November 2017 Newsletter

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Year-end tax checklist

As the year draws to a close, there are several tax-saving ideas you should consider. Use this checklist to make sure you don’t miss an opportunity before the year is out.

  • Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.
  • Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your ordinary income.
  • Last-minute charitable giving. Make a late-year charitable donation. Even better, make the donation with appreciated stock you’ve owned more than a year. You can often can make a larger donation – and get a larger deduction – without paying capital gains taxes.
  • Noncash contribution opportunity. Gather up noncash items for donation, document the items and give those in good condition to your favorite charity. Make sure you get a receipt from the charity, and take a photo of the items donated just in case.
  • Gifts to dependents and others. You may provide gifts to an individual tax-free of up to $14,000 per year in total. Remember that all gifts given (birthdays, holidays, etc.) count toward the total.
  • Organize records now. Start collecting and organizing your end-of-year tax records. Estimate your tax liability and make any required estimated tax payments.

The Equifax breach and you: be proactive

Earlier this year, hackers were able to breach the security of Equifax, one of the three national credit reporting agencies. More than 143 million Americans – nearly half the entire country – were exposed to the attack, and may have had their personal information stolen (including names and birthdates, and Social Security and driver’s license numbers).

Equifax is still determining exactly whose data has been exposed. While you wait to find out, it’s worth taking a few proactive steps to make sure your info isn’t misused by hackers. 1. Start checking. Visit Equifax’s website at www.equifaxsecurity2017.com and enter your last name and last six digits of your Social Security number. The site will tell you whether it’s likely or not your data has been exposed, and put you on a list to get more information. You can also sign up for a year’s worth of free credit monitoring.

  1. Watch your statements.Start checking your credit card statements, and pay special attention to cards you don’t use often. The initial reports from the breach were that hackers may have been making charges on underused cards.
  2. Check your credit reports.You can look for suspicious items on your reports, such as new accounts being opened in your name, at all three credit report agencies: Equifax, Experian and TransUnion. Free annual reports are available at www.annualcreditreport.com. You may want to stagger your use of the reports to one from each agency every four months. More frequent checks will cost you a small fee.
  3. Freeze your credit.If you suspect you may become a victim of identity theft, you can place a credit freeze on your profile at each of the three credit reporting agencies. This stops new accounts from being opened in your name. Note that you’ll have to unfreeze your accounts if you want to apply for new loans or make your credit accessible for things such as job applications.
  4. File your taxes early.One of the most common ways identity thieves use your information is to try to claim a tax refund with your data. This was the most common scam in 2016, according to the Better Business Bureau. If you file your tax return as early as possible, you shut down this opportunity for any would-be thieves.

6 must-dos when you donate to charity

Donations are a great way to give to a deserving charity, and they also give back in the form of a tax deduction. Unfortunately, charitable donations are under scrutiny by the IRS, and many donations without adequate documentation are being rejected. Here are six things you need to do to ensure your charitable donation will be tax-deductible:

  1. Make sure your charity is eligible. Only donations to qualified charitable organizations registered with the IRS are tax-deductible. You can confirm an organization qualifies by calling the IRS at (877) 829-5500 or visiting the IRS website.
  2. Itemize. You must itemize your deductions using Schedule A in order to take a deduction for a contribution. If you’re going to itemize your return to take advantage of charitable deductions, it also makes sense to look for other itemized deductions. These include state and local taxes, real estate taxes, home mortgage interest and eligible medical expenses over a certain threshold.
  3. Get receipts.Get receipts for your deductible contributions. Receipts are not filed with your tax return but must be kept with your tax records. You must get the receipt at the time of the donation or the IRS may not allow the deduction.
  4. Pay attention to the calendar.Contributions are deductible in the year they are made. To be deductible in 2017, contributions must be made by Dec. 31, although thereis an exception. Contributions made by credit card are deductible even if you don’t pay off the charge until the following year, as long as the contribution is reported on your credit card statement by Dec. 31. Similarly, contribution checks written before Dec. 31 are deductible in the year written, even if the check is not cashed until the following year.
  5. Take extra steps for noncash donations.You can make a contribution of clothing or items around the home you no longer use. If you decide to make one of these noncash contributions, it is up to youto determine the value of the contribution. However, many charities provide a donation value guide to help you determine the value of your contribution. Your donated items must be in good or better condition and you should receive a receipt from the charitable organization for your donations. If your noncash contributions are greater than $500, you must file a Form 8283 to provide additional information to the IRS about your contribution. For noncash donations greater than $5,000, you must also get an independent appraisal to certify the worth of the items.
  6. Keep track of mileage.If you drive for charitable purposes, this mileage can be deductible as well. For example, miles driven to deliver meals to the elderly, to be a volunteer coach or to transport others to and from a charitable event, can be deducted at 14 cents per mile. A log of the mileage must be maintained to substantiate your charitable driving.

