Author: Alexis Long
Watch planning for your investment portfolio video here.
Recent changes to ordinary income tax rates and tax brackets affect the tax you pay on investments. Your long term capital gains rate can be as much as 20 percentage points lower than your ordinary income tax rate, which make long-term gains more attractive.
If you’ve sold investments this year, and have substantial gains, then you may want to review your portfolio for unrealized losses and consider selling them before year end to offset your gains.
Income investments
Some types of investments produce income in the form of dividends or interest. Here are some tax consequences to consider:
Qualified dividends are taxed at the favorable long-term capital gains tax rate rather than at your higher ordinary-income tax rate.
Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive taxwise than other income investments, such as CDs and taxable bonds.
Capital Losses
If net losses exceed net gains, you can only deduct up to $3,000 of the losses per year. You carry forward the excess losses until they are used.
Although tax considerations are important, don’t let them control your investment decisions. You need to consider your goals, risk tolerance, fees, and other factors related to buying and selling securities.
Tax season is approaching, which means for business owners that tax planning is taking place. Continue reading or view the 2019 business tax planning video for tips.
Depreciation:
For business owners who own equipment and heavy-duty vehicles please keep in mind that up to $1,020,000 of qualified fixed asset additions can be expensed in 2020 under Section 179, including equipment, furniture, roofs, HVAC equipment, and security systems. Also, the first $18,000 of vehicles with a towing capacity of 6,000 pounds or less and the first $25,000 of vehicles with a towing capacity exceeding 6,000 pounds are eligible to be expensed under Section 179.
Also, bonus depreciation of up to 100% will be allowed on equipment, furniture, and software placed in service during 2020. In addition, up to $18,000 of bonus depreciation is allowed on new passenger vehicles purchased in 2020. Careful tax planning can help you maximize your depreciation deductions in 2020. Contact your ATA tax professional to assist you in maximizing this tax benefit.
Section 199A Deduction:
Owners of partnerships, LLCs, S-Corporations, and sole proprietorships could be eligible for a deduction of up to 20% of qualified business income. It reduces taxable income whether or not you itemize deductions. Anyone with taxable income of $321,400 or less ($160,700 if single) is entitled to the full 20% deduction, and those with taxable income of up to $421,400 ($210,700 if single) are entitled to the deduction, subject to limitations. Contact your ATA tax professional to see if your business is eligible for this tax benefit.
Employee Benefits:
In this economy, attracting and retaining your best employees is essential to your business. One way to accomplish this goal is through offering them a variety of tax-friendly benefits. If you provide your employees with a qualified high-deductible health plan (HDHP), consider offering them Health Savings Accounts or Flexible Spending Accounts. If you have employees that incur daycare expenses, consider offering Flexible Spending Accounts for child and dependent care expenses. Contact your ATA tax professional if you would like to discuss implementing these benefits in your company.
Do you have a Flexible Spending Account (FSA) with your employer? Make sure to take full advantage of it in the new year. For 2020, the contribution limit will rise to $2,750 (up from $2,700 in 2019). If an employer chooses, employees can carry over up to $500 of unused funds into 2021.
Otherwise, FSAs have a “use or lose” provision. FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Amounts contributed aren’t subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, an employer can contribute to an employee’s FSA.
The IRS is restarting passport revocation for some delinquent taxpayers. The tax agency has announced that it’s stopping the temporary program that had halted certifying certain taxpayers for passport revocation. That included taxpayers that had tax debts but also had an open Taxpayer Advocate Service case.
When the IRS certifies to the U.S. State Department that a taxpayer owes a seriously delinquent tax debt, currently $52,000 or more, the taxpayer can’t obtain or renew a passport with the department. Before this happens, taxpayers have multiple opportunities and a lengthy period (a minimum 32 weeks, but often up to a year) to work with the IRS on a payment plan.
The IRS has expanded the definition of “full-time insurance salesman.” Under the tax code, a full-time life insurance salesman is a statutory employee. Thus, commissions attributable to insurance contracts sold by full-time life insurance salesmen are “wages” subject to FICA taxes when paid. However, statutory employees can deduct business expenses on Schedule C, like independent contractors. In response to a request from a taxpayer, the IRS has now expanded the definition of “full-time insurance salesman” to include workers who sell accident and health insurance. Historically, it covered those selling life insurance and annuity contracts. (Information Letter 2019-0023)
As we head toward the gift-giving season, you may be considering giving gifts of cash or securities to your loved ones. Taxpayers can transfer substantial amounts free of gift taxes to their children and others each year through the use of the annual federal gift tax exclusion.
The amount is adjusted for inflation annually.
For 2019, the exclusion is $15,000. The exclusion covers gifts that you make to each person each year. Therefore, if you have three children, you can transfer a total of $45,000 to them this year (and next year) free of federal gift taxes. If the only gifts made during the year are excluded in this way, there’s no need to file a federal gift tax return. If annual gifts exceed $15,000, the exclusion covers the first $15,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below).
Note: this discussion isn’t relevant to gifts made from one spouse to the other spouse, because these gifts are gift tax-free under separate marital deduction rules.
Gifts by married taxpayers
If you’re married, gifts to individuals made during a year can be treated as split between you and your spouse, even if the cash or gift property is actually given to an individual by only one of you. By “gift-splitting,” up to $30,000 a year can be transferred to each person by a married couple, because two annual exclusions are available. For example, if you’re married with three children, you and your spouse can transfer a total of $90,000 each year to your children ($30,000 × 3). If your children are married, you can transfer $180,000 to your children and their spouses ($30,000 × 6). If gift-splitting is involved, both spouses must consent to it. We can assist you with preparing a gift tax return (or returns) to indicate consent.
