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November 2020

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Tax Tips

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Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Tax Preparation vs. Tax Planning

Many people assume tax planning is the same as tax preparation, but the two are quite different. Let's take a closer look:

What is Tax Preparation?

Tax preparation is the process of preparing and filing a tax return. Generally, it is a one-time event that culminates in signing your return and finding out whether you owe the IRS money or will be receiving a refund.

For most people, tax preparation involves one or two trips to your accountant (CPA), generally around tax time (i.e., between January and April), to hand over any financial documents necessary to prepare your return and then to sign your return. They will also make sure any tax reporting on your return complies with federal and state tax law.

Alternately, Individual taxpayers might use an enrolled agent, attorney, or a tax preparer who doesn't necessarily have a professional credential. For simple returns, some individuals prepare tax returns themselves and file them with the IRS. No matter who prepares your tax return, however, you expect them to be trustworthy (you will be entrusting them with your personal financial details), skilled in tax preparation, and to accurately file your income tax return in a timely manner.

What is Tax Planning?

Tax planning is a year-round process (as opposed to a seasonal event) and is a separate service from tax preparation. Both individuals and business owners can take advantage of tax planning services, which are typically performed by a CPA and accounting firm or an Enrolled Agent (EA) with in-depth experience and knowledge of tax law, rather than a tax preparer.

Examples of tax planning include the following: Bunching expenses (e.g., medical) to maximize deductions, tax-loss harvesting to offset investment gains, increasing retirement plan contributions to defer income, and determining the best timing for capital expenditures to reap the tax benefits. Good recordkeeping is also an important part of tax planning and makes it easier to pay quarterly estimated taxes, for example, or prepare tax returns the following year.

Tax planning is something that most taxpayers do not take advantage of - but should - because it can help minimize their tax liability on next year's tax return by planning ahead. While it may mean spending more time with an accountant, say quarterly - or even monthly - the tax benefit is usually worth it. By reviewing past returns, an accountant will have a more clear picture of what you can do this year to save money on next year's tax return.

If you're ready to learn more about what strategies you can use to reduce your tax bill next year, please call the office.

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Individual Taxpayers: Year-End Tax Planning Strategies

With the end of the year fast approaching, now is the time to take a closer look at tax planning strategies you can use to minimize your tax burden for 2020.

General Tax Planning Strategies

General tax planning strategies for individuals include accelerating or deferring income and deductions, as well as careful consideration of timing-related tax planning strategies concerning investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following strategies:

Investments. Selling any investments on which you have a gain (or loss) this year. For more on this, see Investment Gains and Losses, below.

Year-end bonus. If you anticipate an increase in taxable income this year, in 2020, and are expecting a bonus at year-end, try to get it before December 31.

Contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2021 tax return in 2022. Don't hesitate to call the office if you have any questions about this.

Charitable deductions. Bunching charitable deductions (scroll down to read more about charitable deductions) every other year is also a good strategy if it enables the taxpayer to get over the higher standard deduction threshold under the Tax Cuts and Jobs Act of 2017 (TCJA). Another option is to put money into a donor-advised fund that enables donors to make a charitable contribution and receive an immediate tax deduction. The fund is managed by a public charity on behalf of the donor, who then recommends how the money is distributed over time. Please call if you would like more information about donor-advised funds.

Under the CARES Act of 2020, this year (2020) eligible individuals may take an above-the-line deduction of up to $300 in cash for charitable contributions made to qualified charitable organizations. Cash contributions are those that are paid with cash, check, electronic fund transfer, or payroll deduction. Taxpayers can claim the deduction even if they do not itemize on their 2020 taxes.

Medical expenses. Medical expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI), therefore, you might pay medical bills in whichever year they would do you the most tax good. To deduct medical and dental expenses in 2020, these amounts must exceed 7.5 percent of AGI. By bunching medical expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing the deduction.

Deductible expenses such as medical expenses and charitable contributions can be prepaid this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid. Likewise, with checks. For example, if you charge a medical expense in December but pay the bill in January, assuming it's an eligible medical expense, it can be taken as a deduction on your 2020 tax return.

Stock options. If your company grants stock options, then you may want to exercise the option or sell stock acquired by exercising an option this year. Use this strategy if you think your tax bracket will be higher in 2021. Generally, exercising this option is a taxable event; the sale of the stock is almost always a taxable event.

Invoices. If you're self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December; however, make sure you keep an eye on estimated tax requirements. Conversely, if you anticipate a lower income next year, consider deferring sending invoices to next year.

Withholding. If you know you have a set amount of income coming in this year that is not covered by withholding taxes, there is still time to increase your withholding before year-end and avoid or reduce any estimated tax penalty that might otherwise be due.

Avoid the penalty by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

Accelerating or Deferring Income and Deductions

Strategies that are commonly used to help taxpayers minimize their tax liability include accelerating or deferring income and deductions. Which strategy you use depends on your current tax situation.

Most taxpayers anticipate increased earnings from year to year, whether it's from a job or investments, so this strategy works well. On the flip side, however, if you anticipate a lower income next year or know you will have significant medical bills, you might want to consider deferring income and expenses to the following year.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2020, depending on your situation. Roth IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest are examples of these types of tax benefits.

Accelerating income into 2020 is also a good idea if you anticipate being in a higher tax bracket next year. This is especially true for taxpayers whose earnings are close to threshold amounts that make them liable for the Additional Medicare Tax or Net Investment Income Tax ($200,000 for single filers and $250,000 for married filing jointly). See more about these two topics, below.

Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8 percent of net investment income) should pay close attention to "one-time" income spikes such as those associated with Roth conversions, sale of a home or any other large asset that may be subject to tax.

Examples of accelerating income include:

  • Paying an estimated state tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.

  • Paying your entire property tax bill, including installments due in 2021, by year-end. This does not apply to mortgage escrow accounts.

  • A prepayment of anticipated real property taxes that have not been assessed prior to 2021 is not deductible in 2020.

    Under TCJA, the deduction for state and local taxes (SALT) was capped at $10,000. Once a taxpayer reaches this limit the two strategies above are not effective for federal returns.

