Can you deduct charitable gifts on your tax return?

Many taxpayers make charitable gifts — because they’re generous
and they want to save money on their federal tax bills. But with the tax law
changes that went into effect a couple years ago and the many rules that apply
to charitable deductions, you may no longer get a tax break for your generosity.

Are you going to itemize?

The Tax Cuts and Jobs Act (TCJA), signed into law in 2017,
didn’t put new limits on or suspend the charitable deduction, like it did with
many other itemized deductions. Nevertheless, it reduces or eliminates the tax
benefits of charitable giving for many taxpayers.

Itemizing saves tax only if itemized deductions exceed the
standard deduction. Through 2025, the TCJA significantly increases the standard
deduction. For 2020, it is $24,800 for married couples filing jointly (up from
$24,400 for 2019), $18,650 for heads of households (up from $18,350 for 2019),
and $12,400 for singles and married couples filing separately (up from $12,200
for 2019).

Back in 2017, these amounts were $12,700, $9,350, $6,350
respectively. The much higher standard deduction combined with limits or
suspensions on some common itemized deductions means you may no longer have
enough itemized deductions to exceed the standard deduction. And if that’s the
case, your charitable donations won’t save you tax.

To find out if you get a tax break for your generosity, add up
potential itemized deductions for the year. If the total is less than your
standard deduction, your charitable donations won’t provide a tax benefit.

You might, however, be able to preserve your charitable
deduction by “bunching” donations into alternating years. This can allow you to
exceed the standard deduction and claim a charitable deduction (and other
itemized deductions) every other year.

What is the donation deadline?

To be deductible on your 2019 return, a charitable gift must
have been made by December 31, 2019. According to the IRS, a donation generally
is “made” at the time of its “unconditional delivery.” The delivery date
depends in part on what you donate and how you donate it. For example, for a
check, the delivery date is the date you mailed it. For a credit card donation,
it’s the date you make the charge.

Are there other requirements?

If you do meet the rules for itemizing, there are still other
requirements. To be deductible, a donation must be made to a “qualified
charity” — one that’s eligible to receive tax-deductible contributions.

And there are substantiation rules to prove you made a
charitable gift. For a contribution of cash, check, or other monetary gift,
regardless of amount, you must maintain a bank record or a written
communication from the organization you donated to that shows its name, plus
the date and amount of the contribution. If you make a charitable contribution
by text message, a bill from your cell provider containing the required
information is an acceptable substantiation. Any other type of written record,
such as a log of contributions, isn’t sufficient.

Do you have questions?

We can answer any questions you may have about the deductibility
of charitable gifts or changes to the standard deduction and itemized

© 2020

Help protect your personal information by filing your 2019 tax return early

The IRS announced it is opening the 2019 individual income tax
return filing season on January 27. Even if you typically don’t file until much
closer to the April 15 deadline (or you file for an extension), consider filing
as soon as you can this year. The reason: You can potentially protect yourself
from tax identity theft — and you may obtain other benefits, too.

Tax identity theft explained

In a tax identity theft scam, a thief uses another individual’s
personal information to file a fraudulent tax return early in the filing season
and claim a bogus refund.

The legitimate taxpayer discovers the fraud when he or she files
a return and is informed by the IRS that the return has been rejected because
one with the same Social Security number has already been filed for the tax
year. While the taxpayer should ultimately be able to prove that his or her
return is the valid one, tax identity theft can cause major headaches to
straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it
will be the tax return filed by a would-be thief that will be rejected, rather
than yours.

Note: You can get your individual tax return prepared by us before January
27 if you have all the required documents. It’s just that processing of the
return will begin after IRS systems open on that date.

Your W-2s and 1099s

To file your tax return, you must have received all of your W-2s
and 1099s. January 31 is the deadline for employers to issue 2019 Form W-2 to
employees and, generally, for businesses to issue Form 1099 to recipients of
any 2019 interest, dividend or reportable miscellaneous income payments
(including those made to independent contractors).

If you haven’t received a W-2 or 1099 by February 1, first
contact the entity that should have issued it. If that doesn’t work, you can
contact the IRS for help.

