Category: Tax
Is Your Tax Plan Working for You?
It’s that time of year again - tax season is upon us, and we want to remind everyone of some strategies you may be able to take advantage of on your 2019 tax return. A strategy that many find helpful is bunching deductions, which is essentially accelerating your write offs into one year to try to get above the standard deduction. Last year was the first time for all of us filing under the Tax Cuts and Jobs Act of 2017, which doubled the standard the previous standard deduction from tax year 2016. But this year the only change is a slightly increased standard deduction over last year - $24,400 for Married Filing Jointly, and 12,200 if you’re single. By bunching charitable gifts, medical expenses, or even your state and local taxes into one year, you may be able to realize significant savings. However, just keep in mind real estate and state and local taxes are still capped at $10,000. Many people also take advantage of gifting appreciated securities. For example, even if you only paid $10,000 for a security, but it’s now valued at $20,000, you can write off the whole $20,000. This allows you to help both your favorite charity, and your bottom line. Another often overlooked strategy is what’s known as a Backdoor Roth. This is a way for people with high incomes to sidestep the Roth’s income limits. Basically, you fund a traditional IRA and then convert it. This can benefit you because it allows your money to grow tax
The Power of Coordination
At the Lineweaver Companies, we believe a team approach to coordinating all your financial, legal, tax, and insurance needs helps save you time, money and worry. For example, we had clients who were both close to retirement, and unfortunately the husband had been diagnosed with terminal cancer. The first thing we did was to work with them to make sure his pension was triggered in such a way that the wife could receive a greater lifetime benefit - almost a million more dollars than she would have otherwise received. At the same time, in this sort of situation, you have to consider powers of attorney – and other basic estate planning documents that everyone should have, like wills, and even if trusts make sense for your particular situation. There were also huge student loan balances of more than $120,000. But, because they kept the loans entirely in the father’s name, when he passed, the debt was forgiven. But what many people don’t know is that the forgiveness of debt – in this case student loan debt - is considered income by the IRS – and therefore taxable. As you can imagine, in this case it was significant: an additional $40,000. However, we were able to work with the family and the IRS to get the entire amount forgiven as well – so they ended up having the debt and the tax bill forgiven. Given the pension payouts and their savings, they had significant assets that needed to be managed eff
The Tax Cuts and Jobs Act of 2017 Becomes Law
The Tax Cuts and Jobs Act of 2017: Highlights of the Final Tax Cuts and Jobs Act The tax reform bill passed both the House and the Senate and was signed into law by the President on December 22nd. The legislation will result in substantive tax reform for corporations, with the elimination of the corporate AMT and consolidation down to a single 21% tax rate. Individuals, however, will find that the new legislation is more of a series of cuts and tweaks. Almost all individual households will see a tax reduction in the coming years with all seven tax brackets decreasing by a few percentage points We have compiled a list of some of the key elements and provided a comparison between the current law and the Tax Cuts and Jobs Act of 2017. The Tax Cut and Jobs Act Provision Current Law New law – January 1, 2018 Tax Brackets We have seven (7) tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% Keeps seven (7) tax brackets that lowers individual tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Standard Deduction The standard deduction amounts for 2018 are $6,500 for individuals, $9,550 for heads of households (HOH), and $13,000 for married couples filing jointly. The standard deduction will increase to $12,000 for individuals, $18,000 for heads of household
THE TAX CUTS AND JOBS ACT - CURRENT LAW VS. HOUSE AND SENATE PROPOSALS
Over the weekend of December 2nd, the Senate passed its tax reform bill, with a vote that mostly followed party lines. Find out how thje tax cuts and job acts effect current law vs. house and senate
The Tax Cuts and Job Act: A Balanced Review
We know that many people are curious about the tax bill announced in the House of Representatives yesterday, H.R.1: The Tax Cut and Jobs Act. We’ve put together a balanced review of the bill, and wanted to share it in a timely way. The proposed bill: Condenses individual tax rates to Zero, 12%, 25%, 35%, and 39.6%. Increases the standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples. Establishes a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children, and providing a credit of $300 for each parent and non-child dependent to help all families with their everyday expenses. Preserves the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support. Preserves the Earned Income Tax Credit to provide tax relief for low-income individuals and families. Streamlines higher education benefits to simplify the existing tax code. It also eliminates the student loan interest deduction. Continues the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization. Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000. Prior law capped the purchase price at
Avoiding Tax Scams, Fraud, and Identity Theft
As if paying taxes each year weren’t painful enough, there are also scammers out there that want to make the process even more challenging. Today, we’ll talk about a couple of the most common scams that you should be aware of. Perhaps the best thing to do is to remind everyone what the IRS won’t do. In the past several years, thousands of people have lost millions of dollars and their personal information to tax scams, identity theft, and illegitimate IRS communications. Criminals will often use mail, telephone, fax or email. Always remember that the IRS doesn't initiate contact with taxpayers by any means to obtain your personal or financial information. The IRS also does not threaten taxpayers with lawsuits, imprisonment or other enforcement. They also don’t use channels like social media or text messages, and don’t send unsolicited emails. They won’t call to demand payment – they’ll always send a bill in the mail first. If you do get a bill, look up the number for the IRS and call them first. Don’t call the number on the bill – if it is a scam, criminals are often sophisticated enough to include their own phone number. Make sure that this is a number for the IRS that you get from a source you trust. When we say the IRS won’t demand payment over the phone, that includes asking for debit or credit card numbers. They also should be willing to answer questions you have about a bill
