Individual Tax Planning, Sept 2018

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.

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REVOLUTIONARY ESTATE PLANNING

Why come to me for estate planning as opposed to someone else? The answer is simple. Let’s ignore the fact that I am one of a few Accredited Estate Planners in Memphis. Let’s focus on your experience. Normally estate planning is difficult and expensive. Not mine. My estate planning system is so easy and effective that it is revolutionary. Why?

EASY & EFFECTIVE:

EASY FOR THE CLIENT?  Yes. My system is easier. During my years of experience, I have created my own unique RLT Information Package (“RIP”).  I give the client the RIP. The RIP contains two documents: (i) A short, understandable handout from my most popular seminar: “Revocable Living Trust – Where There’s a Will There’s a Waste,” and (ii) my Questionnaire. The Questionnaire asks the right questions — progressive short questions that lead the client through his or her estate planning decisions.

EFFECTIVE? – Effectiveness comes with experience: My grandfather was a Tennessee Circuit Court judge for 37 years. My father practiced estate and probate law for more than 50 years, graded the Tennessee Bar Exam for ten years, and was a Shelby County Probate Court Judge. I have more than 35 years of experience. I learned from them and from my clients.  Enjoy the benefits of my experience! I have solutions for your problems. The RIP saves time and money. I can generally produce your estate plan with a couple of meetings in less than a week.

EFFECTIVE PLANNING: After the client has completed the RIP, he/she is ready for a quick planning meeting with me in which we fine tune the estate plan. That meeting usually takes about an hour. The RIP usually cuts an hour or more from this meeting, saving the client money.

EFFECTIVE DOCUMENTS: After the planning meeting, I review extensive custom estate planning documents on my PC that I and my father developed over the years, documents that I have tested personally with my clients. My I seldom use online documents I own libraries of professional will and trust clauses to deal with unusual situations. Since I am so familiar with these documents, I can produce accurate documents quickly and inexpensively.

EFFECTIVE COMPLETION: Within a week or less I meet with the client, and we review and fine tune estate planning documents and execute the documents. I provide the client a closing letter and discuss steps to make the estate plan effective. The client pays for the estate plan and leaves my office with a great sense of accomplishment.

The client has spent only a few hours and we produced an estate plan that will do the job.

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MIND YOUR BUSINESS: May 2018

A reminder. As a former in-house counsel for an international software company, I can advise you on business transactions! In fact, I am working on two business sales even as we speak.

TAX REFORM.
Much of what I said about withholding applies as well to quarterly estimated taxes, which the IRS requires from self-employed business owners. If you are a sole business owner or a partner or LLC or S corporation owner, suggest that you get a forecast of your tax liability. Some of the biggest questions regarding Tax Reform concern the taxation of businesses, particularly pass-through entities. For example, many small businesses are “pass-throughs” and will be enjoying a 20% deduction from their business income. Read more

There are other traps for the unwary business.

DON’T make your spouse an officer!
TRUST FUND PENALTY. Before you make a spouse or friend an officer of your company, beware of the “100% penalty.” Even though your business is a corporation or LLC’s and offers some liability protection if an employee pays to pay payroll taxes but pays other creditors that employee can become personally responsible for a portion of those taxes under tax code Section 6672(a). Whether he is responsible is a question of fact but the IRS will assume that an officer is responsible. Ireland v. United States, No. 2:17-cv-02014-CAS-ARGx (C.D. Cal. Apr. 3, 2018)]

No W-2’s for LLC owners. The IRS has announced that if you own 100% of an LLC that is reported as a sole proprietor on Schedule C, then you may not treat yourself as an employee of the LLC and issue yourself a W-2. The LLC and you are considered one.

IRS AUDITS
The IRS audit rate continues to drop, to 0.6 last year but the Service examined between 1% and 2.1% of business reporting over $25,000 of gross receipts. See What You Don’t Know About IRS Audits

Posted in Business Law, Taxes, What's New? | Leave a comment

Real Estate, Investments 2018_1

TAX REFORM. Rental properties continue to have tax advantages after Tax Reform. For example, State and local taxes for businesses and rental properties remain deductible after tax reform. Likewise, properties held for more than twelve months qualify for lower capital gain rates.

iNSTALLMENT SALES. If you sold real estate in 2017 in return for a note under which you receive payment in 2018 or after, you generally are to report the sale on the installment method (using Form 6252). This method taxes you on gain in proportion to the principal you are paid each year so it reduces gain in the year of sale and moves gain to 2018 or after. It offers many tax advantages.