Other advantages of filing early

Besides protecting yourself from tax identity theft, another
benefit of early filing is that, if you’re getting a refund, you’ll get it
faster. The IRS expects most refunds to be issued within 21 days. The time is
typically shorter if you file electronically and receive a refund by direct
deposit into a bank account.

Direct deposit also avoids the possibility that a refund check
could be lost or stolen or returned to the IRS as undeliverable. And by using
direct deposit, you can split your refund into up to three financial accounts,
including a bank account or IRA. Part of the refund can also be used to buy up
to $5,000 in U.S. Series I Savings Bonds.

What if you owe tax? Filing early may still be beneficial. You
won’t need to pay your tax bill until April 15, but you’ll know sooner how much
you owe and can plan accordingly.

Be an early-bird filer

If you have questions about tax identity theft or would like
help filing your 2019 return early, please contact us. We can help you ensure
you file an accurate return that takes advantage of all of the breaks available
to you.

© 2020

New rules will soon require employers to annually disclose retirement income to employees

As you’ve probably heard, a new law was recently passed with a
wide range of retirement plan changes for employers and individuals. One of the
provisions of the SECURE Act involves a new requirement for employers that sponsor
tax-favored defined contribution retirement plans that are subject to ERISA.

Specifically, the law will require that the benefit statements
sent to plan participants include a lifetime income disclosure at least once
during any 12-month period. The disclosure will need to illustrate the monthly
payments that an employee would receive if the total account balance were used
to provide lifetime income streams, including a single life annuity and a
qualified joint and survivor annuity for the participant and the participant’s
surviving spouse.

Background Information

Under ERISA, a defined contribution plan administrator is required to provide benefit statements to participants. Depending on the situation, these statements must be provided quarterly, annually or upon written request. In 2013, the U.S. Department of Labor (DOL) issued an advance notice of proposed rule making providing rules that would have required benefit statements provided to defined contribution plan participants to include an estimated lifetime income stream of payments based on the participant’s account balance.

Some employers began providing this information in these
statements — even though it wasn’t required.

But in the near future, employers will have to begin providing
information to their employees about lifetime income streams.

Effective Date

Fortunately, the effective date of the requirement has been
delayed until after the DOL issues guidance. It won’t go into effect until 12
months after the DOL issues a final rule. The law also directs the DOL to
develop a model disclosure.

Plan fiduciaries, plan sponsors, or others won’t have liability
under ERISA solely because they provided the lifetime income stream
equivalents, so long as the equivalents are derived in accordance with the
assumptions and guidance and that they include the explanations contained in
the model disclosure.

Stay Tuned

Critics of the new rules argue the required disclosures will
lead to confusion among participants and they question how employers will
arrive at the income projections. For now, employers have to wait for the DOL
to act. We’ll update you when that happens. Contact us if you have questions
about this requirement or other provisions in the SECURE Act.

© 2019

Tax Developments: Summary of the 2019 SECURE Act provisions affecting business and individual taxpayers

On December 20, 2019, the SECURE Act, a new tax law included
as part of the Further Consolidated Appropriations Act of 2020, was enacted.
The “Setting Every Community Up for Retirement Enhancement” (SECURE) Act
expands the ability for individuals to maximize their savings and makes
simplifications to the qualified retirement system. This article outlines
specific provisions of the act in summary form and explains the mechanics of
the rules under old and new law.

The changes to the Internal Revenue Code made by this act
apply to individuals who are participants in qualified retirement plans and to
sponsors (i.e. employers) that administer such plans.

The additional flexibility offered by these rules should
help certain individuals, especially those working longer, those working while
obtaining advanced degrees, and families looking to save for college obtain
flexibility in the accumulation and utilization of retirement funds. For
changes to stretch IRAs, many individuals are recommended to review their
estate planning to ensure that the distribution of any retirement accounts is
handled according to their wishes and in accord with new law.

The changes in the Kiddie Tax rules may be a planning
opportunity for families with children who have unearned (usually investment)
income. The ability to elect to apply these rules retroactively may be a place
to find tax savings if the changes under the TCJA had increased the family’s
tax liability in 2018 and 2019.