Gifts Could Expose Children or Grandchildren to the Kiddie Tax
We are all familiar with the rules about gifting to children and grandchildren- the $14,000 per person per recipient annual limits, but often overlooked are other potential consequences. Accumulated gift can expose kids to the kiddie tax. Congress enacted the kiddie tax in 1986 to prevent people from putting assets in their children’s names to avoid taxes, as children often have far lower tax rates than their parents. Under the rules, a child’s unearned investment income, such as dividends, interest, and capital gains above $2,100 in 2016 is taxed at the parents’ top rate. So if the parents’ dividends are taxable at 23.8%, the child’s dividends are as well, even if the child’s rate would otherwise be 0%. Originally the kiddie tax applied to children under age 14. Over time lawmakers have expanded it to cover virtually all children under 19 and many who are older, including full-time students up to age 24 if they can be claimed as dependents on a parent’s return. Under the rules, the first $1,050 of a child’s investment income is effectively exempt from income tax. The next $1,050 of investment income is taxed at the child’s rate, which is often very low or even zero. The kiddie tax applies to taxable investment income, so sidestepping such income—say, by investing in growth stocks that don’t pay dividends or tax-free municipal bond can help avoid it. Timing capital gains can help as well. The kiddie tax tr
Congress Makes Charitable Contributions from IRA’s Tax Free. Forever!
Are you at least 70 ½, and want to build regular charitable contributions into your legacy plan using excess funds in your IRA? In the past, you had to worry that the government might decide that donation was considered taxable income, which meant you would either had to either contribute more to cover the shortfall or give simply give less. The good news is you never have to worry about that again because the Federal Government has made a permanent change to IRA gifting. Starting 2016, charitable donations of up to $100,000 per year made from your IRA funds are no longer subject to any tax because the donation is excluded from your taxable income. That means, for those of you so inclined to give-back, you can integrate a regular annual donation into your retirement plan. And, since the law refers to Individual Retirement Accounts, your spouse can do likewise with his or her IRA funds. A little good news for your kids…. There’s also a provision in the new law that you might want to mention to your children who are putting aside money in their IRA or in a 529 plan for their kids. The cost for computers, software, and even internet access can now be withdrawn from accumulated savings tax and penalty free — even if the school your grandchildren attend do not require a computer as a condition of
1099s and K-1s- When to Expect Them
Below is a table of common forms, the reasons you would receive them, and when you can expect these forms. Form You Should Receive This Form If: When Should You Expect This Form? 1099-R: Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc You received $10 or more from your IRA or one of the other sources of retirement income. After February 1, 2016 1099-B You sold stocks, mutual funds, bonds, or other securities in a non-IRA account After February 16, 2016 1099-DIV: Dividends and Distributions You own a stock or mutual fund that pays dividends. After February 1, 2016 1099-INT: Interest Income You have a checking, savings, or other bank account that earns interest After February 1, 2016 If you have not received the 1099s you expected by the middle of February, feel free to call our office and we’ll be happy to assist you! Also keep in mind, the deadline for S-Corp companies to mail K-1s is not until Monday, March 15, 2016. Per IRS guidelines, oil and gas K-1s are not actually due to taxpayers until Monday, April 18, 2016 (though they are often sent out sooner than the deadline). Even if you do not have your K-1s, it would still be beneficial to gather all of your other tax documents prior to this date and bring them in to LFG Tax
Year End Tax Tips
There are some basic tried and true tax planning tips that can be applied each and every year. While these may not be new and exciting, they are highly effective and proven to minimize your tax bill. Here is a brief highlight of the tax planning maneuvers you should still be considering for 2015: Defer Income: Income is taxed in the year it is received. If possible defer year-end bonuses from employers to 2016 if you feel that income will place you in a higher tax bracket in 2015. If you are self-employed you may consider delaying billings until late December so that the payments are not received until 2016. Also consider accelerating income into 2015 if you feel you will be in a lower tax bracket in the current tax year. Bunching Itemized Deductions: Consider paying real estate taxes due in early 2016 in 2015, pay medical bills ahead, or make charitable deductions earlier to enable you to get past the itemized deduction threshold in 2015. Charitable Deductions: You may wish to consider donating appreciated property (stocks or property) in lieu of cash. This may render you the double tax benefit of deducting the contributed asset at Fair Market Value and avoiding paying the capital gains tax on the built up appreciation. HSA: If eligible, consider setting up and contributing to a Health Savings Account. You may make a tax deductible contribution to a Self-Only HSA of $3,350 or a family HSA of $6,650 (plus an additional $1,000 if age 55+). You must have a minimum annual
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