In a bold legislative move fulfilling one of his core campaign promises, President Trump has unveiled his ambitious “One Big Beautiful Bill” — a sweeping piece of legislation packed with tax cuts, credits, deduction adjustments, and policy extensions. Despite Republican leadership’s determined efforts to advance the bill through Congress, it is encountering substantial opposition from Democrats and even some resistance from within Republican conservative ranks. Nevertheless, we expect that a significant portion of the bill will ultimately become law and will have a substantial impact on our tax landscape.

The proposed legislation’s remarkably broad scope addresses an eclectic range of groups, including taxpayers, businesses, immigrants, seniors, students, and aliens in both rural and urban America. Its provisions touch on fuel and energy, schools and foundations, healthcare, childcare, Medicare, and Social Security. Additional areas covered include artificial intelligence, adoptees, tribal governments, and national security concerns.

We’ve reviewed the bill, and here are our highlights: the key points that matter most to us and our clients.

Make American Families and Workers Thrive Again

The bill includes an increase to the Qualified Business Income (QBI) deduction from the current 20% to 23%. This change to the QBI deduction will be significant and will provide more favorable tax treatment for pass-through businesses.

Itemized deductions for high-income taxpayers would be capped at a 35% marginal tax rate for taxpayers in the top income bracket.

Make America Win Again

The new bill proposes a substantial increase to the estate and gift tax exemption to $15 million per individual, starting in 2026. The doubling of the exemption amount will significantly reduce the number of estates subject to federal estate taxes and will allow more wealth to be passed on to heirs without incurring steep tax liabilities.

Make Rural America and Main Street Grow Again

The bill reinstates immediate expensing for domestic R&D costs (2024–2029), including software development. Foreign R&D costs require 15-year amortization. Companies can choose 60-month amortization, benefiting U.S. firms but impacting multinational strategies.

The proposed tax bill extends 100% bonus depreciation for qualified property acquired after January 19, 2025, and placed in service before January 1, 2030. This will allow a full-cost deduction in the year of purchase.

Additional Tax Relief for American Families and Workers

The bill introduces a tax credit capped at 10% of a taxpayer’s income for contributions to scholarship-granting organizations, effectively enabling taxpayers to allocate a portion of their Federal tax liability toward K-12 education costs, including private schools, religious institutions, homeschooling, and public school expenses.

A proposed extension of Opportunity Zone (OZ) Provisions through 2033. The extension aims to reinstate step-up in basis benefits for long-term investments and implement stronger reporting requirements to enhance transparency.

Other notable provisions of the proposed bill include:

Tax Rates & Credits

Reduced Tax Rates - Caps maximum at 37%.

Alternative Minimum Tax (AMT) - Extends higher thresholds and exemptions permanently.

Child Tax Credit - Increases to $2,500 per child from 2025 through 2028, then reverts to $2,000.

Green Energy - changes and limitations to several green energy-related tax credits.

Deductions

Standard Deduction - Permanently increases after 2025 personal exemptions repeal.

Eliminated Deductions - Ends miscellaneous itemized deductions.

Tip Income - Adds special deduction for tip earnings if the gross receipts from the business exceed the cost of goods sold and other deductible expenses.

“Pease Limits” - Repeals these limits while capping itemized deductions at 35% for the highest bracket.

SALT Deduction – Increases to $40,000 cap for individuals earning up to $500,000, with a phase-out for higher incomes.

Property & Interest

Car Loan Interest - Creates above-line deduction (2025-2028) capped at $10,000 per taxable year.

Mortgage Interest - Limits deduction to first $750,000 of acquisition debt.

Casualty Losses - Restricts losses to federally declared disaster areas only.

Business & Reporting

Bonus Depreciation - Raises thresholds to $2.5M/$4M in 2025 with inflation adjustments.

1099 Reporting - Raises minimum threshold to $2,000.

As the new legislation moves through Congress, individuals and businesses should consult with their financial advisors to assess how its potential changes may impact their specific circumstances. Although the bill includes many promising provisions, the timeline and details of their implementation remain uncertain. Maximizing the potential benefits of the bill while managing associated risks will require skill and adaptability, no matter if, when, and in what form the legislation ultimately passes.

This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

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Private equity firms have long been central players in the U.S. economy, driving investments in businesses, creating jobs, and stimulating the economy. Last month, lawmakers issued a renewed call to eliminate the capital gains tax treatment on carried interest, a crucial component of private equity, venture capital, and hedge-fund compensation. Private equity firms have responded by pushing back against this potential reform, lobbying to keep the current tax policy in place to preserve economic growth.

Explaining Carried Interest

Carried interest is a share of the profits that investment managers receive as additional compensation for successfully managing high-risk investments. Typically, carried interest constitutes about 20% of the profits generated by the fund, although the percentage can vary depending on the specific arrangement. This compensation is not a salary or fee for services rendered but a share in the profits of the fund, paid only after investors have received their initial capital back, along with a minimum required return, often referred to as the “hurdle rate.”

The core controversy with carried interest lies in its tax treatment. Under the current U.S. tax system, carried interest is classified as a long-term capital gain rather than ordinary income. The IRS treats it as a capital gain because the manager is perceived to be making an investment in the fund. As a result, the income derived from carried interest is taxed at the capital gains tax rate, which is generally 20% for long-term holdings compared to the ordinary income rate of 37%.

For carried interest to qualify as long-term capital gain, the underlying investments held by the fund must be held for more than a year. Prior to the 2017 tax reform, the requirement for carried interest to be taxed as long-term capital gains was not explicitly restricted, so fund managers could claim long-term capital gain treatment even if the assets were held for a shorter period.

The 2017 Tax Cuts and Jobs Act (TCJA) introduced Section 1061, which extended the holding period for investments to qualify for the lower capital-gains rate from one year to three years. This provision was designed to close a perceived loophole where fund managers could enjoy long-term gains as long as the investment was held for more than a year but still enjoy the lower long-term capital gains tax rate.

Trump’s Proposal and Its Impact

Section 1061 highlighted the growing political pressure to reform carried interest taxation. While the three-year holding period rule tightened the previous tax benefits, this proposal could subject fund managers to ordinary income tax rates on carried interest in entirety.

Trump’s push for higher tax on carried interest is part of his broader tax reform strategy. The proposal is aimed at generating additional tax revenue, which could offset tax cuts for corporations or contribute to reducing the federal deficit. According to a December 2024 estimate from the Congressional Budget Office, taxing carried interest as ordinary income could decrease the federal budget deficit by $14 billion over 10 years.

This could have profound implications for the private equity industry. Fund managers would see a higher tax burden, which could reduce the after-tax return on investments, ultimately impacting the overall attractiveness of private equity as an investment vehicle. Higher taxes could discourage fund managers from pursuing certain types of investments, particularly riskier long-term projects, which require substantial upfront capital. As a result, some private equity firms might seek to restructure their compensation arrangements or adjust their investment strategies to mitigate the impact of these tax changes.

For investors, the shift in tax treatment could result in lower returns on their investments, particularly as the structure of the private equity industry evolves in response to these reforms. We could potentially see a reduction in new funds, with the biggest impact felt at the smaller fund level. Changes in carried interest tax rules may increase structure complexity and compliance costs for private equity firms. Clients may be forced to restructure fund agreements to avoid the proposed tax consequences. However, the full extent of these effects remains uncertain, and private equity advocates argue that the proposals could ultimately reduce overall economic growth.

Pushing Back

Private equity firms have been vocal in their opposition to any proposed changes to the tax treatment of carried interest. One of their key arguments is that the current system helps to attract and retain investment in long-term growth opportunities. Private equity firms argue that by taxing carried interest at the capital gains rate, fund managers are incentivized to focus on creating lasting value rather than making short-term, quick-profit investments.

Industry advocates assert that the capital gains treatment encourages fund managers to take calculated risks on businesses that need capital to scale, innovate, and grow. These investments, in turn, lead to job creation, higher wages, and an increased tax base. Groups like the American Investment Council have published reports showing that private equity-backed businesses are major contributors to job creation, with private equity firms generating more than 10 million jobs across the United States.

Private equity groups have pushed back with significant lobbying efforts. They argue that the new tax structure could harm the economy by discouraging investment in high-risk businesses, particularly those in underserved sectors. They point to studies suggesting that private equity plays a critical role in improving the productivity of U.S. businesses and enhancing global competitiveness.

Moreover, private equity firms have argued that the industry already faces significant regulatory scrutiny and that additional taxes would place an undue burden on private equity funds. Firms that specialize in venture capital or other high-growth investments may be particularly affected, as they depend on the capital gains treatment to incentivize their partners to take on riskier investments.

Bottom Line

Proposed changes to Section 1061 could affect how carried interest is taxed and may impact the financial industry—beginning with high-level fund managers and executives, then extending to broader investment structures, compensation models, and investor returns. We advise clients to avoid surprises and model various exit scenarios, especially for assets close to the new holding period thresholds.

As President Trump and other lawmakers propose various reforms, the private equity industry stands firm in defending its tax structure. While reform advocates argue for a more equitable system, private equity firms emphasize the crucial role that carried interest plays in driving innovation, job creation, and economic growth. The outcome of this debate will have significant implications for both the private equity industry and the broader U.S. economy, making the conversation over tax reform a topic worth watching.

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Like much else under the new Trump presidency, the country’s tax landscape is shifting and reshaping beneath our feet.

Thousands of federal jobs have been slashed, including a large swath at the IRS. This, coupled with an IRS hiring freeze, will reduce the IRS’s ability to pursue tax debt collection and slow down audits, collections, and legal actions. The Department of Government Efficiency’s (DOGE) access to the IRS’s Integrated Data Retrieval System will accelerate a swing toward AI-driven fraud detection and enforcement, and could increase scrutiny on delinquent taxpayers and open the door to a wave of litigation in defense of data privacy. Lastly, the Tax Cuts and Jobs Act (TCJA) of 2017, which has kept tax rates low, key deductions and credits in place, and favorable tax breaks available, is set to expire by the end of 2025 and may or may not be renewed.

These potential changes have tax professionals worried about taxpayer health and the IRS’s capacity to enforce tax law and resolve tax controversy issues. Will scrutiny on delinquent taxpayers increase or weaken in 2025? Will there be sufficient IRS staff available to address delinquencies for tax debtors who want to resolve their obligations? What is the recalcitrant taxpayer to do in these tumultuous times?

What are taxpayers thinking

Taxpayers who are in arrears may wonder if it is the right time to come clean and resolve their outstanding tax issues, or to continue to cruise, hoping that IRS disarray will stand in their favor.

According to statistics generated by the Professional Managers Association, the IRS workforce stands at more than 100,000 total employees. Approximately 28,000 of those have been onboarded within the past year, and about 30,000 employees have worked there less than three years. The IRS, as of February 19, 2025, reports that it plans to lay off approximately 6,000 first-year probationary employees, despite the hiring freeze recently imposed by President Trump. These layoffs will disproportionately affect IRS employees in enforcement because they represent a large share of new employees.

While it’s true that the disorder in federal functioning may translate into diminished scrutiny, the dearth in staffing means that there won’t be agents and reps available to address taxpayers’ issues when necessary. If a taxpayer is at the “Final Notice” stage, automated notices will continue to be released, and a levy will automatically be imposed. However, there likely won’t be enough IRS agents to review appeals, release levies, arrange payment plans, or offer compromises for petitioners. We recommend that the delinquent taxpayer move to resolve his tax debt before he gets caught up in the IRS’ machinery and finds he has no recourse for his debt.

 What we’ve seen at the IRS

Our tax controversy team communicates with IRS representatives daily and has found that auditors, tax reps and agents share taxpayers’ state of confusion. They are stressed and anxious in the face of DOGE’s aggressive layoffs, wondering if or where the hatchet will fall next. Many are considering retirement to get out of the line of fire. New employee training has been frozen mid-stream, leaving longstanding agents worried about the extra burden they will shoulder to compensate for insufficient staff. Their state of limbo does not enhance operations. As one auditor told us, “Sorry if I sound muddled; it’s because I am.”

What You Should Do

Compliance is always the answer. File your taxes on time to avoid additional penalties. If you are in arrears, consider setting up a payment plan now, before IRS processing delays get worse. Stay abreast of policy changes; if TCJA provisions expire, your tax bill will change. Finally, if you are out of your depth, seek the help of an accounting professional.

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In partnership with The OJC Fund, Roth&Co hosted a highly informative webinar providing valuable insights on year-end charitable giving and tax-saving strategies. The webinar featured Roth&Co Partner Michael Wegh, CPA, Roth&Co Manager Yisroel Kilstein, CPA, and Aron Pinson, CFA, Chief Investment Officer at Equinum Wealth Management. Click here to watch the recording, or read the recap below.

Charitable giving creates a “win-win” for taxpayers: it supports meaningful causes while offering deductions that reduce taxable income. Taxpayers have two options for claiming deductions on their returns: They can either take the standard deduction, or opt to itemize deductions, which allows them to include all their annual contributions. For those who itemize, tax-deductible donations can be a valuable tool for reducing overall tax liability.

It’s important to note, though, that not every charitable contribution qualifies for a deduction. Donations must be made to an IRS-registered organization or an official House of Prayer. In most cases, tangible property can be deducted unless goods or services are exchanged in return for the donation. For example, if you attend your child’s annual school dinner, you can deduct the entrance fee—minus the fair market value of the meal, as the meal constitutes a tangible benefit.

Intangible religious benefits—such as moral guidance or participation in religious services—are not considered taxable income, and are exempt from IRS reporting requirements. However, tuition payments for religious education are considered tangible benefits and do not qualify as deductible charitable contributions.

To claim a deduction for any given year, the donation must be made before December 31st of that year. Electronic contributions should be withdrawn from a bank account or non-electronic contributions should be postmarked by that date. Additionally, it’s essential to keep documentation in case of an audit. Written records are required for donations under $250, while donations over that amount must be substantiated with a ‘Contemporaneous Written Acknowledgement’ or receipt.

An individual’s charitable contribution deduction is capped based on the classification of the organization or recipient. For cash donations, contributions to public charities are generally limited to 60% of a person’s adjusted gross income (AGI). The percentage limit may differ for non-cash contributions (e.g., securities or property), which are capped at 50% or 30%, depending on different factors. Donations to private foundations are capped at 30% of AGI for most contributions, and 20% for capital gain contributions. Contributions to foreign charities are generally not deductible unless the charity is registered with the IRS. Donating to a Donor-Advised Fund (DAF) provides similar benefits as donating to a public charity (with the 60% AGI limit) while offering flexibility, ease of use, and simplified recordkeeping.

Charitable deductions can be strategically applied to maximize tax benefits. For instance, if you experience a high-income year, consider making a significant donation to a DAF before year-end. While you can recommend how the funds are distributed over the next year, your donation will be recognized in the current year, and the deduction can be claimed immediately. Conversely, in a year with lower income, you might consider “bunching” your contributions with the following year’s donations to optimize the tax impact in a year with a higher income.

Charitable giving not only supports causes you care about, but also offers meaningful tax benefits. Speak to your tax advisor to explore how your charitable contributions can be leveraged to enhance your tax strategy and support your overall financial well-being.

This material has been prepared for informational purposes only and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

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On the campaign trail, Trump vocally championed American business interests and vowed to support corporate America and draw business back into the U.S. Now it’s showtime, and one area where we may see Trump’s plans begin to emerge is in changes to business tax law and policy. While no detailed tax plan has been issued yet, Trump has hinted at how tax policy may take shape next year.