For employers, the flexibility in setting up a plan and the
expansion of credits available for new plans should make offering qualified
retirement benefits to employees much more attractive. The ability to combine
multiple plans for more efficient growth and investment results should benefit
retirees with increased returns over the life of the plan. At the same time,
increases in penalties means that employers who do administer plans should be
taking extra care that they are meeting all compliance and fiduciary


Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed
once the individual attained age 70½. Starting in 2020, the new rules allow an
individual of any age to make contributions to a traditional IRA, as long as
the individual has compensation, which generally means earned income from wages
or self-employment.

Required minimum distribution age raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners
were generally required to begin taking required minimum distributions, or
RMDs, from their plan by April 1 of the year following the year they reached
age 70½. The age 70½ requirement was first applied in the retirement plan
context in the early 1960s and, until recently, had not been adjusted to account
for increases in life expectancy.

For distributions required to be made after Dec. 31, 2019,
for individuals who attain age 70½ after that date, the age at which
individuals must begin taking distributions from their retirement plan or IRA
is increased from 70½ to 72.

Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring
before 2020, beneficiaries (both spousal and nonspousal) were generally allowed
to stretch out the tax-deferral advantages of the plan or IRA by taking
distributions over the beneficiary s life or life expectancy (in the IRA
context, this is sometimes referred to as a “stretch IRA”).

However, for deaths of plan participants or IRA owners
beginning in 2020 (later for some participants in collectively bargained plans
and governmental plans), distributions to most nonspouse beneficiaries are
generally required to be distributed within ten years following the plan
participant s or IRA owner s death. So, for those beneficiaries, the
“stretching” strategy is no longer allowed.

Exceptions to the 10-year rule are allowed for distributions
to (1) the surviving spouse of the plan participant or IRA owner; (2) a child
of the plan participant or IRA owner who has not reached majority; (3) a
chronically ill individual; and (4) any other individual who is not more than
ten years younger than the plan participant or IRA owner. Those beneficiaries
who qualify under this exception may generally still take their distributions
over their life expectancy (as allowed under the rules in effect for deaths
occurring before 2020).

Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.

A Section 529 education savings plan (a 529 plan, also known
as a qualified tuition program) is a tax-exempt program established and
maintained by a state, or one or more eligible educational institutions (public
or private). Any person can make nondeductible cash contributions to a 529 plan
on behalf of a designated beneficiary. The earnings on the contributions
accumulate tax-free. Distributions from a 529 plan are excludable up to the
amount of the designated beneficiary's qualified higher education expenses.

Before 2019, qualified higher education expenses didn't include
the expenses of registered apprenticeships or student loan repayments.

But for distributions made after Dec. 31, 2018 (the
effective date is retroactive), tax-free distributions from 529 plans can be
used to pay for fees, books, supplies, and equipment required for the
designated beneficiary s participation in an apprenticeship program. In
addition, tax-free distributions (up to $10,000) are allowed to pay the
principal or interest on a qualified education loan of the designated
beneficiary, or a sibling of the designated beneficiary.

Kiddie tax changes for gold star children and others.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA,
P.L. 115-97), which made changes to the so-called “kiddie tax,” which is a tax
on the unearned income of certain children. Before enactment of the TCJA, the
net unearned income of a child was taxed at the parents' tax rates if the
parents' tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after Dec. 31, 2017,
the taxable income of a child attributable to net unearned income is taxed
according to the brackets applicable to trusts and estates. Children to whom
the kiddie tax rules apply and who have net unearned income also have a reduced
exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly
increased the tax on certain children, including those who were receiving
government payments (i.e., unearned income) because they were survivors of
deceased military personnel (“gold star children”), first responders, and
emergency medical workers.

The new rules enacted on Dec. 20, 2019, repeal the kiddie
tax measures that were added by the TCJA. So, starting in 2020 (with the option
to start retroactively in 2018 and/or 2019), the unearned income of children is
taxed under the pre-TCJA rules, and not at trust/estate rates. And starting
retroactively in 2018, the new rules also eliminate the reduced AMT exemption
amount for children to whom the kiddie tax rules apply and who have net
unearned income.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Generally, a distribution from a retirement plan must be
included in income. And, unless an exception applies (for example, distributions
in case of financial hardship), a distribution before the age of 59-1/2 is
subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are
used to pay for expenses related to the birth or adoption of a child are
penalty-free. That $5,000 amount applies on an individual basis, so for a
married couple, each spouse may receive a penalty-free distribution up to
$5,000 for a qualified birth or adoption.

Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes.

Before 2020, stipends and non-tuition fellowship payments
received by graduate and postdoctoral students were not treated as compensation
for IRA contribution purposes, and so could not be used as the basis for making
IRA contributions.

Starting in 2020, the new rules remove that obstacle by
permitting taxable non-tuition fellowship and stipend payments to be treated as
compensation for IRA contribution purposes. This change will enable these
students to begin saving for retirement without delay.

Tax-exempt difficulty-of-care payments are treated as compensation for determining retirement contribution limits.

Many home healthcare workers do not have taxable income
because their only compensation comes from “difficulty-of-care” payments that
are exempt from taxation. Because those workers do not have taxable income,
they were not able to save for retirement in a qualified retirement plan or

For IRA contributions made after Dec. 20, 2019 (and
retroactively starting in 2016 for contributions made to certain qualified
retirement plans), the new rules allow home healthcare workers to contribute to
a retirement plan or IRA by providing that tax-exempt difficulty-of-care
payments are treated as compensation for purposes of calculating the
contribution limits to certain qualified plans and IRAs.


Unrelated employers are more easily allowed to band together to create a single retirement plan.

A multiple employer plan (MEP) is a single plan maintained
by two or more unrelated employers. Starting in 2021, the new rules reduce the
barriers to creating and maintaining MEPs, which will help increase
opportunities for small employers to band together to obtain more favorable
investment results, while allowing for more efficient and less expensive
management services.

New small employer automatic plan enrollment credit.

Automatic enrollment is shown to increase employee
participation and higher retirement savings. Starting in 2020, the new rules
create a new tax credit of up to $500 per year to employers to defray start-up
costs for new 401(k) plans and SIMPLE IRA plans that include automatic
enrollment. The credit is in addition to an existing plan start-up credit, and
is available for three years. The new credit is also available to employers who
convert an existing plan to a plan with an automatic enrollment design.

Increase credit for small employer pension plan start-up costs.

The new rules increase the credit for plan start-up costs to
make it more affordable for small businesses to set up retirement plans.
Starting in 2020, the credit is increased by changing the calculation of the
flat dollar amount limit on the credit to the greater of (1) $500, or (2) the
lesser of: (a) $250 multiplied by the number of nonhighly compensated employees
of the eligible employer who are eligible to participate in the plan, or (b)
$5,000. The credit applies for up to three years.

Expand retirement savings by increasing the auto enrollment safe harbor cap.

An annual nondiscrimination test called the actual deferral
percentage (ADP) test applies to elective deferrals under a 401(k) plan. The
ADP test is deemed to be satisfied if a 401(k) plan includes certain minimum
matching or non-elective contributions under either of two safe harbor plan
designs and meets certain other requirements. One of the safe harbor plans is
an automatic enrollment safe harbor plan.

Starting in 2020, the new rules increase the cap on the
default rate under an automatic enrollment safe harbor plan from 10% to 15%,
but only for years after the participant's first deemed election year. For the
participant's first deemed election year, the cap on the default rate is 10%.

Allow long-term part-time employees to participate in 401(k) plans.

Currently, employers are generally allowed to exclude
part-time employees (i.e., employees who work less than 1,000 hours per year)
when providing certain types of retirement plans—like a 401(k) plan—to their
employees. As women are more likely than men to work part-time, these rules can
be especially harmful for women in preparing for retirement.

However, starting in 2021, the new rules will require most
employers maintaining a 401(k) plan to have a dual eligibility requirement
under which an employee must complete either a one-year-of-service requirement
(with the 1,000-hour rule), or three consecutive years of service where the
employee completes at least 500 hours of service per year. For employees who
are eligible solely by reason of the new 500-hour rule, the employer will be
allowed to exclude those employees from testing under the nondiscrimination and
coverage rules, and from the application of the top-heavy rules.

