Category: News
The question raised is whether married couples should file joint or separate tax returns. The answer depends on your individual tax situation. It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount. Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax. In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,512.50 for 2020.
Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.
However, there are cases when people save tax by filing separately:
-
One spouse has significant medical expenses. For 2019 and 2020, medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions.
Some tax breaks are only available on a joint return:
-
The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns.
-
You can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns.
-
You can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses.
-
Social Security benefits may be taxed more. Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate return (or $25,000 if the spouses didn’t live together for the whole year).
The decision you make on your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions. © 2020
This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business decreased by one-half cent, to 57.5 cents per mile. As a result, you might claim a lower deduction for vehicle-related expense for 2020 than you can for 2019.
Calculating your deduction
Businesses can generally deduct the actual expenses attributable to the business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets. The cents-per-mile rate comes into play if you don’t want to keep track of actual vehicle-related expenses. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date and the destination. Using the mileage rate is also popular with businesses that reimburse employees for business use of their personal vehicles. Such reimbursements can help attract and retain employees who drive their personal vehicles extensively for business purposes.
Why? Under the Tax Cuts and Jobs Act, employees can no longer deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns. If you do use the cents-per-mile rate, be aware that you must comply with various rules. If you don’t, the reimbursements could be considered taxable wages to the employees.
The rate for 2020
Beginning on January 1, 2020, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 57.5 cents per mile. It was 58 cents for 2019 and 54.5 cents for 2018. The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the mileage rate midyear.
Factors to consider
There are some situations when you can’t use the cents-per-mile rate. In some cases, it partly depends on how you’ve claimed deductions for the same vehicle in the past. In other cases, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it. As you can see, there are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses. Click here to speak to your long-term business advisor about tracking and claiming expenses. © 2019
Alexander Thompson Arnold PLLC (ATA) is humbled to be recognized as a top tax firm in America. Research company, Stratista, worked with Forbes to compile the list of leading organizations, which only included 227 firms. This award displays ATA’s passion to work diligently with clients on their taxes to amplify their business. For more information visit Forbes’ website.
“We strive to provide our clients sound tax advice and expertise through heavy research and training,” said managing partner, John Whybrew. “It’s an honor to have our firm recognized by Forbes and be commended for our hard work.”
ATA is a long-term business advisor to its clients and provides other services that are not traditionally associated with accounting. For example, Revolution Partners, ATA’s wealth management entity provides financial planning expertise; ATA Technologies provides trustworthy IT solutions; Sodium Halogen focuses on growth through the design and development of marketing and digital products; Adelsberger Marketing offers video, social media, and digital content for small businesses; and Center Point Business Solutions is a comprehensive human resource management agency.
ATA has 14 office locations in Tennessee, Kentucky and Mississippi. Recognized as an IPA Top 200 regional accounting firm, it 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, a top five global accounting firm, which provides additional resources and expertise for clients.
The IRS issued its 2019 annual report, which gives an overview of the tax agency’s progress in taxpayer service, compliance and support. For example, the report focuses on results from its Criminal Investigation department and efforts involving civil enforcement. Ongoing compliance areas, including micro-captives, syndicated conservation easements and virtual currency, are also detailed in the publication.
In addition, it covers IRS implementation of new tax laws, ranging from steps put in place to carry out provisions of the Tax Cuts and Jobs Act to work underway on the new Taxpayer First Act of 2019. Read it here.
Watch the Family and Education Tax Planning video here.
Family & Education
While the Tax Cuts and Jobs Act of 2017 has reduced or eliminated many tax breaks for the next several years, most child and education-related breaks remain intact or even enhanced.
Child Credit
For each child under age 17, you may be able to claim a $2,000 credit. This credit phases out for higher-income taxpayers, but the income ranges are much higher than before the Tax Cuts and Jobs Act. If your dependent child is age 17 or older or if you have a dependent elderly parent, a $500 family credit is available, also subject to income-based phase out.
Tax credits reduce your tax bill dollar for dollar, so for many taxpayers, these expanded credits will make up for losing the dependency exemptions.
Education Credits
If you have children in college now or are currently in school yourself, you may be eligible for the American Opportunity Credit. The maximum credit, per student, is $2,500 per year for the first four years of postsecondary education. Again, this credit is subject to income-based phaseouts, but if your income is too high for you to qualify, your child might be eligible.
Be sure you and your family take advantage of available credits and other tax-saving opportunities to make saving taxes a family tradition.
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.
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
The Ups and Downs
New federal budget figures show mixed results.
For the first 10 months of fiscal year 2019, the U.S. government recorded an estimated budget deficit of $867 billion, according to a Congressional Budget Office (CBO) report. This was $184 billion more than the deficit in the same period in FY2018.
Also compared to the same 2018 period, revenues rose by $92 billion and outlays were $276 billion higher. Individual income and payroll taxes were up $78 billion (3%) and withholding grew by $51 billion (3%). That “largely reflects increases in wages and salaries that were partly offset by a decline in the share of income withheld for taxes,” the CBO said.
Here’s the report: https://bit.ly/2OWBrH2