Trump has proposed a 1% decrease in the corporate income tax rate, which presently stands at 21%, and he is suggesting a more substantial 15% rate for companies that manufacture in the U.S. This tax cut is relatively modest, but it will increase corporate profits and give businesses more resources to reinvest and grow. Unless the changes also address pass-through tax rates or deductions, there will likely be no significant benefits for small businesses organized as pass-through entities. There is the possibility that the tax cut could improve global competitiveness and tempt international corporations to return or transfer operations to the U.S., potentially stimulating modest economic growth.

Though a 1% decrease seems insignificant, given the scale of U.S. corporate earnings, it could have a noteworthy and negative impact on U.S. tax revenues and may increase the country’s deficit. Much will depend on how businesses use their 1% savings, where they allocate them, and how the broader economic environment reacts to the adjustment.

Trump also proposes to repeal the limitation on excess business losses for non-corporate taxpayers. The limitation, created by the American Rescue Plan Act of 2021 and extended through 2028 by the Inflation Reduction Act of 2022, prevents non-corporate taxpayers from deducting excess business losses above $578,000 (2023-married filing jointly) or $289,000 (other), with any excess losses treated as net operating loss carryforward (subject to indexed thresholds).

Repealing this limitation would mean more deductions available for non-corporate taxpayers, including S Corps, partnerships, and sole proprietors. It would enable them to offset their business losses against other types of income, like wages or investment income, and overall, it would reduce their tax burden. Critics may claim that this tax cut favors the rich, who have multiple income streams and are more likely to have large business losses and other income to offset.

Besides tax relief, the injection of additional cash into businesses could spur growth and reinvestment. As above, this tax cut would also reduce federal tax revenues and may raise the deficit unless other revenue-generating measures are implemented.

Even with the possibility of a Republican-controlled Congress, it is uncertain whether Trump will be successful in pushing through tax cuts and policy changes. He may face backlash from the public for seemingly favoring the wealthy, or lawmakers may question whether his tax initiatives can benefit the overall economy. The Fed will be cautious of any changes impacting inflation and, by extension, interest rates. With so many economic moving parts, it is hard to predict whether or how Trump’s intentions will be realized.

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They say a cluttered desk is a sign of a cluttered mind. For businesses, messy or inaccurate financial records signify more than disorder; they reflect a company in chaos—one that is likely flying blind financially. Outsourcing Client Accounting Services (CAS) is an effective way to turn financial chaos into clarity.

For small businesses with revenues under $10 million, maintaining a full-time CFO can cost anywhere from 2% to 5% of annual revenue. If the expense of a full-time executive is too steep for your business, outsourced CAS services offer essential solutions to help you operate effectively and remain compliant. CAS services typically include accounting operations, strategic financial planning, cash flow management, budgeting, forecasting, and expert financial guidance.

Why Does a Business Need Accurate and Timely Financial Statements?

Financial statements are the building blocks of any well-run company. Accurate and timely financials are essential for:

Tax reporting and compliance
Financial planning and budgeting
Securing financing or attracting investors
Managing operations efficiently

Poorly executed financial reporting can invite tax audits, compromise financing opportunities, and damage a company’s prospects for a potential sale. On a practical level, not knowing the state of your finances leads to losing control over cash flow and expenses. Management cannot set or implement long-term business goals or develop effective strategies. Decision-making becomes impaired.

Bottom line? Bad books mean management will make bad decisions.

What is Financial Reporting?

Financial statements consist of three key components that provide insights into a company’s assets, liabilities, and equity:

Balance Sheet: This snapshot of a company’s financial standing at a specific point in time shows assets, liabilities, and the difference between them—known as shareholders’ equity (also referred to as net worth or owner’s equity).
Income Statement: Also called a profit and loss statement, this document reflects a company’s financial performance over a given period. It identifies revenues, expenses, and the resulting net income or loss.
Cash Flow Statement: This statement tracks the movement of cash in and out of a business during a specific period, showing how well a company generates and uses cash.

How Do Bad Reporting Habits Play Out?

Consider XYZ Corp., a company plagued by constant turnover in its finance department. Its CEO, more focused on improving his golf handicap than reviewing financials, ignored ambiguous and incomplete records.

The consequences were severe. The company couldn’t track cash flow; payments to suppliers were missed; employees’ salaries were issued late; and the company underreported taxable income, inviting an IRS audit.

The CEO was mid-swing on the fourth hole when the office manager called to inform him of the audit. The result? Fines, penalties, and reputational damage. Eventually, when XYZ Corp. tried to sell, buyers were unwilling to move forward because the company could not demonstrate consistent financial health. The company went bankrupt, and the CEO’s golf handicap remained depressingly high.

What Are the Two Most Essential Rewards of Sound Financial Reporting?

Informed Decision-Making
Accurate financial records are vital for making informed decisions. They enable management to assess company goals, forecast future revenues, and allocate resources effectively. Financial data can help identify internal trends: Are costs rising? Are revenues declining?

With this insight, management can make proactive adjustments to “right the ship.” They can prioritize expenditures, focus on strategic investments, and ensure long-term stability.

Improved Cash Flow Management
Cash flow describes the inflow and outflow of funds used for daily operations, such as taxes, payroll, inventory, and other expenses. By analyzing cash flow data, management can anticipate and prepare for periods of low cash flow. They can then prudently decide whether to postpone non-essential expenditures or perhaps secure short-term financing, if needed.

Efficient cash flow management ensures stability, prevents debilitating shortfalls, and gives management the flexibility to focus on growth and success.

Watch Your Bottom Line

Financial statements provide management with a clear view of future investments and expenditures while serving as benchmarks for performance assessment. They can also instill confidence in investors who need assurance before allocating capital.

For organizations that lack the size or capacity to staff in-house personnel for financial reporting, outsourcing CAS services can make a significant difference. Professionally managed back-office accounting operations allow management to focus on operations, strategy, and growth objectives.

Neglecting financial accuracy can result in missed opportunities, poor decision-making, and even legal consequences. Can your business afford the risk?

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With Trump’s recent victory, real estate professionals are counting on seeing significant rate cuts and enjoying potential benefits. These include a more vigorous market, relief for buyers, and more favorable financing conditions, by way of lower interest rates for investors. Bus this rosy forecast may be met with rain clouds.

Trump’s proposed tax cuts are meant to create a more business-friendly economic environment and may mildly stimulate the economy by increasing business investment. However, the Federal Reserve (Fed) exercises a dual mandate: to control employment and keep inflation down. If the economy weakens, the Fed usually responds by stepping in and lowering rates to stimulate growth. Conversely, when the economy heats up, more money is circulating in the system and inflationary conditions can develop. To manage inflation the Fed may raise rates to control and stabilize the economy. When the economy is healthy, the Federal Reserve is less inclined to lower interest rates, to prevent the risk of the economy overheating.

Trump also proposes to impose tariffs on imports; a move that unlikely to prompt the Fed to lower rates and may even have the opposite effect. Tariffs are inherently inflationary, as they raise the cost of imported goods; and that cost ultimately finds its way to the consumer in the form of higher sticker prices. When prices rise, the Fed would be careful to avoid further rate cuts and instead would consider moving rates upward to counter inflationary pressures.

Based on the above, the environment created by Trump’s proposals, while beneficial to businesses and taxpayers, is at odds with conditions that would motivate the Federal Reserve to lower interest rates. Improving the economy will benefit the country – but are unlikely to warrant a decrease in interest rates.

That said, there’s room for an alternative perspective. A strong economy is a double-edged sword when it comes to interest rates. In a stable and non-volatile economy, Treasury rates fall. Investors are seeking safer assets, the increased demand for Treasury bonds drives their prices higher and yields lower. This decline in Treasury rates creates a ripple effect throughout the financial system, influencing other rates. As Treasury rates decline the global lending environment reacts. International borrowers are drawn to the US’s favorable market rates and increasing demand for US debt drives down lending rates further, including consumer and mortgage rates. Treasury rates, global lending, and consumer rates share a reciprocal relationship. The ‘zero risk rate’ set by the Treasury becomes the baseline for lending, when it is at a low, borrowing becomes cheaper for everyone.

Potential chain reactions from fluctuations in the 10-year Treasury bond market and the Federal Funds Futures remain uncertain and may have broader economic benefits. Lower consumer and mortgage rates spur growth by increasing disposable income. More disposable income translates into more discretionary purchasing – a boost for the retail and service industries. Businesses will take advantage of more affordable lending terms and can invest in big-ticket projects, expansion, and technology – which promotes employment across many sectors.

Additionally, a potential inflation buster that could lead to lower rates is Trump’s proposal to ease drilling restrictions to boost domestic oil and gas production. Energy prices are a significant driver of inflation. Lower energy costs will also result in reduced price increases and more disposable income for taxpayers to spend on consumer goods.

While on the campaign trail, Trump proposed that the president should have influence over the Federal Reserve’s interest rate decisions. In response, Chairman Powell, a Presidential Appointee, made clear that he would continue to run the Fed as an independent entity. Trump may be motivated to dismiss Powell and replace the Fed Board with more dovish appointees who are more sympathetic to lowering rates. However, there is no legal mechanism to remove an appointee, and the President cannot directly discharge the Fed Chair without legal cause. Trump may contend that Powell was appointed by a president and therefore, a president can remove him. Alternately, he may attempt to publicly pressure Powell to resign. I believe that both alternatives would fail and would provoke market instability and public criticism.

What can we conclude from our current combination of economic and political landscape? Optimists can stay hopeful, but even while market predictors prophesize a steady gradual decline in interest rates, I believe it is improbable that the Trump administration will be the catalyst for steeper cuts than those already built into market predictions. My advice to clients is to refrain from making assumptions or business decisions based on the expectations of drastically lower rates. Exercise caution when underwriting or investing in deals that depend heavily on significant rate declines. Instead, investors should focus on making decisions that prioritize long-term growth and remain sustainable across a variety of economic scenarios.

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The Medicare Advantage Plan is an alternative to traditional Medicare that allows eligible participants to access their benefits through private insurance plans within Medicare. Medicare Advantage (MA) Plans have become an increasingly popular choice for participants because of the lower rates and added benefits offered. But for the skilled nursing homes responsible for delivering the services covered by MA plans, the fallout is far more unfavorable. Will MA plans irreparably damage the SNF industry?

Skilled nursing facilities generally receive lower reimbursement rates under MA plans than under traditional Medicare. The Federal government, through CMS, pays MA plans a fixed, or ‘capitated’, monthly amount per beneficiary – a per person, per month rate to cover health care services for each individual participant. Because the payments are fixed, there is the inherent risk that costs for a participant will exceed the capitated payment. If there’s a deficit, the SNF has to absorb it.

Managed care reduces the average revenue per patient day, but the staffing and administrative requirements to deliver the same level of care remain the same. The result? Tighter profit margins resulting from the shortfall put pressure on facilities to control expenses and avoid providing excess services. To effectively tackle this challenge, my colleague, Shulem Rosenbaum CPA/ABV, partner with Roth&Co’s Advisory division, shares that “SNFs must rethink their cost structures. Many SNFs have historically relied on a per-patient-day (PPD) variable cost model, where expenses fluctuate with occupancy and patient demand. This approach leaves facilities exposed to the instability of fixed or inconsistent reimbursement rates frequently seen with Medicare Advantage.”

One of our clients, a long-time SNF operator with over 50 facilities, shared his perspective about how MA plans have disrupted the financial landscape for skilled nursing facilities. “We’re left juggling to meet patient needs while navigating a system that doesn’t account for the real costs of care. It’s a challenge to stay financially viable.” The numbers prove him right. According to calculations made by Zimmet Healthcare, the dollar amount of SNF Medicare reimbursements lost this year to MA comes to over $10 billion nationally, with Pennsylvania losing almost $500 million and New York out by $634 million.

While SNFs revenues will always be restricted by federal and state requirements, there are ways to alleviate concerns about MA reimbursement and reduce volatility through strategic initiatives. SNF’s can maximize their revenues by building strong relationships with MA plan providers to negotiate better reimbursement rates or value-based contracts. They can work to reduce their reliance on MA plans and improve profitability by diversifying their patient base and attracting more self-pay and private insurance patients. As with any business operation, they can optimize efficiency by streamlining administrative practices, integrate technology, and brainstorm for additional cost-saving measures that won’t compromise the quality of care.

“A compelling solution is to adopt a fixed-expense model that reduces reliance on operational leverage,” Rosenbaum adds. “By reassessing and standardizing specific cost centers, SNFs can establish a more stable financial framework that is less affected by patient volume.” Another of our clients, a small, local SNF owner, had a different take on current challenges. “MA plan participation is growing, and we must learn to work with that. The evolution of the industry has made us take a hard look at how we manage our resources, pushing us to reassess and work smarter— which is something every operation needs to do from time to time.”

Ultimately, while Medicare Advantage plans may effectively help participants manage their healthcare costs, they restrict revenues and patient care options for SNFs. Will the rise in MA plans push the SNF industry to its breaking point? Times may be lean for SNF’s, but we believe that agile and creative facilities can effectively modify operations, maintain patient care, and adapt to working with MA plans to achieve a sustainable business model for the long term.

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Excel and Power BI are both powerful Microsoft tools used in data analysis and reporting, but each has its distinct strengths and applications.

Excel, as a spreadsheet program, offers strong capabilities used for basic analysis and reporting; it features detailed, manual data entry and calculations. Excel is suitable for small to medium datasets for use in financial analysis, and it’s a comfortable choice for users who are already familiar with its functions and formulas. The program is commonly used by businesses and students for creating budgets, tracking expenditures, calculations and analyses, and other statistical functions.

Power BI is the go-to choice for advanced analytics and visualization. It offers more automation and scalability for large datasets and its interactive functions are used for advanced data analysis, forecasting, tracking key metrics and other tasks that require manipulating and sharing data.

Power BI vs. Excel: Why Power BI Stands Out

While Excel remains a popular tool for data analysis, Power BI offers several advantages that make it a superior choice for modern businesses:

Enhanced Visualizations: Power BI’s advanced visual tools make it easier to present complex data in a visually appealing and interactive way.
Real-Time Data Integration: Unlike Excel, which often requires manual data refreshes, Power BI can connect to live data sources for continuous updates.
Scalability: Power BI handles large datasets more effectively than Excel, making it ideal for businesses that deal with high volumes of data.
Seamless Integration: Power BI supports a wide range of data sources, including cloud services like Azure, and enterprise systems like SAP and Salesforce, making it more versatile than Excel.

Who’s got the Advantage?

Whereas Excel is the workhorse we all know and love, Power BI provides attractive bells and whistles. Its extensive features for formatting, natural language queries, and editing and filtering are visually appealing – with a customized dashboard offering a 360-degree view. Users can more easily drill down into data with Power BI and automate and share interactive reports across teams and organizations. Ultimately, these capabilities can help businesses make better-informed, data-driven decisions. While Excel’s calculation and spreadsheet functionalities make it ideal for studying data, Power BI is a better choice for performance and sharing.

Why Choose?

Excel and Power BI, both created by Microsoft, can complement each other effectively and integrate well. There’s no real need to choose between them – they can be used together for optimal results.

Data created in Excel can easily be shared with Power BI without transition glitches. The same goes for other Microsoft Office applications, like Power Query and Power Pivot. An amalgam of these tools can save a business time, automate its processes, and allow it to optimize and upgrade its data management.

Ask us about how RothTech can help your organization leverage the full potential of Power BI for deeper insights and better decision-making.

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Cost segregation is a key tool that allows a business to reclassify certain property components and potentially reduce its tax burden through accelerated depreciation. Property owners who have developed, acquired, expanded, or renovated real estate can optimize their depreciation deductions and defer income taxes at both federal and state levels. While cost segregation is common in office, hotel, and retail spaces, it can benefit any type of commercial property.