  • Paying 2021 tuition in 2020 to take full advantage of the American Opportunity Tax Credit, an above-the-line tax credit worth up to $2,500 per student that helps cover the cost of tuition, fees, and course materials paid during the taxable year. Forty percent of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

Additional Medicare Tax

Taxpayers whose income exceeds certain threshold amounts ($200,000 single filers and $250,000 married filing jointly) are liable for an additional Medicare tax of 0.9 percent on their tax returns but may request that their employers withhold additional income tax from their pay to be applied against their tax liability when filing their 2020 tax return next April.

As such, high net worth individuals should consider contributing to Roth IRAs and 401(k) because distributions are not subject to the Medicare Tax. Also, if you're a taxpayer who is close to the threshold for the Medicare Tax, it might make sense to switch Roth retirement contributions to a traditional IRA plan, thereby avoiding the 3.8 percent Net Investment Income Tax (NIIT) as well (more about the NIIT below).

Alternate Minimum Tax

The alternative minimum tax (AMT) applies to high-income taxpayers that take advantage of deductions and credits to reduce their taxable income. The AMT ensures that those taxpayers pay at least a minimum amount of tax and was made permanent under the American Taxpayer Relief Act (ATRA) of 2012. Furthermore, the exemption amounts increased significantly under the Tax Cuts and Jobs Act of 2017 (TCJA), and the AMT is not expected to affect as many taxpayers. Also, in 2020 the phaseout threshold increased to $518,400 ($1,036,800 for married filing jointly). Both the exemption and threshold amounts are indexed for inflation.

AMT exemption amounts for 2020 are as follows:

  • $72,900 for single and head of household filers,

  • $113,400 for married people filing jointly and for qualifying widows or widowers,

  • $56,700 for married people filing separately.

Charitable Contributions

Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

Keep in mind that a written record of your charitable contributions - including travel expenses such as mileage - is required to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check, or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a canceled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

In addition to the $300 above the line deduction for taxpayers that don't itemize (see above), taxpayers who do itemize deductions can take advantage of another provision in the CARES Act that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI) - but only for tax year 2020. In 2019, the limit for the deduction for cash contributions was 60% of AGI.

Qualified charitable distributions (QCDs). Taxpayers who are age 70 1/2 and older can reduce income tax owed on required minimum distributions (RMDs) - a maximum of $100,000 or $200,000 for married couples - from IRA accounts by donating them to a charitable organization(s) instead. Eligible taxpayers can take advantage of QCDs even though the CARES Act eliminated the requirement for required minimum distributions for 2020.

Starting in 2020, the age at which taxpayers are required to take minimum distributions from IRAs, SIMPLE IRAs, SEP IRAs, or other retirement plan accounts was raised to age 72. In prior years, the age was 70 1/2.

Investment Gains and Losses

Investment decisions are often more about managing capital gains than about minimizing taxes. For example, taxpayers below threshold amounts in 2020 might want to take gains; whereas taxpayers above threshold amounts might want to take losses.

Fluctuations in the stock market are commonplace; don't assume that a down market means investment losses as your cost basis may be low if you've held the stock for a long time.

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term capital gains, which are taxed as ordinary income (i.e., the rate is the same as your tax bracket).

In 2020 tax rates on capital gains and dividends remain the same as 2019 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have been adjusted for inflation as follows:

  • 0% - Maximum capital gains tax rate for taxpayers with income up to $40,000 for single filers, $80,000 for married filing jointly.
  • 15% - Capital gains tax rate for taxpayers with income above $40,000 for single filers, $80,000 for married filing jointly.
  • 20% - Capital gains tax rate for taxpayers with income above $441,450 for single filers, $496,600 for married filing jointly.

Where feasible, reduce all capital gains and generate short-term capital losses up to $3,000. As a general rule, if you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) can be claimed as a deduction against income.

Wash Sale Rule. After selling a securities investment to generate a capital loss, you can repurchase it after 30 days. This is known as the "Wash Rule Sale." If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., and ETF or another mutual fund with the same objectives as the one you sold.

If you have losses, you might consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free; your original investment is restored, and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Net Investment Income Tax (NIIT)

The Net Investment Income Tax, which went into effect in 2013, is a 3.8 percent tax that is applied to investment income such as long-term capital gains for earners above a certain threshold amount ($200,000 for single filers and $250,000 for married taxpayers filing jointly). Short-term capital gains are subject to ordinary income tax rates as well as the 3.8 percent NIIT. This information is something to think about as you plan your long-term investments. Business income is not considered subject to the NIIT provided the individual business owner materially participates in the business.

Mutual Fund Investments

Before investing in a mutual fund, ask whether a dividend is paid at the end of the year or whether a dividend will be paid early in the following year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Action: You invest $20,000 in a mutual fund in 2019. You opt for automatic reinvestment of dividends, and in late December of 2019, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested.

Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund's long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period.

The mutual fund's distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these will be reported to you as "ordinary dividends" that don't qualify for relief.

Depending on your financial circumstances, it may or may not be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date. To find out a fund's ex-dividend date, call the fund directly.

Please call if you'd like more information on how dividends paid out by mutual funds affect your taxes this year and next.

Year-End Giving To Reduce Your Potential Estate Tax

The federal gift and estate tax exemption is currently set at $11.58 million but increases to $11.70 million in 2021. The maximum estate tax rate is set at 40 percent.

Gift Tax. Sound estate planning often begins with lifetime gifts to family members. In other words, gifts that reduce the donor's assets subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax.

Gifts to a donee are exempt from the gift tax for amounts up to $15,000 a year per donee in 2020 and remain the same for 2021.

An unused annual exemption doesn't carry over to later years. To make use of the exemption for 2020, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $30,000 ($15,000 each). Though what's given may come from either you or your spouse or both of you, both of you must consent to such "split gifts."

Gifts of "future interests," assets that the donee can only enjoy at some future period such as certain gifts in trust, generally don't qualify for exemption; however, gifts for the benefit of a minor child can be made to qualify.

If you're considering adopting a plan of lifetime giving to reduce future estate tax, don't hesitate to call the office for assistance.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.

You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings and built-in gain on the sale.

Gift tax returns for 2020 are due the same date as your income tax return (April 15, 2021). Returns are required for gifts over $15,000 (including husband-wife split gifts totaling more than $15,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $15,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed." Please call the office if you're considering making a gift of property whose value isn't unquestionably less than $15,000.

