Start preparing for your 2018 tax return – now!

Tax Form Checklist

Before you prepare your tax return you should have a tax preparation checklist to help you get organized. Along with this, your tax preparation checklist should also get you in the right frame of mind. Once you are organized and ready to move forward, you will find that everything begins to fall into place.

What is the overall goal of a tax preparation checklist? Simply put, it will help you get everything together before you begin to file your tax return or show up for your appointment with a tax professional. As you move down the checklist, you will find items you may have missed as well as things that were accounted for in the past.

Listed below are some of the details that should be included on your tax preparation checklist.

Tax Preparation for Personal Information
The IRS needs to know who is filing the tax return, as well as how many people are covered on it. To make this easy, they require:

– Your Social Security number
– Your spouse’s Social Security number (if married)
– Social Security numbers for any dependents
– Tax Preparation for Income Information

The following documents will help you prepare all the income information that you need to file a federal tax return:

– W-2 Forms from all employers you (and your spouse, if filing a joint return) worked for during the past tax year.
– 1099 Forms if you (or your spouse) completed contract work and earned more than $600.
– Investment income information (including: interest income, dividend income, proceeds from the sale of bonds or stocks, and income from foreign investments).
– Income from local and state tax refunds from the prior year.
– Business income (accounting records for any business that you own)
– Unemployment income
– Rental property income
– Social Security benefits
– Miscellaneous income (including: jury duty, lottery and gambling winnings, Form 1099-MISC for prizes and awards, and Form 1099-MSA for distributions from medical savings accounts)
– Tax Preparation for Income Adjustments

The following adjustments can help reduce how much you owe in taxes, and in turn, increase your chance of receiving a tax refund:

– Homebuyer tax credit
– Green energy credits
– IRA contributions
– Mortgage interest
– Student loan interest
– Medical Savings Account (MSA) contributions
– Self-employed health insurance
– Moving expenses
– Tax Preparation for Credits and Deductions

There are many tax credits and tax deductions for various expenses, which are designed to help lower the amount of tax that an individual has to pay:

– Education costs
– Childcare costs
– Adoption costs
– Charitable contributions/donations
– Casualty and theft losses
– Qualified business expenses
– Medical expenses
– Job and moving expenses

Tax Preparation for Direct Deposit
Are you interested in having your tax refund directly deposited into your bank account? If so, you will need to provide two things:

– Your bank account number
– The bank’s routing number

Should you be making estimated payments?

An estimated tax payment in 2018 could help avoid a penalty in 2019

Taxes must be paid as you earn or receive income during the year, either through withholding, estimated tax payments or a combination of both. A Paycheck Checkup using the IRS Withholding Calculator can help you see if you need to make an additional payment to avoid an unexpected tax bill or underpayment penalty when you file your tax return next year.

You may need to make estimated payments if you:

– have multiple jobs—especially if you don’t have each employer withhold taxes
– are self-employed or an independent contractor
– are a representative of a direct-sales or in-home-sales company
– participate in sharing economy activities where you are not working as an employee
– receive pension income

Visit IRS,gov to learn more.

September 2018 Newsletter

2019 is just around the corner!

Tax laws are changing, and many taxpayers might be wondering what that means and how it will affect them. For the tax year 2017, it will be the last time you file under the old set of guidelines. Who knows what the future holds (while this is the largest tax overhaul since the 1980s, each new administration likes to put their own spin on tax law, so it inevitably changes under each new president), but for at least the next few years, the new tax reform holds sway.

The new tax bill has been pretty polarizing for most Americans, and there are a lot of new pieces to be aware of. Here are some things you may have missed in all the hoopla:

Teachers can still deduct school supply expenses.

A contentious proposal that ended up getting scrapped, deductions for teachers who spend their own income on school supplies was going to be removed. However, due to large public outcry, lawmakers decided to keep allowing teachers to utilize this deduction.

The standard deduction has increased for everyone.

Whether married, single, married but filing individually, or head of household, the standard deduction has effectively doubled for most people in an effort to cut down on itemized filings.

Medical deductions are more beneficial.

2018 is a good year to finally get an expensive medical procedure done, if you’ve been putting it off. Taxpayers used to have to spend 10 percent of their adjusted gross income on qualifying medical expenses to take a deduction, but now this has been lowered to 7.5 percent. That means your medical bills will be far less burdensome since you can deduct more of the costs when it comes time to file your taxes.

Your tax bracket may have changed.

Under the new tax bill, most income tax brackets have changed. Check them out here to find out if your income bracket has been affected. If so, you may have to update your withholdings.

The marriage penalty has changed.

Couples who file jointly may now be able to file under their combined total income, pushing them into a higher tax bracket and lowering their total taxes owed.

If you’re wealthy, taxes won’t be as much of a burden.

For those in the top tax brackets, taxes have been lowered drastically. A holdover from the Reagan administration, the belief here is that top earners are also job creators, and when these folks pay fewer taxes, they’ll hopefully create more jobs.

