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Happy New Year!! December 30, 2020

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

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 2021 vs. looking back to 2020.

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 2/1/21.  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 2/1/21 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-NEC:   This form, NEW for 2021, 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. 

1099-MISC:  This form will be used to report miscellaneous income such as rent or payments to an attorney, legal settlements, or prize or award winnings.

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 3/15/21 (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 4/15/21 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 9/15/21 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

Special Holiday Edition December 23, 2020

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Retirement, tax changes, Tax Planning Tips, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

Enjoy the Holidays!

We are going to take a break from our tax and business tips this week.  Instead, the family of Bradstreet & Company would like to wish you and your family the most joyous holiday season and best wishes for 2021.

We hope you enjoy the Tax Tip of The Week.  As always, your topic suggestions and questions are always appreciated.

Is the Tax Tip of the Week real?

While your kids are questioning if Santa is real, we continue to receive some interesting feedback that some of you don’t realize this is really Bradstreet CPAs reaching out each week (… some suspect this is a “packaged” communication to which we add our logo.) Well, rest assured it’s us and we love to hear from you.
Enjoy the week and, “Yes Virgina, there is a Santa Claus”.

Wishing you all great things,

The Staff at Bradstreet & Company

Tax Loss – Harvesting December 16, 2020

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, tax changes, Tax Rules, Tax Tip , add a comment

I am not a financial planner nor a stockbroker. And, as we have heard a million times over, “Past performance is no guarantee of future results.” Having gotten these typical disclaimers out of the way, let’s discuss what tax-loss harvesting is all about.

The long story short is that tax-loss harvesting is often referred to as selling securities at a loss to offset a capital gains tax liability. Usually, the end goal is to limit the taxation of short-term capital gains. This is important since higher federal income taxes are imposed on short-term capital gains as opposed to long-term gains.

Some cautions –

  1. Wash rule – some investors may sell a security for harvesting purposes but later wish to add it back to their investment portfolio. That is fine BUT wait 31 days for the purchase or the original loss will be disallowed by the IRS. 
  2. Harvesting tax losses will defer paying the capital gain tax. When you die the tax basis on your stocks (current tax law) will be “stepped-up” to their fair market value. Thusly, the untaxed capital gains will go untaxed. 
  3. Capital losses are limited to an annual $3,000 deduction. The good news is that unlike many other carryforwards, capital loss carryforwards never expire during one’s life. However, they do not survive your death.  In the year that a spouse dies and a return is filed jointly, the losses from one spouse’s brokerage account may be used to offset the other spouse’s gains. 

Ideas and excerpts above came from a WSJ article, 2020 Was Perfect for Tax-Loss Harvesting. It was written by Mr. Neal Templin and published in the WSJ on November 9, 2020. It contains additional planning points and offers greater in-depth explanations. This article is reprinted below for further reading.

                                   -Mark Bradstreet



This is the kind of year that was made for tax-loss harvesting.

The tactic, used to legally reduce or avoid altogether capital-gains taxes, is especially useful in years when a jarring market slide is followed by a strong rebound. That’s why this year, with the market’s plunge in March and subsequent recovery to record highs, was ideal for this strategy.

In January and February, New York money manager David Frisch sold winning stock positions in the brokerage account of client Mike Soffer, generating $20,000 in capital gains. In March, as the market plummeted, Mr. Frisch sold losing positions in Mr. Soffer’s account, creating tax losses to offset the gain. Plus, he banked an additional $15,000 in tax losses that Mr. Soffer can use in the future to offset gains.

Mr. Soffer, a commercial mortgage broker in Old Bethpage, N.Y., can also use the banked tax losses to offset up to $3,000 a year in ordinary income. “It’s money earned by not paying taxes,” he says.

If you didn’t sell stocks during the March market slide, it’s too late to create tax losses from it now. But fret not. There will be more opportunities in the future. Even in up years for the market, there are dips where investors can book tax losses.

When those opportunities come around, here are a few things to keep in mind about harvesting tax losses.

1. Don’t run afoul of the wash rule.

If you sell something and repurchase it or a substantially similar security within 30 days, the Internal Revenue Service won’t allow you to count it as a tax loss. That’s called the wash rule.

Money managers typically don’t want to spend 30 days out of the market when they create a tax loss for a client. They could miss out on upswings, like April of this year. So as soon as they sell an investment to create a tax loss, they buy an equivalent investment that is different enough to satisfy the wash rule.

