Unexpected Refunds Or Taxes Due?

Many of my clients ended up with unexpected refunds or taxes due for 2018. Consequently, they made poor decisions during 2018 based on having or not having those funds. It is clear that the withholding rules are not working well. You don’t have to put up with this.

See me right not for a free half-hour consultation so that you know where you stand.

Standard deduction. Many taxpayers will be able to use their standard deduction for 2018 ($12,000 for singles and $24,000 for joint filers) instead of having to report itemized deductions (medical, mortgage interest, etc). However with my help you may be able to exceed the standard deduction. Look for some ideas below.

Beat Tax Reform. Tax reform changes limited or eliminated a number of my favorite itemized deductions from Schedule A. Get them back by converting these deductions to business deductions where they lower your self-employment tax.

Charitable deductions were not limited by Tax Reform so I encourage clients to take advantage of them.

Goodwill. Don’t cheat yourself on charitable gifts of household items like clothing, books and so on. i definitely would not trust the IRS values. Many online sources undervalue such gifts because they use thrift shop prices or the gifts of the average American. Most of my clients are not the average American. They pay more for such items so they are worth more. I can help you value such gifts! Get a receipt and keep information like that found in my Charitable Record. No one loses except the IRS!

Donate appreciated assets. donate appreciated traded securities you have held for more than one year and get a charitable deduction equal to the security’s current fair market value. Pay no tax on the long-term capital gain you would incur if you sold the property.

Seniors tax shelter: IRA charitable contribution. Get a charitable deduction and more even if you use the standard deduction. If you are at least 70 1/2 years old you may contribute directly from your IRA to a charity. The value of the contribution is not included in gross income. An added bonus is that the contribution counts as a required minimum distribution.

WANT TO CREATE A LEGACY?

Magic! a Charitable Remainder Unitrust. The CRUT is a tax-exempt trust for the well to do client who has substantial appreciated investments, which would produce a lot of capital gain if sold. If instead, you contribute the investments to a CRUT, it can sell them tax-free and reinvest their full value. It can provide you income for your lifetime and thereafter distribute its assets to a charity of your choice. You get an immediate deduction for the present value of the delayed gift to the charity. A CRUT can make a great retirement vehicle.

The Community Foundation of Memphis for donations of $15,000 or more, can provide smaller versions of CRUT’s, “donor-advised funds” and more which give you some say so as to investments and charities to benefit and more.

Were you afraid to prepare your return this year? Who do you trust to prepare your taxes? Can you trust the IRS? No! The Taxpayer Advocate Service called the IRS toll-free helpline regarding the dependency exemptions and all the answers were wrong!

Why would you trust me, considering that a make a living doing tax returns? Perhaps because you can see my credentials and I get thank you notes from my tax return clients.

What do others advise? See the article, The 5 Types of Tax Preparers: Which One Is Best for You? by The Motley Fool.

Anyway, here are my thoughts.

Seasonal preparers like H R Block. There is variable expertise among seasonal preparers, so you have to judge each one.

How about TurboTax? TurboTax is no guarantee that you will get your return right. Don’t believe Turbotax claims that you don’t have to know about taxes to use it. Among my clients are several lawyers using TurboTax who made expensive mistakes. They paid thousands of dollars in excess taxes incorrectly. I likewise prepared tax returns for an accountant in a Fortune 500 company who could not understand how to use Turbotax to report a rental property.

TurboTax does not protect you from penalties. The Tax Court has upheld 20% penalties against several taxpayers who substantially misreported their taxes using Turbotax. The Tax Court said that using Turbotax “is no defense to accuracy-related penalties under section 6662.” Bulakites v. Commissioner, T.C. Memo. 2017-79 (2017).

What about your trusty CPA?
Like seasonal tax preparers, the tax expertise of CPA’s varies. Of course, CPA’s have to pass the CPA exam. However, only about 25% of the CPA exam is on tax matters. Many CPA’s spend most of their time dealing with financial accounting. I do tax preparation for CPA’s.

