Tax Season '23 on 23
Ironically, the 2023 tax season starts today on January 23rd. Another year of putting the correct numbers in the correct boxes and filing by the correct due date. Those numbers however, have a greater emotional meaning to you the taxpayer. Numbers such as total income can drag your ego and pride into the mix when you have a banner year. It makes for an exciting yet stressful situation when you have a great year but did not plan accordingly. Will I owe taxes on the income or will I be able to minimize my tax burden are the questions revolving around in your head.
Did I make a tax plan ahead of time to address the increase in income?
When you are only putting the correct numbers in the correct boxes by the correct due date, you are selling yourself short and possibly leaving your hard earned dollars to the IRS. The goal is to bring those numbers to life, recognize them and celebrate them. What better way to accomplish this than by building a tax plan during the year so there are no surprises at tax time.
Feel free to contact us if you would like to partner with more than a tax professional that puts the right numbers in the right boxes by the right due date to build a lasting relationship to save your hard earned dollars and bring meaning to your numbers.
Here's to a less "taxing" filing season.
By now many of you have heard about the GameStop/Robinhood stock market news floating around social media sites like Reddit and TV lately. If not, instead of going on and on about short positions and mark-to-market. Here's a quick video that explains it all:
If that video is as clear as mud, or has you thinking you need to go trim your hedges outside, then let's add another wrinkle. What happens when the taxman comes knocking after you have sold your GameStop stock for a gain?
Stocks sold for a gain (buy low, sell high) are called capital gains income and is taxable. Stocks held for less than a year have short-term capital gains and stocks held for a year or long have long-term capital gains. Short-term capital gains are taxed at the ordinary rate which is typically higher than the long term rate. Short-term gains will be included with your other ordinary income (W-2, 1099, etc) and you will pay tax based on your marginal tax rate and income.
The key to lowering your tax with stock sales is to create a strategy that will enable you to pay lower taxes on capital gains. Some strategies include:
It it also important to note that with the change in the Presidential Administration, your stock tax plans will need to be devised in concert with your other personal and business tax situation(s).
Feel free to contact us if you need assistance with your stock tax strategies, small business tax, or tax planning. If you need new hedges, I may know a good landscaper.
Stimulus Checks - Q&A
In March of 2020 the CARES Act was signed into law allowing a tax credit of $1200 ($2400 MFJ) plus $500 for each qualifying child based on the taxpayer's income. The thresholds for the stimulus payments are:
We have compiled a list of the top questions (and answers) we have received regarding the stimulus payments. If you have any additional questions feel free to contact us.
1) Is The Stimulus Taxable?
2) Will I Have to Pay the Stimulus Back?
3) I Got My Full Stimulus and I’m Not Required to File a Return, Do I Need to File?
4) Will the Government Send Taxpayers 1099 Like Forms Showing Amounts Received?
▪ IRS Notice 1444 for the first Economic Impact Payment
▪ Notice 1444-B for the second Economic Impact Payment
5) My 1444 and or 1444-B show that I Received the Stimulus Check But I Never Received It, What Do I Do?
▪ If your payment was issued by direct deposit, your first step is to check with your bank and make sure they didn’t receive a deposit.
▪ You should only request a payment trace to track your Payment if you received Notice 1444 or if Get My Payment shows your payment was issued and you have not received it.
▪ Call the IRS at 800-919-9835
▪ Mail or fax a completed Form 3911, Taxpayer Statement Regarding Refund
6) I Didn’t Receive My Second Stimulus Yet, Should I Wait to File or Claim the Credit?
▪ It depends
▪ All payments were required to be sent out by 1/15.
▪ Check “Get My Payment” tool on the IRS website to see if you received a direct deposit or if a check was mailed out
▪ You will not be able to add new routing or account information, or request to receive your payment by EIP Card
▪ Claim credit for amounts you were eligible for but did not receive.
Will will update this post with additional questions/answers as they come in.
Itemized deductions versus the standard deduction
The TCJA doubles the standard deduction, but suspends the personal exemptions and virtually eliminates many of the itemized deductions. The law temporarily eliminates miscellaneous itemized deductions subject to the 2 percent floor and limits the home mortgage interest deduction to home acquisition debt of up to $750,000.