For tax purposes, residential rental properties typically depreciate over 27.5 years, while commercial properties depreciate over 39 years. However, properties include more than the building structure itself—elements like plumbing, flooring, and sidewalks can be depreciated on accelerated timelines. By separating specific property components, investors can fast-track depreciation deductions, cut taxable income, and improve cash flow. This method is especially valuable in commercial real estate, where larger investments yield substantial tax savings. Cost segregation is one way private-market real estate provides unique tax advantages, making it a particularly appealing asset class.

When selling property used in your business, understanding the sale’s tax implications is essential, especially given the complex rules involved.

Basic rules

As an example, consider a property for sale that is either land or depreciable property used in your business and has been held for more than a year. Under tax law, gains and losses from sales of business property are netted against each other. The tax treatment is as follows:

If the netting of gains and losses results in a net gain, then long-term capital gain treatment results, subject to “recapture” rules discussed below. Long-term capital gain treatment is generally more favorable than ordinary income treatment.
If the netting of gains and losses results in a net loss, that loss is fully deductible against ordinary income. (In other words, none of the rules that limit the deductibility of capital losses apply.)

The availability of long-term capital gain treatment for business property net gain is limited by “recapture” rules. Under these rules, amounts are treated as ordinary income, rather than capital gain, because of previous ordinary loss or deduction treatment.

The beauty of utilizing cost segregation to accelerate depreciation is that it offsets income – until it is time to sell. That’s when the recapture rule kicks in. There’s a special recapture rule that applies only to business property. Under this rule, to the extent you’ve had a business property net loss within the previous five years, any business property net gain is treated as ordinary income instead of long-term capital gain.

Different types of property

Under the Internal Revenue Code, different provisions address different types of property. For example:

Section 1245 property. This consists of all depreciable personal property, whether tangible or intangible, and certain depreciable real property (usually real property that performs specific functions). If you sell Section 1245 property, you must recapture your gain as ordinary income to the extent of your earlier depreciation deductions on the asset.
Section 1250 property. In general, this consists of buildings and their structural components. If you sell Section 1250 property that’s placed in service after 1986, none of the long-term capital gain attributable to depreciation deductions will be subject to depreciation recapture. However, for most noncorporate taxpayers, the gain attributable to depreciation deductions, to the extent it doesn’t exceed business property net gain, will (as reduced by the business property recapture rule above) be taxed at a rate of no more than 28.8% (25% plus the 3.8% net investment income tax) rather than the maximum 23.8% rate (20% plus the 3.8% net investment income tax) that generally applies to long-term capital gains of noncorporate taxpayers.

Other rules apply to, respectively, Section 1250 property that you placed in service after 1980 and before 1987, and Section 1250 property that you placed in service before 1981.

Even with the simple assumptions presented in this article, the tax treatment of the sale of business assets can be complex. Tools like cost segregation, combined with a solid grasp of tax rules, can make a significant difference in tax outcomes and improve a business’ overall financial strategy when it sells business property.

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On September 18, 2024, for the first time in over four years, the Federal Reserve cut interest rates by 0.5%. Will this cut relieve the borrowing chokehold crippling the commercial real estate (CRE) industry? Opinions are mixed. Some say that it buys time for CRE holders, and that with the additional future cuts alluded to by the Fed, they will be able to hold out until refinancing becomes viable. Others claim that a rate cut will barely make a dent in the challenges that highly- leveraged CRE holders and investors are facing, and that banks will no longer wait patiently for them to address their debts.

According to CRE data firm Trepp, an estimated $2.2 trillion in commercial-property debt will be maturing between this year and 2027. CRE holders that invested using the artificially low, pre-pandemic interest rates are now seeking refinancing and find themselves in a very tight spot. The inevitable result is defaults and receiverships. Jeff Krasnoff, CEO of Rialto Capital, a real estate investment and asset management firm based in Florida, recently brought over fifteen foreclosure suits against borrowers from Signature Bank, which collapsed in 2023, alleging defaults exceeding $300 million. Other examples include investment firm Ashkenazy Acquisitions, multifamily syndicator GVA, and landlord Steve Croman, who account for approximately $751 million in defaults in 2024.

Until now, banks have been resorting to the “extend and pretend” game, where they’ve extended loan terms for struggling borrowers to help them avoid default, while waiting and hoping to see property values rebound. This unsustainable strategy is wearing thin, and, according to the Federal Reserve’s senior loan officer opinion survey released in May 2024, banks reported tightening their CRE lending policies during the first quarter of 2024. Banks are making efforts to reduce their exposure and have been quietly divesting troublesome portfolios of CRE loans in order to cut their losses – a reasonable move in light of 2023’s collapse of First Republic and Signature Bank, both of which were major commercial real estate lenders.

An analysis by S & P Global found that approximately 10% of the CRE mortgages maturing in 2024 are office properties. The post-pandemic shift toward remote and hybrid work arrangements have hit the office sector hard, generating vacancies and delinquencies. Trepp estimates that the U.S. office market has lost nearly a quarter of its value since the Federal Reserve began raising rates. Many of these office space owners are highly- leveraged or locked into floating rate debt and are struggling to stay viable. According to Shulem Rosenbaum CPA/ABV, Partner and business valuation expert at Roth&Co, the takeaway is that “overleveraging can be beneficial in stable markets, but carries significant risks in more turbulent times.”

What can we expect for the future? In a September 2024 press conference, Federal Reserve Chair Jerome Powell indicated that the Fed would consider additional cuts, by, “making decisions meeting by meeting, based on the incoming data, the evolving outlook, the balance of risks.”

Powell expects that the economy will continue its trend towards falling inflation and rising unemployment – a trend that prompted this first rate cut. The consensus among analysts and central bank officials is that more interest rate cuts will be forthcoming in 2024 and into 2025. A drop in the interest rate means that borrowing costs will ease and capital will free up. This will make financing new deals more attractive to investors and developers. More transaction activity will spur competition, and increased demand will bring up property prices. While many analysts believe most lenders and real estate owners can hold out until rates drop enough for refinancing, the support from the Fed won’t be sufficient for some of the country’s most heavily leveraged property investors.

Will rate cuts pull the CRE industry out of its pandemic-induced coma? U.S. economist and Nobel laureate Milton Friedman was no fan of central banking practices and its manipulation of interest rates. He believed, “cutting interest rates doesn’t create capital” nor increase real wealth, “it just shifts it around,” redistributing existing capital within the economy.

Rosenbaum asserts, “We have yet to see the positive effects of the Federal Reserve’s recent rate cuts on the CRE industry.” Initial rate increases occurred during a period when the CRE sector was already grappling with high vacancies and rent forbearances, while key COVID relief programs, such as the Paycheck Protection Program (PPP) were unavailable to many landlords. Other resources, like the Employee Retention Credit (ERC), were limited to businesses with small workforces. “While the Fed’s current actions may provide some temporary relief,” Rosenbaum contends, “we believe it is unlikely to deliver the comprehensive solution that the CRE industry urgently requires.”

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In today’s data-driven world, businesses of all sizes—from small startups to large conglomerates—collect vast amounts of data. However, the true challenge lies in transforming this raw data into actionable insights that drive informed decision-making. Microsoft’s Power BI is a powerful business intelligence tool designed to help organizations convert data into meaningful reports and visualizations, making data analysis more accessible, insightful, and actionable.

Why Power BI is Essential for Modern Businesses

1) Data Consolidation Across Multiple Sources: Power BI allows businesses to integrate data from multiple sources, such as Excel, cloud services, databases, and even the web. This unified data access means that businesses can analyze sales, operations, finance, and customer data all in one place, enabling cohesive decision-making across departments.

2) Real-Time Analytics: Power BI provides real-time data streaming, meaning businesses can track key performance indicators (KPIs) and metrics as they happen. This allows companies to respond proactively to changes in market conditions or internal performance issues, rather than relying on static, outdated reports.

3) Advanced Data Visualization: While tools like Excel can visualize data to a degree, Power BI takes this a step further with interactive, highly customizable dashboards. These dashboards provide a clear view of complex datasets and help users easily identify trends, outliers, and opportunities through modern visuals like heatmaps, treemaps, and geographic maps.

4) Self-Service Business Intelligence: One of the greatest advantages of Power BI is its ease of use. Users across the organization, not just those in IT, can create their own reports and dashboards. This empowers all team members to make data-driven decisions and fosters a culture of data literacy throughout the organization.

5) Scalability and Affordability: Power BI is built on scalable data engines capable of handling large datasets without performance degradation. Additionally, its pricing structure is progressive, offering free options for small organizations using Power BI Desktop, and affordable licensing for larger enterprises that need cloud sharing and collaboration.

How to Set Up Power BI for Success

To maximize the potential of Power BI, proper setup and ongoing optimization are critical. Here’s a step-by-step approach:

1) Define Clear Objectives: Before jumping into Power BI, businesses should outline their goals. What key metrics are you tracking? What decisions do you hope to influence with your data? Aligning Power BI with these objectives ensures you are focused on the right data and insights.

2) Data Integration and Cleaning: Power BI excels when data is clean and consistent. Use tools like Power Query to prepare data from various sources, ensuring accuracy and reliability before analysis. Once cleaned, Power BI can pull in data from sources such as SAP, Oracle, Azure, and even websites.

3) Establish Roles and Permissions: To protect sensitive data, businesses should set up appropriate user roles in Power BI. The platform allows administrators to grant different permissions, ensuring that data is secure while still enabling collaboration across departments.

4) Foster a Data-Driven Culture: Training employees to use Power BI is essential for unlocking its full potential. Encourage team members to build their own reports and dashboards, fostering a culture where data literacy thrives.

Best Practices for Power BI Optimization

Even after setting up Power BI, ongoing refinement is essential to ensure the tool evolves alongside your business. Here are some optimization tips:

– Automate Data Refreshes and Alerts: Set up automatic data refreshes to ensure your dashboards always display the latest information. Use alerts to notify key stakeholders when KPIs reach critical thresholds, enabling faster responses to emerging trends.

– Optimize Report Performance: As data volumes grow, it’s important to optimize reports for performance. Techniques like DirectQuery and incremental refreshes can help keep reports running smoothly, even with large datasets.

– Design with Simplicity: Power BI dashboards should be clear and concise. Avoid overloading users with too much information, and focus on the most critical data points. Use consistent visualizations, round numbers, and clean layouts to enhance readability.

– Security and Governance: Power BI offers robust data security features, such as row-level security, allowing businesses to protect sensitive data while still leveraging the platform’s collaborative features.

Conclusion: Unlock the Power of Your Data with Power BI

Power BI transforms data into actionable insights, making it a critical tool for businesses looking to gain a competitive edge in today’s data-driven world. By integrating data across multiple sources, offering real-time insights, and enabling self-service reporting, Power BI helps businesses make informed decisions that drive growth, efficiency, and profitability.

With proper setup, ongoing optimization, and a commitment to fostering a data-driven culture, your organization can fully unlock the power of Power BI and harness the full potential of your data.

Ask us about how RothTech can help your organization leverage the full potential of Power BI for deeper insights and better decision-making.

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The IRS defines voluntary disclosure as “a way for taxpayers with previously undisclosed income to contact the IRS and resolve their tax matters.” It’s their way of offering remiss taxpayers the opportunity to mitigate potential penalties.

This new program refers specifically to the COVID-era Employee Retention Credit (ERC). If you claimed and received the Employee Retention Credit (ERC) for 2021 tax periods, but you are, in fact, ineligible, you will need to repay the credit. The Voluntary Disclosure Program, or VDP, may be your chance to regroup.

An analysis conducted by the IRS found that a whopping 60% to 70% of applications for the ERC show an unacceptable “level of risk.” This is IRS lingo for claims they believe have a high likelihood of being ineligible for the credit. Tens of thousands of these are slated to be denied in the coming months. This high percentage of erroneous filings has inspired the IRS to temporarily reopen the Voluntary Disclosure Program and give businesses the chance to repair or retract their improperly filed claims to avoid potential civil penalties, audit costs and possible litigation.

Round two of the Voluntary Disclosure Program (VDP) was launched on August 15, 2024 and will close soon – on November 22, 2024. The VDP offers a 15% discount on the repayment of a claimant’s errant claim and the opportunity to avoid penalties, audits, or fees associated with that incorrect claim.

The IRS is marketing this “discount” as defraying the high expenses that many businesses needed to pay their (overly aggressive) advisors or promoters in order to get the ERC in the first place. Couched in another way, the IRS is willing to pay 15% of the claim in order to get their hands on the other 85% and to get the business to rat on the promoters of ineligible claims.

The first ERC VDP earlier this year offered a more generous 20% discount, but that offer is gone. If a taxpayer believes that it is eligible for the ERC, but wants to recalculate to claim a different amount, it will have to file an amended return to report that reduced amount.

Only those who have claimed ERC for 2021 (not 2020) and have received the refund or the credit against their employment taxes, are eligible to take advantage of VDP 2.0. If a claimant has already received an IRS “clawback” notice demanding repayment, they’re out of luck. If they are in the middle of an employment tax exam for the credit period or are under criminal investigation, they have also lost their chance. When a claimant is accepted to the Voluntary Disclosure Program, they must execute a closing agreement explicitly stating that they are not entitled to the ERC – and the IRS doesn’t stop there. In its efforts to identify potentially abusive ERC promotors, the claimant will have to provide the names and contact information of the preparer or advisor who helped them submit the claim.

If you’ve applied for the ERC but have not yet received a credit or refund or have received a check but have left it uncashed, then you are not eligible for this program. Instead, the IRS offers a withdrawal process. This process effectively reverses your claim, treating it as if it was never filed. The IRS will graciously hold back from imposing penalties or interest as well. However, you won’t get the 15% “discount.” To date, the claim withdrawal process has led to more than 7,300 entities withdrawing $677 million.

The IRS continues hunting for erroneous or fraudulent ERC claims and has already mailed out thousands of letters disallowing unpaid ERC claims to businesses in these last few months. This deluge of letters represents more than $1 billion in ERC claims.

It is interesting to note that the IRS seems to be targeting only those that have already received their credits. For many businesses that have already received (and in most cases, spent) the monies, it would be very hard to part with what they already have in hand.

Do you need to rethink your ERC claim? Was your preparer above board? Was he or she knowledgeable about your business and informed about ERC qualifications? Was your eligibility based on “general supply chain disruptions?”

Our recent experience handling numerous ERC audits have shown us that the IRS has been operating under a policy of “deny first, ask questions later.” Your claim may deserve a revisit, and the Voluntary Disclosure Program may be your return ticket to proper compliance.

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“Democracy is the theory that the common people know what they want and deserve to get it good and hard.”

— H. L. Mencken

It’s that season again — when those running for public office start making promises of all shapes and sizes, even those that defy the laws of economics. But let’s not forget their ultimate goal: to get more votes. As Churchill lamented, “The best argument against democracy is a five-minute conversation with the average voter.”

Let’s examine a few recent examples:

Vice President Harris, in her “economic plan” released on August 15th, promised to ban price gouging. This term usually refers to sellers exploiting market power to unfairly raise prices. With grocery prices up 26% since 2020, addressing this issue sounds appealing. However, even The New York Times felt compelled to critique this proposal, quoting economist Jason Furman: “This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality.” Harris’s economic advisers surely know that price gouging bans have never and will never work, but they’re banking on voters not noticing.