If you’re poor, none of this will really affect you.

While most everyone’s tax bracket has changed, those in the lowest income bracket haven’t really been affected at all, though they may see cuts to any government programs they currently utilize.

Alimony has changed.

Before this tax bill, alimony payments were tax deductible, and alimony received had to be treated as income. Both of these provisions have been eliminated. This essentially shifts the alimony tax burden from the payee to the payor.

No one will be penalized for not having insurance.

Under the Affordable Care Act, any individual who was not consistently medically-insured throughout the tax year was penalized. This penalty has been eliminated. It is too early to tell how many people will choose to take advantage of this.

You’ll get a raise.

Due to the corporate tax cuts, companies are already shifting their financial situations, and many of these shifts could benefit middle-class earners. Many people have already reported seeing small increases in their paychecks.

Mortgage interest is still deductible.

Before the tax bill was passed, many experts were speculating what might be in it. Due to many circulating and changing tidbits of information, many people were unclear about the changes; a large concern for homeowners was the ability to continue to deduct mortgage interest payments. This is still possible, though there is a new cap on the amount: $750,000. (Any mortgage taken out prior to December 31, 2017 was capped at $1 million.)

Investors will keep more capital gains.

One of the most hotly-contested and divisive pieces of the new tax bill was the decrease in capital gains taxes. However, if you’re someone who benefits from capital gains (and many Americans do), then you’ll get to keep more of your ROI.

Moving expenses are no longer deductible.

Under previous tax law, an individual who relocated for their job could deduct any related expenses, including movers, gas, and more. This deduction will no longer be available. The idea behind this: since corporations have just received a large tax cut (some are saving billions of dollars in taxes), they can afford to incentivize employees to move using their own finances.

529 accounts don’t have to wait for college.

Originally intended to help parents save for their child’s future college tuition, a 529 can now be used to pay for up to $10,000 of primary and secondary education per school year. This is directly tied to the Trump Administration’s push for school choice, as these funds can be used for private and religious schools.

Estate taxes have been slashed.

Previously a highly-taxed source of income, beneficiaries of any estate can now double their deduction.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly,’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

September 2018 – Bonus Newsletter

Tax-Saving Tips

New IRS 199A Regulations Benefit Out-of-Favor Service Businesses
If you operate an out-of-favor business (known in the law as a “specified service trade or business”) and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your Section 199A deduction is easy to compute. It’s zero.

This out-of-favor specified service trade or business group includes any trade or business

• involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or
• where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or
• that involves the performance of services that consist of investing and investment management trading or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities [Internal Revenue Code Sections 475(c)(2) and 475(e)(2), respectively].

If you were not in one of the named groups above, you likely worried about being in a reputation or skill out-of-favor specified service business. If you were worried, you joined a large group of worried businesses, because many businesses depend on reputation and/or skill for success.

For example, the National Association of Realtors believed real estate agents fell into this out-of-favor category.

But don’t worry, be happy. The IRS has come to the rescue by regulating the draconian reputation and/or skill provision down to almost nothing. The reputation and/or skill out-of-favor specified service business includes you if you

• receive fees, compensation, or other income for endorsing products or services;
• license or receive fees, compensation, or other income for the use of your image, likeness, name, signature, voice, trademark, or any other symbols associated with your identity; or
• receive fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

Example. Harry is a well-known chef and the sole owner of multiple restaurants, each of which is a single-member LLC—disregarded tax entities that are taxed as proprietorships. Due to Harry’s skill and reputation as a chef, he receives an endorsement fee of $500,000 for the use of his name on a line of cooking utensils and cookware.

Results. Harry’s restaurant business is not an out-of-favor business, but his endorsement fee is an out-of-favor specified service business.

If you have questions about how the law will treat your business income for the new Section 199A 20 percent tax deduction, please give us a call, and we’ll examine your situation.

Does Your Rental Qualify for a 199A Deduction?
The IRS, in its new proposed Section 199A regulations, defines when a rental property qualifies for the 20 percent tax deduction under new tax code Section 199A.

One part of the good news on this clarification is that it does not require that we learn any new regulations or rules. Existing rules govern. The existing rules require that you know when your rental is a tax law–defined rental business and when it is not. For the new 20 percent tax deduction under Section 199A, you want rentals that the tax law deems businesses.

You may find the idea of a rental property as a business strange because you report the rental on Schedule E of your Form 1040. But you will be happy to know that Schedule E rentals are often businesses for purposes of not only the Section 199A tax deduction but also additional tax code sections, giving you even juicier tax benefits.

Under the proposed regulations, you have two ways for the IRS to treat your rental activity as a business for the Section 199A deduction:

1. The rental property qualifies as a trade or business under tax code Section 162.
2. You rent the property to a “commonly controlled” trade or business.