Tax Attorneys Tax attorneys like me are generally regarded as the ultimate tax experts but are thought to be too expensive. See the Motley Crew article. Yet my fees are competitive because of my experience in taxes. I don’t accept clients unless I can save then far more than I cost them.

Can you have your cake and eat it too? Can you get a better deal on a tax pro? Sure, particularly if you work with me. Some of my clients prepare their returns with Turbotax. They send me their Turbotax file and background information. I then fine tune the return using Professional software and my Tax Mastery tax planning software. I prepare a written Tax Mastery memo that tells you what steps to take to achieve the lowest legal taxes. This way my client gets the best of both worlds. Some clients have their CPA prepare their return and then I check it for a fee. That is more expensive because I must input the numbers.

Again, if you have a business, I advise you to hire a tax professional. With a free 1/2 hour consultation, I will give you a taste of professional tax planning.

Why did Forbes Daily Dozen say Aretha Franklin “was a startling example of terrible estate planning” (three handwritten wills). Read more.

Estate planning is not just for the rich. Estate planning is for those who are rich in love for their family. The clients who are most grateful for my RLT Package are the surviving spouses. one client couple had only about $180,000 in assets, owned mostly by the husband. They chose to obtain an RLT for him. After he passed away, she was so pleased with the ease of dealing with his trust that she immediately obtained one for herself.

If you know me, you know that the RLT package is my favorite estate planning approach. My RLT package consists of a revocable living trust (RLT), durable general power of attorney, backup will and advance care plan. A Trust is a legal relationship defined by a trust agreement under which you give your property to yourself Trustee, to manage for one or more Beneficiaries. The RLT begins during your life when you sign a trust agreement and place your property under its control. You are usually your own Trustee and beneficiary, so you manage the trust on your behalf as long as you can.

Here are my TOP FIVE reasons for my Revocable Living Trust Package.

First: The RLT package avoids the Probate process.

Without the RLT in most cases your family must ask the Probate Court for authority to use your will and to manage your estate. Why worry about Probate? Do you know anyone who has been an Executor? I regularly handle Probate Matters and my father was a Probate Judge. My father asked me to draft him an RLT. What does that tell you? The Probate process takes several months and costs several thousands of dollars in legal fees. It includes court appearances, deadlines, penalties, bonds, inventories, accountings, negotiations with creditors, banks, brokers and insurance companies, frozen property sales, and more. The last thing a grieving family needs is to deal with the government for several months.

The RLT package offers excellent health care choices.

Tennessee provides an “Advance Care Plan” that serves the purpose of a Living Will and names persons who can make medical decisions for you if you cannot. The Advance Care Plan also allows you to tell your doctor to what treatments you want or don’t want if you end up with specified serious medical conditions, like artificial feeding or breathing equipment.

The RLT package provides you a superior legal backup the DPOA

The Durable General Power of Attorney (DPOA) authorizes your”attorney in fact” to act on your behalf legally, such as signing contracts. The DPOA works even if you lose mental capacity. The DPOA works hand in hand with the RLT. For example, your attorney in fact can transfer stray property into the RLT. The DPOA is very handy document. If you are travelling or otherwise not available but need legal documents signed, the person you authorize can handle these matters for you.

The RLT package avoids a guardianship

The RLT package avoids the embarrassment and expense of a guardianship if you lose your mind! You are more likely to lose your mind than to die, as the result of illness or accident Without planning, if you do lose your mind, you will need a court appointed guardian, to manage your affairs. This is a costly and embarrassing experience. An RLT package handles incapacity and usually avoids a guardianship. The RLT .owns your property so if you lose capacity your successor trustee takes over. The Durable General Power of Attorney (DPOA)

The RLT package offers superior asset management and protection

The RLT package offers superior management and protects your assets for your family members. An RLT package works for those you love long after your death. For example, minor beneficiaries can own only a small amount of property, so without an RLT the Court will appoint a legal guardian to manage that property and report back to the court every year. You can provide a trust in your will, but a will with a trust will cost about the same as a RLT so why not get the best?

This and the next WealthWISe will open your eyes and fill your pocketbook!