Loosen notice requirements and amendment timing rules to facilitate adoption of nonelective contribution 401(k) safe harbor plans.

The actual deferral percentage nondiscrimination test is
deemed to be satisfied if a 401(k) plan includes certain minimum matching or
nonelective contributions under either of two plan designs (referred to as a
“401(k) safe harbor plan”), as well as certain required rights and features,
and satisfies a notice requirement. Under one type of 401(k) safe harbor plan,
the plan either (1) satisfies a matching contribution requirement, or (2)
provides for a nonelective contribution to a defined contribution plan of at
least 3% of an employee's compensation on behalf of each nonhighly compensated
employee who is eligible to participate in the plan.

Starting in 2020, the new rules change the nonelective
contribution 401(k) safe harbor to provide greater flexibility, improve
employee protection, and facilitate plan adoption. The new rules eliminate the
safe harbor notice requirement, but maintain the requirement to allow employees
to make or change an election at least once per year. The rules also permit
amendments to nonelective status at any time before the 30th day before the
close of the plan year. Amendments after that time are allowed if the amendment
provides (1) a nonelective contribution of at least 4% of compensation (rather
than at least 3%) for all eligible employees for that plan year, and (2) the
plan is amended no later than the last day for distributing excess
contributions for the plan year (i.e., by the close of following plan year).

Expansion of portability of lifetime income options.

Starting in 2020, the new rules permit certain retirement
plans to make a direct trustee-to-trustee transfer to another
employer-sponsored retirement plan, or IRA, of a lifetime income investment or
distributions of a lifetime income investment in the form of a qualified plan
distribution annuity, if a lifetime income investment is no longer authorized
to be held as an investment option under the plan. This change permits
participants to preserve their lifetime income investments and avoid surrender
charges and fees.

Qualified employer plans barred from making loans through credit cards and similar arrangements.

After Dec. 20, 2019, plan loans may no longer be distributed
through credit cards or similar arrangements. This change is intended to ensure
that plan loans are not used for routine or small purchases, thereby helping to
preserve retirement savings.

Nondiscrimination rules modified to protect older, longer service participants in closed plans.

Starting in 2020, the nondiscrimination rules as they
pertain to closed pension plans (i.e., plans closed to new entrants) are being
changed to permit existing participants to continue to accrue benefits. The
modification will protect the benefits for older, longer-service employees as
they near retirement.

Plans adopted by filing due date for year may be treated as in effect as of close of year.

Starting in 2020, employers can elect to treat qualified
retirement plans adopted after the close of a tax year, but before the due date
(including extensions) of the tax return, as having been adopted as of the last
day of the year. The additional time to establish a plan provides flexibility
for employers who are considering adopting a plan, and the opportunity for
employees to receive contributions for that earlier year.

New annual disclosures required for estimated lifetime income streams.

The new rules (starting at a to-be-determined future date)
will require that plan participants' benefit statements include a lifetime
income disclosure at least once during any 12-month period. The disclosure will
have to illustrate the monthly payments the participant would receive if the
total account balance were used to provide lifetime income streams, including a
qualified joint and survivor annuity for the participant and the participant s
surviving spouse and a single life annuity.

Fiduciary safe harbor added for selection of annuity providers.

When a plan sponsor selects an annuity provider for the
plan, the sponsor is considered a plan “fiduciary,” which generally means that
the sponsor must discharge his or her duties with respect to the plan solely in
the interests of plan participants and beneficiaries (this is known as the
“prudence requirement”).

Starting on Dec. 20, 2019 (the date the SECURE Act was
signed into law), fiduciaries have an optional safe harbor to satisfy the
prudence requirement in their selection of an insurer for a guaranteed
retirement income contract, and are protected from liability for any losses
that may result to participants or beneficiaries due to an insurer's future
inability to satisfy its financial obligations under the terms of the contract.
Removing ambiguity about the applicable fiduciary standard eliminates a
roadblock to offering lifetime income benefit options under a plan.

Increased penalties for failure-to-file retirement plan returns.

Starting in 2020, the new rules modify the failure-to-file
penalties for retirement plan returns.

The penalty for failing to file a Form 5500 (for annual plan
reporting) is changed to $250 per day, not to exceed $150,000.