Tax Rate Structure for the Kiddie Tax

The kiddie tax rules changed under the TCJA. For tax years 2018 through 2025, unearned income exceeding $2,200 is taxed at the rates paid by trusts and estates instead of the parent’s tax rate. For ordinary income (amounts over $12,950), the maximum rate is 37 percent. For long-term capital gains and qualified dividends, the maximum rate is 20 percent.

Exception. If the child is under age 19 or under age 24 and a full-time student and both the parent and child meet certain qualifications, then the parent can include the child's income on the parent's tax return.

Other Year-End Moves

Roth Conversions. Converting to a Roth IRA from a traditional IRA would make sense if you've experienced a loss of income (lowering your tax bracket) or your retirement accounts have decreased in value. Please call if you would like more information about Roth conversions.

Maximize Retirement Plan Contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. It doesn't need to be funded until you pay your taxes, but allowable contributions will be deductible on this year's return.

If you are an employee and your employer has a 401(k), contribute the maximum amount ($19,500 for 2020), plus an additional catch-up contribution of $6,500 if age 50 or over, assuming the plan allows this, and income restrictions don't apply.

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $6,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over.

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the amount of excess over 10 percent of AGI). For amounts withdrawn at age 65 or later not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and you must not be enrolled in Medicare. For 2020, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,400 for self-only coverage or $2,800 for family coverage.

529 Education Plans. Maximize contributions to 529 plans, which can now be used for elementary and secondary school tuition as well as college or vocational school.

Don't Miss Out.

Implementing these strategies before the end of the year could save you money. If you are ready to save money on your tax bill, please contact the office today.

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Year-End Tax Planning Strategies for Business Owners

Several end-of-year tax planning strategies are available to business owners that can be used to reduce their tax liability. Let's take a look:

Deferring Income

Businesses using the cash method of accounting can defer income into 2021 by delaying end-of-year invoices so that payment is not received until 2021. Businesses using the accrual method can defer income by postponing the delivery of goods or services until January 2021.

Purchase New Business Equipment

Bonus Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property such as machinery and equipment that is placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

The first-year 100% bonus depreciation deduction is available for qualifying assets even if they are placed in service for only a few days in 2020.

Section 179 Expensing. Businesses should take advantage of Section 179 expensing this year whenever possible. In 2020, businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $1.04 million of the first $2.59 million of property placed in service by December 31, 2020. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.59 million threshold and eliminated above amounts exceeding $3.63 million.

Computer or peripheral equipment placed in service after December 31, 2017, are not included in listed property.

Qualified Property. Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

Taxpayers can also elect to include certain improvements made to nonresidential real property after the date of when the property was first placed in service.

1. Qualified improvement property refers to any improvement to a building's interior; however, improvements do not qualify if they are attributable to:

  • the enlargement of the building,
  • any elevator or escalator or
  • the internal structural framework of the building.

2. Roofs, HVAC, fire protection systems, alarm systems and security systems.

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Real estate qualified improvement property is eligible for immediate expensing, thanks to the CARES Act, which corrected an error in the Tax Cuts and Jobs Act. Taxpayers are also able to amend 2018 tax returns, if necessary.

Please contact the office if you have any questions regarding qualified property.

Other Year-End Moves to Take Advantage Of

Qualified Business Income Deduction. Many business taxpayers - including owners of businesses operated through sole proprietorships, partnerships, and S corporations, as well as trusts and estates, may be eligible for the qualified business income. This deduction is worth up to 20 percent of qualified business income (QBI) from a qualified trade or business for tax years 2018 through 2025. Your taxable income must be under $163,300 ($326,600 for joint returns)in 2020 to take advantage of the deduction.

The QBI is complex, and tax planning strategies can directly affect the amount of deduction, i.e., increase or reduce the dollar amount. As such, it is especially important to speak with a tax professional before year's end to determine the best way to maximize the deduction.

Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $55,000 in 2019) may qualify for a tax credit to help pay for employees' health insurance. The credit is 50 percent (35 percent for non-profits).

Business Energy Investment Tax Credits. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2022, and businesses that want to take advantage of these tax credits can still do so.

Business energy credits include geothermal electric, large wind (expires at the end of 2020), and solar energy systems used to generate electricity, to heat, cool, or to provide hot water for use in a structure, or to provide solar process heat.

Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible; excluded, however, are passive solar and solar pool heating systems. Utilities are allowed to use the credits as well.

Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) can take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or invoice). Businesses with applicable financial statements can deduct $5,000. Small businesses with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic.

Depreciation Limitations on Luxury, Passenger Automobiles, and Heavy Vehicles. As a reminder, tax reform changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction for 2020 is $10,100 for the first year.

Deductions are based on a percentage of business use. A business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.

For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used ("new to you") vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,100 in 2020.

Heavy vehicles including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. As such, heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2020. Call today if you need help setting up a retirement plan.

Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.

Paid Family and Medical Leave Credit. Last chance to take advantage of the employer credit for paid family and medical leave, which expires at the end of 2020.

Year-end Tax Planning Could Make a Difference in Your Tax Bill

If you'd like more information, please call to schedule a consultation to discuss your specific tax and financial needs and develop a plan that works for your business.

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Investing in Opportunity Zones: The Facts

The Tax Cuts and Jobs Act included numerous changes for businesses and individuals. One of these was the creation of the Opportunity Zones tax incentive, the purpose of which is to spur economic development and job creation in distressed communities by providing tax benefits to investors.

Which Communities Qualify as Opportunity Zones?

Low-income communities and certain contiguous communities qualify as Opportunity Zones if a state, the District of Columbia, or a U.S. territory nominated them for that designation and the U.S. Treasury certified that nomination. Using this nomination process, 8,764 communities in all 50 states, the District of Columbia, and five U.S. territories were certified as Qualified Opportunity Zones (QOZs). Congress later designated each low-income community in Puerto Rico as a QOZ effective December 22, 2017.

For a complete list and visual map of census tracts designated as QOZs visit the Opportunity Zones Resources page at the IRS website.