Tax Reform is generally good news for small businesses but in most cases, you have to know about a deduction and act to qualify for it. One exception is the 20% deduction on the lower of business profits or taxable income. It works as long as you don’t make too much. Oh, and don’t incorporate without discussing it with me.

Let’s talk about some tax savers that are frequently missed or underused:

+ vehicle deductions, + new equipment, + home offices, + hiring the kids, + charitable contributions as business expenses, + tax preparation costs for your business, + home equity credit lines used for business purchases. + Itemized deductions that do more good as business deductions. Most taxpayers shortchange themselves on these deductions. Read on!

The IRS has issued 184 pages in proposed regulations explaining the new 20% deduction for domestic income from pass-throughs, which includes one-man businesses and landlords. If your taxable income does not exceed a threshold of $315,000 (joint filers), or $157,500 (all other taxpayers), there are no further limits to this deduction.

Think twice about incorporating — you may be taxed twice!! Now that corporations qualify for a 21% tax rate, everyone is wondering whether they should incorporate. Most taxpayers are better off not incorporating, because corporate earnings can be taxed twice: first on the corporation’s earnings, then to the shareholder when it takes those profits out!

Now for some underused tax savers that I teach my clients to use:

Business vehicles: Clients often underuse their auto deductions. They keep poor records and then they underestimate their business mileage. They overlook additional deductions, like parking and interest on their car loan. Ask me about extra mileage with a home office. Certain large vehicles (more than 6000-pound gross vehicle rating) produce spectacular deductions, using the §179 deduction and bonus depreciation.

Buy and use the equipment before year end. The §179 deduction is available to write off furniture and equipment placed in service before year-end but it cannot exceed profits from the business.

Bonus depreciation. If the §179 deduction is available you may deduct instead up to 100% of assets placed in service this year if first used by the taxpayer.

My Advice: You can save taxes if you depreciate these costs over several years if your income is increasing.

Entertainment. Generally under tax reform entertainment expenses are not deductible. However, business meals in which business is discussed remain at least 50% deductible and may be 100% deductible if included in the price of a business presentation.

My advice: Be alert for expenditures paid with your personal checkbook or credit cards that are actually business deductions, like business gifts, supplies, publications and subscriptions. Purchases at Walmart may be mixed business and personal. Try to tag these:

My advice: Look for normally personal expenditures that help your business, such as cell phones, cable, furniture, and computers.

My advice: Hire the kids. I am a longtime advocate of legitimately hiring your children. You deduct what you pay them. A minor child can earn up to $12,000 without paying taxes and is exempt from FICA and FUTA taxes. If they are older, put them on the payroll. Another advantage, hiring your child can allow you to fund Roth IRA contributions for the child.

The next issue will get into Schedule A Itemized Deductions gambits — when itemized deductions become business deductions.

REAL ESTATE TRICKS AND TRAPS:

I bet you can’t guess how many ways there are to transfer real estate at death. You can do it with or without a will, with a defective will, with a tenancy by the entirety, with joint ownership with survivorship, with a muniment of title, holographic will and finally my favorite, a revocable living trust.Which way is best for you?

1. With a will. With a will, the property goes to whoever you specify in the will. Of course, the will must be approved by the Probate Court, which means the Executor is subject to the Probate Process. The Executor must follow the Probate Court’s rules and procedures. This takes time and money. Clients are never happy with the Probate Process.

2. With a will, without full Probate. Muniment of title. If an estate contains nothing but real estate, I can file the decedent’s will with the Probate Court but not open a Probate estate. The will is called a “Muniment of title,” and it acts like a deed to pass the home to the beneficiary named in the will. This saves most of the cost of probate. A recent client was very pleasantly surprised to find out how easy this was.

3. Without a will. In Tennessee, if you die with no will, things get worse for your family. State law controls and the Probate Court supervises the transfer of your property, so your family is subject to Probate requirements. In this case, the Court appoints an “Administrator” to manage the estate instead of an Executor. Your real property is inherited by your heirs according to state law. For example, if you are married with one child, the property goes equally to your surviving spouse and child. If the child is a minor, the Court will appoint a guardian. This situation is much easier with a good lawyer, which is where I come in.

