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Individual Preparation for Tax Season

Here are a few tips we’ve put together to help Individuals in preparation to Tax Season.

Consult a Professional-

You should always consult a tax professional to discuss their tax liability. Be careful in trying to interpret tax code language on your own without professional assistance. Although there are many good tax softwares out there if you are not an accountant’s a tax professional you could leave thousands of dollars on the table.

Consider hiring a professional to give you the advice necessary to lower your tax bills, and give you ideas or options that could help you lower your tax liabilities or even get a bigger refund.

The new TCJA 2018 has been the largest overhaul to tax rules ever, therefore we encourage you to consider seeking professional advice on navigating your tax liabilities and expenses.

Call or make an appointment today.

IPS Accounting Services LLC

(843) 637-7100

https://calendly.com/iskrap

We have put a checklist together to help you get organized.

https://ipsaccountingservices.com/2018/12/29/tax-preparation-checklist/

Here are some highlights of the changes that can help you plan better.

The TCJA roughly doubles the standard deduction:

So for 2018, joint filers can enjoy a standard deduction of $24,000. However, the new law suspends personal exemption deductions and eliminates or limits many itemized deductions. For example, the state and local tax deduction is capped at $10,000 per year, or $5,000 for a married taxpayer filing separately (MFS).

Miscellaneous itemized deductions:

Also, the miscellaneous itemized deductions subject to the 2%-of-AGI floor like tax preparation fees and employee business expenses are eliminated, and for home acquisition debt, if incurred after 12/15/17, mortgage interest is deductible only with respects to up to $750,000 ($375,000 MFS) of such debt. For clients who typically claim the standard deduction, their tax bill will likely decrease for 2018.

Although personal exemption deductions are gone, a larger standard deduction, combined with lower tax rates and an increased child tax credit plus a new tax credit for non-child dependents, may result in less tax. We also found that clients who itemized last year won’t itemize this year, or they may be able to itemize for state, but not federal, income tax purposes. You will need to run the numbers to assess the impact. Depending on the results, you may need to adjust your estimated quarterly tax payments or adjust your tax withholding by submitting a new Form W-4 to your employers.

Optimize a child’s 2018 income under the new kiddie tax rules:

TCJA changed how the kiddie tax is computed. Before 2018, unearned income in excess of a threshold amount was taxed at the parents’ applicable tax rate. Now, the income tax rates for estates and trusts apply instead of the parents’ tax rate. So, the kiddie tax computation is no longer tied to the parents’ return and rates.

The key to planning for the kiddie tax is understanding how a child’s income, both unearned (investment) and earned income is taxed. One of the most beneficial kiddie tax planning strategies is recognizing enough income to take full advantage of the child’s standard deduction or, for long-term capital gains and qualified dividends, the taxable income thresholds within which such income is taxed at a 0% rate.

Revisit qualified tuition plans (QTPs):

QTPs, also called 529 plans, are a great way to ease the financial burden of paying for college. Before the TCJA, earnings in a QTP could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other postsecondary schools. QTPs can now be used to pay for tuition at an elementary or secondary public, private, or religious school, up to $10,000 per year. If you are paying tuition for your children or grandchildren to attend elementary or secondary schools, we encourage you to either set up or revisit their 529 plans.

Bunch charitable contributions:

The TCJA temporarily increases the limit on cash contributions to public charities and certain private foundations from 50% to 60% of AGI. While the AGI limit likely applies to a few of your clients, the doubling of the standard deduction and changes to key itemized deductions will prevent many clients from itemizing in 2018 and beyond. One way to combat this is to bunch or increase charitable contributions in alternating years. We suggest that you up donor-advised funds. This will allows you to claim a charitable tax deduction in the funding year and schedule grants over future years.

Finalize a divorce before 2019 to deduct alimony:

For divorces and legal separations that are executed come into legal existence due to a court order after 2018, the alimony-paying spouse won’t be able to deduct the payments, and the alimony-receiving spouse won’t include them in gross income or pay federal income tax on them. So, if deductible/taxable alimony is desired, as it often is when the alimony payor is in a higher tax bracket than the recipient, finalization by 12/31/18 is essential.

Review last year’s 1040:

A review of last year’s Form 1040 is often a great source of tax-saving ideas for you in the current year.

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Business Preparation for Tax Season

Here are a few tips we’ve put together to help Business Owners in preparation to Tax Season.