Tax Benefits of Investing in Opportunity Zones

Opportunity Zones offer tax benefits to business or individual investors who can elect to temporarily defer tax on capital gains if they timely invest those gain amounts in a Qualified Opportunity Fund (QOF). Investors can defer tax on the invested gain amounts until the date they sell or exchange the QOF investment, or Dec. 31, 2026, whichever is earlier.

The length of time the taxpayer holds the QOF investment determines the tax benefits they receive:

  • Five years. If the investor holds the QOF investment for at least five years, the basis of the QOF investment increases by 10% of the deferred gain.
  • Seven years. If the investor holds the QOF investment for at least seven years, the basis of the QOF investment increases to 15% of the deferred gain.
  • Ten years. If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.

Deferral of Eligible Gain. Gains that may be deferred are called "eligible gains." They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before January 1, 2027, and that aren't from a transaction with a related person. To obtain this deferral, the amount of the eligible gain must be timely invested in a QOF in exchange for an equity interest in the QOF (qualifying investment). Once this is done, taxpayers can claim the deferral on their federal income tax return for the taxable year in which the gain would have been recognized if they had not deferred it. Taxpayers may make an election to defer the gain, in whole or in part. For additional information, see How To Report an Election To Defer Tax on Eligible Gain Invested in a QOF in the Form 8949, Sales and other Dispositions of Capital Assets instructions.

Investing in QOZ Property as a Qualified Opportunity Fund

A QOF is an investment vehicle that files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property. To become a QOF, an eligible corporation or partnership self-certifies by annually filing Form 8996, Qualified Opportunity Fund with its federal income tax return. The return, together with Form 8996, must be filed timely, taking extensions into account. An LLC that chooses to be treated either as a partnership or corporation for federal income tax purposes can organize as a QOF.

Qualified Opportunity Zone Property

QOZ property is a QOF's qualifying ownership interest in a corporation or partnership that operates a QOZ business in a QOZ or certain tangible property of the QOF that is used in a business in the QOZ. To be a qualifying ownership interest in a corporation or partnership, (1) the interest must be acquired after December 31, 2017, solely in exchange for cash; (2) the corporation or partnership must be a QOZ business; and (3) for 90% of the holding period of that interest, the corporation or partnership was a QOZ business.

Qualified Opportunity Zone Business Property

QOZ business property is tangible property that a QOF acquired by purchase after 2017 and used in a trade or business and:

  • the original use of the property in the QOZ commenced with the QOF or QOZ business OR
  • the property was substantially improved by the QOF or QOZ business; and
  • during 90 percent of the time the QOF or QOZ business held the property, substantially all (generally at least 70 percent) of the use of the property was in a QOZ.

Leased property may also qualify as QOZ business property. The lease must be a market-rate lease entered into after December 31, 2017, to qualify.

Qualified Opportunity Zone Business

Each taxable year, a QOZ business must earn at least 50% of its gross income from business activities within a QOZ; however, the regulations provide three safe harbors that a business may use to meet this test. These safe harbors take into account any of the following:

  • Whether at least half of the aggregate hours of services received by the business were performed in a QOZ;
  • Whether at least half of the aggregate amounts that the business paid for services were for services performed in a QOZ; or
  • Whether necessary tangible property and necessary business functions to earn the income were located in a QOZ.


Don't hesitate to call if you have any questions or would like additional information about investing in Opportunity Zones.

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Seasonal Workers and the Healthcare Law

Businesses often need to hire workers on a seasonal or part-time basis. For example, some businesses may need seasonal help for holidays, harvest seasons, commercial fishing, or sporting events. Whether you are getting paid or paying someone else, questions often arise over whether these seasonal workers affect employers with regard to the Affordable Care Act (ACA).

For the purposes of the Affordable Care Act the size of an employer is determined by the number of employees. As such, employer-offered benefits, opportunities, and requirements are dependent upon your organization's size and the applicable rules. For instance, if you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, you are an ALE (Applicable Large Employer) for the current calendar year.

If you hire seasonal or holiday workers, here's what you should know about how these employees are counted under the health care law:

Seasonal worker. A seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis, generally for not more than four months (or 120 days). Retail workers employed exclusively during holiday seasons, for example, are seasonal workers.

Seasonal employee. In contrast, a seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less, where the term "customary employment" refers to an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.

The terms seasonal worker and seasonal employee are both used in the employer shared responsibility provisions but in two different contexts. Only the term seasonal worker is relevant for determining whether an employer is an applicable large employer subject to the employer shared responsibility provisions; however, there is an exception for seasonal workers:

Exception: If your workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 during that period were seasonal workers, your organization is not considered an ALE.

For additional information on hiring seasonal workers and how it affects the employer shared responsibility provisions please call.

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Tips for Taxpayers: Backup Withholding

Taxpayers receiving certain types of income typically reported on certain Forms 1099 and W-2G may need to have backup withholding deducted from these payments. Here are three tips to help taxpayers understand backup withholding:

1. Backup withholding is required on certain non-payroll amounts when certain conditions apply.

The payer making such payments to the payee doesn't generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.

2. Backup withholding is set at a specific percentage. For 2020, it is 24 percent.

3. Payments subject to backup withholding include:

  • Interest payments
  • Dividends
  • Payment card and third-party network transactions
  • Patronage dividends, but only if at least half the payment is in money
  • Rents, profits or other gains
  • Commissions, fees or other payments for work done as an independent contractor
  • Payments by brokers
  • Barter exchanges
  • Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch
  • Royalty payments
  • Gambling winnings, if not subject to gambling withholding
  • Taxable grants
  • Agriculture payments

Let's take a look at a couple of examples of when the payer must deduct backup withholding:

Example 1: If a payee has not provided the payer a Taxpayer Identification Number (TIN).

A TIN specifically identifies the payee and includes Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.

Example 2: If the IRS notified the payer that the payee provided an incorrect TIN.

If the TIN does not match the name in IRS records, then payees should make sure that the payer has their correct name and TIN to avoid backup withholding.

Not sure if you need backup withholding? Help is just a phone call away.