When money manager Joseph Favorito of Melville, N.Y., sold S&P 500 index funds in March to create a tax loss for clients, he frequently bought Russell 1000 index funds. Both types of funds own large-cap stocks and they perform similarly.

The switch allowed his clients to stay invested in the market. “After the market bottomed out in March, we had the 50 best days in market history,” Mr. Favorito says. “If you missed that, you missed a lot.”

2. Try to accomplish other goals as you create tax losses.

It’s a good practice to rebalance your holdings regularly, selling stocks or funds that have climbed and buying ones that have lagged behind. That’s a great time to create tax losses. To do this efficiently, you need to know the cost basis of your holdings (generally the price at which you bought a security), so you know if you’re creating a loss or a gain when you sell them. If you bought shares of a certain company at various times, you will create a greater tax loss by selling the shares you acquired at the highest price.

If you’ve spent years working for a single company, your portfolio may be concentrated in a single stock. That’s risky. Advisers would tell you to sell at least part of your holdings and replace it with a diversified portfolio of stocks. If you do this during a downturn, you may be able to create a tax loss that you can use to offset gains for years to come.

3. Harvesting tax losses can allow you to defer paying capital-gains taxes, and in some cases to never pay them.

Suppose you buy shares in Mutual Fund A for $100,000 and their value falls to $50,000. You sell the shares and buy $50,000 of Mutual Fund B and book a $50,000 tax loss. You use it to offset a $50,000 gain on the sale of a second home.

Five years later, the value of your Mutual Fund B shares has climbed to $100,000. You sell them. Your cost basis is $50,000, because that’s what you paid for Mutual Fund B. If you sell it for $100,000, you will owe taxes on a $50,000 capital gain. What you’ve done is to defer the capital-gains tax you avoided five years earlier when you sold the home.

Even better is finding new opportunities to create tax losses during those five years to offset your $50,000 gain on Mutual Fund B so that it, too, is untaxed.

When you die, under current law your heirs will inherit your assets with a “stepped up” cost basis, meaning that any untaxed capital gains have been erased as far as the IRS is concerned. That’s another reason why avoiding taxation on capital gains during your life is a smart strategy. That tax may never be paid.

4. When you expire, so do your tax losses.

A tax loss can be used anytime over the lifetime of the account holder, but not beyond. But there is an important wrinkle in the tax law that married couples should keep in mind. During the final year that a couple files jointly after one spouse dies, the losses from one spouse’s brokerage account can be used to offset gains by the other spouse.

5. Will the election change the calculus?

President-elect Joe Biden has said he supports raising the top capital-gains tax rate to 39.6% and taxing appreciated assets at the time of death. Both would mean big tax increases over the current regimen, where the top capital-gains rate is 23.8% and appreciated assets are passed tax-free to heirs. Some investors may sell winners, figuring they’re better off biting the bullet before tax rates rise.

Marianela Collado, a Plantation, Fla., money manager, says she won’t tell her clients to take gains based on a Biden win. Even if the law changes under Mr. Biden, it could change back under the next president, she says.

For now, Ms. Collado is making hay under the current rules. She has a client who sold a building in January, generating a $1 million capital gain. She told her client to set aside $238,000 to cover taxes.

Then, in March, she sold mutual funds owned by the client and immediately bought different funds with similar aims. In doing so she created a $500,000 tax loss, which will offset half of her client’s capital gain from the building sale.

“What we did in those few weeks is going to save him about half that tax,” she says.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. 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.

Home Ownership – Unmarried Partners December 9, 2020

Posted by bradstreetblogger in : Depreciation options, General, Section 168, Section 179, tax changes, Tax Planning Tips, Tax Rules, Tax Tip , add a comment

Owning a home may be difficult under the best of conditions. Added complexities occur when buying a residence with an unmarried partner.  Home purchases are nearing a 14 year high in the USA. And, the number of unmarried partners living together has almost tripled in the last twenty (20) years.

Many of the concerns of purchasing a home with another individual may best be solved by viewing this transaction as a business venture (which it really is).  Partnership agreements are best addressed by a real estate and business attorney. The attorney will address an operating agreement that includes what happens if the partnership breaks up or someone dies. Also, included will be in whose name will the home be titled, credit scores, who has and deducts the mortgage interest expense, how you and your partner are going to share ongoing expenses including repairs and real estate taxes. As in any business – having a joint banking account solely for the home expenses is a great idea.

