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Happy Holidays & Happy New Year! December 26, 2018

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

Happy Holidays & Happy New Year!

And get ready for the tax filing season.

Hopefully, you followed some of the suggestions outlined in Publication 552 to organize your records. If you did, great! This will make filing your tax returns a lot easier this year. It also means that you and your tax advisor can spend more time on tax and financial planning issues for 2019 vs. looking back to 2018.

This week we will look at some of the more common forms that you should be watching for in the coming weeks and months:

W-2:    Employers should mail these by 1/31/19. If you have moved during the year, make sure former employers are aware of your new address. Some employers provide W-2’s to their employees via a website. Be sure to login and print out your W-2 after it is available.

W-2G:    Casinos, Lottery Commissions and other gambling entities should mail these by 1/31/19 if you have gambling winnings above a certain threshold. Note: Some casinos will issue you a W-2G at the time you win a jackpot. Make sure you have saved those throughout the year.

1096:    Compilation sheet that shows the totals of the information returns that you are physically mailing to the IRS.The check box for Form 1099-H was removed from line 6, while a check box for Form 1098-Q was added to line 6.The spacing for all check boxes on line 6 was expanded.The amounts reported in Box 13 of Form 1099-INT should now be included in box 5 of Form 1096 when filing Form 1099-INT to the IRS.

1098-C:    You might receive this form if you made contributions of motor vehicles, boats, or airplanes to a qualified charitable organization. A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. All filers of this form may truncate a donor’s identification number (social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number), on written acknowledgements. Truncation is not allowed, however, on any documents the filer files with the IRS.

1099-MISC:   This form reports the total paid during the year to a single person or entity for services provided. Certain Medicaid waiver payments may be excludable from the income as difficulty of care payments. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-INT:    This form is used to report interest income paid by banks and other financial institutions. Box 13 was added to report bond premium on tax-exempt bonds. All later boxes were renumbered. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-DIV:    This form is issued to those who have received dividends from stocks. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-B:     This form is issued by a broker or barter exchange that summarizes the proceeds of sales transactions. For a sale of a debt instrument that is a wash sale and has accrued market discount, a code “W” should be displayed in box 1f and the amount of the wash sale loss disallowed in box 1g.

1099-K:    This form is given to those merchants accepting payment card transactions. Completion of box 1b (Card Not Present transactions) is now mandatory.

K-1s:    If you are a partner, member or shareholder in a partnership or S corporation, your income and expenses will be reported to you on a K-1. The tax returns for these entities are not due until 3/15/19 (if they have a calendar-year accounting). Sometimes, you may not receive a K-1 until shortly after the entity’s tax return is filed in March.

If you are a beneficiary of an estate or trust, your share of the income and expenses for the year will also be reported on a K-1. These returns will be due 4/15/19 so you might not receive your K-1 before the due date of your Form 1040.

NOTE:  Many times corporations, partnerships, estates and trusts will put their tax returns on extension. If they do, the due date of the return is not until 9/16/19 or later. We often see client’s receiving K-1s in the third week of September.

If you receive, or expect to receive, a K-1 it is best if you place your personal return on extension. It is a lot easier to extend your return then it is to amend your return after receiving a K-1 later in the year.

1098:    This form is sent by banks or other lenders to provide the amount of mortgage interest paid on mortgage loans. The form might also show real estate taxes paid and other useful information related to the loan.

1098-T:    This form is provided by educational institutions and shows the amounts paid or billed for tuition, scholarships received, and other educational information. These amounts are needed to calculate educational credits that may be taken on your returns.

So start watching your mailbox and put all of these statements you receive in that new file you created!

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.

–until next week

Tax Tip of the Week | New Expensing and Bonus Depreciation Rules for Small Businesses December 19, 2018

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

New Expensing and Bonus Depreciation Rules for Small Businesses

As we approach the end of 2018, many businesses are reviewing their capital asset needs for this year and next and considering the tax benefits of buying these assets this year or next.

Some of the new rules are shown below as a refresher.

Remember Section 179 may be elected for part or all of the qualifying asset cost. However, use of Section 179 may not be fully deducted if it creates a loss and can not exceed certain thresholds as described below.

Section 168 is now available for new or used qualifying assets. It may create a loss but it must be taken on all purchased assets in a particular “asset class.”

-Mark Bradstreet, CPA

Isaac M. O’Bannon, Managing Editor on Nov 15, 2018 (CPA Practice Advisor)

“Some of the changes in the tax reform law mean small businesses can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.

Section 179 expensing changes

A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.

Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.

New 100 percent, first-year ‘bonus’ depreciation

The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.

The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.  In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.

Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.”

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 C. Bradstreet, CPA

–until next week

Tax Tip of the Week | Pay Your Taxes Like a Billionaire: Carefully December 12, 2018

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

Pay Your Taxes Like a Billionaire:  Carefully


One of the more common comments I hear is that the “rich” don’t pay income taxes. That is simply not true. However, many of the “rich” own and operate a business, sometimes more than one. These businesses do offer some great planning opportunities not available to many non-entrepreneurs. Often, some of the major components of these tax saving strategies revolve around the use of accelerated depreciation methods for qualifying assets and some sophisticated retirement plans.
The following excerpts from Laura Sanders (WSJ, December 1-2, 2018) further explain some of the intricacies of extended planning for individuals and businesses under the new tax laws.

-Mark C. Bradstreet

“The richest Americans have long saved billions from multi-year tax planning. Now it makes sense for many others to do the same. Advisors to high earners have always done multiyear analyses of items like operating-loss carryforwards or stock options for their clients. But because of last year’s tax overhaul, filers earning less have an incentive to use this approach.

