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The SECURE Act

In addition to a year-end funding bill, lawmakers finalized the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The retirement bill includes expansion of the automatic contribution to savings plans to 15% of employee pay, allows some part-time employees to participate in 401(k) plans and raises the age limit for IRA contributions from age 70½ to 72.

Also included in the retirement package are provisions aimed at Gold Star families, eliminating an unintended tax on children and spouses of deceased military family members. As with the funding bill, the Senate is expected to pass and the president to sign the bill by the end of the week.

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Individual Deductions and Updates

Watch the Individual Deductions and Updates video here
What’s happening with deductions in 2019?
The standard deduction for separate filers is $12,200 and for joint filers, it’s $24,400. Itemized deductions are more beneficial if taxpayers ‘bunch’ deductions into one year. The itemized deductions that may be able to be shifted from year-to-year are real estate taxes, state income tax estimates. This bunching strategy needs to be discussed with your tax advisor to most benefit.
Some expenses are limited or no longer tax-deductible
Let’s discuss what expenses are limited or no longer tax-deductible. State and local tax deduction, including sales tax, property tax, and state income tax, is limited to $10,000. Home office expenses and unreimbursed business expenses are no longer deductible if you are a W-2 employee. Personal casualty and theft losses are only allowed if it arises due to an event officially declared a federal disaster area. Finally, work-related moving expenses are not deductible, except for members of the Armed Forces.
Medical Savings and Spending Accounts – Health Savings Account and Flexible Spending Accounts
Health Savings Accounts also known as HSA’s are available to participants in qualified high-deductible health plans. You can contribute pre-tax income up to $3,500 for self-only coverage or $7,000 for family coverage into an employer-sponsored HSA account. HSAs can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year, allowing the account to grow.
Flexible Spending Accounts, also known as FSA’s, can be funded with $2,700 pretax income in an employer-sponsored account but have limitations on what can be rolled over to the following year based on the employer plan. The plan pays or reimburses you for qualified medical expenses. What you don’t use by calendar year’s end, you generally lose.

 

Contact your CPA to discuss these deductions in more depth.
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Estate and Gift Tax Planning

Watch the gift and estate tax planning video here.
Estate Planning
Because the Tax Cuts and Jobs Act has put estate and gift tax exemptions at record-high levels, fewer taxpayers are worrying about these taxes. But the high exemptions currently are available only through 2025 and Congress could pass legislation that reduces the limits sooner. So whether or not you’d be subject to estate tax at the current exemptions, it’s a good idea to consider if you can seize opportunities to potentially lock in tax savings today.
Estate Tax
While the TCJA keeps the estate tax rate at 40%, it has doubled the lifetime exemption base amount from $5 million to $10 million. The inflation-adjusted amount for 2019 is $11.4 million.
Gift tax
The gift tax continues to follow the estate tax, so the gift tax exemption also has increased under TCJA. You can exclude certain gifts of up to $15,000 per recipient in 2019 or $30,000 per recipient if your spouse elects to split the gift with you, without depleting any of your lifetime gift and estate tax exemption.
Choose gifts wisely.
Donations to qualified charities aren’t subject to gift tax, as well as tuition and medical expenses paid directly to the provider. Consider both estate and income tax consequences and the economic aspects of any gifts you’d like to make. To minimize estate tax, gift property with the greatest future appreciation potential. To minimize your beneficiary’s income tax, gift property that hasn’t appreciated significantly while you’ve owned it. To minimize your own income tax, don’t gift property that’s declined in value. Instead, consider selling the property, taking the tax loss and then gifting the tax proceeds. Have questions? Please contact us at ATA.
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Tax planning for your investment portfolio

 

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.

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Business Tax Planning

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.
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Flexible Spending Account 

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.
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Passport Revocation

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.

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Insurance Policy

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)

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Take advantage of the gift tax exclusion rules

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
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Understanding the Contents of a Will

You probably don’t have to be told about the need for a will. But do you know what provisions should be included and what’s best to leave out? The answers to those questions depend on your situation and may depend on state law.
1. Basic provisions
Typically, a will begins with an introductory clause, identifying yourself along with where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills. After the introductory clause, a will generally explains how your debts and funeral expenses are to be paid. The provisions for repaying debt generally reflect applicable state laws.
Don’t include specific instructions for funeral arrangements. It’s likely that your will won’t be accessed in time. Spell out your wishes in a letter of instructions, which is an informal letter to your family. A will may also be used to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you.
2. Specific bequests
One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside of your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries. If you’re using a trust to transfer property, make sure you identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won’t be suitable for inclusion in a trust. If your estate includes real estate, include detailed information about the property and identify the specific beneficiaries.
Once you’ve covered real estate and other tangible property, move on to intangible property, such as cash and securities. Again, you may handle these items through specific bequests where you describe the property the best you can. Finally, most wills contain a residuary clause. As a result, assets that aren’t otherwise accounted for go to the named beneficiaries, often adult children, grandchildren or a combination of family members.
3. Naming an executor
Toward the end of the will, name the executor — usually a relative or professional — who is responsible for administering it. Of course, this should be a reputable person whom you trust. Also, include a successor executor if the first choice is unable to perform these duties. Frequently, a professional is used in this backup capacity.
4. Cross the t’s and dot the i’s
Your attorney will help you meet all the legal obligations for a valid will in the applicable state and keep it up to date. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. Don’t use beneficiaries as witnesses. This could lead to potential conflicts of interest. Contact us with questions. © 2019