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Tax-Related Items To Keep in Mind When Disaster Strikes

Unfortunately, disaster can strike at any time. If you've been affected by a disaster this year, here are six tax-related things to keep in mind that usually happen after a major disaster strikes:

1. FEMA Declaration of Major Disaster Area

Before the IRS can authorize any tax relief, FEMA must issue a major disaster declaration and identify areas that qualify for their Individual Assistance program. Recent examples of federally declared disaster areas include the California and Oregon wildfires, Iowa derecho, and Hurricanes Delta, Sally, and Laura.

2. More Time to File and Pay

Individuals or businesses located in the disaster area whose address of record is located in an area identified by FEMA for their Individual Assistance program automatically receive extra time from the IRS to file returns and pay taxes.

Generally, these affected taxpayers have until the last day of the Extension Period to file tax returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within this Period. The IRS also abates interest and any late filing or late payment penalties that would normally apply during these dates to returns or payments subject to these extensions.

3. Casualty Loss Tax Deduction

Taxpayers who have damaged or lost property due to a federally declared disaster may qualify to claim a casualty loss deduction. This deduction can be claimed on a current or prior-year tax return. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.

4. Disaster Loans or Grants

The Small Business Administration offers financial help to business owners, homeowners and renters in a federally declared disaster area. To qualify, a taxpayer must have filed all required tax returns.

5. Prior Year Tax Return Transcript

If you need a tax transcript to support your disaster claim, you can obtain free transcripts by using Get Transcript on the IRS website to access your transcripts immediately online. You can also request mail delivery. You can also call 800-908-9946 to request mail delivery or submit Form 4506-T, Request for Transcript of Tax Return.

If you need a copy of their tax return file Form 4506, Request for Copy of Tax Return. The IRS waives the usual fees and expedites requests for copies of tax returns for taxpayers who need them to apply for disaster-related benefits or to file amended returns claiming disaster-related losses. To speed up the process, when filing Form 4506 (or Form 4506-T), taxpayers should state on the form whether the request is disaster-related and list the state and type of event.

6. Change of Address

After a disaster, some people might need to temporarily or permanently relocate. If this applies to you, you will need to notify the IRS of your new address by submitting Form 8822, Change of Address.

For questions about this and other federal disaster relief that might be available, please contact the office.

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Individual Retirement Arrangements: Terms To Know

While many taxpayers already know about Individual Retirement Arrangements, or IRAs, and have set up an IRA with a bank or other financial institution, a life insurance company, mutual fund or stockbroker, there are other taxpayers such as those new to the workforce who may not understand how IRAs help them save for retirement. With this in mind, here is a list of basic terms to help people better understand their IRA options:

Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA.

Distribution. The amount that someone withdraws from their IRA.

Required Distribution. There are requirements for withdrawing from an IRA:

  • Someone generally must start taking withdrawals from their IRA when they reach age 70 1/2.
  • Due to tax provisions in the 2019 SECURE Act, if a person's 70th birthday is on or after July 1, 2019, they do not have to take withdrawals until age 72.
  • Special distribution rules apply for IRA beneficiaries.

Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn.

Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:

  • A taxpayer cannot deduct contributions to a Roth IRA.
  • For some situations, qualified distributions are tax-free.
  • Roth IRAs do not require withdrawals until after the death of the owner.

Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers.

Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees' retirement. The employee owns and controls a SEP.

Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.

For more information about this topic, don't hesitate to call the office today.

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4 Ways To Get Paid Faster Using Quickbooks

Cash flow is a problem for so many businesses right now. Unless you sell products or services that are in high demand during the COVID-19 pandemic, you're probably struggling to get payments from customers who are also cash-strapped. Adding a line to your invoices that says something like, "We appreciate your prompt payment" isn't making a difference.

QuickBooks provides numerous ways for you to nudge customers who have let payments slide beyond their due dates. You don't have to be heavy-handed about it (though you may have to be eventually on seriously delinquent accounts). Here are four ways you can speed up your receivables:

Assess finance charges on late payments.

You don't want to make customers unhappy, but consumers and businesses are accustomed to having interest assessed on late or partial payments. QuickBooks can help you set up finance charges. Once you're logged in as the Admin, open the Edit menu and select Preferences | Finance Charge | Company Preferences. You will see a window like this:

Figure 1 - Setting up and assessing finance charges can be complicated. If you want to take this route, but aren't sure what to do, don't hesitate to call.
Figure 1: Setting up and assessing finance charges can be complicated. If you want to take this route, but aren't sure what to do, don't hesitate to call.

You might consider what you pay some of your other vendors when you’re deciding on variables like Annual Interest Rate (%) and Grace Period (Days). Keep in mind that in some jurisdictions, you can't charge finance charges on existing finance charges, so you'll need to know your local laws if you want to check that box. Then, tell QuickBooks how you want it to calculate the charges.

To see who owes finance charges and have them applied, click Customers | Assess Finance Charges. Select the Assessment Date and the customers who should be charged. If you click the box in front of Mark invoices: "To be printed," QuickBooks will print a separate finance charge invoice in addition to the main invoice for each customer. Otherwise, their next statement will include the charges.

Warning: If you decide to add finance charges, call the office for assistance in preventing mistakes that will most likely make your customers unhappy.

Allow your customers to pay online.

This is our number one suggestion. You're not penalizing your customers in any way. You're simply providing them with an easier way for them to settle up their debts. It's a courtesy to them. They don't have to dig for their checkbooks and stamps, address an envelope, and get their payment to the post office. QuickBooks adds information to your invoices and tells customers exactly how to proceed.

The benefits to you are obvious: You're more likely to get paid quicker, and you won't have to deal with cashing checks and chasing down deposits. You'll have to first sign up for QuickBooks Payments, which will allow you to accept credit card, debit card, and ACH bank transfer payments electronically. There are no monthly or setup fees, but you'll, of course, pay transaction fees. The money should be in your bank account by the next business day, and QuickBooks takes care of all the background work, matching payments with invoices. As always, don't hesitate to call if you need assistance setting this up.

Send statements.

You can always run an A/R Aging report to see who is past due. But you will also learn which customers are in arrears if you create and send statements. Click Customers | Create Statements to produce comprehensive lists of your customers' invoices and payments. You can define a date range and send statements to everyone (or a hand-selected group). You'd be more likely to send statements to everyone who is a specified number of days past due, as pictured below.