By reducing gain in the year of sale and moving gain to 2018 or after, you enhance many tax benefits that phase out as your Adjusted Gross Income rises, such as itemized deductions, personal exemptions, and education credits. By moving gain to 2018 or after you take advantage of better tax rates and other rules under Tax Reform.

A taxpayer can elect out of the installment sale rules by reporting all gain from the sale on Form 4797, Sales of Business Property, and/or Form 8949, Sales and Other Dispositions of Capital Assets, for its tax return for the year of the sale. by the due date (including extensions) for the filing of the return for the year of the sale.

The installment method generally cannot be used for dealer dispositions or dispositions of inventory. These must be treated as received in the year sold.

My Advice: Consult me on how to structure real estate transactions.

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Real Estate, Investments May 2018

TAX REFORM

Individual landlords and partners owning real estate should qualify for the new 20% deduction from Qualified Business Income. See the business article above. In the future I hope to have some examples for readers. Meanwhile Installment Sales and Qualified Contributions from IRA’s to charities are two of the best ways to save taxes on appreciated assets.

IRA donation to charity is a Trick with a new Treat: If you’re age 70½ or older, each year you can transfer up to $100,000 directly from your traditional IRA to a charity. It counts as a minimum distribution, but is not added to your taxable income or your adjusted gross income. Treat: you get this benefit even if you take your standard deduction in 2018 and so cannot deduct charitable contributions. If your investment adviser doesn’t know how, call me.

Installment Sales. If you sell real estate in return for a note under which you receive payment in later years, you generally report the sale on the installment method (using Form 6252). This method taxes you on gain in proportion to the principal you are paid each year so it reduces gain in the year of sale and moves gain to later years. You can elect out of it. It offers many tax advantages. This technique is also a great way to sell your business.

Are you paying excessive fees? Investors, have you ever noticed that your preparer filed over 4 pages of Form 1116 to get you a $25 tax credit? That’s not effective!

My advice: If you have appreciated you are planning to sell ask me about your tax choices.

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Mind Your Business WW2018_5

Full service: reminder. As a former in-house counsel, I can advise you on business transactions! In fact I am working on two business sales even as we speak.

TAX REFORM.
Much of what I said about withholding above applies as well to quarterly estimated taxes, which the IRS requires from self-employed business owners. If you are a sole business owner or a partner or LLC or S corporation owner, suggest that you get a forecast of your tax liability. Some of the biggest questions regarding Tax Reform concern the taxation of businesses, particularly pass-through entities. For example, many small businesses are “pass-throughs” and will be enjoying a 20% deduction from their business income. Read more.

Tax traps for the unwary business.

DON’T make your spouse an officer!
TRUST FUND PENALTY. Before you make a spouse or friend an officer of your company, beware of the “100% penalty.” Even though your business is a corporation or LLC’s and offers some liability protection, if an employee pays to pay payroll taxes but pays other creditors that employee can become personally responsible for a portion of those taxes under tax code Section 6672(a). Whether he is responsible is a question of fact but the IRS will assume that an officer is responsible. Ireland v. United States, No. 2:17-cv-02014-CAS-ARGx (C.D. Cal. Apr. 3, 2018)]

No W-2’s for LLC owners. The IRS has announced that if you own 100% of an LLC that is reported as a sole proprietor on Schedule C, then you may not treat yourself as an employee of the LLC and issue yourself a W-2. The LLC and you are considered one.

NEWS:
The IRS audit rate continues to drop, to 0.6 last year but the Service examined between 1% and 2.1% of business reporting over $25,000 of gross receipts. See What You Don’t Know About IRS Audits

Posted in Business Law, Taxes, What's New? | Leave a comment

INDIVIDUAL TAX PLANNING May 2018

Tax Reform – Trick or Treat
Tax Reform is going to help most of my clients, but it is also going to have unexpected consequences for most everybody. To make taxes “easy and effective” for my clients I included a forecast of 2018 taxes with each 2017 tax return that I prepared. What did I find out? Taxes are generally lower but unexpected. There’s a big withholding problem! Most taxpayers are having too much withheld. If you want to find out more and how to get the most out of your taxes.