Many of the above ideas were taken from the following article, How to Buy a Home Together When You’re Not Married, by Veronica Dagher which was published in the WSJ on November 4, 2020. 

                                         -Mark Bradstreet


As U.S. home sales rise to a 14-year high and families search for larger spaces in quarantine, more unmarried couples may be considering buying a house together. For them, there is a different set of risks, both financial and practical, to consider.

The number of unmarried partners living together nearly tripled in the past two decades to 17 million, with a notable increase among those aged 65 or older, according to the U.S. Census Bureau. In turn, some financial advisers are getting more requests for advice from couples of all ages who want to buy a home together but have no interest in getting married.

For example, Andrew Feldman, a financial planner in Chicago, recently received a call from one of his clients who is living with her boyfriend and his two children. They are running out of space and she intends to buy a house within a few weeks and have him pay rent to help cover the mortgage.

While this would work out well for everyone in the short-term, it is risky because, on her current budget, it would be very difficult for her to keep the house without his help.

“The upside is easy but the downside is a big unknown,” said Mr. Feldman.

Here’s a guide for what to consider before you buy a place together.

How do you know if you and your partner are financially ready to buy a house?

If you haven’t discussed how you and your partner share money and expenses, you’ll want to do that first before committing to buying a house, said Mark Reyes, a financial planner at Albert, a financial-planning app.

Make sure you discuss your finances with full transparency, including any debts or income that the other partner isn’t aware of. You’ll also need to decide if and to what extent you’ll share finances going forward, he said.

It will be important to discuss how repairs, property taxes and other home expenses will be shared or handled. Having a joint bank account dedicated to house expenses such as repairs may be a good idea, he said.

Who should apply for the mortgage?

Unmarried couples buying a home together can benefit from greater flexibility when applying for a mortgage, said Bill Banfield, executive vice president of capital markets at Rocket Mortgage.

They have the opportunity to put their “best foot forward” by having the individual with the most income, best FICO and best debt-to-income go through the application process, he said.

The buyer who is more qualified can be the only one on the mortgage and this could result in a favorable interest rate and mortgage terms if the other partner has a low credit score, for example.

The mortgage holder will be solely responsible for the entire debt, so if you break up and you hold the mortgage, you’ll owe all the money, he said.

Lenders also let both partners apply for the mortgage together—allowing incomes and debts to be combined. The lowest of the two FICO scores, however, will be used. Applying together could allow the couple to borrow more, depending on their financial situation.

Who should hold the title to the house?

How the house is titled is crucial.

Depending on your situation, you’ll want to make sure that you and your partner discuss the legality of homeownership with your respective, independent lawyers, said Mr. Reyes, the financial planner at Albert. Titling options include sole ownership, joint tenancy with rights of survivorship, or tenants in common.

Titling can play a crucial role during a breakup or when one partner dies. It will also determine who gets how much equity in the house. For example, if the higher earner in the relationship is listed as the sole owner of the house, the other partner is basically “renting” to live there and has no ownership stake in the house if they break up, he said.

If the couple own property as tenants in common and the deceased partner doesn’t name the surviving partner as the beneficiary of the house, the survivor could become a co-owner with their late partner’s relatives or heirs, said Tom McLean, a financial planner in Olympia, Wash.

For younger couples, tenants in common tends to be the most common form of titling, as each often wants to have an ownership stake but may not want the other person to inherit that stake (as would be the case if they owned the home in joint tenancy with rights of survivorship), said Avi Kestenbaum, a partner at Meltzer, Lippe, Goldstein & Breitstone.

What if we break up?

If the relationship doesn’t work out, there are some key questions the couple will need to answer, Mr. Kestenbaum said, such as will there be a forced sale (where the couple is forced to sell the home even though one party may not wish to), or can one partner buy out the other and for what price, and how will the proceeds be split?

Mr. Kestenbaum recommends a written and signed legal agreement, such as a simple partnership agreement solely dealing with the home, to answer these questions and to also spell out each of the parties’ rights and obligations, even if the relationship continues.

What are the tax benefits?

One of the benefits to buying a home as an unmarried couple is the ability to bunch itemized deductions on one person’s tax return and take the standard deduction on the partner’s tax return, said Alexandra Demosthenes, a certified public accountant and financial planner in Boca Raton, Fla.