Figure 2 - You can tell QuickBooks which customers should receive statements by completing the fields in this window.
Figure 2: You can tell QuickBooks which customers should receive statements by completing the fields in this window.

Polish up your invoices and send them promptly.

You have more control over your sales forms' content and layout than you might realize. Open the Lists menu and select Templates. Double-click on the invoice form you use the most, then click Manage Templates. Highlight the desired form and click Copy (it's best not to alter your existing templates until you've practiced a bit). Give it a new Template Name if you want, then click OK. You can change colors and fonts in the window that opens. Click Additional Customization at the bottom of the window, and you'll be able to add, edit, and delete fields and columns in your forms.

Send your invoices as soon as possible after you've completed the sale. You want customers to remember shortly after the fact that they need to pay you.

Poor cash flow is a perpetual problem for a lot of small businesses – and not just during a pandemic. If you need help using QuickBooks' tools to evaluate your current cash flow and forecast into the future, or if you need further explanations of anything discussed here, please don't hesitate to call.

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Tax Due Dates for November 2020

During November

Employers - Income Tax Withholding. Ask employees whose withholding allowances will be different in 2021 to fill out a new Form W-4. The 2021 revision of Form W-4 will be available on the IRS website by mid-December.

November 2

Employers - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2020. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.

Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2020 but less than $2,500 for the third quarter.

Employers - Federal Unemployment Tax. Deposit the tax owed through September if more than $500.

November 10

Employees who work for tips - If you received $20 or more in tips during October, report them to your employer. You can use Form 4070.

Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2020. This due date applies only if you deposited the tax for the quarter in full and on time.

November 16

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October.

Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October.

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What to Consider When Choosing a Financial Advisor

Financial advisory plays a vital role in the success of any business. The best counsel can help you navigate through the process of creating long-term, sustainable wealth. A professional financial advisor will understand your unique financial needs and perform due diligence to determine how to address your goals.

Whether you’re interested in advice to plan your estate, protect your business against risks, or invest your savings, here are some essential things to consider.

What is a Financial Advisor?

A financial advisor is your fiscal planning partner. For example, if you want to retire in 30 years or send your child to a private university in 15 years, you need a skilled professional with the right licenses to help you accomplish your goals. The work of a financial advisor is to help turn your plans into reality.

You will work together with your financial advisor to tackle a variety of topics, including:

  • How much money you should save
  • Types of banking accounts you need
  • Necessary insurance policies (professional liability, long-life, term-life, disability)
  • Estate and tax planning

The first step in the financial advisory process is to understand your financial health. It’s almost impossible to properly plan for the future without first understanding where you stand today. Your financial advisor will ask you some preliminary questions to get to know your present status and plans.

Since you’ll be sharing so much with your financial advisor, it’s essential to do your homework and get the right one. Beware of misconduct; you want a partner to trust and mutually work with for several years to come. Here are some excellent ways to find the right person for you:

Look for a Fiduciary

The firm you are considering should put your interests first. While traditional brokers work to a “suitability” standard, a firm holding to a fiduciary standard will disclose and address potential conflicts of interest and act in your best interests.

This is a significant distinction, and if they say they are fiduciary, let them put it down in writing on company letterhead. It would be best to ask whether the firm is a Registered Investment Advisor (RIA). Typically, RIAs are registered under the Investment Advisors Act of 1940 and hold the highest fiduciary standards.

Choose a Specialist

Most financial advisors specialize in one or two areas and seek counsel from other advisors when questions arise outside their focus. For instance, a certified public accountant (CPA) might specialize in money management and tax planning, a chartered life underwriter (CLU) in insurance and annuities, and an attorney in estate planning. A financial advisor must have a certified financial planner (CFP) certification to be familiar with all financial advice areas.

However, it would be best not to preclude a financial advisor for lack of expertise unless it directly affects success in an area most important to you. For example, if your primary interest is in trading in stocks and bonds, you would probably opt for a registered representative of a stock brokerage firm or a registered investment advisor (RIA), not a CLU or CPA.

Before settling for a financial advisor, ask who they work with before describing your situation. Overall, look for one specializing in working with business owners, not professional athletes, elite doctors, or movie stars.

Do Some Research

The North American Securities Administrators Association and the Financial Industry Regulatory Authority (FINRA) regulate all registered representatives of stock brokerage firms and mutual funds salesmen.  Registered investment advisors are regulated by the Securities and Exchange Commission (SEC). In contrast, financial advisors such as lawyers, insurance agents, and accountants are regulated and licensed by governmental departments.

Before engaging a financial advisor’s services, confirm they hold a proper license (or licenses) that remains in effect with your state’s regulatory agency. Additionally, check to see whether the financial advisor has been subject to regulatory actions, lawsuits, or consumer complaints.

A simple background search on FINRA’s or SEC’s advisory investigation should show you if your financial advisor is appropriately registered. You can also locate their credentials on Barron’s Top 1200 to verify their registration status and rank by state.

Evaluate Their Personality

Beyond credentials and processes, you want to work with a financial advisor you feel safe and comfortable with. Do you feel comfortable opening up and being honest with the advisor? Do they take time to listen and understand your financial needs? Shifting from one financial advisor to another can be disruptive to your financial plan, so you should choose an advisor you feel confident working with long-term.

Schedule a face-to-face or virtual meeting and see if you feel the relationship is friendly and collaborative. Ask about their skill with advanced planning as they will need to proactively protect your assets, manage debt, plan for taxes, and many other things.

Look for a Team Leader

Before you sign up, be sure to get the details of who you’ll be working with and how often you’ll be meeting. Some advisors will arrange an initial upfront meeting to familiarize themselves with the client, set the ball rolling, and schedule an appointment once every year. However, others provide ongoing support throughout the year to help you implement the plan and coordinate with other service providers like mortgage brokers, accountants, and insurance agents.

Your financial planner should act as the team leader by collaborating other specialists you have, including attorneys or insurance specialists. Find someone with experience building a team, so there won’t be any holes in your strategy or missed opportunities.

Final Thoughts

Your financial situation is unique, so don’t settle for cookie-cutter treatment – you’re not a cog in a machine! Customize your wealth management experience by choosing the right financial advisor. If you have additional suggestions for finding a financial advisor, share in the comments below.