A taxpayer's failure to file a registration statement incurs
a penalty of $10 per participant per day, not to exceed $50,000.

The failure to file a required notification of change
results in a penalty of $10 per day, not to exceed $10,000.

The failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year. For planning opportunities or to learn more about these changes, please contact our office at 617-651-0531 or by using our contact us form below.

New law provides a variety of tax breaks to businesses and employers

While you were celebrating the holidays, you may not have
noticed that Congress passed a law with a grab bag of provisions that provide
tax relief to businesses and employers. The “Further Consolidated
Appropriations Act, 2020” was signed into law on December 20, 2019. It makes
many changes to the tax code, including an extension (generally through 2020)
of more than 30 provisions that were set to expire or already expired.

Two other laws were passed as part of the law (The Taxpayer
Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community
Up for Retirement Enhancement Act).

Here are five highlights.

Long-term part-timers can participate in

Under current law, employers generally can exclude part-time
employees (those who work less than 1,000 hours per year) when providing a
401(k) plan to their employees. A qualified retirement plan can generally delay
participation in the plan based on an employee attaining a certain age or
completing a certain number of years of service but not beyond the later of
completion of one year of service (that is, a 12-month period with at least
1,000 hours of service) or reaching age 21.

Qualified retirement plans are subject to various other
requirements involving who can participate.

For plan years beginning after December 31, 2020, the new law
requires a 401(k) plan to allow an employee to make elective deferrals if the
employee has worked with the employer for at least 500 hours per year for at
least three consecutive years and has met the age-21 requirement by the end of
the three-consecutive-year period. There are a number of other rules involved
that will determine whether a part-time employee qualifies to participate in a
401(k) plan.

The employer tax credit for paid family and
medical leave is extended.

Tax law provides an employer credit for paid family and medical
leave. It permits eligible employers to claim an elective general business
credit based on eligible wages paid to qualifying employees with respect to
family and medical leave. The credit is equal to 12.5% of eligible wages if the
rate of payment is 50% of such wages and is increased by 0.25 percentage points
(but not above 25%) for each percentage point that the rate of payment exceeds
50%. The maximum leave amount that can be taken into account for a qualifying
employee is 12 weeks per year.

The credit was set to expire on December 31, 2019. The new law
extends it through 2020.

The Work Opportunity Tax Credit (WOTC) is

Under the WOTC, an elective general business credit is provided
to employers hiring individuals who are members of one or more of 10 targeted
groups. The new law extends this credit through 2020.

The medical device excise tax is repealed.

The Affordable Care Act (ACA) contained a provision that required
that the sale of a taxable medical device by the manufacturer, producer or
importer is subject to a tax equal to 2.3% of the price for which it is sold.
This medical device excise tax originally applied to sales of taxable medical
devices after December 31, 2012.

The new law repeals the excise tax for sales occurring after
December 31, 2019.

The high-cost, employer-sponsored health
coverage tax is repealed.

The ACA also added a nondeductible excise tax on insurers when
the aggregate value of employer-sponsored health insurance coverage for an
employee, former employee, surviving spouse or other primary insured individual
exceeded a threshold amount. This tax is commonly referred to as the tax on
“Cadillac” plans.

The new law repeals the Cadillac tax for tax years beginning
after December 31, 2019.

Stay tuned

These are only some of the provisions of the new law. We will be
covering them in the coming weeks. If you have questions about your situation,
don’t hesitate to contact us.

© 2019

Does Your Accountant Ever Call You?

best tax accountants brightonThe world is a bit different now and the nature of tax, finance, and accounting is evolving rapidly. The role of the Certified Public Accountant (CPA) is changing. Taxpayers want value-driven relationships instead of transactional exchanges in the hurried weeks of tax filing season.

This begs the question – Does your accountant ever call you?

You may be asking, “Why should my accountant call me?” The answer is the accountant that calls you is proactively and strategically thinking about your tax planning. The accountant that isn’t calling is waiting for tax season to come so they can shuffle a few numbers, fill out a few forms, and get your return out the door along with several hundred others. Don’t get me wrong – tax compliance is important and essential. It’s a key part of what CPAs do but… it’s not the solution for reducing your tax bill.

