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Tax Tip of the Week | Categories of Real Estate August 29, 2018

Posted by bradstreetblogger in : General, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 29, 2018 | Categories of Real Estate

If one were to ask the typical American taxpayer to name the various types of real estate, one might expect to hear (1) residential and (2) commercial. That would not be a bad answer, unless that taxpayer were dealing with the Internal Revenue Service.

In that case, one might expect to hear some of the following responses:

1.    Principal residence
2.    Second home
3.    Vacation home
4.    Residential rental property
5.    Commercial rental property
6.    Investment property
7.    Business property

Each of the above property categories may be treated very differently from one another from a tax perspective. Some properties could even be classified as being in multiple categories.

Adding to the confusion, some of these categories may be further broken down into subcategories.

The subcategories may include:

1.    Passive (losses may be limited depending upon your participation)
2.    Non-passive (losses are allowed)
3.    Self-rental (gains are treated as ordinary income; losses as passive)
4.    Inherited (typically basis is the fair market value as of the decedent’s date of death)
5.    Gifted (receiver gets carry over basis from donor)
6.    Personal (no losses are allowed)

Generally, rental income is taxable income (some exceptions exist on your home and second home). Expenses are not so easy. Some may be deducted and others may need to be added to the property’s basis and depreciated. Deductions for vacation homes that have both personal and rental use may be limited and require additional calculations. Interest has its own set of rules.

Please understand that you need to be able to substantiate your property category and your deductions. Your property category may make a huge impact if the property is sold. Sound confusing? It is! Significant tax dollars may be at stake.

Thank you for all the wonderful input from last week’s Tax Tip of the Week; Common Misconceptions.  We apologize for the confusion on the technical error related to replying to the email.  Keep the feedback coming, here is the link to last week; Common Misconceptions, and a link to tell us about the misconceptions you have come across; markb@bradstreetcpas.com.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | Business Misconceptions August 22, 2018

Posted by bradstreetblogger in : General, Tax Tip, Taxes, Uncategorized , 3comments

Tax Tip of the Week | Aug 22, 2018 | Business Misconceptions

This week is a different topic than ever before…we need your help.

I started writing an article about business misconceptions. After coming up with a few misconceptions, I decided to ask for help from my fellow associates. We are all in lots of meetings and hear all kinds of fascinating business thoughts and theories. Then, the next thought was to expand this brainstorming to our entire audience.

So what business misconceptions can you think of? Just shoot us an email and let us know? Please also note whether it would be okay to use your name or just post anonymously.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 473 | “When To Step In With An Older Parent” August 15, 2018

Posted by bradstreetblogger in : General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 15, 2018 | “When To Step In With An Older Parent”

I have been in denial most of my adult life. I never wanted my awesome parents to ever get older. They were like Superman and Superwoman to me – totally invincible. I really believed that if I ignored that fact that they were aging – it wouldn’t happen. But alas, once again, denying and ignoring what was happening in front of me – didn’t save the day. If you find yourself in a similar situation, perhaps what you read below may be of value.

Glenn Ruffenach of the WSJ on May 4, 2018 shares some of his thoughts that follow in his article with us:

…that 92% (that is a HUGE number) of “caregivers” provide some type of financial assistance for a family member such as handling insurance claims, filing taxes, paying bills, etc.

As for “when,” I would broach this topic as soon as possible. If anything, many families are too slow to act. Denial plays a big part in this. Older parents, hoping to stay independent, are quick to minimize difficulties; adult children, reluctant to meddle, may ignore red flags. (And few families, of course, enjoy talking about money.) As such…everyone waits. But the consequences of waiting can be dire: closed accounts, damaged credit, money lost to scam artists—even foreclosure.

The simplest approach is usually the best: pointing out to your mother (or parent) that all of us, as we age, need help, whether its yard work or home repairs or transportation. And household finances are no exception. I began talking with my mother when she was in her early 70s (and still in good health) about the importance of having a family member on “standby”—someone who knew about her bills, credit cards, insurance, investments, etc.

We already had her estate plans in order, and I had power of attorney. But we took two additional steps: We added my name to her checking account, and I filled out a separate set of power-of-attorney forms with the custodian of her individual retirement account, her biggest asset. (Many financial institutions have—and require that you complete—their own documents if you wish to give, say, your spouse or an adult child access to an account.) The latter proved to be invaluable when my mother suffered a stroke and I needed to tap her IRA quickly to help pay for long-term care.

For anyone acting as a financial caregiver, the following resources are invaluable:

•    The federal Consumer Financial Protection Bureau
•    The National Caregivers Library
•    AARP

And if the person who needs help is at some distance from you, you might want to hire a daily money manager. These professionals can sit with a person at home and help pay bills, balance checkbooks and decode medical bills. Start with the American Association of Daily Money Managers (aadmm.com). Be sure the manager you choose is insured, bonded and willing to include other family members in his or her work.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 472 | The Tax Cuts and Jobs Act August 8, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 8, 2018 | No. 472 | The Tax Cuts and Jobs Act

We have shared information on various aspects of the Tax Cuts and Jobs Act in several previous tax tips. The following is a nice refresher brought to us by our Western CPE sponsors which we wanted to share this week.