Then there’s former President Trump’s tariff proposal: a 10% tariff on all imported goods. While this might appeal to voters who favor “America First” policies and resist globalization, these tariffs would ultimately raise prices for consumers. Although certain adverse measures can be justified in certain areas like computer chips (national security) or medicine (as seen during COVID), they ignore the fact that importing cheaper goods has long kept American lifestyles more affordable.

A final example is the bipartisan silence on the solvency of Social Security and the national debt. Telling seniors they might face pay cuts, or juniors that they need to pay more into the system, doesn’t win votes. As a result, these topics remain taboo until they become ticking time bombs.

Historian Niall Ferguson recently highlighted his “personal law of history:” “Any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long. True of Habsburg Spain, t ancient régime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the U.S. beginning this very year.” Tackling this issue isn’t politically advantageous, so it’s conveniently ignored.

While were not here to predict the future, it is important to recognize the incentives driving political stances. To draw from the Churchill well once again, “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” It’s high time for voters to wake up to economic reality – politics is often a game of fantasy.

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Non-compete agreements have always been considered a valuable business tool, especially after a merger or acquisition. However, these agreements have become more complicated in the wake of a new and controversial final rule, issued in April 2024, by the Federal Trade Commission (FTC) proposing a ban on noncompete agreements for most employees and independent contractors. The rule would have gone into effect in September 2024.

To counter the FTC’s effort, the U.S. Chamber of Commerce and several business groups filed federal lawsuits challenging the final rule, arguing that the FTC lacked the authority to enact the ban and that it violated the Constitution. By August 20, 2024, they prevailed, and the rule was struck down. The Court concluded that the FTC’s decision was “arbitrary and capricious,” stating that the Non-Compete Rule was “unreasonably overbroad.” The Court was specifically offended by the rule’s “one size fits all” solution to the potential hazards of a non-compete.

This ruling will not impact state laws on non-competes. Several states have already limited their use. Minnesota banned workplace non-competes in July 2023, and New York nearly passed a similar ban before it was vetoed. States like Indiana have also restricted non-competes in specific cases.

Non-compete agreements have been around for decades. Some are required at the get-go, as a prerequisite for employment, and some kick in upon termination of employment. The employer will require an employee to sign a non-compete agreement to protect the employer’s business interests, guard against disclosure of trade secrets, and prevent the employee from poaching customers or clients. These agreements will generally limit employment activities in the same field, for a specified period, and their goal is to protect the employer.

Non-competes also may come into play in business combinations. These agreements typically prevent the seller from competing with the buyer within a specified geographic area for a certain time period (usually five years or less).

A non-compete agreement may be estimated in various circumstances, including legal disputes, mergers, financial reporting and tax matters. The most common approach to valuing a non-compete agreement is the ‘with-and-without’ method. Without a non-compete agreement, the worst-case scenario is that competition from the employee or seller will drive the company out of business. Therefore, the value of the entire business represents the highest ceiling for the value of a non-compete.

The business’ tangible assets possess some value and could be liquidated if the business failed, and it is unlikely that the employee or seller will be able to steal 100% of a business’s profits. So, when valuing non-competes, experts typically run two discounted cash flow scenarios — one with the non-compete in place, and the other without.

The valuation expert computes the difference between the two expected cash flow streams and includes consideration of several other factors:

The company’s competitive and financial position
Business forecasts and trends
The employee’s or seller’s skills and customer relationships

Next, each differential must be multiplied by the probability that the individual will subsequently compete with the business. If the party in question has no incentive, ability, or reason to compete, then the non-compete can be worthless. Factors to consider when predicting the threat of competition include the individual’s age, health, financial standing and previous competitive experience. When valuing non-competes related to mergers and acquisitions, the expert will also consider any post-sale relocation and employment plans.

A critical factor to consider when valuing non-competes is whether the agreement is legally enforceable. The restrictions in the agreement must be reasonable. For example, some courts may reject non-competes that cover an unreasonably large territory or long period of time. What is “reasonable” varies from business to business, and is subject to the particulars of the business, the terms of the agreement, state statutes and case law.

What does this mean for your business? The legal battle over non-competes has drawn attention to their use, prompting the corporate world to reconsider work relationships without restrictive covenants. Non-competes will likely be viewed differently moving forward. As with all business-related legislation, businesses should stay updated and informed of changes and revisions that may affect its employment practices and its bottom line.

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Political passions run deep but allowing them to dictate investment decisions can be perilous. A 2020 UBS poll revealed that nearly half (46%) of American investors planned to adjust their portfolios based on the outcome of the presidential election. This highlights a concerning trend: letting political affiliation influence financial strategy. Beyond the inherent difficulties of market timing, throwing political aspects into the mix can lead to even greater risk.

Then there’s the research that exposes a more insidious enemy: confirmation bias.

Confirmation bias is the cognitive tendency to seek out, interpret, and favor information that confirms our pre-existing beliefs, while disregarding or downplaying contradictory evidence. In simpler terms, we often see what aligns with our established views, and readily reinforce them while dismissing anything that may challenge them. The thinking is always that if the “other guy” wins, markets will crash.

Even more concerning, party affiliation often colors perceptions of the national economy, with the party in power typically receiving higher approval ratings.

This chart illustrates a persistent trend: we tend to feel good about the economy if our party is in power, and vice versa. So it’s not only a divide in regard to what will happen in the future, we can’t even agree on what is happening right now! The last time public opinion was in agreement regarding the economy was during the Clinton administration, when strategist James Carville famously declared, “It’s the economy, stupid!” Apart from that, there’s always been a clear divide.

What may be surprising is that historically, investing only under a democratic president yielded a much higher return than investing under only republican administrations. The growth of a $10,000 investment in 1950 would have been $405,540 under the Democrats, versus only $77,770 under the Republicans. But here’s the kicker – had you remained invested the whole time, the growth of that $10,000 investment would have come to $3.15 million dollars!

Does the president actually have any sway on this? Or are market cycles the main actor? It’s hard to say that President Bush was at fault for the great recession and housing crisis of 2008, and it was definitely good luck for President Obama, to be in office during the recovery. Markets and business cycles sing to their own tune, and don’t care who is warming the chair in the oval office.

Despite being informed and educated, investors will often still want to base their “thematic investing” decisions, where they invest in a certain sector or theme, on their projected election outcome.

Consider someone who believed President Trump’s “drill, baby, drill” slogan would boost the oil and gas industry. Despite this expectation, the SPDR Fund Energy Select Sector (ticker XLE) plummeted by 48% during his tenure. Similarly, those who assumed natural gas would thrive under President Biden have been disappointed, with most ETFs tracking natural gas being down by about 70% during his time in office.

The takeaway? When it comes to your investment accounts, leave confirmation bias at the login screen. Focus on what truly matters: your financial goals. By employing a well-defined strategy tailored to your individual needs and risk tolerance, you can navigate the markets with greater clarity and avoid the pitfalls of political influence.

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Maximizing current-year depreciation write-offs for newly acquired assets is a must for every business. Two federal tax breaks can be a big help in achieving this goal: first-year Section 179 depreciation deductions and first-year bonus depreciation deductions. These two deductions can potentially allow businesses to write off some or all of their qualifying asset expenses in Year 1.

Here’s how to coordinate these write-offs for optimal tax-saving results.

Sec. 179 deduction basics

Most tangible depreciable business assets — including equipment, computer hardware, vehicles (subject to limits), furniture, most software, and fixtures — qualify for the first-year Sec. 179 deduction.
Sec. 179 deductions are also allowed for nonresidential building roofs, HVAC equipment, fire protection systems and security systems.
Depreciable real property generally doesn’t qualify unless it’s qualified improvement property (QIP).

QIP means any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building is placed in service — except for any expenditures attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework.
The inflation-adjusted maximum Sec. 179 deduction for tax years beginning in 2024 is $1.22 million. It begins to be phased out if 2024 qualified asset additions exceed $3.05 million. (These are up from $1.16 million and $2.89 million, respectively, in 2023.)

Bonus depreciation basics
Most tangible depreciable business assets also qualify for first-year bonus depreciation. In addition, software and QIP generally qualify. To be eligible, a used asset must be new to the taxpayer.

For qualifying assets placed in service in 2024, the first-year bonus depreciation percentage is 60%. This is down from 80% in 2023.

Sec. 179 vs. bonus depreciation
The current Sec. 179 deduction rules are generous, but there are several limitations:

- The phase-out rule mentioned above,
- A business taxable income limitation that disallows deductions that would result in an overall business taxable loss,
- A limited deduction for SUVs with a gross vehicle weight rating of more than 6,000 pounds, and
- Tricky limitation rules when assets are owned by pass-through entities such as LLCs, partnerships, and S corporations.

First-year bonus depreciation deductions aren’t subject to any complicated limitations but, as mentioned earlier, the bonus depreciation percentages for 2024 and 2023 are only 60% and 80%, respectively.

So, the current tax-saving strategy is to write off as much of the cost of qualifying asset additions as you can with Sec. 179 deductions. Then claim as much first-year bonus depreciation as you can.

Example: In 2024, your calendar-tax-year C corporation places in service $500,000 of assets that qualify for both a Sec. 179 deduction and first-year bonus depreciation. However, due to the taxable income limitation, the company’s Sec. 179 deduction is limited to only $300,000.

- You can deduct the $300,000 on your corporation’s 2024 federal income tax return.
- You can then deduct 60% of the remaining $200,000 ($500,000 − $300,000), thanks to first-year bonus depreciation.

So, your corporation can write off $420,000 in 2024 [$300,000 + (60% x $200,000) = $420,000]. That’s 84% of the cost! Note that the $200,000 bonus depreciation deduction will contribute to a corporate net operating loss that’s carried forward to your 2025 tax year.

Manage tax breaks
Coordinating Sec. 179 deductions with bonus depreciation deductions is a tax-wise idea and a useful tool in a business’ tax strategy toolbox. Applied correctly, this strategy may allow your business to potentially write off some or all of its qualifying asset expenses in Year 1. That’s good for your books and good for your business.

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Taxpayers and practitioners agree that attempting to contact the IRS by phone can be a frustrating endeavor. Every year, millions of taxpayers seek IRS assistance by reaching out to the IRS’ toll-free and international telephone lines with their federal tax questions, requests for tax forms, to check on the status of their refunds, or to follow up with IRS correspondence or notices. All too often, they are met with long wait times, disconnected calls and general anxiety. The Taxpayer Advocate Service, an independent organization within the IRS, was created to champion the taxpayers’ cause by mediating between taxpayers and the IRS to help resolve tax issues. But a recent study of TAS phone lines conducted by the Treasury Inspector General for Tax Administration (TIGTA), found that catching TAS for a heart to heart talk is equally as challenging as contacting the IRS directly.

With the Inflation Reduction Act (IRA) of 2022, $80 billion in supplemental funding was allocated to help the IRS up its game. One area of improvement focused on increasing the level of service via IRS telephone lines. In November of 2023, the Treasury Inspector General issued a report on the quality of customer service with the objective of determining whether IRS help lines were operational and able to provide taxpayers simple, fast, and accessible customer service.

Testers called 102 IRS customer service telephone numbers during the 2023 tax filing season to evaluate the quality of customer service and found that 21 of them placed the caller on hold for more than 30 minutes, before the caller ultimately ended the call. Other flaws emerged; taxpayers were referred to incorrect phone lines, the offer to provide messages in either English or Spanish was inconsistent, taxpayers did not always receive a return call as promised and hold times were excessive. In its Objectives Report to Congress for fiscal year 2025, the National Taxpayer Advocate service cited flaws in IRS taxpayer communications and advocated for the IRS to, “do a more comprehensive measure of phone service that includes the quality of the caller’s experience.”

Despite the Advocates Service’s best intentions, when TIGTA turned its spotlight on TAS itself, it didn’t fare much better. In July of 2024, TIGTA issued an evaluation report about how ready and responsive TAS phone lines were; the results sounded familiar.

TAS telephone lines were found to be inconsistent in providing taxpayers with the ability to speak with a TAS representative. TIGTA called all 76 local TAS telephone lines in the United States, using the telephone numbers listed on the TAS and IRS websites. Some telephone lines were found to be out of service, voicemail boxes were often full and unable to address the call, and recorded scripted messaging and callback times were inconsistent. Of the 76 calls made, only two were answered by a TAS representative. Automatic voicemail prompts promised that callbacks would be received anywhere between one business day to as long as four weeks. TIGTA also compared contact information for telephone numbers, fax lines, and local addresses between what was listed on the TAS and the IRS website and found several discrepancies. It identified voicemail messaging that had significant differences in the information being communicated.

After reviewing TIGTA’s draft report, TAS stepped up to the plate and agreed with much of its results and recommendations. TAS took corrective actions to make changes to voicemail messages, made updates to the IRS and TAS websites, and is striving to provide more consistent information to taxpayers. However, as claimed by its compatriot, the IRS, TAS management contends that it is short staffed and cannot adopt all of TIGTA’s recommendations.

Despite ongoing efforts to improve, IRS-taxpayer communications remain a messy business. In our experience, communicating with the IRS is best achieved by utilizing their call-back feature; which we have found to be fairly dependable and helpful. Nevertheless, when attempting to work out your issues with the IRS, patience and perseverance must rule the day.

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One of the most pressing financial questions facing the United States today is about its outstanding national debt, which recently crossed the $35 trillion mark. That translates into about $270,000 per taxpayer—a figure that many say is downright terrifying. What will happen when this debt “comes home to roost”? How will it all end? These are critical questions, and the answers are far from simple.

Some people subscribe to Modern Monetary Theory (MMT), a macroeconomic theory suggesting that a country issuing its own currency can never run out of money in the same way a business or individual can. Without diving too deeply into this view, it’s important to note that this theory is highly controversial and has more critics than supporters. Just because you can print more money doesn’t mean you will never need to pay it back. At the very least, issuing more dollars could lead to inflation and in a dire scenario, might cause the dollar to lose its global reserve currency status.

While MMT economists advocate for a calm and collected couch-potato approach to this predicament, others take a more extreme stance. Let’s call these preppers “The Three G’s” Squad—those who are hoarding “Gold, Groceries, and Guns” for when the wheels of the U.S. system come off. These folks are preparing for something as drastic as a proper zombie invasion, focusing on stockpiling tangible assets and ensuring self-sufficiency in case of a severe scenario.

While there may be some merit to stockpiling canned food in your basement, we’d prefer a more strategic and less doomsday-oriented approach. This isn’t the first time the U.S. has been in a difficult spot. The great experiment known as the U.S.A., established by the Founding Fathers, has faced its share of challenges before, but it has always pulled through.

So, while you might feel the urge to “do something” and potentially overprepare, our strategy focuses on investing in the largest, most efficient companies in the U.S. These companies are well-equipped to navigate financial crises due to their resources, experience, and operational efficiencies. While the possibility of an extreme event leading to total chaos always exists, it’s more likely that circumstances will create a financial crisis requiring robust and adaptive responses. And who better to manage these challenges than the most capable and resourceful companies?

Consider this: In January 1980, an ounce of gold was trading at $800. Today, that same ounce is worth about $2,400. However, to have merely kept pace with inflation since 1980, gold would need to be priced at $3,200 an ounce. By contrast, $800 invested in the S&P 500 in January 1980, and left to compound (with taxes paid from another source), would be worth about $117,000 today. While noisy preparation might provide comfort now, it has historically come at a steep cost to our long-term serenity.

So, although no one can claim to know how the national debt situation will play out—it’s a complex and daunting issue—what may feel like underpreparing today can be the best preparation. You can choose to take dramatic steps and watch events unfold on TV from your basement (with all the baby corn, of course), but true preparation might actually lie in betting on a brighter future and on those that are best suited to realize it.