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13 Reasons the IRS May Audit You

Discrepancies in a taxpayer’s returns may prompt the IRS to investigate them. An audit refers to the process of evaluating an individual or company’s financial details to verify that they comply with tax laws.

Receiving an audit notice doesn’t automatically mean you’re guilty of tax crimes. In most cases, the IRS is just double-checking numbers looking for discrepancies. There’s nothing innately sinister about an audit, and as long as you tell the truth, the whole truth, and nothing but the truth, you have no cause for concern.

Why the IRS Performs Audits

The IRS may audit random accounts as a way of improving tax compliance. These evaluations ultimately reduce the tax gap, which is the difference between what is owed and what they receive. Other times, it could be due to suspicious activity. To avoid unwanted attention or scrutiny, here are 13 flags to check, so you don’t end up in the IRS hot seat.

1. Math Errors

The IRS will hit you with fines whether you mistakenly or deliberately enter the wrong figures in your tax returns. These errors include adding or emitting zeros. Avoid this situation by carefully scrutinizing your returns before submitting or getting help from a qualified tax preparer. You can also invest in tax preparation software to avoid common math errors.

2. Wrong Filing Status

The federal tax agency offers various deductions, credits, and exemptions depending on personal and professional circumstances. Married couples enjoy certain advantages over single taxpayers, as do widows. To avoid an IRS audit, you must file under the status that best describes your situation. If multiple options apply to you, the system picks the one with the lowest possible tax amount.

3. Partially Reported Income

Failure to report some of your income is a surefire way to invite an IRS audit. If you’re employed but have some freelance jobs on the side, you must report all your earnings. Fill Form W-2 for your salary and Form 1099 for your freelancing activities. The IRS expects entities that employ you as an independent contractor to report payments through Form 1099-MISC. Failure to report your earnings will prompt the agency to audit your account.

4. Too Many Charitable Donations

Although you deserve deductions for charitable donations, too many claims will raise eyebrows. Other than avoiding false claims, ensure you have accurate documentation to verify legitimate philanthropic activities.

5. Deducting Excess Business Expenses

Some individuals and businesses report too many expenses as a way of reducing their tax obligations. Your business purchases must conform to your particular trade. Don’t claim deductions for hobbies and other unrelated activities.

6. Home Office Deductions

Avoid claiming deductions for unnecessary expenses if you work from home. Because the IRS collects taxes from millions of other home-based workers, they have accurate data on the average claims. Their system will pick out your account for auditing if you report figures that don’t follow these expectations.

7. Schedule C Losses

If you’re self-employed, resist the urge to report personal expenses under business costs. You must be able to prove that your fuel, research, and other credits directly benefit your business. If your company keeps reporting losses, the IRS might launch an audit to determine how it stays afloat.

8. Numbers That Are Too Precise

The figures on your Form 1040 and associated documents will raise suspicion if they are round and neat numbers. If they keep ending with zeros, it might look like you’re making them up. The solution is to round off to the nearest dollar if you must. For example, if you claim a business expense for an item you bought at $197.75, you can round it off to $198 instead of $200.

9. Self-Employment

Self-employment doesn’t have the proper structures associated with established corporations. As such, the IRS treats these operations with more suspicion due to the higher likelihood of false documentation. You’re also more likely to undergo an audit if you file a Schedule C.

10. Non-Existent Dependents

The IRS recognizes only one parent per dependent. The agency might launch an investigation if more than one person claims a deduction for the same dependent. For your claim to be eligible, you must provide birth certificates, medical records, and other documentation as proof.

11. Foreign Bank Accounts

You stand a higher chance of undergoing an audit if you’re an American citizen who lives abroad. Due to the complicated filing process, expatriates might deliberately or accidentally omit some information. The best option is to consult a tax expert conversant with tax clauses that address these complications.

12. Cash Transactions

The IRS isn’t a big fan of cash transactions because they’re difficult to track. If you make many of them, the tax agency may assume you engage in illegal activities or don’t report all of your earnings. The IRS also gets alerts about suspicious cash transactions from financial organizations.

13. Failure to Report Capital Gains

If you profit from any sale of stocks or other assets, the IRS expects you to report it in your tax returns. Your brokerage will provide a tax form detailing your gains or losses, but you’re still supposed to add them to your return. Be sure to report profits on securities via Schedule D on your return. If you file your taxes earlier than your broker, you must amend your returns to report capital gains.

If you are selected for an audit, don’t panic. Collect and organize your documents and reach out to a professional. Working with an experienced CPA or EA can help you make wise decisions and bring you peace of mind.

Have you ever experienced an audit? If you have any tips or suggestions, feel free to share them in the comments below.

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7 Tips for Being a Successful Business Owner

Being a business owner often means you have to make it up as you go, blaze your own trail, and go into uncharted territory. Whether you’re an unemployed professional striking out on your own or a seasoned veteran looking to expand, there are some things you can do to survive the turbulence in the entrepreneurial landscape. You can get useful insights from a professional CPA, and you can learn from the success of others. Here are some valuable tips for entrepreneurs to help you steer your business to success.

Appreciate Your Team

Your team members are critical and can make or break your business! The truth is, without your employees and business partners, you would never be where you are. As an entrepreneur, your objective is to drive the train while your employees provide the steam to power the engine uphill.

It always pays to appreciate your team and delegate specific tasks and inspect the progress. Never try to be a control freak to get the most out of your employees. Instead, use an incentive-based reward system and maintain a no-problem attitude in addressing issues that crop up.

Consider Your Customer’s Point of View

Learning your customer’s viewpoint is valuable for every aspect of your business, from marketing promotions to problem resolutions. Along with the perspective that the customer is always right, it is also critical to put yourself in their shoes. Serve them like you would want to be treated if the roles were reversed.

Keep the Big Picture in Mind

Staying focused on the big picture will ensure that you achieve both your short-term and long-term goals. Successful entrepreneurs don’t settle for the bare minimum for their company – they continually and consistently work to grow it, evolve it, and set it up for future growth.

Avoid the temptation to split your team between different tasks that don’t build your primary business. This can easily stall your core venture since you won’t have enough time to dedicate to your startup’s growth. A successful project requires 100% focus, attention, and effort. Any secondary venture will need a full-time manager, or else it can distract you and derail your steps towards success.