Consult a Professional:

Small businesses should always consult a tax professional to discuss their tax liability. Be careful in trying to interpret tax code language on your own without professional assistance.

Many business owners/entrepreneurs understand everything about their business, but for the most part, they are not tax or accounting.

Therefore, hire a professional to give you the advice necessary to lower your tax bills, and give you ideas or options that can help your business, while the owner can concentrate their efforts in areas that they might be more comfortable with.

Any federal or state legislation that could potentially change the tax code will take time to enact, so for the upcoming tax season, small business owners should levy their costs and expenses according to the current tax structure.

The new TCJA 2018 has been the largest overhaul to tax rules ever, therefore small business owners should consider seeking professional advice on navigating their tax liabilities and expenses.

Call or make an appointment today.

IPS Accounting Services LLC

(843) 637-7100

https://calendly.com/iskrap

Separate business from personal expenses:

I always suggest that my clients open a checking account just for the business income and expenses. They can draw distributions from that account to their personal account to pay for their personal expenses.

Whenever using a personal credit card for business try to designate one card for the business, we all have several credit cards but if you want to use them for business purposes, try to keep it one just for business. You can pay for this credit card with your business account. This is also helpful she tax season comes you will know that everything charged to that card is for business.

However if you must mingle your personal and business charges into one card make sure you keep good records of personal vs business. This could be tricky so be sure to keep up with it on a monthly basis.

Compliance Starts with Preparation:

For 2018 we suggested that small business owners compare their profit-and-loss margins to the 2017 tax season to avoid underpaying on their taxes.

I always suggest that my clients create a separate bank (Savings) account for taxes and put 10-15 percentage of their income in that account to save it so they are not short on tax day.

According to the IRS, if you will owe more than $1,000 in taxes, you must make estimated tax payments in the amount of 100 percent of last year’s tax liability, or 90 percent of the current year’s liability — whichever is smaller.  

The estimated tax payment method enables small business owners to keep track of their expenses in the buildup to tax filing in April, and offset any costs that occur between this point and their final submission to the IRS.

Acquire business assets:

Under the TCJA’s liberalized Section 179 deduction rules, small businesses can write off the entire cost

of qualifying property rather than recover it through depreciation. The maximum deduction this year is

$1 million (up from $510,000 for 2017). And the deduction is now available for certain tangible personal property used predominantly to furnish lodging and certain improvements to nonresidential real property (roofs, HVAC, fire protection systems, alarm systems, and security systems).

Above and beyond the Section 179 deduction, a business of any size can claim first-year bonus depreciation. The TCJA establishes a 100% first-year deduction for qualified property acquired and placed in service, generally, after 9/27/17 and before 1/1/23. Unlike under prior law, this provision applies to used property as well as new. And unlike the Section 179 deduction, 100% bonus depreciation deductions can create or increase a net operating loss for a business’s 2018 tax year.

“If you were waiting on that new computer system, you may wish to buy it now and put it in service this year and]write it all off, which reduces your overall taxable income.

Adopt a more favorable accounting method:

The cash method of accounting, which lets a business recognize sales when cash is received, is attractive to many small businesses due to its simplicity. For tax years beginning after 2017, the ability to use the cash method is greatly expanded. Any entity (other than a tax shelter) with three-year average annual gross receipts of $25 million or less can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.

Thanks to this favorable rule, a business may be eligible to adopt cash method accounting. You will need to determine whether your clients’ average annual gross receipts are $25 million or less. If they are, and if a change would be beneficial, you can assist your clients in filing the appropriate paperwork with the IRS to change their accounting method.

And finally, the one you’ve been waiting for:

Maximize the Section 199A Qualified Business Income (QBI) deduction:

Perhaps the hottest topic of the TCJA is the new QBI deduction. Individuals who operate a sole proprietorship or own interests in a partnership, LLC, or S corporation may be able to deduct up to 20% of their qualified business income. However, the deduction is subject to various rules and limitations — and they are complex.

Although official guidance continues to be issued on this new deduction, there are some planning strategies that can be considered now. For example, clients can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible, but make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits.

We have put a checklist together to help you get organized.

https://ipsaccountingservices.com/2018/12/29/tax-preparation-checklist/

Tax Preparation Checklist

Tax Preparation Checklist

Tax season offers plenty of challenges especially when it comes to gathering up all that documentation that needs to be handy while working on your tax return.