“Unified” credit for taxable gifts
Even gifts that aren’t covered by the exclusion, and that are therefore taxable, may not result in a tax liability. This is because a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $11,400,000 (for 2019). However, to the extent you use this credit against a gift tax liability, it reduces (or eliminates) the credit available for use against the federal estate tax at your death.
Giving gifts of appreciated assets
Let’s say you own stocks and other marketable securities (outside of your retirement accounts) that have skyrocketed in value since they were acquired. A 15% or 20% tax rate generally applies to long-term capital gains. But there’s a 0% long-term capital gains rate for those in lower tax brackets.
Even if your income is high, your family members in lower tax brackets may be able to benefit from the 0% long-term capital gains rate. Giving them appreciated stock instead of cash might allow you to eliminate federal tax liability on the appreciation, or at least significantly reduce it. The recipients can sell the assets at no or a low federal tax cost. Before acting, make sure the recipients won’t be subject to the “kiddie tax,” and consider any gift and generation-skipping transfer (GST) tax consequences. Plan ahead Annual gifts are only one way to transfer wealth to your loved ones. There may be other effective tax and estate planning tools.
Contact your long-term business advisor at info@atacpa.net before year end to discuss your options. © 2019
FOR IMMEDIATE RELEASE
September 19, 2019
Alexander Thompson Arnold PLLC Announces Furry Hire
Alexander Thompson Arnold PLLC (ATA) is pleased to announce its newest addition Cali, who joined the ATA team as a service dog in training for Leader Dogs for the Blind. In this pre-training time, Cali is responsible for learning basic commands, avoiding distractions, and learning to patiently wait when not needed to assist her human. Her puppy raiser, Member/Partner, Catherine Messerly and her family have already opened their home to other future Leader Dogs in the past. Previously, Ebony, a guide dog in Mexico and last year Dakota, who switched careers and is now aiding in detecting bombs and other threats.
Prior to joining ATA, Cali was being prepared by her host family and leader dog mom. Leader Dog for the blind seeks to provide only the best puppies and ensures the health of their dogs by selective breeding. The breeding parents live in homes with families until they are retired at which time they are spayed/neutered, and their host family is then able to adopt them permanently. Cathy’s second puppy, Bailey, was selected for the program and just delivered her fourth and final litter in August.
“I am so glad Cali can join us here at ATA.”, said Memphis Partner, Cathy Messerly. “Our office environment is a great place for her to grow and learn the many skills she needs to succeed. It is great to be a part of an organization that cares so much about community and helping others.”
Cali will graduate from working with Cathy and the Memphis office in July 2020, and then will begin her advance training. This training will continue until she is ready to aid a visually impaired person. Leader Dogs for the Blind, the organization Cali belongs to, offers services free of charge to their clients, so having volunteers to raise puppies is crucial to keeping costs down.
ATA has 15 office locations in Tennessee, Kentucky, and Mississippi. ATA is an IPA Top 200 regional accounting firm who provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies, and international corporations. ATA is also an alliance member of BDO USA LLP, which allows it to utilize the resources and expertise for its clients of a top-five global accounting firm.
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Categories
Final Regs: First Year Depreciation
The IRS has issued final regs on the 100% additional first-year depreciation deduction. It allows businesses to write off most depreciable business assets in the year they’re placed in service. Changes from the regs proposed in August include qualified improvement property, leasehold improvement property, restaurant property, and retail improvement property.
A taxpayer may choose to apply the final regs, in their entirety, to qualified property acquired and placed in service after Sept. 27, 2017, in tax years ending on or after Sept. 28, 2017. Proposed regs on additional first-year depreciation also have been issued.
Contact us to maximize depreciation deductions for your business at info@atacpa.net.
Categories
ATA Adds New Talent
FOR IMMEDIATE RELEASE
Alexander Thompson Arnold PLLC Announces New Hire
Alexander Thompson Arnold PLLC (ATA) is adding to the team with their recent hire of Kristin Thymius, who joined the firm as a newly graduated associate. In this role, Thymius is responsible for drafting financial statements, performing audit procedures on engagements, preparing audit workpapers, and assisting the seniors and managers in finalizing the audit report. When asked why she was excited to join ATA full time, Thymius said,” I’m excited to be working full-time because I love the people I work with, the work we do, and our clients. “
“We are delighted to have Kristin choose ATA Memphis to kick off her career in public accounting. She brings fresh perspective, excitement, and energy to the office and our team. We look forward to working with her as she grows professionally while serving our clients and the community well.”, said Cathy Sanborn, a partner in the Memphis, TN office.
Prior to being hired as a full-time associate, Thymius was an audit intern, going to school full time at the University of Memphis. While an intern, she graduated with her Bachelor’s in Accounting and began graduate school to achieve her master’s in accounting. Thymius plans to graduate with her masters in December 2019. Thymius is a Becker Professional Education Corporation Graduate Campus Ambassador at the University of Memphis for this upcoming academic year.
ATA has 15 locations in Tennessee, Kentucky, Indiana and Mississippi. ATA is an IPA Top 200 regional accounting firm who provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies, and international corporations. ATA is also an alliance member of BDO USA LLP, which allows it to utilize the resources and expertise for its clients of a top five global accounting firm.
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For more information, contact:
Alexis Long, Marketing Director
731-427-8571
along@atacpa.net
www.ata.net