Individuals may decide to speed up or slow down their charitable donations, while business owners may want to spread out certain deductions instead of taking them all at once. The result could be a significantly lower tax bill over time.

One key driver of the change is the near doubling of the standard deduction, the amount taxpayers get if they don’t itemize write-offs like mortgage interest, state and local taxes, and charitable donations on a Schedule A. This write-off is now $12,000 for single filers and $24,000 for married couples.

This is where multiyear planning helps.

Say that John and Jane have paid off their mortgage, owe $15,000 in state and local taxes, and give $10,000 a year to charities.

For 2017, they deducted the $25,000 total on Schedule A because it was greater than their standard deduction of $12,700. But their 2018 state-tax write-off is capped at $10,000. Thus, their deductions total $20,000, less than their $24,000 standard deduction this year.

Now see what happens if they accelerate their $10,000 of 2019 donations into 2018. They can deduct $30,000 on Schedule A for 2018 and take the standard deduction for 2019, which is $24,400 after an inflation adjustment. By doing this, their write-offs over two years total $54,400 rather than $48,400.

“People should maximize charitable deductions, as it’s often the only Schedule A strategy left,” says David Lifson, a CPA with Crowe LLP in New York.

Multiyear planning is also newly important to owners of pass-through businesses like a proprietorship, partnerships and S corporations. They now get a 20% deduction, as long as their own taxable income doesn’t exceed $157,500 for single filers or $315,000 for married couples. Above that, the deduction can shrink or disappear.

Owners with income above the limits can use various strategies to get below it. Among them: investing in depreciable equipment; making charitable donations; and saving more in retirement plans with deductible contributions.

Say a married business owner has a taxable income of $330,000 and buys $100,000 of equipment. The law allows him to deduct 100% of the cost right away, which gets him far below the $315,000 income threshold – for one year.

Instead, says Mr. Porter [a CPA in Huntington, W. VA], the owner should consider spreading out these deductions, as is often allowed.  If he takes the $100,000 write-off over five years, perhaps he can lower his income so it’s below the threshold for that period, qualifying him for a full 20% write-off each year.

With year-end nearing, here are other tax moves.

•    Take capital gains and losses as needed.  Don’t let the tax tail wag the dog, but remember that capital losses can offset taxable capital gains from investments and reduce a filer’s bill. Up to $3,000 of excess capital losses can also be deducted against “ordinary” income like wages.

Investors who sell losing securities can’t repurchase them for 30 days before or after without running afoul of Internal Revenue Service rules. Winners can be rebought right away.

•    Beware of the 3.8% surtax. The 3.8% tax on investment income applies to most married couples with more than $250,000 of adjusted gross income and most singles with more than $200,000.

It’s levied on net investment income, such as interest, dividends, capital gains and royalties, above the thresholds.  Thus, if a single filer has $150,000 of income and a $75,000 capital gain, $25,000 would be subject to the 3.8% tax.

Some people can avoid this tax by planning, such as by selling part of an investment before year-end and the rest early in January.

•    Take required IRA payouts.  These are typically from traditional individual retirement accounts held by taxpayers 70½ and older.  The required payout is a percentage of total assets on the prior Dec. 31. Except for those taking their first such withdrawal, the payout must be taken by year-end.

IRA owners taking their first required payout have a later deadline:  April 1 of the year after they turn 70½.  But waiting means the IRA owner will owe tax on two IRA payouts in the second year, pushing some into a higher bracket, so it may make sense to take it before year-end.”

-Laura Saunders, WSJ

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 C. Bradstreet, CPA

–until next week

Tax Tip of the Week | An IRA/Charitable Contribution (QCD) for Year-End Planning December 5, 2018

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

An IRA/Charitable Contribution (QCD) for Year-End Planning

Over the last few years we continue to see an uptick in charitable contributions made from an IRA. I continue to believe this tax strategy is very often overlooked or just simply ignored. So as this year winds down and many people are making charitable donations, please remember the new tax law has made the way to make charitable contributions even more worthwhile to consider.

-Mark C. Bradstreet, CPA

Bob Carlson Contributor (excerpts from an article titled “7 IRA Strategies For The End of 2018”)

“It’s time for IRA owners to be proactive by planning and implementing their strategies for the rest of the year. Consider these steps now and take those that are appropriate for you.

Caution: Don’t wait until the last few weeks of the year to consider your actions. IRA custodians are very busy then. Many won’t process requests for some types of transactions during the last couple of weeks of the year or won’t guarantee they’ll be completed by December 31.

Use QCDs to make charitable contributions. It’s one of the best ways to make charitable contributions, though it’s available only to owners of traditional IRAs who are age 70 ½ and older.

The Tax Cuts and Jobs Act made the qualified charitable distribution (QCD) even more valuable. The law increased the standard deduction and reduced the itemized expenses that can be deducted.  The result is fewer taxpayers will be itemizing expenses and deducting charitable contributions.

In a QCD, you direct the IRA custodian to send a contribution directly to the charity of your choice. Or you can have the custodian send you a check made payable to the charity, which you deliver to the charity.

The distribution isn’t included in your gross income, yet it counts towards your required minimum distribution (RMD) for the year.”

Bob Carlson is the editor of Retirement Watch, a monthly newsletter and web site he founded in 1990. He researches and writes about all the financial issues of retirement and retirement planning, for both those planning retirement and already retired.

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 C. Bradstreet, CPA

–until next week