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In April 2023, taxpayers and tax professionals were elated by news that the U.S. Tax Court had ruled in favor of businessman Alon Farhy in his suit against the IRS. Farhy asserted that the IRS had no authorization to assess and impose penalties for failure to file foreign information returns. Their collective joy was tempered a year later when in May 2024, the U.S. Court of Appeals for the D.C Circuit reversed the Tax Court’s initial ruling.

Farhy failed to report his ownership in two foreign entities in Belize and was assessed hefty Section 6038(b) penalties. The penalty scale for infringements under Section 6038(b) includes initial penalties of $10,000 for each annual accounting period, for every foreign entity for which the required information is not provided. Additional penalties include $10,000 for each 30-day period that the infraction occurs, up to a maximum of $50,000.

Farhy’s argument to the courts was unique; he did not deny his lack of compliance. Rather, he challenged the IRS’ authority to independently assess and issue Section 6038(b) penalties directly, for failing to file certain foreign tax information. If the IRS sought to collect penalties, he contended, it would have to pursue civil action by filing a lawsuit in federal court under Title 28 of the U.S. Code. In its surprising ruling, the Tax Court agreed with Farhy’s position, and acknowledged that Section 6038(b), unlike other penalty sections, does not include a provision authorizing assessment of penalties.

Farhy’s victory didn’t last long. A year later, the Washington, D.C. Circuit Court of Appeals reversed the decision, based on context and history. “… penalties imposed under section 6038(b) … are assessable. This conclusion is buttressed by more than forty years of congressional acquiescence to the IRS’s practice of assessing section 6038(b) penalties.”

Apparently, silence is acquiescence. The court decided that the responsibility to clarify, change, or reinterpret a statute falls upon Congress. If Congress hasn’t revisited this statute in forty years, it must have no objection to its interpretation. The Court of Appeals utilized the “tools of statutory interpretation” and looked “to contextual clues” to assess whether this specific penalty provision could be challenged. It concluded that that Congress meant for Section 6038(b) penalties to be assessable, “Read in light of its text, structure, and function, section 6038 itself is best interpreted to render assessable the fixed-dollar monetary penalties subsection (b) authorizes.” On June 4, 2024, Farhy filed a petition for a rehearing, but it was denied.

While Farhy v Commissioner was on appeal, the ruling was successfully applied in Raju J. Mukhi v. Commissioner. Mukhi racked up $11 million of foreign reporting penalties and brought several claims to court, a fraction of which were Section 6038(b) penalties. In regard to those penalties, the Tax Court reaffirmed its decision in Farhy, finding that the IRS lacked authority to assess the penalties under Section 6038(b). Farhy was heard in U.S. Tax Court and deals with tax law interpretation, while Mukhi was heard by the U.S. Court of Appeals for the Second Circuit and involves immigration law. The overlap between the two cases highlights how rulings in one area can simultaneously impact decisions in other areas, influencing both IRS enforcement practices and federal law.

Litigation revolving around the IRS’ assessment authority for Section 6038(b) is likely to continue; but until there is a conclusive decision by the Supreme Court, taxpayers and practitioners can and should challenge IRS authority to assess these penalties in US Tax Court cases, where they fall outside of the D.C. Circuit. Ultimately, regardless of the courts’ decisions, the requirement to file still remains. Serious players in the international business space must be scrupulous in their tax compliance and stay mindful and aware of changing judicial interpretations of tax law.

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While bankruptcies are widely publicized and must follow the established governing codes, there is much more privacy and procedural flexibility when it comes to receiverships. And as we see more portfolios struggling in the current environment of higher interest rates, it’s critical to understand what receivership is and more importantly what it means for you.

Whereas bankruptcy is a method used by debtors to protect themselves from collection; receivership is a remedy that creditors employ to preserve interest upon a breach of contract i.e loan default. Once a breach has occurred, and the parties are unable to come to an agreement otherwise, the creditor will submit a claim to seek receivership in their state court. While a creditor also has the authority to file for involuntary bankruptcy, the receivership process is timelier, less expensive and more importantly, allows the creditor to nominate a receiver of their choice, albeit with the court’s ultimate approval. All these factors are crucial in accomplishing the lender’s goal of restoring their asset’s value.

The responsibilities, rights and compensation of the receiver are subject to the discretion of the court and not bound by strict procedures as seen in bankruptcies. Once finalized, the appointed receiver assumes complete management of the distressed company, controlling all its financial and operating functions. Depending on the litigation proceedings, as the business stabilizes, the lender will look to return the property to the debtor or transition the asset to a new permanent operator. While the company retains its principals in the interim, their authority and insight is limited, to their detriment. Should the business return to profitability or be sold for a gain, they will ultimately be responsible for any taxable income without the ability to proactively tax plan.

Courts view receivership as a drastic step and will encourage the lender and borrower to come to an equitable agreement instead. Should a portion of the debt be forgiven as part of such an agreement, this may result “cancellation of debt” income reported by the borrower. The additional tax liability can be a crushing blow for an already struggling taxpayer.

The two most popular exclusions under Code Section108 are to demonstrate that the company is insolvent or, more commonly, utilizing the ‘qualified real property business indebtedness exclusion.’ This exclusion can apply when real property that secures a debt is held for use in a trade or business and not primarily held for sale. The downside of utilizing this exclusion is that the taxpayer must reduce the tax basis of its depreciable real property by the amount of income he is aiming to exclude; resulting in a decrease in depreciation expense. While this is a worthy trade-off in the short term and can provide necessary breathing room, there are long-term ramifications the taxpayer needs to be aware of. A deteriorated tax basis translates into a higher capital gain should the property eventually be sold. All said, diligent tax compliance and strategic planning are essential to minimize adverse tax consequences during receivership.

While receivership might be perceived as a company’s death knell, it can also present unique opportunities for the company itself, as well as for entrepreneurs and other industry players. Economist Joseph Schumpeter introduced the economic principle of “creative destruction,” which describes how failures or disruptions in income for one entity or sector can create success for others. An entity that enters receivership has the chance to recover, redevelop and thrive. If it does not, others will take full advantage. Those looking to quickly repay creditors present savvy entrepreneurs with an opportunity to acquire assets that can significantly appreciate in value, at discounted prices, and under favorable terms. In business, there are always winners and losers, but opportunities are ever-present. Recognize them and position yourself as a winner.

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Back in September of 2023, the IRS declared a moratorium on the processing of new ERC claims, declaring that a substantial portion of the new claims were ineligible and were a product of clueless businesses lured in by promises from aggressive promoters and ‘ERC mills’. Aggressive promotion campaigns by ERC mills instigated a surge of problematic claims, ultimately obstructing IRS’ processing of legitimate claims for deserving businesses. Fast forward to June 2024 and, after coming under pressure from Congress, the IRS has announced that, in an attempt to crawl through the enmired, fraud-ridden ERC program, it will step up its processing and payments of older ERC claims.

Beleaguered IRS Commissioner Danny Werfel clarified that, “We decided to keep the post-September moratorium in place because we continue to be deeply concerned about the substantial number of claims coming in so long after the pandemic. We worry that ending the moratorium might trigger a renewed marketing push by aggressive promoters that could lead to a new round of improper claims. That would be a bad result to taxpayers and tax administration. By continuing the moratorium, we will use this time to consult with Congress and seek additional help from them on the ERC program. Based on what we are seeing, we believe closing the ERC program down to additional applicants would be the right thing to do.”

Werfel says that the IRS continues to be deluged by 17,000 new claims a week, despite the moratorium, and its inventory of claims stands at 1.4 million. According to the law, businesses can still apply for the credit until April 15, 2025, despite the fact that the pandemic is history. The IRS anticipates that tens of thousands of improper high-risk claims for the ERC will be denied. It conducted a review to assess a group of over 1 million ERC claims representing more than $86 billion filed and found that 10% to 20% of claims fell into the highest-risk group, with clear signs of ineligibility or possible fraud. Another 60% to 70% of the claims showed, “an unacceptable level of risk” which will draw extra analysis and scrutiny from the IRS.

Red flags tagging a claim as high risk are those that declare too many employees and wrong ERC calculations, claims based on a supply chain disruption, businesses that claim the ERC for too much of a tax period, or claims from businesses that did not pay wages or did not exist during the eligibility period. Claiming the ERC for partial shutdowns, where a segment of a business was partially shutdown, is also suspect.

Werfel assures taxpayers that the situation is not completely bleak. “For those with legitimate claims, this review helps the IRS with a path forward, and we’re taking action to help. Our review showed between 10% and 20% of the ERC claims show a low risk of red flags. So, for those with no eligibility warning signs, and received before last September, the IRS will begin judiciously processing more of these claims.” The IRS will work on a first-in-first-out basis, with older claims addressed first. It will not process claims that were submitted after Sept. 14, 2023, post-moratorium. Werfel advises taxpayers to lay low and wait for the IRS to sort things out instead of inundating the IRS toll-free line or contacting their accounting professionals to try to speed up the payment process.

While Werfel’s team sorts out its processing issues, the IRS Criminal Investigation unit is hard at work. It has already initiated 450 criminal cases of potentially fraudulent claims totaling a dollar value of almost $7 billion. Of these cases, 36 have resulted in federal charges. At the same time, the IRS has thousands of audits in the pipeline. “So, the bottom line for us on ERC is that we’re continuing to work on many different angles.” Werfel says. “And today’s announcement illustrates that we have a slow but steady path forward to help small businesses with no red flags on their claims, while denying clearly incorrect claims to continuing your work on those claims with question marks.”

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Yogi Berra famously quipped, “Nobody goes there anymore; it’s too crowded.” That pretty much sums up how many people view living in New York. Long time residents are leaving New York in droves. However, although people are trying to escape high taxes, cold weather and congestion, they often want to keep some of the benefits and conveniences that New York has to offer. They often want to keep their (former) home in New York.

If you’ve moved away from New York but still have a home there, you may think you’ve abandoned the Empire state. But New York State might not have abandoned you (at least not your money). If you maintain a permanent home in New York, you may still be considered a resident for tax purposes.

This article will address the frequently asked question of “How do I get Albany’s hands out of my pocket?” Taxpayers often think that if they buy a Florida home and change their driver’s license and voter’s registration to Florida, they are no longer NYS residents for tax purposes. That doesn’t fly according to the NYS tax dept.

Like many states, New York has strict residency laws that will determine your tax obligations. If you’ve recently moved out of NY or are considering moving you should be aware of the legalities dictating residency and be prepared to defend your position in case of audit.

NYS has two tests to determine whether you are a NY taxpayer – the Domicile Test and the Statutory Residency Test. They can get you on either one.

One’s domicile is his place of permanent legal residence. It’s the place where one has the most family and professional ties and that one considers their home.

Five factors define whether a person is considered domiciled in NY State. None of these factors stand alone in determining what a domicile is, rather, they are considered in their totality. It is all about intention, as evidenced by your actions.

The first factor considered is your physical home. What location do you intend to use as your personal home? Where do you return to after you’ve been away? What is the size of your NY home as opposed to your non-New York home? Is one owned and one rented?

The second criterion revolves around your active business involvement. Where is your primary workplace? Where do you work from on a day-to-day basis? Working from a second home is still considered as though one is working in New York for tax purposes, unless a separate business location is established in the secondary location.

The third factor that NYS will review is how the taxpayer spends his or her time. Taxpayers are expected to spend more time in his or her new home state rather than in New York. A location tracker App like Monaeo can be helpful to support this.

The fourth criteria is ‘near and dear’. One’s domicile is the place where one keeps significant possessions. Where are your significant monetary and sentimental possessions located? New York State will not be convinced that you’ve moved if you keep your Picasso in your former home.

One’s family is the final factor. Where do your family members reside? Where do you host significant events and holidays? Are your children registered for school in your new hometown or in NY State?

Under law, one can only have one domicile. A New York domicile does not change until it is established that it has been abandoned and that a new domicile outside New York State has been established.

A “statutory resident” is defined as one who is not domiciled in NY State but maintains a permanent place of abode (regardless of ownership) in the state, and spends, in the aggregate, more than 183 of the taxable year there. Under audit, NYS will review calendars, expense reports, credit card statements, passports, cell phone records, and EZ PASS activity to make an accurate count of how many days you’ve spent in NY State. Partial days will count as a full day when making the count, with only very limited travel and medical exceptions.

If an auditor determines that a taxpayer is not domiciled in NY State, he will still attempt to establish that the Taxpayer is a statutory resident. In either case, whether being domiciled in NY State or being a statutory resident of NY State, the taxpayer is considered a NY State resident for tax purposes. If you are preparing to move out of NYS, but still plan to have some kind of continuing relationship with your former home, it would be wise to confer with your accountant and develop a preventative strategy to defend yourself in case your residential tax obligations are challenged.

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CFOs and Tax Leaders share responsibilities and goals – but need to do a better job collaborating. These two pivotal business roles share responsibility for the financial stability, profitability, and growth of their businesses, but when they are not aligned on the strategic value of the tax function, the company will suffer the consequences.

BDO’s Tax Strategist Survey found that 78% of CFOs believe that the tax function offers strategic value to the broader business, and 75% believe the tax function is invited to weigh in on business decisions before they are made. In both instances, there is a clear signal that CFOs see the merits of fully engaging with the tax function.

However, tax leaders’ responses to the same survey seemed to tell a different story. Only 27% of tax leaders say that they were sufficiently involved in a wide enough range of business decisions to meet the threshold of a “tax strategist” — the type of tax leader who regularly takes a seat at the table to provide strategic input outside the traditional areas of responsibility of the tax function.

This disconnect creates an interesting challenge: if CFOs believe tax leaders are already adding sufficient strategic value, they may fail to include them in the wider decision-making process. This oversight could prevent leveraging the full potential of a tax team, leading to missed tax opportunities or even increased tax risk or liability. Tax leaders, for their part, believe they can be more involved, so something appears to be lost in translation. How can CFOs and tax leaders work together to enable a more strategic tax function?

Expanding Roles: CFOs and Strategic Tax Functions

The tax function’s role is expanding and becoming more complicated. Tax leaders must navigate increasing regulatory complexity, as major domestic U.S. tax policy changes occur with greater frequency. International trade treaties and regulations have changed markedly due to new presidential administrations and expanding geopolitical conflicts.

Tax leaders are increasingly involved in reputation management amid heightened demand for tax transparency from regulators and other stakeholders. Tax leaders and CFOs must work together to manage competing priorities of maximizing shareholder value and ensuring the company is not overpaying tax, while at the same time managing public scrutiny related to total tax contribution.

Tax Leaders: Learn to Speak the Same Language

In turn, tax leaders need to understand how the CFO’s role is evolving. Learning to speak the language of business and finance beyond tax means understanding the strategic priorities of the CFO and the business and how the tax function can positively impact those goals. Tax leaders must make sure that their highly technical tax language translates across the business so that tax planning strategies can be effectively communicated to the C-suite and accurately deployed.

Expanding the range of metrics and key performance indicators (KPIs) used to measure the tax function’s impact on the company can also help align goals and foster communication. Alongside essential benchmarks like effective tax rate or accuracy of tax returns, new benchmarks may dovetail with the CFO’s other goals – like capital allocation and risk management, helping to bring the tax function’s insights to a wider audience.

Developing the ability to calculate and communicate the tax implications of business decisions and policy shifts in terms that matter to the broader business is key to the tax leader becoming a trusted advisor to the CFO. Showing leaders across the company that the tax team can focus on bottom-line impacts while attending to technical tax details can demonstrate how the tax function’s abilities extend beyond compliance and into strategic value.