How do you find tax savings? Tax-Planning.

Strategic tax planning and the execution of those plans over many years is the way to reduce your tax bill. Remember, taxes are something most people will have to pay, every year, for almost their entire lives. Also remember, all the money that you have to live on, invest, grow, and improve you and your family’s life is what is left AFTER taxes. Tax reduction over your lifetime is one of the keys to wealth building. The wealthy know this, and the Internal Revenue Code is designed to provide opportunities to those that seek them.

The accountant that calls you is the accountant that cares. If he or she can’t reach you by phone, they e-mail. If not e-mail, then mail. If not mail – carrier pigeon? I think you follow.

The point is that the modern CPA should be taking a proactive role in educating you on, and initiating, tax planning. They see you every year in the spring – but what about July or November? Mid-year conversations are the cornerstone of successful planning. Tax planning can be as simple as a 30-minute conversation to discuss a life event (baby on the way?) or a major transaction (how about that home sale you’re contemplating?). It can also be as detailed as multi-scenario tax projections to show you the exact impact of strategies, in dollars, over many years.

Get an accountant that cares enough to call. A good strategy can serve you for many years – a check in once or twice a year can be used to update that strategy as you go. No surprise tax bills, no missed opportunities after the close of the year – just life-long savings and more money in your pocket.

Want to learn more about working with a modern CPA who is focused on your strategic tax planning?

Contact us today using the form below:

Adopting a child? Bring home tax savings with your bundle of joy

If you’re adopting a child, or you adopted one this year, there
may be significant tax benefits available to offset the expenses. For 2019,
adoptive parents may be able to claim a nonrefundable credit against their
federal tax for up to $14,080 of “qualified adoption expenses” for each adopted
child. (This amount is increasing to $14,300 for 2020.) That’s a
dollar-for-dollar reduction of tax — the equivalent, for someone in the 24%
marginal tax bracket, of a deduction of over $50,000.

Adoptive parents may also be able to exclude from their gross
income up to $14,080 for 2019 ($14,300 for 2020) of qualified adoption expenses
paid by an employer under an adoption assistance program. Both the credit and
the exclusion are phased out if the parents’ income exceeds certain limits, as
explained below.

Adoptive parents may claim both a credit and an exclusion for
expenses of adopting a child. But they can’t claim both a credit and an
exclusion for the same expense.

Qualified adoption expenses

To qualify for the credit or the exclusion, the expenses must be
“qualified.” These are the reasonable and necessary adoption fees, court costs,
attorney fees, travel expenses (including amounts spent for meals and lodging)
while away from home, and other expenses directly related to the legal adoption
of an “eligible child.”

Expenses in connection with an unsuccessful attempt to adopt an
eligible child can qualify. However, expenses connected with a foreign adoption
(one in which the child isn’t a U.S. citizen or resident) qualify only if the
child is actually adopted.

Taxpayers who adopt a child with special needs get a special tax
break. They will be deemed to have qualified adoption expenses in the tax year
in which the adoption becomes final in an amount sufficient to bring their
total aggregate expenses for the adoption up to $14,300 for 2020 ($14,080 for
2019). In other words, they can take the adoption credit or exclude
employer-provided adoption assistance up to that amount, whether or not they
had $14,300 for 2020 ($14,080 for 2019) of actual expenses.

Phase-out for high-income taxpayers

The credit allowable for 2019 is phased out for taxpayers with
adjusted gross income (AGI) of $211,160 ($214,520 for 2020). It is eliminated
when AGI reaches $251,160 for 2019 ($254,520 for 2020).

Taxpayer ID number required

The IRS can disallow the credit and the exclusion unless a valid
taxpayer identification number (TIN) for the child is included on the return.
Taxpayers who are in the process of adopting a child can get a temporary
number, called an adoption taxpayer identification number (ATIN), for the
child. This enables adoptive parents to claim the credit and exclusion for
qualified expenses.

When the adoption becomes final, the adoptive parents must apply
for a Social Security number for the child. Once obtained, that number, rather
than the ATIN, is used.