Make a Plan and Be Flexible

Another important lesson about growing a successful business is to craft a plan and be flexible in implementing it. One method is to break down big goals into smaller ones. That means you can have a 10-year plan, a 3-year plan, a 1-year plan, and quarterly plans for your business.

After creating your business plan and laying down your goals, ensure that every employee understands their specific goals and reports their progress towards those goals. This strategy is a great way to keep everyone focused.

Don’t Reinvent the Wheel

Never waste time trying to reinvent the wheel when it comes to running a successful business. A professional CPA can help you evaluate your ideas, inspect your operations, and push you to more significant accomplishments.

It would be best if you had someone to keep you accountable for what you are committed to achieving. Always be true to your word and follow through on various commitments, even when they seem complicated and challenging. Everything isn’t about you; it’s about the business, so stay focused and welcome professional advice.

Measure Your Results

Everyone defines success differently. However, the best measure of success is enjoying what you do and hitting those numbers consistently. Create a written system for everything you do, and you’ll reap the benefits down the line.

Know your success numbers and check them regularly to help you make informed decisions based on what the figures tell you. Create systems for measuring success, such as cash flow management. This will tell you how much cash you need to do business without running late with your payroll or getting into trouble with your suppliers.

Build a Strong Support System

Running a successful business can sometimes be an isolating experience, especially if you’re a sole proprietor. Never lose touch with other business owners and professional business consultants, such as CPAs.

Always stay networked with the broader business community. That may mean meeting with a business coach every month to help you find solutions to emerging problems and work through tough business decisions. Networking with other business owners on Facebook, LinkedIn, and other social media platforms is also a good idea.

The Bottom Line

Many new businesses close down during the first two years of operation, and only a small percentage of new ventures make it to 15 years or more. So, if you want to be among the ones that last, you need to pay rigorous attention to the tried and true objectives of those who have gone before you. Embrace a successful entrepreneur’s mindset and plan to overcome various challenges in the business landscape.

Are you a business owner with a collection of your own secrets to success? Please pay it forward and share them in the comments below!

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5 Tips on Saving for Your Retirement

If you want to secure your future after retirement, it is crucial to start saving early. Saving for your retirement is essential, and it should come before vacations and even your dependents’ education funds. Whether you would like to start a business, travel the world, or have a relaxed life after retirement, this financial cushion will support everything. Despite all the planning and budgeting, the most important step is starting.

The earlier you start saving funds for your retirement, the more you’ll have to meet your goals. However, even if you get a late start, you can still boost your savings before reaching retirement age. Here are some helpful tips to get started!

1. Make a Plan

Coming up with a retirement plan requires you to think of your goals and the amount of time you have to meet them. Simple is best, and there are various retirement accounts that are ideal. Some of these accounts are:

  • 401(k) – With this plan, you can contribute a part of your pre-taxed salary to tax-deferred investments, reducing the amount of taxes you pay annually. These investment plans have restrictions on when and how you can withdraw money.
  • Traditional IRAs – After depositing money into these accounts, you can invest in ETFs, stocks, mutual funds, and bonds. Restrictions are based on your income. When you withdraw money, you pay income tax on your income and gains.
  • Roth IRAs – These are funded with after-tax dollars that are not tax-deductible. Any gains generated within this account are not taxed, and you can withdraw money before retirement without being penalized.  
  • Roth 401(k) – Contributions are made from your after-tax salary, and earnings are not taxed. It is an employer-sponsored account and does have contribution limits
  • SEP IRA – If you are self-employed, you can contribute to this individual retirement account and deduct it from your taxable earnings. Employers can also contribute to a SEP IRA and receive a deduction on that amount.

2. Budget for Retirement

Many things may change after retirement, but some expenses and bills remain the same. A budget helps you eliminate the fear and worry that you might run out of money. With a retirement budget, you can set goals of how much you need to save, how to spend it, and where to make adjustments if you find any gaps that need to be filled. Usually, 15% is recommended, but it may not be feasible. Start small, try for 5% to start, and save bonuses or gifts.

How much you need will depend on your lifestyle goals and what age you plan to retire. The number of years between your current age and expected retirement age determines how much you need to contribute from your income. The lower the number, the higher the amount, and vice versa. Your plans for after retirement are also crucial factors to determine how much you should save. If you want to start a business, travel, or build a house, your investment may need to be higher.

3. Change Strategies if Needed

You can be more aggressive in your early years, but you might want to switch to lower risk strategies like CDs as you get closer to retirement. It may be necessary to protect the funds you have accumulated by shifting from stocks to bonds gradually. Also, you can automatically adjust autopilot investments by selecting target-date retirement funds on your retirement plan.

If saving is difficult, consider working longer, even if only part-time. Having additional years of work is beneficial for various reasons, including:

  • With an additional or extra source of income, you can make more contributions to your retirement funds.
  • It delays the withdrawal of contributed funds, giving them more time to grow.
  • The longer you wait to buy an annuity, the cheaper it becomes.
  • Waiting longer to claim increases your Social Security benefits.

4. Avoid Risk

Risk should match your age and asset allocation recommendations. However, until you learn the proper skills to manage your risks, it is advisable to avoid them. After retirement, needs and emergencies may arise at any moment, and it is best to have some fully available funds. Before moving to riskier investments, save reserve assets. If you decide to take risks, diversify your investments, accumulate more funds, and calculate your liability.

5. Pay Down Debt

Paying off debts is highly advisable before you start saving for retirement, especially if you’re still young. Credit cards and loans have high-interest rates and no tax benefits and can eat away your savings. If you’re older, you can make investments to generate more funds that will help you pay off your debts. However, it is crucial to pay down debts as soon as you can to start saving early.

Prepare for Retirement Now

Saving for retirement is a crucial part of your life, and the earlier you start, the better. Make a plan, develop a budget, change strategies if need be, avoid risks, and pay down debt to have a fun and secure life after retirement. As with most financial planning, it is always wise to seek out the opinion of a qualified professional. A CPA or financial advisor can help you make the most of every dollar you invest in retirement.

If you have additional suggestions on saving for your retirement plan, please share them in the comments below.

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