CFOs: Keep the Lines of Communication Open and Provide the Right Support

For CFOs, keeping the lines of communication open with tax leaders is essential to successful strategic tax planning. Inviting tax leaders to the table when major decisions are made is important, but will be merely symbolic if tax leaders do not have the resources they need to make strategic contributions. The CFO should work closely with tax leaders to ensure the tax team is equipped with the necessary resources, including skilled personnel, an effective staffing model, advanced technology, and ongoing training and development. This kind of support simplifies dealing with complex tax situations and allows tax leaders to focus on strategic contributions by automating routine tasks and providing actionable data insights.

CFOs and Tax Leaders: Foster Alignment in Action

When CFOs and tax leaders set goals together, communicate, and keep each other accountable, the magic can start to happen. Their alignment will drive better business outcomes, enhance decision-making, mitigate tax risk, and improve operational resilience. When well-aligned CFOs and tax leaders are strategic partners, they can unlock the full potential of the tax team and leverage highly technical knowledge to provide bottom-line value to the entire business.

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Did you donate to charity last year? Acknowledgment letters from the charities you gave to may have already shown up in your mailbox. But if you didn’t receive such a letter, can you still claim a deduction for the gift on your 2023 income tax return? It depends.

What the Law Requires

To prove a charitable donation for which you claim a tax deduction, you must comply with IRS substantiation requirements. For a donation of $250 or more, this includes obtaining a contemporaneous written acknowledgment from the charitable organization stating the amount of the donation, whether you received any goods or services in consideration for the donation and the value of any such goods or services.

“Contemporaneous” means the earlier of: The date you file your tax return or the extended due date of your return. Therefore, if you made a donation in 2023 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2023 return. Contact the charity now and request a written acknowledgment. Keep in mind that, if you made a cash gift of under $250 with a check or credit card, generally a canceled check, bank statement or credit card statement is adequate. However, if you received something in return for the donation, you generally must reduce your deduction by its value — and the charity is required to provide you with a written acknowledgment as described earlier.

No Longer a Tax Break for Nonitemizers

Currently, taxpayers who don’t itemize their deductions (and instead claim the standard deduction) can’t claim a charitable deduction. Under previous COVID-19 relief laws, an individual who didn’t itemize deductions could claim a limited federal income tax write-off for cash contributions to IRS-approved charities for the 2020 and 2021 tax years. Unfortunately, the deduction for nonitemizers isn’t available for 2022 or 2023.

More Requirements for Certain Donations

Some types of donations require additional substantiation. For example, if you donate property valued at more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return. For donated property with a value of more than $5,000, you generally must obtain a qualified appraisal and attach an appraisal summary to your tax return.

Donor Advised Charitable Giving

Many donors opt for effectuating their charitable giving through a donor-advised fund (DAF). Giving to charity through a DAF offers an immediate tax deduction and affords strong support documentation to ward off trouble should a donor be challenged by the IRS.

Contact your accounting professional at Roth&Co if you have questions about whether you have the required substantiation for the donations you hope to deduct on your 2023 tax return. We can also advise on the substantiation you’ll need for gifts you’re planning this year to ensure you can enjoy the desired deductions on your 2024 return.

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There are two accounting methods businesses use to figure their taxable income: cash and accrual. According to the IRS, your choice of accounting method should properly reflect the income and expenses you report for tax purposes. Very often, the cash method provides significant tax benefits for eligible businesses – but not always. It is imperative for your business to evaluate which method will work best to ensure that it achieves the most advantageous tax benefits.

Cash method – Are you eligible?

“Small businesses” are generally eligible to use either cash or accrual accounting for tax purposes, and some may also be eligible to use various hybrid approaches. The Tax Cuts and Jobs Act (TCJA) defined a “small business” by establishing a single gross receipts threshold:

A “small business” is one whose average annual gross receipts for the three-year period ending before the 2024 tax year are $30 million or less (up from $29 million for 2023).

This is a notable change from before the TCJA took effect, where the gross receipts threshold for classification as a small business varied from $1 million to $10 million depending on how a business was structured.

Difference between the methods

The main difference between the cash basis and accrual basis of accounting is the timing of when expenses and income are recorded in your financial statements. Using the cash basis, a business will record transactions when payment is exchanged. Accrual basis accounting records income as it’s earned and expenses when they are incurred. For example, if a business pays for an insurance policy in one lump sum at the beginning of the year, using the cash basis, it will record this entire transaction when it’s paid. If using the accrual basis, the business would record a portion of the cost each month over the entire year.

Tax Advantages

For most businesses, the cash method provides both significant tax advantages as well as cash flow benefits. Because cash-basis businesses recognize income when received and deduct expenses when they are paid, they have greater control over the timing of income and deductions. Income is taxed in the year received, so using the cash method helps ensure that a business has the funds needed to pay its tax bill. Additionally, this method offers the bonus benefits of simplified inventory accounting, an exemption from the uniform capitalization rules, an exemption from the business interest deduction limit, and several other tax advantages.

The accrual method may be preferable if, for example, a company’s accrued income tends to be lower than its accrued expenses. This would result in lower tax liability. Other potential advantages of the accrual method include the ability to deduct year-end bonuses paid within the first 2½ months of the following tax year and the option to defer taxes on certain advance payments.

Switching methods

Besides considering the features offered by both methods, a business would have to carefully consider other factors before contemplating a switch. If your business prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles, it’s required to use the accrual method for financial reporting purposes. It would still be allowed to use the cash method for tax purposes, but it would require maintaining two sets of books – a costly and cumbersome choice. Changing accounting methods for tax purposes also may require IRS approval through filing. Before you make any changes, measure out the pros and cons for each method with your particular business in mind and reach out to the professionals at Roth&Co for advice and guidance.

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If you’re getting ready to retire, you’ll soon experience changes in your lifestyle and income sources that may have numerous tax implications.

Here’s a brief rundown of four tax and financial issues you may contend with when you retire:

Taking required minimum distributions

These are the minimum amounts you must withdraw from your retirement accounts. You generally must start taking withdrawals from your IRA, SEP, SIMPLE and other retirement plan accounts when you reach age 73 if you were age 72 after December 31, 2022. If you reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025, for 2024. Roth IRAs don’t require withdrawals until after the death of the owner.

You can withdraw more than the minimum required amount. Your withdrawals will be included in your taxable income except for any part that was taxed before or that can be received tax-free (such as qualified distributions from Roth accounts).

Selling your principal residence

Many retirees want to downsize to smaller homes. If you’re one of them and you have a gain from the sale of your principal residence, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return, you may be able to exclude up to $500,000.

To claim the exclusion, you must meet certain requirements. During a five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.

If you’re thinking of selling your home, make sure you’ve identified all items that should be included in its basis, which can save you tax dollars.

Getting involved in new work activities

After retirement, many people continue to work as consultants or start new businesses. Here are some tax-related questions to ask if you’re launching a new venture:

Should it be a sole proprietorship, S corporation, C corporation, partnership or limited liability company?
Are you familiar with how to elect to amortize start-up expenditures and make payroll tax deposits?
Can you claim home office deductions?
How should you finance the business?

Taking Social Security benefits

If you continue to work, it may have an impact on your Social Security benefits. If you retire before reaching full Social Security retirement age (65 years of age for people born before 1938, rising to 67 years of age for people born after 1959) and the sum of your wages plus self-employment income is over the Social Security annual exempt amount ($21,240 for 2023), you must give back $1 of Social Security benefits for each $2 of excess earnings.

If you reach full retirement age this year, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($56,520 in 2023) until the month you reach full retirement age. Then, your earnings will no longer affect the amount of your monthly benefits, no matter how much you earn.

You may also have to pay federal (and possibly state) tax on your Social Security benefits. Depending on how much income you have from other sources, you may have to report up to 85% of your benefits as income on your tax return and pay the resulting federal income tax.

Tax planning is still important

There are many decisions to make after you retire. Speak to your financial advisor to help maximize the tax breaks you’re entitled to.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

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A common question for people planning their estates or inheriting property is: For tax purposes, what’s the “cost” (or “basis”) an individual gets in inherited property? This is an important area and is too often overlooked when families start to put their affairs in order.

Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property that’s equal to its date-of-death value. So, for example, if an individual bought shares in an oil stock in 1940 for $500 and it was worth $5 million at his death, the basis would be stepped up to $5 million for his heirs. That means all of that gain escapes income taxation forever.

The fair market value basis rules apply to inherited property that’s includible in the deceased individual’s gross estate, whether or not a federal estate tax return was filed, and those rules also apply to property inherited from foreign persons, who aren’t subject to U.S. estate tax. The rules apply to the inherited portion of property owned by the inheriting taxpayer jointly with the deceased, but not the portion of jointly held property that the inheriting taxpayer owned before his or her inheritance. The fair market value basis rules also don’t apply to reinvestments of estate assets by fiduciaries.

Lifetime Gifting

It is crucial to understand the fair market value basis rules so as to avoid paying more tax than legally required.

For example, in the above scenario, if the individual instead decided to make a gift of the stock during his lifetime (rather than passing it on when he died), the “step-up” in basis (from $500 to $5 million) would be lost. Property acquired by gift that has gone up in value is subject to the “carryover” basis rules. That means the person receiving the gift takes the same basis the donor had in it ($500 in this example), plus a portion of any gift tax the donor pays on the gift.

A “step-down” occurs if someone dies while owning property that has declined in value. In that case, the basis is lowered to the date-of-death value. Proper planning calls for seeking to avoid this loss of basis. Giving the property away before death won’t preserve the basis. This is because when property that has gone down in value is the subject of a gift, the person receiving the gift must take the date of gift value as his or her basis (for purposes of determining his or her loss on a later sale). Therefore, a good strategy for property that has declined in value is for the owner to sell it before death so he or she can enjoy the tax benefits of the loss.

These are the basic rules. Other rules and limits may apply. For example, in some cases, a deceased person’s executor may be able to make an alternate valuation election. And gifts made just before a person dies (sometimes called “death bed gifts”) may be included in the gross estate for tax purposes. Speak to your financial advisor for tax assistance when estate planning or after receiving an inheritance.

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If you’re self-employed and run your business or perform certain functions from home, you may be able to claim deductions for home office expenses against your business income. There are two methods for claiming this tax break: the actual expense method and the simplified method.

How to qualify

In general, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business.

If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:

You physically meet with patients, clients or customers on your premises, or
You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.
Expenses you can deduct

Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:

Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,
A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs and insurance, and
Depreciation.

Keeping track of actual expenses can take time and requires organized recordkeeping.

The simpler method

Fortunately, there’s a simplified method: You can deduct $5 for each square foot of home office space, up to a maximum of $1,500.

The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for bigger deductions using the actual expense method. So, tracking your actual expenses can be worth it.

Changing methods

When claiming home office deductions, you’re not stuck with a particular method. For instance, you might choose the actual expense method on your 2022 return, use the simplified method when you file your 2023 return next year and then switch back to the actual expense method for 2024.

What if I sell my home?

If you sell — at a profit — a home on which you claimed home office deductions, there may be tax implications.

Also be aware that the amount of your home office deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may apply. However, any home office expenses that can’t be deducted because of these limitations can be carried over and deducted in later years.

Different rules for employees

Unfortunately, the Tax Cuts and Jobs Act suspended the business use of home office deductions from 2018 through 2025 for employees. Those who receive paychecks or Form W-2s aren’t eligible for deductions, even if they’re currently working from home because their employers closed their offices due to COVID-19.

We can help you determine if you’re eligible for home office deductions and how to proceed in your situation.

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The New York State Tax Department has just issued a technical memorandum TSB-M-21(1)C, (1)I, and has put up an accompanying webpage that provides information on the new, optional Pass-Through Entity Tax (PTET).

The PTET, under new Tax Law Article 24-A1, is an optional tax that partnerships or New York S corporations can choose to pay. The tax allows eligible pass-through entities to pay state income taxes at the entity level, and it is deductible for federal tax purposes. A partner or shareholder of a pass-through entity that elects to pay PTET is entitled to a credit against his New York personal income tax equal to his “direct share” of the PTET tax. This allows the taxpayer to bypass the $10,000 limitation on deduction of state and local taxes imposed in 2017 by The Tax Cuts and Jobs Act.

The option applies to tax years beginning on or after January 1, 2021, and the election must be made annually. For 2021, the deadline to make the election is October 15, 2021. For future tax years, the annual election may be made on or after January 1, but no later than March 15.

For 2021, an electing entity is not required to make any estimated tax payments for PTET. Starting 2022, quarterly estimates will need to be made in March, June, September and December.

The PTET Annual Election application can be accessed online, and if you are an authorized person representing your business, you can opt in to PTET through its Online Services account.

To learn more about the PTET and the election process, visit Pass-through entity tax (PTET) periodically, or subscribe here to receive email updates about the pass-through entity tax.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

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If you’re a parent, or if you’re planning on having children, you know that it’s expensive to pay for their food, clothes, activities and education. Fortunately, there’s a tax credit available for taxpayers with children under the age of 17, as well as a dependent credit for older children.

Recent tax law changes

Changes made by the Tax Cuts and Jobs Act (TCJA) make the child tax credit more valuable and allow more taxpayers to be able to benefit from it. These changes apply through 2025.

Prior law: Before the TCJA kicked in for the 2018 tax year, the child tax credit was $1,000 per qualifying child. But it was reduced for married couples filing jointly by $50 for every $1,000 (or part of $1,000) by which their adjusted gross income (AGI) exceeded $110,000 ($75,000 for unmarried taxpayers). To the extent the $1,000-per-child credit exceeded a taxpayer’s tax liability, it resulted in a refund up to 15% of earned income (wages or net self-employment income) above $3,000. For taxpayers with three or more qualifying children, the excess of the taxpayer’s Social Security taxes for the year over the taxpayer’s earned income credit for the year was refundable. In all cases, the refund was limited to $1,000 per qualifying child.

Current law. Starting with the 2018 tax year, the TCJA doubled the child tax credit to $2,000 per qualifying child under 17. It also allows a $500 credit (per dependent) for any of your dependents who aren’t qualifying children under 17. There’s no age limit for the $500 credit, but tax tests for dependency must be met. Under the TCJA, the refundable portion of the credit is increased to a maximum of $1,400 per qualifying child. In addition, the earned threshold is decreased to $2,500 (from $3,000 under prior law), which has the potential to result in a larger refund. The $500 credit for dependents other than qualifying children is nonrefundable.

More parents are eligible

The TCJA also substantially increased the “phase-out” thresholds for the credit. Starting with the 2018 tax year, the total credit amount allowed to a married couple filing jointly is reduced by $50 for every $1,000 (or part of a $1,000) by which their AGI exceeds $400,000 (up from the prior threshold of $110,000). The threshold is $200,000 for other taxpayers. So, if you were previously prohibited from taking the credit because your AGI was too high, you may now be eligible to claim the credit.

In order to claim the credit for a qualifying child, you must include the child’s Social Security number (SSN) on your tax return. Under prior law, you could also use an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN). If a qualifying child doesn’t have an SSN, you won’t be able to claim the $1,400 credit, but you can claim the $500 credit for that child using an ITIN or an ATIN. The SSN requirement doesn’t apply for non-qualifying-child dependents, but you must provide an ITIN or ATIN for each dependent for whom you’re claiming a $500 credit.

The changes made by the TCJA generally make these credits more valuable and more widely available to many parents.

If you have children and would like to determine if these tax credits can benefit you, please contact us or ask about them when we prepare your tax return.

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Perhaps you’re an investor in mutual funds or you’re interested in putting some money into them. You’re not alone. The Investment Company Institute estimates that 56.2 million households owned mutual funds in mid-2017. But despite their popularity, the tax rules involved in selling mutual fund shares can be complex.