Tax Reform and What it Means for Your Personal Taxes 

President Trump, when he was on the campaign trail, promised that he would push for tax reform legislation. On Dec, 22, 2017, he signed The Tax Cuts and Jobs Act into law, the first major tax reform in 31 years. The new law makes many changes to the tax code. Every taxpayer is impacted. A highlight of the changes follows:

Tax rates.  Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.

Exemptions and the child tax credit.  The deduction for personal exemptions is eliminated. An expanded child tax credit will help make up for the loss of personal exemptions for some families. The credit is increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500.

Standard deduction.  The new tax reform law doubles the standard deduction. The higher standard deduction ($12,000 for singles, $18,000 for heads of household, and $24,000 for married filing joint) means that fewer taxpayers will benefit from itemizing deductions.

Itemized deductions.  Itemized deductions for all state and local taxes, including property taxes, are capped at $10,000. The limit on mortgage debt for purposes of the mortgage interest deduction is reduced from $1,000,000 to $750,000 for loans made after Dec. 15, 2017. Loans made before Dec. 15, 2017 are grandfathered at the $1,000,000 debt limit. The interest on home equity borrowing is no longer deductible in most cases. The threshold for medical expense deductions is lowered to 7.5% of adjusted gross income (from 10%) for tax years 2017 and 2018. Miscellaneous itemized deductions subject to the 2% of AGI limitation are not allowed. Miscellaneous itemized deductions lost because of the new law include employee business expenses, investment adviser fees, union dues, and tax preparation fees. Personal casualty losses are not allowed unless the losses were suffered in a federally declared disaster area.

Alimony.  The new tax reform law eliminates the alimony deduction for agreements signed after Dec. 31, 2018. Alimony income is not taxable for agreements signed after Dec. 31. 2018. There is no change to the law for agreements signed before Jan. 1, 2019.

Moving expenses.  The new tax reform law eliminates the moving expense deduction and makes employer reimbursement of moving expenses taxable to the employee beginning in 2018.

AMT.  The new tax reform law temporarily increases the alternative minimum tax (AMT) exemption for tax years 2018 through 2025. The increase in the exemption, as well as the elimination of major tax preferences (exemptions, state taxes above $10,000 and miscellaneous itemized deductions) means that fewer people will be subject to AMT under the new law.

Education.  The new tax reform law modifies qualified tuition programs – §529 plans. Funds in the 529 plan can now be used to pay for grades K to 12 private school tuition. The above-the-line deduction for college tuition expenses was renewed in later legislation, but only for 2017. The American Opportunity and the Lifetime Learning credits continue to be available.

Roth IRA conversions.  The new tax reform law repeals the special rule permitting recharacterization of Roth IRA conversions. A conversion of a traditional IRA to a Roth IRA may still be advisable, but once the conversion is completed, it can’t be undone.

These are just a few of the changes included in the Tax Cuts and Jobs Act. Your 2018 taxes will be affected. That’s guaranteed by the scope of the changes. The degree of impact depends on your personal situation.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 471 | Ohio Worker’s Compensation August 1, 2018

Posted by bradstreetblogger in : Deductions, General, Tax Deadlines, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 1, 2018 | No. 471 | Ohio Worker’s Compensation

To Start: Having a business in Ohio requires you to obtain Worker’s Compensation insurance for your employees and possibly your subcontractors. The application, payments and returns are all filed through the Ohio Bureau of Workers’ Compensation (OBWC) website at https://www.bwc.ohio.gov.

For new employers an application form U-3 requires a $120 non-refundable application fee. Based on your estimated payroll for the following 12 months and the type of work that your employees do (manual number), OBWC will set your annual fee. It is very important that you are specific in the type of work being done and the equipment being used to accurately assign the manual numbers and rates.

Reporting & Paying: Depending on the amount set for your annual fee, you will either need to pay the entire amount up front or it will be broken down into 6 equal payments. You can make these payments online or pay the installments through the mail. Once a year, you can elect to make your 6 payments monthly, quarterly or annually. BWC runs on a fiscal year of July 1- June 30. A true-up report is due annually on August 15 and is required to be filed on their website reporting the actual payroll for the prior fiscal year. Depending on the actual versus the estimated, either an overpayment will be refunded or a balance will be due. If you have a significant increase in your payroll, you may want to increase your payments during the year so that you don’t owe a large sum with the true up.

Rebates: In 2018 OBWC is issuing rebates for the 2016-2017 fiscal year of 85% of the premiums paid for that year. Checks were mailed out in July. Rebates have also been issued in 3 of the past 4 years.

Lowering your rates:  There are various methods to help lower your rates including: belonging to a group, participating in safety programs, i.e. Policy Activity Rebate (PAR) and training through Better You, Better Ohio! as well as other rating programs. Various rules apply to these, including claim history and some may not be combined.

Let us help answer any of your questions about Workers’ Compensation or other tax matters.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Linda J. Johannes, CPA

–until next week.