Your rental qualifying as a Section 162 trade or business gets you other important tax benefits:

• Tax-favored Section 1231 treatment
• Business use of an office in your home (and, if it’s treated as a principal office, related business deductions for traveling to and from your rental properties)
• Business (versus investment) treatment of meetings, seminars, and conventions

If your rental activity doesn’t qualify as a Section 162 trade or business, it will qualify for the 20 percent Section 199A tax deduction if you rent it to a commonly controlled trade or business.

How to Find Your Section 199A Deduction with Multiple Businesses
If at all possible, you want to qualify for the 20 percent tax deduction offered by new tax code Section 199A to proprietorships, partnerships, and S corporations (pass-through entities).

Basic Rules—Below the Threshold

If your taxable income is equal to or below the threshold of $315,000 (married, filing jointly) or $157,500 (single), follow the three steps below to determine your Section 199A tax deduction with multiple businesses or activities.

Step 1. Determine your qualified business income 20 percent deduction amount for each trade or business separately.

Step 2. Add together the amounts from Step 1, and also add 20 percent of

• real estate investment trust (REIT) dividends and
• qualified publicly traded partnership income.

This is your “combined qualified business income amount.”

Step 3. Your Section 199A deduction is the lesser of

• your combined qualified business income amount or
• 20 percent of your taxable income (after subtracting net capital gains).

Above the Threshold—Aggregation Not Elected

If you do not elect aggregation and you have taxable income above $207,500 (or $415,000 on a joint return), you apply the following additions to the above rules:

• If you have an out-of-favor specified service business, its qualified business income amount is $0 because you are above the taxable income threshold.
• For your in-favor businesses, you apply the wage and qualified property limitation on a business-by-business basis to determine your qualified business income amount.

The wage and property limitations work like this: for each business, you find the lesser of

1. 20 percent of the qualified business income for that business, or
2. the greater of (a) 50 percent of the W-2 wages with respect to that business or (b) the sum of 25 percent of W-2 wages with respect to that business plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property with respect to that business.

If You Are in the Phase-In/Phase-Out Zone
If you have taxable income between $157,500 and $207,500 (or $315,000 and $415,000 joint), then apply the phase-in protocol.

If You Have Losses
If one of your businesses has negative qualified business income (a loss) in a tax year, then you allocate that negative qualified business income pro rata to the other businesses with positive qualified business income. You allocate the loss only. You do not allocate wages and property amounts from the business with the loss to the other trades or businesses.

If your overall qualified business income for the tax year is negative, your Section 199A deduction is zero for the year. In this situation, you carry forward the negative amount to the next tax year.

Aggregation of Businesses—Qualification
The Section 199A regulations allow you to aggregate businesses so that you have only one Section 199A calculation using the combined qualified business income, wage, and qualified property amounts.

To aggregate businesses for Section 199A purposes, you must show that

• you or a group of people, directly or indirectly, owns 50 percent or more of each business for a majority of the taxable year;
• you report all items attributable to each business on returns with the same taxable year, not considering short taxable years;
• none of the businesses to be aggregated is an out-of-favor, specified service business; and
• your businesses satisfy at least two of the following three factors based on the facts and circumstances:
1. The businesses provide products and services that are the same or are customarily offered together.
2. The businesses share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources.
3. The businesses operate in coordination with or in reliance upon one or more of the businesses in the aggregated group (for example, supply chain interdependencies).

Help Employees Cover Medical Expenses with a QSEHRA
If you are a small employer (fewer than 50 employees), you should consider the qualified small-employer health reimbursement account (QSEHRA) as a good way to help your employees with their medical expenses.

If the QSEHRA is indeed going to be your plan of choice, then you have three good reasons to get that QSEHRA plan in place on or before October 2, 2018. First, this avoids penalties. Second, your employees will have the time they need to select health insurance. Third, you will have your plan in place on January 1, 2019, when you need it.

One very attractive aspect of the QSEHRA is that it can reimburse individually purchased insurance without your suffering the $100-a-day per-employee penalty. The second and perhaps most attractive aspect of the QSEHRA is that you know your costs per employee. The costs are fixed—by you.

Eligible employer. To be an eligible employer, you must have fewer than 50 eligible employees and not offer group health or a flexible spending arrangement to any employee. For the QSEHRA, group health includes excepted benefit plans such as vision and dental, so don’t offer them either.

Eligible employees. All employees are eligible employees, but the QSEHRA may exclude

• employees who have not completed 90 days of service with you,
• employees who have not attained age 25 before the beginning of the plan year,
• part-time or seasonal employees,
• employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and
• employees who are non-resident aliens with no earned income from sources within the United States.

Dollar limits. Tax law indexes the dollar limits for inflation. The 2018 limits are $5,050 for self-only coverage and $10,250 for family coverage. For part-year coverage, you prorate the limit to reflect the number of months the QSEHRA covers the individual.