Tax basics

If you sell appreciated mutual fund shares that you’ve owned for more than one year, the resulting profit will be a long-term capital gain. As such, the maximum federal income tax rate will be 20%, and you may also owe the 3.8% net investment income tax.

When a mutual fund investor sells shares, gain or loss is measured by the difference between the amount realized from the sale and the investor’s basis in the shares. One difficulty is that certain mutual fund transactions are treated as sales even though they might not be thought of as such. Another problem may arise in determining your basis for shares sold.

What’s considered a sale

It’s obvious that a sale occurs when an investor redeems all shares in a mutual fund and receives the proceeds. Similarly, a sale occurs if an investor directs the fund to redeem the number of shares necessary for a specific dollar payout.

It’s less obvious that a sale occurs if you’re swapping funds within a fund family. For example, you surrender shares of an Income Fund for an equal value of shares of the same company’s Growth Fund. No money changes hands but this is considered a sale of the Income Fund shares.

Another example: Many mutual funds provide check-writing privileges to their investors. However, each time you write a check on your fund account, you’re making a sale of shares.

Determining the basis of shares

If an investor sells all shares in a mutual fund in a single transaction, determining basis is relatively easy. Simply add the basis of all the shares (the amount of actual cash investments) including commissions or sales charges. Then add distributions by the fund that were reinvested to acquire additional shares and subtract any distributions that represent a return of capital.

The calculation is more complex if you dispose of only part of your interest in the fund and the shares were acquired at different times for different prices. You can use one of several methods to identify the shares sold and determine your basis.

First-in first-out. The basis of the earliest acquired shares is used as the basis for the shares sold. If the share price has been increasing over your ownership period, the older shares are likely to have a lower basis and result in more gain.
Specific identification. At the time of sale, you specify the shares to sell. For example, “sell 100 of the 200 shares I purchased on June 1, 2015.” You must receive written confirmation of your request from the fund. This method may be used to lower the resulting tax bill by directing the sale of the shares with the highest basis.
Average basis. The IRS permits you to use the average basis for shares that were acquired at various times and that were left on deposit with the fund or a custodian agent.
As you can see, mutual fund investing can result in complex tax situations. Contact us if you have questions. We can explain in greater detail how the rules apply to you.

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Are you an employer who owns a business where tipping is customary for providing food and beverages? You may qualify for a tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income.

How the credit works

The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes.

You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In other words, no credit is available to the extent the tip income just brings the employee up to the $5.15 per hour level, calculated monthly. If you pay each employee at least $5.15 an hour (excluding tips), you don’t have to be concerned with this calculation.

Note: A 2007 tax law froze the per-hour amount at $5.15, which was the amount of the federal minimum wage at that time. The minimum wage is now $7.25 per hour but the amount for credit computation purposes remains $5.15.

How it works

Example: A waiter works at your restaurant. He’s paid $2 an hour plus tips. During the month, he works 160 hours for $320 and receives $2,000 in cash tips which he reports to you.

The waiter’s $2 an hour rate is below the $5.15 rate by $3.15 an hour. Thus, for the 160 hours worked, he or she is below the $5.15 rate by $504 (160 times $3.15). For the waiter, therefore, the first $504 of tip income just brings him up to the minimum rate. The rest of the tip income is $1,496 ($2,000 minus $504). The waiter’s employer pays FICA taxes at the rate of 7.65% for him. Therefore, the employer’s credit is $114.44 for the month: $1,496 times 7.65%.

While the employer’s share of FICA taxes is generally deductible, the FICA taxes paid with respect to tip income used to determine the credit can’t be deducted, because that would amount to a double benefit. However, you can elect not to take the credit, in which case you can claim the deduction.
Get the credit you’re due

If your business pays FICA taxes on tip income paid to your employees, the tip tax credit may be valuable to you. Other rules may apply. Contact us if you have any questions.

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An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

Deductions

Section 179 expensing:
Limit: $1.04 million (up from $1.02 million for 2019)
Phaseout: $2.59 million (up from $2.55 million)
Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
Married filing jointly: $326,600 (up from $321,400)
Married filing separately: $163,300 (up from $160,725)
Other filers: $163,300 (up from $160,700)

Retirement plans
Employee contributions to 401(k) plans: $19,500 (up from $19,000)
Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)
Employee contributions to SIMPLEs: $13,500 (up from $13,000)
Catch-up contributions to SIMPLEs: $3,000 (no change)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)
Maximum compensation used to determine contributions: $285,000 (up from $280,000)
Annual benefit for defined benefit plans: $230,000 (up from $225,000)
Compensation defining a highly compensated employee: $130,000 (up from $125,000)
Compensation defining a “key” employee: $185,000 (up from $180,000)

Other employee benefits
Qualified transportation fringe-benefits employee income exclusion: $270 per month (up from $265)
Health Savings Account contributions:
Individual coverage: $3,550 (up from $3,500)
Family coverage: $7,100 (up from $7,000)
Catch-up contribution: $1,000 (no change)
Flexible Spending Account contributions:
Health care: $2,750 (no change)
Dependent care: $5,000 (no change)
These are only some of the tax limits that may affect your business and additional rules may apply. If you have questions, please contact us.

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Many taxpayers make charitable gifts — because they’re generous and they want to save money on their federal tax bills. But with the tax law changes that went into effect a couple years ago and the many rules that apply to charitable deductions, you may no longer get a tax break for your generosity.

Are you going to itemize?

The Tax Cuts and Jobs Act (TCJA), signed into law in 2017, didn’t put new limits on or suspend the charitable deduction, like it did with many other itemized deductions. Nevertheless, it reduces or eliminates the tax benefits of charitable giving for many taxpayers.

Itemizing saves tax only if itemized deductions exceed the standard deduction. Through 2025, the TCJA significantly increases the standard deduction. For 2020, it is $24,800 for married couples filing jointly (up from $24,400 for 2019), $18,650 for heads of households (up from $18,350 for 2019), and $12,400 for singles and married couples filing separately (up from $12,200 for 2019).

Back in 2017, these amounts were $12,700, $9,350, $6,350 respectively. The much higher standard deduction combined with limits or suspensions on some common itemized deductions means you may no longer have enough itemized deductions to exceed the standard deduction. And if that’s the case, your charitable donations won’t save you tax.

To find out if you get a tax break for your generosity, add up potential itemized deductions for the year. If the total is less than your standard deduction, your charitable donations won’t provide a tax benefit.

You might, however, be able to preserve your charitable deduction by “bunching” donations into alternating years. This can allow you to exceed the standard deduction and claim a charitable deduction (and other itemized deductions) every other year.

What is the donation deadline?

To be deductible on your 2019 return, a charitable gift must have been made by December 31, 2019. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” The delivery date depends in part on what you donate and how you donate it. For example, for a check, the delivery date is the date you mailed it. For a credit card donation, it’s the date you make the charge.

Are there other requirements?

If you do meet the rules for itemizing, there are still other requirements. To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

And there are substantiation rules to prove you made a charitable gift. For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the organization you donated to that shows its name, plus the date and amount of the contribution. If you make a charitable contribution by text message, a bill from your cell provider containing the required information is an acceptable substantiation. Any other type of written record, such as a log of contributions, isn’t sufficient.

Do you have questions?

We can answer any questions you may have about the deductibility of charitable gifts or changes to the standard deduction and itemized deductions.

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The IRS announced it is opening the 2019 individual income tax return filing season on January 27. Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing as soon as you can this year. The reason: You can potentially protect yourself from tax identity theft — and you may obtain other benefits, too.

Tax identity theft explained

In a tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.

The legitimate taxpayer discovers the fraud when he or she files a return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the valid one, tax identity theft can cause major headaches to straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected, rather than yours.

Note: You can get your individual tax return prepared by us before January 27 if you have all the required documents. It’s just that processing of the return will begin after IRS systems open on that date.

Your W-2s and 1099s

To file your tax return, you must have received all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2019 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2019 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).

If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.

Other advantages of filing early

Besides protecting yourself from tax identity theft, another benefit of early filing is that, if you’re getting a refund, you’ll get it faster. The IRS expects most refunds to be issued within 21 days. The time is typically shorter if you file electronically and receive a refund by direct deposit into a bank account.

Direct deposit also avoids the possibility that a refund check could be lost or stolen or returned to the IRS as undeliverable. And by using direct deposit, you can split your refund into up to three financial accounts, including a bank account or IRA. Part of the refund can also be used to buy up to $5,000 in U.S. Series I Savings Bonds.

What if you owe tax? Filing early may still be beneficial. You won’t need to pay your tax bill until April 15, but you’ll know sooner how much you owe and can plan accordingly.

Be an early-bird filer

If you have questions about tax identity theft or would like help filing your 2019 return early, please contact us. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.

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If you reside in a high-tax state, you may want to consider using nongrantor trusts to soften the blow of the $10,000 federal limit on state and local tax (SALT) deductions. The limit can significantly reduce itemized deductions if your state income and property taxes are well over $10,000. A potential strategy for avoiding the limit is to transfer interests in real estate to several nongrantor trusts, each of which enjoys its own $10,000 SALT deduction.

Grantor vs. nongrantor trusts

The main difference between a grantor and nongrantor trust is that a grantor trust is treated as your alter ego for tax purposes, while a nongrantor trust is treated as a separate entity. Traditionally, grantor trusts have been the vehicle of choice for estate planning purposes because the trust’s income is passed through to you, as grantor, and reported on your tax return.

That’s an advantage, because it allows the trust assets to grow tax-free, leaving more for your heirs. By paying the tax, you essentially provide an additional, tax-free gift to your loved ones that’s not limited by your gift tax exemption or annual gift tax exclusion. In addition, because the trust is an extension of you for tax purposes, you have the flexibility to sell property to the trust without triggering taxable gain.

Now that fewer families are subject to gift taxes, grantor trusts enjoy less of an advantage over nongrantor trusts. This creates an opportunity to employ nongrantor trusts to boost income tax deductions.

Nongrantor trusts in action

A nongrantor trust is a discrete legal entity, which files its own tax returns and claims its own deductions. The idea behind the strategy is to divide real estate that’s subject to more than $10,000 in property taxes among several trusts, each of which has its own SALT deduction up to $10,000. Each trust must also generate sufficient income against which to offset the deduction.

Before you attempt this strategy, beware of the multiple trust rule of Internal Revenue Code Section 643(f). That section provides that, under regulations prescribed by the U.S. Treasury Department, multiple trusts may be treated as a single trust if they have “substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries” and a principal purpose of the arrangement is tax avoidance.

Bear in mind that to preserve the benefits of multiple trusts, it’s important to designate a different beneficiary for each trust.

Pass the SALT

If you’re losing valuable tax deductions because of the SALT limit, consider passing those deductions on to one or more nongrantor trusts. Consult with us before taking action, because these trusts must be structured carefully to ensure that they qualify as nongrantor trusts and don’t run afoul of the multiple trust rule.

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A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.
These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.

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The end of one year and the beginning of the next is a great opportunity for reflection and planning. You have 12 months to look back on and another 12 ahead to look forward to. Here are five ways to strengthen your business for the new year by doing a little of both:

1. Compare 2019 financial performance to budget. Did you meet the financial goals you set at the beginning of the year? If not, why? Analyze variances between budget and actual results. Then, evaluate what changes you could make to get closer to achieving your objectives in 2020. And if you did meet your goals, identify precisely what you did right and build on those strategies.

2. Create a multiyear capital budget. Look around your offices or facilities at your equipment, software and people. What investments will you need to make to grow your business? Such investments can be both tangible (new equipment and technology) and intangible (employees’ technical and soft skills).

Equipment, software, furniture, vehicles and other types of assets inevitably wear out or become obsolete. You’ll need to regularly maintain, update and replace them. Lay out a long-term plan for doing so; this way, you won’t be caught off guard by a big expense.

3. Assess the competition. Identify your biggest rivals over the past year. Discuss with your partners, managers and advisors what those competitors did to make your life so “interesting.” Also, honestly appraise the quality of what your business sells versus what competitors offer. Are you doing everything you can to meet — or, better yet, exceed — customer expectations? Devise some responsive competitive strategies for the next 12 months.

4. Review insurance coverage. It’s important to stay on top of your property, casualty and liability coverage. Property values or risks may change — or you may add new assets or retire old ones — requiring you to increase or decrease your level of coverage. A fire, natural disaster, accident or out-of-the-blue lawsuit that you’re not fully protected against could devastate your business. Look at the policies you have in place and determine whether you’re adequately protected.

5. Analyze market trends. Recognize the major events and trends in your industry over the past year. Consider areas such as economic drivers or detractors, technology, the regulatory environment and customer demographics. In what direction is your industry heading over the next five or ten years? Anticipating and quickly reacting to trends are the keys to a company’s long-term success.

These are just a few ideas for looking back and ahead to set a successful course forward. We can help you review the past year’s tax, accounting and financial strategies, and implement savvy moves toward a secure and profitable 2020 for your business.

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As part of a year-end budget bill, Congress just passed a package of tax provisions that will provide savings for some taxpayers. The White House has announced that President Trump will sign the Further Consolidated Appropriations Act of 2020 into law. It also includes a retirement-related law titled the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Here’s a rundown of some provisions in the two laws.

The age limit for making IRA contributions and taking withdrawals is going up. Currently, an individual can’t make regular contributions to a traditional IRA in the year he or she reaches age 70½ and older. (However, contributions to a Roth IRA and rollover contributions to a Roth or traditional IRA can be made regardless of age.)

Under the new rules, the age limit for IRA contributions is raised from age 70½ to 72.

The IRA contribution limit for 2020 is $6,000, or $7,000 if you’re age 50 or older (the same as 2019 limit).

In addition to the contribution age going up, the age to take required minimum distributions (RMDs) is going up from 70½ to 72.

It will be easier for some taxpayers to get a medical expense deduction. For 2019, under the Tax Cuts and Jobs Act (TCJA), you could deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (AGI). This floor makes it difficult to claim a write-off unless you have very high medical bills or a low income (or both). In tax years 2017 and 2018, this “floor” for claiming a deduction was 7.5%. Under the new law, the lower 7.5% floor returns through 2020.

If you’re paying college tuition, you may (once again) get a valuable tax break. Before the TCJA, the qualified tuition and related expenses deduction allowed taxpayers to claim a deduction for qualified education expenses without having to itemize their deductions. The TCJA eliminated the deduction for 2019 but now it returns through 2020. The deduction is capped at $4,000 for an individual whose AGI doesn’t exceed $65,000 or $2,000 for a taxpayer whose AGI doesn’t exceed $80,000. (There are other education tax breaks, which weren’t touched by the new law, that may be more valuable for you, depending on your situation.)

Some people will be able to save more for retirement. The retirement bill includes an expansion of the automatic contribution to savings plans to 15% of employee pay and allows some part-time employees to participate in 401(k) plans.

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.

Stay tuned

These are only some of the provisions in the new laws. We’ll be writing more about them in the near future. In the meantime, contact us with any questions.

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Audit season is right around the corner for calendar-year entities. Here’s what your auditor is doing behind the scenes to prepare — and how you can help facilitate the audit planning process.

The big picture

Every audit starts with assessing “audit risk.” This refers to the likelihood that the auditor will issue an adverse opinion when the financial statements are actually in accordance with U.S. Generally Accepted Accounting Principles or (more likely) an unqualified opinion when the opinion should be either modified or adverse.

Auditors can’t test every single transaction, recalculate every estimate or examine every external document. Instead, they tailor their audit procedures and assign audit personnel to keep audit risk as low as possible.