What did Tax Reform do to you? All tax rates dropped 2-3 points under Tax Reform, helping most everybody. Tax Reform doubled most taxpayers’ standard deductions so many taxpayers will not have to deduct mortgage interest or taxes. However, Tax Reform took away the $4,050 dependent deduction, but added a $2,000 per child tax credit. This works against childless couples. State and local taxes are limited to $10,000 per year. Mortgage loans on which you can deduct mortgage interest are limited to $750,000. No longer deductible are employee’s job expenses and investment related expenses like investment management fees. All of these changes affect your withholding or estimated taxes.

In changes after Tax Reform, Congress renewed the law that allows the write-off for private mortgage insurance, which is treated as home mortgage interest deduction. Taxpayers who can use this deduction will need to adjust their withholding.

The W-4 form tells employers how much federal taxes to withhold from each employee, and it is based on the deduction for dependents, which no longer exists. In January the IRS let employers use old W-4’s, and the IRS knew it was inaccurate. The IRS have been trying to correct the errors ever since. Recently the IRS issued a 2018 update to Publication 505, Tax Withholding and Estimated Tax and offered the IRS Withholding Calculator on their website so taxpayers could correct earlier mistakes. The IRS admits that there are problems.

WHAT TO DO RIGHT NOW:

Unless you want an unpredictable refund or tax due, I advise you to get a 2018 forecast so you can compare actual tax liability with withholding. If I prepare your tax return, I will provide you that forecast. For an hour or so fee, I will provide you a 2018 Forecast. Otherwise you are going to have to spend a lot of time with the IRS Withholding Calculator.

MY TAX MASTERY© PROGRAM is an added benefit of my forecast. It will suggest tax strategies to lower your taxes and then tells you your savings. You can then decrease your withholding to increase your paycheck. THAT’s easy and effective!

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ESTATE PLANNING WW 2018_5

WHAT DID TAX REFORM DO TO YOU?

Tax Reform increased the estate and gift tax exemption for individuals to $5.6 million (up from $5.49 million). So a married couple can shelter $11.2 million between them. This means 99% of my clients need not focus on death taxes and so can focus on their true desires, like their families. How can you help your family with sensitive estate planning?

First, consider what estate planning documents you already have. If you have no will or trust you can probably save thousands of dollars just by executing a will. You may save tens of thousands of dollars with a revocable living trust so that is generally what I recommend. In less than a week I can prepare an RLT that is customized for your family. To get started, check out my Estate Planning Organizer.

Not convinced? Do you want to know why a majority of estate planning professionals recommend revocable living trusts? Why I wrote RLT’s for my own father and mother even though my father was a Probate Court Judge at one time? Read on.

Maybe you have a will or  trust. If it is more than a couple of years old you need to have it reviewed and I will review it for nothing. If your documents were drafted to avoid taxes by an excellent estate planning lawyer a few years ago, get it reviewed. The vast majority of older trusts and wills are obsolete and will complicate your family’s lives and cost unnecessary money. If you want to relieve your family of a lot of cost and aggravation, you need to replace older documents with something simpler. You will enjoy getting professional advice that focuses on your true family goals.

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How does Tax Reform affect you in 2018?

Select TAX SUMMARY_2018 to download an excellent summary of the effects ofTax Reform on you as an individual in 2018. See:

  • the new 12%-37% tax brackets.

  • maximum contributions you can make to IRA’s and 401(k)s.

  • the new $12,000 to $24,000 Standard Deductions.

  • for taxpayers who can deduct more than the Standard Deduction you can see your limits for medical, state and local taxes and mortgage interest.

  • the new child tax credits that replace personal exemptions.

  • OTHER TAXES: The various taxes on capital gains and qualified dividends, the 3.8% tax on investment income, the alternative minimum tax,  self-employment tax and 0.9% Medicare Tax on wages and self-employment .

  • Finally, the new 20% deduction for pass through businesses.

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Tax Reform Business: January 2017

Tax Reform lowers the corporate tax rate to a flat 21% and repeals the corporate AMT. Most small to medium corporations are permitted to use the cash method of accounting.
Taxpayers with domestic income from pass-throughs, partnerships, S corporations, or sole proprietorships can deduct up to 20% of profits. Not eligible are certain service businesses like doctors, lawyers, accountants and brokers, with the exception of those with lower incomes.
DEDUCTIONS
Businesses can immediately write off the full cost of new equipment. Businesses can no longer deduct entertainment, amusement, or recreation directly related to the business Taxpayers can continue to deduct 50% of food and beverage expenses associated with operating their trade or business.