If the couple were married but filing separate tax returns, they’d have to either both itemize or both take the standard deduction. However, when the couple isn’t married, one individual can itemize their deductions (if the total is higher than the standard), claiming the mortgage interest, property taxes and all other allowable deductions, while their partner can choose to take the standard deduction.

This could maximize deductions for the couple over and above what they could claim as a married couple, resulting in maximum tax savings, she said.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. 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.

9 Best Practices for Small Business Taxes December 2, 2020

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip , add a comment

Not sure there are only 9 “best practices” for small businesses as the below article suggest.  But, the 9 “best practices” that follow are valid points and a decent start your tax preparation.

                                -Mark Bradstreet

Running a business is hard enough without adding the complexity of filing taxes each year. The key, experts say, is to work with your accountant throughout the year, not just when you prepare your tax return. Making financial decisions without consulting an accountant or financial adviser can put you at risk and cost you more money in the long run, says John Blake, CPA, in Hamilton, N.J.

Here are nine best practices for small business when it comes to tax preparation and small business accounting, and working with an accountant or financial professional.

1. Hire the right accountant

Your accountant should offer to do more than just prepare financial statements and do your taxes, says Chandra Bhansali, co-founder and CEO of Accountants World. If that’s all they offer to do, then they aren’t the right accountant for a small business, Bhansali says.

Your accountant should work with you throughout the year to track income and spending, to make sure you don’t have a cash flow problem, and to monitor your gross and net profits, Bhansali says. Work with your accountant from day one of opening your business, not just in March and April for tax season. “Most small businesses don’t understand the importance of accounting for the survival and growth of their businesses,” he says.

2. Claim all income that is reported to the IRS

The IRS gets a copy of the 1099-MISC forms you receive so they can match the income you’ve reported against what they know you’ve received. Make sure the income you report to the IRS matches the amount of income reported in the 1099s you received, Blake says. Not doing so is a red flag for the IRS. Even if a client doesn’t send out a 1099, you still need to report that income. The same rules apply with state taxes, he says.

3. Keep adequate records

Keeping thorough and accurate records throughout the year will ensure your tax return is correct. With inadequate record keeping, Blake says, you could be leaving deductions on the table or, worse, you could be putting yourself at risk for an audit. Blake recommends every business invest in a basic version of an accounting software because it is user friendly, inexpensive, and helps you keep track of all your income and expenses.

4. Separate business from personal expenses

If the IRS audits your business and finds personal expenses mixed with business expenses, regardless of whether you reported business expenses correctly, the IRS could start looking at your personal accounts because of commingled money, Blake says. Always get a separate bank account and credit card for your business and run only business expenses through those accounts.

5. Understand the difference between net and gross income

If your product costs more money to make than you charge for it, you will lose money regardless of how many units you sell. Small business owners often forget to take into account the difference between their net and gross income, Bhansali says. 

For instance, if it costs $100 to make your product and you sell it for $150, your gross income is $50. But, he says, after you deduct your expenses, your net income might drop to $10. “It’s important to know what your gross and net profits are so you can be more profitable and grow your business,” Bhansali says.

6. Correctly classify your business

Failing to properly classify your business could result in overpaying taxes, Blake says. Deciding whether to classify your company as either a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor will have a different effect on your taxes. It’s important that small businesses consult with an attorney and accountant to determine how their businesses should be classified.

7. Manage payroll

Blake recommends hiring a company to assist with payroll – but be sure that the company is reputable. To save money, some business owners will hire a lesser-known payroll service, only to find out later the service wasn’t remitting payroll taxes for the company. If that happens, Blake says, the business owners are on the hook for the payroll taxes. The IRS typically checks every quarter to see if payroll taxes have been paid.

8. Seek your accountant’s advice on your business plan

A good accountant gives you advice on how to grow your business, Bhansali says. Seek their advice to determine how much to contribute to your retirement fund and whether you should take a bonus or delay it a year. Your accountant can tell you if buying a small space for your store or business – rather than renting – could save you money.

9. Take advantage of capitalization rules

If you acquire a tangible piece of property or equipment for your business, you may be able to take a significant deduction. Make sure your accountant understands the rules around capitalization.

Credit given to: Conning, 2014; Conning Strategic Study: The Small Business Sector for Property-Casualty Insurance: Market Shift Coming.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. 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.