a log of the year to submit with your taxes.

It’s without a doubt the most simple and efficient way we have personally found for logging mileage.

Now keep in mind, all good things do come at a cost. There is a free version of this application available, but it limits the number of drives it will log for you in a month. So if you travel a lot, the free version will leave you hanging… especially when you realize you could have multiple drives in a day.

The unlimited version costs $59.99 per year, or $5.99 a month. But as our client, we can offer you a 20% discount off the yearly plan if you use promo code MSCH227A.

MileIQ is available for both iPhone and Android systems.

 Disclaimer: We received this product for free in exchange for an unbiased review and promotion to our clients. The opinions and all statements in this review are 100% our own, and we do not receive compensation for this review.

2016 Year-End Tax Planning for Individuals

 

Although tax planning is a 12-month activity, year-end is traditionally the time to review tax strategies from the past and to revise them for the future. Year-end has also become a time when there is an increasing need to take a careful look at what’s changed within the tax law itself since the beginning of the year. Opportunities and pitfalls within these recent changes – as they impact each taxpayer’s unique situation—should not be overlooked. This is particularly the case during year-end 2016. Here are some of the many consideration that taxpayers should review as year-end 2016 approaches.

Data, including 2015 return

Year-end planning should start with data collection and a review of prior year returns. This includes losses or other carry-overs, estimated tax installments, and items that were unusual. Conversations about next year should include review of any plans for significant purchases or dispositions, as well as any possible life changes. Alternative minimum tax liability also needs to be explored as well as potential liability for the net investment income tax and the Additional Medicare Tax.

Investments

Taxpayers holding investments toward the end of the year, whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling (or like-kind exchanging). Balancing the existing tax rates within those considerations is part of that challenge: the ordinary income tax rates, the capital gain rates, the net investment income tax rate, and the alternative minimum tax (AMT), all play a role.

Income caps on benefits

Monitoring adjusted gross income (AGI) at year-end can also pay dividends in qualifying for a number of tax benefits. Often tax savings can be realized by lowering income in one year at the expense of realizing a bit more in the other: in this case, either 2016 or 2017. Some of those tax benefits that get phased out depending upon the taxpayer’s AGI level include:

  • itemized deductions
  • personal exemptions
  • education savings bond interest exclusion
  • maximum child’s income on parent’s return (form 8814):
  • medical savings account adjustments
  • education credits
  • student loan interest deduction
  • adoption credits
  • maximum Roth IRA contributions
  • maximum IRA contributions for individuals

PATH Act “extenders” and more

Year to year, the tax law changes; and with it, opportunities and pitfalls that need particular attention at year-end. In many cases, these changes are accounted for based on a tax-year period. Once the current tax year is over, there often is no going back for a “do-over” for a missed opportunity or to correct a costly mistake. Year-end 2016 is no exception to this rule.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted immediately before the start of 2016, permanently extended many tax incentives that were previously temporary, removing for the first time in many years the year-end concern over whether these incentives will be extended either retroactively for the current year or prospectively into the coming year. Not all of these “extenders” provisions were extended beyond 2016, however; and some were modified in the process. Others were extended for up to five years, deferring to “tax reform” a more lasting solution. Here’s a list of the major changes made by the PATH Act, especially focused on how they impact year-end transactions:

  • permanent American Opportunity Tax Credit
  • permanent teachers’ $250 “classroom” expense deduction
  • permanent state and local sales tax deduction election, in lieu of state income taxes
  • permanent exclusion for direct charitable donation of IRA funds of up to $100,000
  • permanent 100-percent gain exclusion on qualified small business stock
  • permanent conservation contributions benefits
  • five-year solar energy property
  • non-business energy property credit through 2016
  • fuel cell motor vehicle credit through 2016
  • mortgage insurance premium deduction through 2016
  • tuition and fees deduction through 2016

Life events

Life events such as marriage, birth or adoption of a child, a new job or the loss of a job, and retirement, all impact year-end tax planning. A change in filing status will affect tax liability. The possibility of significant changes and/ or significant or unusual items of income or loss should be part of a year-end tax strategy. Additionally, taxpayers need to take a look into the future, into 2017, and predict, if possible, any events that could trigger significant income, losses or deductions.

Retirement strategies

Taxpayers may want to take a look at a number of different provisions in anticipation of retirement, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines associated with the concept of taxable year. Among others, these include contributions to employer plans, strategic use of IRAs and “required minimum distributions,” and timing Roth IRA conversions and reconversions to maximize your retirement nest egg.

Affordable Care Act compliance

The Affordable Care Act (ACA) imposes new requirements on individuals and tightens or eliminates some tax incentives. Year-end planning for individuals with regards to the ACA may generally be more prospective than retrospective but there are some year-end moves that may be valuable, particularly with health-related expenditures.

Acceleration or delay

Year-end tax planning, especially if done “at the eleventh hour,” requires some understanding of the timing rules: when income becomes taxable and when it may be deferred; and, likewise, when a deduction or credit is realized and when it may be deferred into next year or beyond.

Income acceleration/deferral. Taxpayers using the cash method basis of accounting can defer or accelerate income using a variety of strategies. These may include:

  • sell appreciated assets
  • receive bonuses before January
  • sell outstanding installment contracts
  • redeem U.S. Savings Bonds
  • accelerate debt forgiveness income
  • avoid mandatory like-kind exchange treatment

Deduction acceleration/deferral. A cash basis taxpayer generally deducts an expense in the year it is paid, although prepayment of an expense generally will not accelerate a deduction. There are exceptions, including those made in connection with:

  • January mortgage payment in December
  • tuition prepayment
  • estimated state taxes

A New Administration

When the new Administration moves into Washington in January 2017, it is clear that changes will follow. How these changes will impact upon your long-term tax situation remains to be developed. That, and an eventual groundswell for tax reform, make the future more difficult to read than in prior years. Nevertheless, in looking toward the future, you should not lose sight of the short-term tax dollars to be saved immediately through 2016 year-end strategies.

Our tax laws operate largely within the confines of “the taxable year.” Once 2016 is over, tax savings that are specific to 2016 may be gone forever.

October Tax Insight Newsletter

October Newsletter — All about the Amended Tax Return.  Sometimes it is necessary to make changes to a return after you file it… this is where an amended return comes in. Find out more in this month’s newsletter!

September Newsletter — IP PIN

August Newsletter — Deductions

July Newsletter — Mid-Year Tax Planning

June Newsletter — Home Sales

Major Changes to FAFSA

The Free Application for Federal Student Aid (known as the FAFSA) is a form that current and prospective college students (undergraduate and graduate) use to determine their eligibility for student financial aid.

There are two major changes to this program:

  1. The 2017–18 FAFSA will be available earlier. The 2017–18 FAFSA can be filed as early as October 1, 2016, rather than beginning on January 1, 2017. The earlier submission date will be a permanent change.
  2. FAFSA will accept earlier income and tax information. Beginning with the 2017–18 FAFSA, the program will request the 2015 income and tax information, rather than the 2016 information.