CORPORATIONS
The corporate tax rate is reduced to a flat 21%. Repeals the corporate AMT for tax years beginning after Dec. 31, 2017. Taxpayers with average gross receipts of less than $25 million (indexed for inflation) for the prior three taxable years are permitted to use the cash method of accounting,

 PASS-THROUGHS

Under the new IRC §199A, Taxpayers with domestic income from pass-throughs — partnerships, S corporations, or sole proprietorships — can deduct up to 20% of profits. This 20% deduction equals the lesser of QBI or 20% of taxable income. QBI is defined as all domestic business income other than investment income. The 20% deduction reduces taxable income, not adjusted gross income, and eligible taxpayers may use the deduction whether or not they itemize.

Thresholds and limits. If your taxable income does not exceed a threshold of $315,000 (joint filers), or $157,500 (all other taxpayers), your deduction is not further limited. .

Further limits: When taxable income exceeds the above thresholds, two more limits start to phase in and these limits fully apply after the single taxpayer’s taxable income exceeds $227,500 or joint filer exceeds $415,000. Under the first limit, the 20% deduction is not available to specified services businesses. The second limit is the wage and basis limit below.

Wage and basis limit. Under this limit the deduction cannot exceed the greater of:
(a) 50% of the W-2 wages paid with respect to the qualified trade or business, or
(b) 25% of its W-2 wages plus 2.5% of the unadjusted basis of all qualified property when acquired. “Qualified Property” means tangible property used to produce QBI subject to depreciation under §167.

Specified Service Businesses. Taxpayers with pass-through income from specified service businesses in the fields of health, law, accounting, consulting, athletics, financial services, and brokerage services are not eligible for the deduction with the exception of architects and engineers.

If your net amount of QBI from all qualified trades or businesses during the tax year is a loss, it is carried forward as a loss from a qualified trade or business in the next tax year and reduces your deduction in a subsequent year (but not below zero) by 20% of any such carryover loss.

Calculation of the 20% deduction is quite complex. If you claim the deduction and you understate the amount the tax required to be shown on your return by 5% or more, you could be subject to the substantial understatement of tax penalty.

I would be happy to discuss these issues in more detail, as well as various planning ideas, at your convenience.

NEW RULES ON DEDUCTIONS
Entertainment expenses. The Act repeals the current rule that allows the deduction of entertainment, amusement, or recreation that are directly related to the active conduct of a trade or business. No deduction is allowed for (1) entertainment, amusement or recreation activities, (2) membership dues with respect to any club organized for business or social purposes, or (3) a facility used in connection with any of the above items. The Act allows taxpayers to continue to deduct 50% of food and beverage expenses associated with operating their trade or business.
Equipment
Section 179 deduction. If you purchase depreciable equipment in 2017, you may elect to deduct it under “section 179,” including computer software and qualified real property. You may elect to expense up to $510,000 in 2017 (with a phase-out for purchases in excess of $2,030,000 in 2017;
Bonus Depreciation For property acquired and placed in service during 2017 you may deduct 50%.of its cost (less the §179 deduction as bonus depreciation.

My advice:
1. Talk with your tax adviser about what business entity will be best for you taxwise. This question is way beyond the scope of this article. There are already scholarly studies, one by more than ten law professors, on how to deal with these rules.
2. If you are an employee, you can qualify as a pass-through by quitting your job and become an independent contractor. LOL. The IRS will be gunning for this.
3. Maximize your itemized deductions, since taxable income is calculated after itemized deductions.
4. If you are a banned service provider like a lawyer, don’t make too much money. With income less than $315,000 you qualify.
5. Buy equipment in 2017. Choose the best alternative: bonus depreciation, section 1709 deductions, and MACRS depreciation:
6. Buy Vehicles Weighing Over 6,000 Pounds: If you buy and pace in service a vehicle with a gross vehicle rating over 6,000 pounds it qualifies for a §179 deduction of $25,000, plus bonus depreciation on the rest, plus regular depreciation on the rest.
7. Allocate appropriate amounts of State and local taxes remain as business expenses.
8. Reexamine entertainment expenditures that are no longer deductible.

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