Fortunately, a tax preparation checklist can make light of the situation and help you discover what’s needed to proceed when ready.

Being prepared for tax season will help you expedite your tax return preparation process, and quite possibly reduce your taxes.

Call or make an appointment today.

IPS Accounting Services LLC

(843) 637-7100

https://calendly.com/iskrap

Gathering up all the documents needed to prepare and file your tax return with ease.

Our checklists are provided to help you collect the most common items that are generally required when you are filing tax returns or gathering up documentation to supply to your personal tax professional.

General Information

___ Bank Account Number (BAN) (For direct deposit/debit purposes)

___ Child Care Expenses for Each. Dependent

___ Copy of Last Year’s Tax Return

___ Dependents’ Names, Years of Birth, and Social Security Numbers

___ Dependents’ Post High School Educational Expenses

___ Educational Expenses for You and Your Spouse

___ Prior Year Adjusted Gross Income (AGI) & Personal Identification

___ Routing Transmit Number (RTN) (For direct deposit/debit)

___ Social Security Numbers for You and Your Spouse

General Taxable Income

___ Alimony Received or Paid

___ Dividend Income Statements: Form 1099-DIV

___ Interest Income Statements: Form 1099-INT & 1099-OID

___ Miscellaneous Income: Form 1099-MISC

___ Sales of Real Estate: Form 1099-S

___ Sales of Stock, Land, etc.: Form 1099-B

___ State Tax Refunds: Form 1099-G

___ Unemployment Compensation Received

___ W-2 Form(s) for Wages, Salaries, and Tips

Retirement Income

___ Railroad Retirement & Social Security Income: Form SSA-1099

___ Retirement Income: Form 1099-R

Business Income

___ Business Income and Expenses

___ Farm Income and Expenses

___ Form K-1 Income from Partnerships, Trusts, and S-Corporations

___ Rental Income and Expenses

___ Tax Deductible Miles Traveled for Business Purposes

Tax Credits Checklist

___ Adoption Expense Information

___ Child Care Provider Address, I.D. Number and Amounts Paid

___ First Time Home Buyer Tax Credit

___ Foreign Taxes paid

Expense and Tax Deduction Checklist

___ Amount Paid to Professional Preparer Last Year

___ Casualty and Theft Losses

___ Charitable Cash Contributions

___ Doctor and Dentist Payments

___ Fair Market Value of Non-cash Contributions to Charities

___ Home Mortgage Interest from Form 1098

___ Home Second Mortgage Interest Paid

___ Hospital and Nurse Payments

___ Investment Expenses

___ IRA Contributions

___ Job-hunting Expenses

___ Last Year’s Tax Preparation Fee

___ Medical Expenses for the Family

___ Medical Insurance Paid

___ Miles Traveled for Volunteer Purposes

___ Miles Traveled for Medical Purposes

___ Miles Traveled Related to Your Job

___ Moving Expenses

___ Personal Property Taxes Paid

___ Prescription Medicines and Drugs

___ Real Estate Taxes Paid

___ State Taxes Paid with Last Year’s Return (if itemized)

___ Student Loan Interest Paid

___ Tax Deductible Unreimbursed Expenses Related to Your Job

___ Union and Professional Dues

___ Unreimbursed Expenses Related to Volunteer Work

Tax Estimate Payments Checklist

___ Estimated Tax Payments Made with ES Vouchers

___ Last Year’s Tax Return Overpayment Applied to This Year

___ Off Highway Fuel Taxes Paid

Adopt a more favorable accounting method

The cash method of accounting, which lets a business recognize sales when cash is received, is attractive to many small businesses due to its simplicity. For tax years beginning after 2017, the ability to use the cash method is greatly expanded. Any entity (other than a tax shelter) with three-year average annual gross receipts of $25 million or less can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.

Thanks to this favorable rule, a business may be eligible to adopt cash method accounting. You will need to determine whether your clients’ average annual gross receipts are $25 million or less. If they are, and if a change would be beneficial, you can assist your clients in filing the appropriate paperwork with the IRS to change their accounting method.

New Standard Mileage Rates for 2019

WASHINGTON — The Internal Revenue Service today issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
14 cents per mile driven in service of charitable organizations.

READ MORE…

https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2019

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