We can help ensure that you meet all the requirements to get the
full benefit of the tax savings available to adoptive parents. Please contact
us if you have any questions

© 2019

2 valuable year-end tax-saving tools for your business

At this time of year, many business owners ask if there’s anything they can do to save tax for the year. Under current tax law, there are two valuable depreciation-related tax breaks that may help your business reduce its 2019 tax liability. To benefit from these deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 even if you acquire assets and place them in service during the last days of the year.

The Section 179 deduction

Under Section 179, you can deduct (or expense) up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. For tax years beginning in 2019, the expensing limit is $1,020,000. The deduction begins to phase out on a dollar-for-dollar basis for 2019 when total asset acquisitions for the year exceed $2,550,000.

Sec. 179 expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It’s also available for:

  • Qualified improvement property (generally, any interior improvement to a building’s interior, but not for the internal structural framework, for enlarging a building, or for elevators or escalators),
  • Roofs, and
  • HVAC, fire protection, alarm, and security systems.

The Sec. 179 deduction amount and the ceiling limit are significantly higher than they were a few years ago. In 2017, for example, the deduction limit was $510,000, and it began to phase out when total asset acquisitions for the tax year exceeded $2.03 million.

The generous dollar ceiling that applies this year means that many small and medium sized businesses that make purchases will be able to currently deduct most, if not all, of their outlays for machinery, equipment and other assets. What’s more, the fact that the deduction isn’t prorated for the time that the asset is in service during the year makes it a valuable tool for year-end tax planning.

Bonus depreciation

Businesses can claim a 100% bonus first year depreciation deduction for machinery and equipment bought new or used (with some exceptions) if purchased and placed in service this year. The 100% deduction is also permitted without any proration based on the length of time that an asset is in service during the tax year.

Business vehicles

It’s important to note that Sec. 179 expensing and bonus depreciation may also be used for business vehicles. So buying one or more vehicles before December 31 may reduce your 2019 tax liability. But, depending on the type of vehicle, additional limits may apply.

Businesses should consider buying assets now that qualify for the liberalized depreciation deductions. Please contact us if you have questions about depreciation or other tax breaks.

Bridging the gap between budgeting and risk management

At many companies, a wide gap exists between the budgeting process and risk management. Failing to consider major threats could leave you vulnerable to high-impact hits to your budget if one or more of these dangers materialize. Here are some common types of risks to research, assess and incorporate into adjustments to next year’s budget:

Competitive. No business is an island (or a monopoly for that matter). The relative strength and strategies of your competitors affect how your company should shape its budget. For this reason, gathering competitive intelligence and acting accordingly is a must.

For example, if a larger competitor has moved into your market, you may need to allocate more funds for marketing and advertising. Then again, if a long-time rival has closed up shop, you might be able to keep those costs the same (or even lower them) and channel more money into production as business picks up.

Compliance. Although federal regulatory oversight has moderated under the current presidential administration, many industries remain subject to myriad rules and regulations. State governments have also been aggressive in their efforts to gather additional revenue through oversight.

Look into how compliance rules might change for your business next year. Could a planned strategic move subject you to additional or stricter regulations? Factor compliance risks into your budget, whether in the form of increased administrative requirements or costly penalties if you slip up.

Internal. The U.S. economy is considered relatively strong. But that doesn’t mean you should worry any less about what’s arguably the biggest internal risk to your budget: fraud. Employees may still have plenty of rationales for stealing from you and, perhaps disturbingly, a 2019 benchmarking report from the Association of Certified Fraud Examiners found that 58% of in-house fraud investigation teams had inadequate levels of antifraud staffing and resources.

If this year’s budget suffered from fraud losses, you’ll absolutely need to allocate more dollars to tightened internal controls. But doing so could be a good idea anyway to minimize the possibility that a fraudster will strike. And, of course, fraud isn’t the only internal risk to consider. Will your hiring costs rise in 2020 because of anticipated turnover or a need to increase staff size? Will training expenses go up because of a strategic initiative or new technology?

As the year winds down, business owners should be giving serious thought to their 2020 budgets based on financial reporting for the year. Our firm can help you undertake a sound budgeting process that includes the identification and assessment of specific threats.