Remember, charitable giving can be a valuable tax deduction – but only if you take the right steps.

October 2017 Newsletter

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Tax Filing Reminders

  • October 16
    • Filing deadline for 2016 tax returns for individuals or corporations if you requested/received a six-month extension. Pay taxes due by this date.
    • Deadline to recharacterize a Roth IRA to a Traditional IRA.
    • Deadline to fund your Keogh or SEP plans if you requested a filing extension.

How to Ace the FAFSA

The Free Application for Federal Student Aid (FAFSA) is a tool that students use to apply for more than $120 billion in federal funds. Unfortunately, each year many students miss out.

Even if you don’t think you or your child qualify for federal aid, filling out a FAFSA is important because it could be used to determine eligibility for nonfederal aid and private funds.

FAFSA available October 1, 2017 Previously, the FAFSA was unavailable until January. A recent change makes the application available October 1, 2017. That’s because the 2018-19 FAFSA can be completed with your 2016 tax info.

Avoid FAFSA mistakes Don’t forgo federal student aid by making one of the following common filing mistakes:

Mistake: Not reading the instructions or questions Tip: Answer all questions – even if the answer is zero. If left blank, the question will be considered unanswered. Check the FAFSA website if you are unsure of definitions of key FAFSA terms.

Mistake: Incorrect, incomplete or non-matching data Tip: Complete the FAFSA online. It takes only 3-5 days to process when submitted electronically. The online version has built-in safeguards that identify and prevent many errors.

Mistake: Not filing on time Tip: Get the application submitted ASAP. The sooner you or your child gets started, the higher the likelihood of being awarded funds since many are distributed on a first-come, first-served basis.

Remember, students need to complete a FAFSA each year because eligibility does not carry over and can vary based on circumstances.

Renew your ITIN now

If you have an Individual Taxpayer Identification Number (ITIN) rather than a Social Security number (SSN) you may need to take action or you’ll be unable to file a tax return for 2017.

What to know about ITINs ITINs are identification numbers issued by the U.S. government for individuals who do not qualify to receive an SSN. An ITIN can be used to file tax returns and is also a form of identification often required by banks, insurance companies and other institutions. Unfortunately, ITINs are also a source of identity fraud. To combat this, the 2015 PATH Act made substantial changes to the program. Now a number of ITINs will expire if not renewed by December 31, 2017.

No ITIN, no problem. If you do not have an ITIN, but have an SSN, this expiration does not affect you.

No tax return in past three years. ITINs that have not been used when filing a tax return at least once in the past three years will automatically expire on December 31, 2017.

Middle digits of 70, 71, 72 and 80 also expire. The new law creates a rolling expiration date for all issued ITINs. The key number to look for is in this position: 9xx-XX-xxxx. If your ITIN has any of those numbers, you’ll need to renew it. Last year the middle digits of 78 and 79 expired.

Renew your ITIN Don’t wait until the last minute and then discover your tax return has been rejected and your refund is delayed because of an expired ITIN. To renew, fill out Form W-7 with the required support documents. To learn more, visit the ITIN information page on the IRS website.

Business tax: time to consider Section 179?

Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. While it doesn’t change the amount of depreciation you can take over the life of a capital purchase, it can change the timing by allowing you to deduct your purchase in the first year you place it in service.

Review these details if you’re considering depreciating your business assets under Section 179:

  • Section 179 allows deducting the expense of up to $510,000 of qualified business purchases.
  • A Section 179 deduction cannot create a loss for the business.
  • A Section 179 deduction must be for business use. If an asset is not entirely used for business, the allowance is reduced.
  • If you sell a Section 179 asset prior to the full depreciation period, you will have to record any sales proceeds as taxable income.
  • Many states limit the use of this federal shifting of depreciation.

Taking Section 179 for capital purchases can be useful, but it’s not for everyone. Using it for an immediate tax break means it’ll no longer be available for future years.

September 2017 Newsletter

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Tax Filing Reminders

  • September 15
    • Third quarter installment of 2017 individual and corporation estimated income tax is due.
    • S corporations: Filing deadline for 2016 tax returns for S corporations that requested/received a six-month extension.
    • Partnerships: Filing deadline for 2016 tax returns for partnerships that requested/received an automatic six-month extension.
    • Electing large partnerships: Filing deadline for 2016 tax returns for electing large partnerships that requested/received a six-month extension.
  • October 16 – Filing deadline for 2016 individual or corporation tax returns that requested/received a six-month extension. Pay taxes due by this date.

Say Goodbye to the College Tuition Deduction

Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive. However, Congress left in place two popular education credits that may offer a more valuable tax break:

  • The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles).
  • Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $131,000 per year (or singles making $65,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student.

So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction is generally the only means you have to reduce your tax bill.

Thankfully, there are many other tax benefits that help reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.


Avoid These Common Tax Mistakes

There are nearly 1,000 different tax forms used by the IRS to report tax obligations. It’s no wonder the IRS faces thousands of tax returns with errors each year. Here are some of the most common:

Wrong names and Social Security numbers. Taxpayers regularly make mistakes by entering incorrect information for their spouses and dependents. If you recently married or divorced but haven’t yet changed your name with the Social Security Administration, you’ll need to file under your old name.

Errors in age and birthdate. Much of the tax code is based on age. Without the correct birthdate, your eligibility for tax benefits could be cast in doubt.

Incorrect bank account numbers. If you’re expecting a refund and want to have it direct deposited into your account, double-check your routing and account numbers. The IRS may catch most errors, but many are often missed. Once your refund is deposited in the wrong bank account, it’s very difficult to get it fixed.

Overlooking online donations. Many people forget about emailed receipts at tax time. Catch missing deductions by searching your email inbox for keywords such as “gift” or “donation” before you file.

Missing forms. Taxpayers can miss dividend, interest and brokerage forms (Form 1099s) they get from their banks and investment accounts. These potential missing forms now also include Form 1095, proof of health insurance. If a form is missing, it may cost you extra tax, penalties and interest.

Not signing the return. Don’t forget to sign your return! The IRS won’t accept an unsigned return, and many people forget this last step. An unsigned tax return is the same thing as not filing in the eyes of the IRS. You not only face penalties and fines, but your tax return is open for audit indefinitely.


Contractor or Employee? Knowing the difference is important

Is a worker an independent contractor or an employee? As an employer, getting this wrong could land you with an IRS audit and cost you plenty in many other ways. Here’s what you should know:

As the worker: If the worker is a contractor and not considered an employee, he/she must:

  • Pay self-employment taxes (Social Security and Medicare-related taxes).
  • Make estimated federal and state tax payments.
  • Handle his/her own benefits, insurance and bookkeeping.

As the employer: You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to:

  • Payment and penalties related to Social Security and Medicare taxes.
  • Payment of possible overtime, including penalties for a contractor reclassified as an employee.
  • A legal obligation to pay for benefits.

When the IRS recharacterizes an independent contractor as an employee, they look at the business relationship between the employer and the worker. The IRS considers if the employer has the right to control the work (when, how and where the work is done) and the financial relationship (i.e., a contractor has a contract and customers, and invoices the company).

The more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.