4. Without a will, using Affidavits of heirship. If the decedent has only a few heirs, this is not too bad. I establish that the heirs own the decedent’s real estate by preparing sworn “affidavits of heirship.” Signed and sworn by a friend of the decedent this document proves that the heirs are the sole heirs and therefore own the property. I file these with the Shelby County Register. The heirs can then transfer the property. You don’t need a deed.

5. Tenancy by the entirety. Property that you buy with your spouse is held as “tenants by the entirety.” If either of you die the survivor owns the property. That is fine when the first spouse dies, but what happens after the surviving spouse dies?

6. Joint with right of survivorship. This is similar to the tenancy by the entirety but the property is not owned by spouses. Bank and brokerage accounts can also be set up this way.

7. Holographic Will. A holographic will is one in which all of the material provisions are in the person’s handwriting and with his signature. It is valid under Tennessee law, so it is the same as With a Will, but I advise against it. If you have ever had a misunderstanding as the result of a poorly drafted text or email, you can just imagine how difficult it could be to interpret a ten-year-old will in handwriting when no one knows what the writer’s intentions were. My father made one of the largest fees ever, hundreds of thousands, in a lawsuit trying to interpret a holographic will.

8. Defective will. Unless your will states that it revokes prior wills it will be read together with the previous will. Very Confusing! We could end up in litigation here.

9. Revocable Living Trusts (“RLT”). I advise deeding property into your RLT in most situations.   Then Probate is not required when you die because you are not the owner. This likewise avoids Probate on property in other states. Furthermore, all the other advantages of RLT’s are available so you can make sure your family is taken care of.

This article gives you just a taste of what happens to your assets at death. Do your family a favor and plan your estate. 

Are you throwing away tax savings?
I bet you are. There is a saying about taxes: “You don’t know what you don’t know.” Most taxpayers miss thousands of dollars in tax benefits and I find them, so I pay for myself.
I spend thousands of dollars on daily updates on taxes, so take advantage of my knowledge. With my custom designed TAX MASTERY© (TM) software, I apply over 350 factors and give you a written report on how to save taxes and how much you will save.
For example, the new “standard deduction” is $12,000 for single and $24,000 for joint returns. My TM report shows you how to beat the standard deduction with actual deductions for medical expenses, sales taxes, mortgage interest, investment interest, and charitable deductions. If you want to know more, read on.

Medical expenses for 2018-2019 must exceed 7.5 percent of adjusted gross income. May include a portion of doctor prescribed home improvements

State and local taxes. These are now limited to $10,000 per year but you can combine sales, real estate, and income taxes. Most of my clients spend a lot more on sales tax than the IRS table amount. Do you? Many clients can save $1,000 or more by calculating their actual sales tax and maintaining records to prove it.  One client proved over $10,000 in sales tax by getting receipts for materials used to build an addition to their house. Don’t forget the sales tax on boats and cars.

My advice: Come on in and let me help you calculate your actual sales tax and show you how to prove it.

My advice: If your taxes exceed $10,000, see my Business and Rental articles in this WealthWISe.
My advice: If you have a business home office deducting its portion of the real estate taxes may save self-employment tax.

Mortgage interest You may deduct interest on 2018 mortgage debt borrowed after 12/15/17 to buy a home up to $750,000. The $1,000,000 limit applies to former debt. I have one client who saves more than a thousand dollars per year by deducting home mortgage interest on his sailing yacht as a second home since it has living quarters.

My Advice: Mortgage insurance premiums you can deduct these on the purchase of your principle residence.

Heloc interest new or old is not deductible unless used to purchase your home, a rental property or a business property.

My advice: Make interest on a HELOC  deductible by using it for a home addition, a rental property or a business.

Net investment interest.  One client was surprised to find that investment interest, such as margin interest, is deductible up to investment income (reduced by investment expenses). You may elect to count capital gains and qualified dividends.

The next WealthWISe will get into Charitable and Miscellaneous deductions.

Miscellaneous deductions repealed. In 2018 you can no longer deduct employee deductions, tax preparation fees or investment expenses. I can help you determine if they qualify as business expenses.