With these changes, some taxpayers may see a lower taxes. Some taxpayers that itemized in the past may not for 2018. Contact us is you need to run the numbers for your tax situation. If the results are grim, you may need to adjust your employer withholding (Form W-4) and/or quarterly estimated tax payments.
Bunch charitable contributions
The TCJA temporarily increases the limit of cash contributions to public charities from 50 to 60 percent of adjusted gross income (AGI). The only problem (as mentioned above) is that the double standard deduction and itemized changes will leave many taxpayers left out. One solution is to bunch or increase charitable contributions in alternating years, or set up donor-advised funds.
Watch out for home equity debt interest
The TCJA allows for home equity debt interest if the funds were used to buy or substantially improve the home that secures the loan. Taxpayers must keep good records to ensure that the proceeds were used in this manner, payment to credit card or other personal debt is not allowed (even if prior to 2018).
Revisit 529 qualified tuition plans
The TCJA revises earnings in a 529 college savings plan and allows for paying tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If you fall in this boat, it may be time to revisit their 529 plans.
Maximize the qualified business income deduction
And of course last but not least the QBI deduction (from our last post) for small business owners. Be sure to contact us for steps how this deduction can save your hard earned dollars
The Labor Day festivities are behind us, this means that the holiday season is quickly approaching (I can hear Andy Williams' "It's the Most Wonderful Time of the Year" music fading in). If you are a small business owner who hates writing that check to the IRS, this year's tax planning season could be merrier than ever due to the changes brought about with the Tax Cuts and Jobs Act (TCJA). This is the time for ALL small business owners and entrepreneurs to start doing true tax planning.
The TCJA is virtually a once in a lifetime opportunity for smart small businesses to use tax planning in a way that will ensure they don't lose their hard earned dollars. One key area that we have focused on is the Section 199A Qualified Business Income (QBI) rules, paying close attention to the recent developments from the IRS. There has not been this much change in the tax code since 1986 and it is important for small business owners and entrepreneurs to make the most of this opportunity to save money.
One way to save money is to know how to navigate the new Section 199A Qualified Business Income (QBI) rules and we have completed our presentation for small businesses and entrepreneurs. Qualified Business Income is a "new" kind of income that is recognized differently than other types (ordinary, investment, passive) and small businesses need to know how it will affect their bottom line. There is a method to madness behind the change and we take a deeper dive in the presentation. For now check out the video below to get a definition of what QBI is and what income is subject to it.
Join us in the coming months on one of our webinar presentations on QBI and other tax planning topics before tax planning season is in the rear-view mirror.
Did You Lose Money Filing Early?
The recently signed Bipartisan Budget Act of 2018 had a few tax extenders that are retroactive to 2017. some of the more notable provisions include:
Exclusion for discharge of indebtedness on a principal residence
The provision extends the exclusion from gross income of a discharge of qualified principal residence indebtedness through 2017. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.
Premiums for mortgage insurance (PMI) deductible as mortgage interest
The provision extends the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction through 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000.
Above-the-line deduction for qualified tuition and related expenses
The provision extends the above-the-line deduction for qualified tuition and related expenses for higher education through 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
Three-year depreciation for race horses 2-years-old or younger
The provision extends the 3-year recovery period for race horses to property placed in service during 2017.
Contact us if you have already filed your return and qualify for these tax extender provisions.
Your Tax Questions Answered
Happy New Year! With the start of 2018, we have fielded a great deal of questions regarding the Tax Cuts and Jobs Act. We figured we would put out a short post to address the most important ones
1. When will the tax changes take effect?
The bill takes effect on January 1, 2018, thus when you file your 2018 taxes (in 2019) you will see the results of the tax changes. W-2 employees will see changes in their paychecks federal withholding in February 2018.
2. How much will the tax changes save a taxpayer?
The short answer is, it depends...what your total income is and where your income is derived. Also other factors can play a role in determining how much you will save.
3. Do I need to do anything to change my withholding?
According to the IRS regarding withholding changes:
“We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February,” said the IRS. “The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.”
These are just a few of the top questions we are hearing from taxpayers, feel free to contact us if you have any questions regarding the Tax Cut and Jobs Act.