Inherent risk vs. control risk

Auditors evaluate two types of risk:

1. Inherent risk. This is the risk that material departures could occur in the financial statements. Examples of inherent-risk factors include complexity, volume of transactions, competence of the accounting personnel, company size and use of estimates.

2. Control risk. This is the risk that the entity’s internal controls won’t prevent or correct material misstatements in the financial statements.

Separate risk assessments are done at the financial statement level and then for each major account — such as cash, receivables, inventory, fixed assets, other assets, payables, accrued expenses, long-term debt, equity, and revenue and expenses. A high-risk account (say, inventory) might warrant more extensive audit procedures and be assigned to more experienced audit team members than one with lower risk (say, equity).

How auditors assess risk

New risk assessments must be done each year, even if the company has had the same auditor for many years. That’s because internal and external factors may change over time. For example, new government or accounting regulations may be implemented, and company personnel or accounting software may change, causing the company’s risk assessment to change. As a result, audit procedures may vary from year to year or from one audit firm to the next.

The risk assessment process starts with an auditing checklist and, for existing audit clients, last year’s workpapers. But auditors must dig deeper to determine current risk levels. In addition to researching public sources of information, including your company’s website, your auditor may call you with a list of open-ended questions (inquiries) and request a walk-through to evaluate whether your internal controls are operating as designed. Timely responses can help auditors plan their procedures to minimize audit risk.

Your role

Audit fieldwork is only as effective as the risk assessment. Evidence obtained from further audit procedures may be ineffective if it’s not properly linked to the assessed risks. So, it’s important for you to help the audit team understand the risks your business is currently facing and the challenges you’ve experienced reporting financial performance, especially as companies implement updated accounting rules in the coming years.

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If you’re starting to fret about your 2019 tax bill, there’s good news — you may still have time to reduce your liability. Three strategies are available that may help you cut your taxes before year-end, including:

1. Accelerate deductions/defer income. Certain tax deductions are claimed for the year of payment, such as the mortgage interest deduction. So, if you make your January 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize).

Pushing income into the new year also will reduce your taxable income. If you’re expecting a bonus at work, for example, and you don’t want the income this year, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay your invoices until late in December to divert the revenue to 2020.

You shouldn’t pursue this approach if you expect to land in a higher tax bracket next year. Also, if you’re eligible for the qualified business income deduction for pass-through entities, you might reduce the amount of that deduction if you reduce your income.

2. Maximize your retirement contributions. What could be better than paying yourself instead of Uncle Sam? Federal tax law encourages individual taxpayers to make the maximum allowable contributions for the year to their retirement accounts, including traditional IRAs and SEP plans, 401(k)s and deferred annuities.

For 2019, you generally can contribute as much as $19,000 to 401(k)s and $6,000 for traditional IRAs. Self-employed individuals can contribute up to 25% of your net income (but no more than $56,000) to a SEP IRA.

3. Harvest your investment losses. Losing money on your investments has a bit of an upside — it gives you the opportunity to offset taxable gains. If you sell underperforming investments before the end of the year, you can offset gains realized this year on a dollar-for-dollar basis.

If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income. Any remaining losses are carried forward to future tax years.

We can help

The strategies described above are only a sampling of strategies that may be available. Contact us if you have questions about these or other methods for minimizing your tax liability for 2019.

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As we all know, medical services and prescription drugs are expensive. You may be able to deduct some of your expenses on your tax return but the rules make it difficult for many people to qualify. However, with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

The basic rules

For 2019, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 10% of your adjusted gross income (AGI). You also must itemize deductions on your return.

If your total itemized deductions for 2019 will exceed your standard deduction, moving or “bunching” nonurgent medical procedures and other controllable expenses into 2019 may allow you to exceed the 10% floor and benefit from the medical expense deduction. Controllable expenses include refilling prescription drugs, buying eyeglasses and contact lenses, going to the dentist and getting elective surgery.

In addition to hospital and doctor expenses, here are some items to take into account when determining your allowable costs:

1. Health insurance premiums. This item can total thousands of dollars a year. Even if your employer provides health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included as medical expenses, subject to limits based on age.

2. Transportation. The cost of getting to and from medical treatments counts as a medical expense. This includes taxi fares, public transportation, or using your own car. Car costs can be calculated at 20¢ a mile for miles driven in 2019, plus tolls and parking. Alternatively, you can deduct certain actual costs, such as for gas and oil.

3. Eyeglasses, hearing aids, dental work, prescription drugs and professional fees. Deductible expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but over-the-counter aspirin and vitamins don’t. Neither do amounts paid for treatments that are illegal under federal law (such as marijuana), even if state law permits them. The services of therapists and nurses can qualify as long as they relate to a medical condition and aren’t for general health. Amounts paid for certain long-term care services required by a chronically ill individual also qualify.

4. Smoking-cessation and weight-loss programs. Amounts paid for participating in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are deductible. However, nonprescription nicotine gum and patches aren’t. A weight-loss program is deductible if undertaken as treatment for a disease diagnosed by a physician. Deductible expenses include fees paid to join a program and attend periodic meetings. However, the cost of food isn’t deductible.

Dependent expenses

You can deduct the medical costs that you pay for dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for other individuals, such as an elderly parent. If you have questions about medical expense deductions, contact us.

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Are you charitably minded and have a significant amount of money in an IRA? If you’re 70 and ½ or older, and don’t need the money from required minimum distributions, you may benefit by giving these amounts to charity.

IRA distribution basics

A popular way to transfer IRA assets to charity is through a tax provision that allows IRA owners who are 70 and ½ or older to give up to $100,000 per year of their IRA distributions to charity. These distributions are called qualified charitable distributions, or QCDs. The money given to charity counts toward the donor’s required minimum distributions (RMDs), but doesn’t increase the donor’s adjusted gross income or generate a tax bill.

So while QCDs are exempt from federal income taxes, other traditional IRA distributions are taxable (either wholly or partially depending on whether you’ve made any nondeductible contributions over the years).

Unlike regular charitable donations, QCDs can’t be claimed as itemized deductions.

Keeping the donation out of your AGI may be important because doing so can:

Help the donor qualify for other tax breaks (for example, a lower AGI can reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed 10% of AGI);
Reduce taxes on your Social Security benefits; and
Help you avoid a high-income surcharge for Medicare Part B and Part D premiums, (which kicks in if AGI hits certain levels).

In addition, keep in mind that charitable contributions don’t yield a tax benefit for those individuals who no longer itemize their deductions (because of the larger standard deduction under the Tax Cuts and Jobs Act). So those who are age 70½ or older and are receiving RMDs from IRAs may gain a tax advantage by making annual charitable contributions via a QCD from an IRA. This charitable contribution will reduce RMDs by a commensurate amount, and the amount of the reduction will be tax-free.

Annual limit

There’s a $100,000 limit on total QCDs for any one year. But if you and your spouse both have IRAs set up in your respective names, each of you is entitled to a separate $100,000 annual QCD limit, for a combined total of $200,000.

Plan ahead

The QCD strategy can be a smart tax move for high-net-worth individuals over 70½ years old. If you’re interested in this opportunity, don’t wait until year end to act. Contact us for more information.

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If you’re planning to sell assets at a loss to offset gains that have been realized during the year, it’s important to be aware of the “wash sale” rule.

How the rule works

Under this rule, if you sell stock or securities for a loss and buy substantially identical stock or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes. The rule is designed to prevent taxpayers from using the tax benefit of a loss without parting with ownership in any significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent “buying the stock back” before it’s even sold. (If you participate in any dividend reinvestment plans, the wash sale rules may be inadvertently triggered when dividends are reinvested under the plan, if you’ve separately sold some of the same stock at a loss within the 30-day period.)

Keep in mind that the rule applies even if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Although the loss can’t be claimed on a wash sale, the disallowed amount is added to the cost of the new stock. So, the disallowed amount can be claimed when the new stock is finally disposed of (other than in a wash sale).

Here’s an example

Let’s say you buy 500 shares of XYZ Inc. for $10,000 and sell them on November 5 for $3,000. On November 29, you buy 500 shares of XYZ again for $3,200. Since the shares were “bought back” within 30 days of the sale, the wash sale rule applies. Therefore, you can’t claim a $7,000 loss. Your basis in the new 500 shares is $10,200: the actual cost plus the $7,000 disallowed loss.

If only a portion of the stock sold is bought back, only that portion of the loss is disallowed. So, in the above example, if you’d only bought back 300 of the 500 shares (60%), you would be able to claim 40% of the loss on the sale ($2,800). The remaining $4,200 loss that is disallowed under the wash sale rule would be added to your cost of the 300 shares.

If you’ve cashed in some big gains in 2019, you may be looking for unrealized losses in your portfolio so you can sell those investments before year end. By doing so, you can offset your gains with your losses and reduce your 2019 tax liability. But don’t run afoul of the wash sale rule. Contact us if you have any questions.

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A primary estate planning goal for most people is to hold on to as much of their wealth as possible to pass on to their children and other loved ones. To achieve this, you must limit estate tax liability and protect assets from creditors’ claims and lawsuits.

The Tax Cuts and Jobs Act reduces or eliminates federal gift and estate taxes for most people (at least until 2026). The gift and estate tax exemption is $11.4 million for 2019. One benefit of this change is that it allows you to focus your estate planning efforts on asset protection and other wealth-preservation strategies, rather than tax minimization. One estate planning vehicle to consider is a “hybrid” domestic asset protection trust (DAPT).

What does “hybrid” mean?

The benefit of a standard DAPT is that it offers creditor protection even if you’re a beneficiary of the trust. But there’s also some risk: Although many experts believe they’ll hold up in court, DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims. A “hybrid” DAPT offers the best of both worlds. Initially, you’re not named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

Do you need this trust type?

Before you consider a hybrid DAPT, determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children or other family members, either outright or in a trust, without retaining any control. If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children (provided your relationship with them remains strong).

If, however, you want to retain access to the assets in the future, without relying on your spouse or children, a DAPT may be the answer.

How does a hybrid DAPT work?

A hybrid DAPT is initially set up as a third-party trust — that is, it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the previously discussed risks.

A flexible tool

The hybrid DAPT can add flexibility while offering maximum asset protection. It also minimizes the risks associated with DAPTs, while retaining the ability to convert to a DAPT should the need arise. Contact us with any questions.

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If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The third 2019 estimated tax payment deadline for individuals is Monday, September 16. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

Pay-as-you-go system

You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest.

In general, you must make estimated tax payments for 2019 if both of these statements apply:

You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
You expect withholding and credits to be less than the smaller of 90% of your tax for 2019 or 100% of the tax on your 2018 return — 110% if your 2018 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly due dates

Estimated tax payments are spread out through the year. The due dates are April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day (which is why the third deadline is September 16 this year).

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Seasonal businesses

Most individuals make estimated tax payments in four installments. In other words, you can determine the required annual payment, divide the number by four and make four equal payments by the due dates. But you may be able to make smaller payments under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, perhaps because of a seasonal business. For example, let’s say your income comes exclusively from a business that you operate in a beach town during June, July and August. In this case, with the annualized income method, no estimated payment would be required before the usual September 15 deadline. You may also want to use the annualized income method if a large portion of your income comes from capital gains on the sale of securities that you sell at various times during the year.

Determining the correct amount

Contact us if you think you may be eligible to determine your estimated tax payments under the annualized income method, or you have any other questions about how the estimated tax rules apply to you.

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In July, the Public Company Accounting Oversight Board (PCAOB) published two guides to help clarify a new rule that requires auditors of public companies to disclose critical audit matters (CAMs) in their audit reports. The rule represents a major change to the brief pass-fail auditor reports that have been in place for decades.

One PCAOB guide is intended for investors, the other for audit committees. Both provide answers to frequently asked questions about CAMs.

What is a CAM?

CAMs are the sole responsibility of the auditor, not the audit committee or the company’s management. The PCAOB defines CAMs as issues that:

Have been communicated to the audit committee,
Are related to accounts or disclosures that are material to the financial statements, and
Involve especially challenging, subjective or complex judgments from the auditor.

Examples might include complex valuations of indefinite-lived intangible assets, uncertain tax positions and goodwill impairment.

Does reporting a CAM indicate a misstatement or deficiency?

CAMs aren’t intended to reflect negatively on the company or indicate that the auditor found a misstatement or deficiencies in internal control over financial reporting. They don’t alter the auditor’s opinion on the financial statements.

Instead, CAMs provide information to stakeholders about issues that came up during the audit that required especially challenging, subjective or complex auditor judgment. Auditors also must describe how the CAMs were addressed in the audit and identify relevant financial statement accounts or disclosures that relate to the CAM.

CAMs vary depending on the nature and complexity of the audit. Auditors for companies within the same industry may report different CAMs. And auditors may encounter different CAMs for the same company from year to year.

For example, as a company is implementing a new accounting standard, the issue may be reported as a CAM, because it requires complex auditor judgment. This issue may not require the same level of auditor judgment the next year, or it might be a CAM for different reasons than in the year of implementation.

When does the rule go into effect?

Disclosure of CAMs in audit reports will be required for audits of fiscal years ending on or after June 30, 2019, for large accelerated filers, and for fiscal years ending on or after December 15, 2020, for all other companies to which the requirement applies.

The new rule doesn’t apply to audits of emerging growth companies (EGCs), which are companies that have less than $1 billion in revenue and meet certain other requirements. This class of companies gets a host of regulatory breaks for five years after becoming public, under the Jumpstart Our Business Startups (JOBS) Act.

Coming soon

PCAOB Chairman James Doty has promised that CAMs will “breathe life into the audit report and give investors the information they’ve been asking for from auditors.” Contact us for more information about CAMs.

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You may have heard about a proposal in Washington to cut the taxes paid on investments by indexing capital gains to inflation. Under the proposal, the purchase price of assets would be adjusted so that no tax is paid on the appreciation due to inflation.

While the fate of such a proposal is unknown, the long-term capital gains tax rate is still historically low on appreciated securities that have been held for more than 12 months. And since we’re already in the second half of the year, it’s a good time to review your portfolio for possible tax-saving strategies.

The federal income tax rate on long-term capital gains recognized in 2019 is 15% for most taxpayers. However, the maximum rate of 20% plus the 3.8% net investment income tax (NIIT) can apply at higher income levels. For 2019, the 20% rate applies to single taxpayers with taxable income exceeding $425,800 ($479,000 for joint filers or $452,400 for heads of households).

You also may be able to plan for the NIIT. It can affect taxpayers with modified AGI (MAGI) over $200,000 for singles and heads of households, or $250,000 for joint filers. You may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

What about losing investments that you’d like to sell? Consider selling them and using the resulting capital losses to shelter capital gains, including high-taxed short-term gains, from other sales this year. You may want to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

If your capital losses exceed your capital gains, the result would be a net capital loss for the year. A net capital loss can also be used to shelter up to $3,000 of 2019 ordinary income (or up to $1,500 if you’re married and file separately). Ordinary income includes items including salaries, bonuses, self-employment income, interest income and royalties. Any excess net capital loss from 2019 can be carried forward to 2020 and later years.

Consider gifting to young relatives

While most taxpayers with long-term capital gains pay a 15% rate, those in the 0% federal income tax bracket only pay a 0% federal tax rate on gains from investments that were held for more than a year. Let’s say you’re feeling generous and want to give some money to your children, grandchildren, nieces, nephews, or others. Instead of making cash gifts to young relatives in lower federal tax brackets, give them appreciated investments. That way, they’ll pay less tax than you’d pay if you sold the same shares.

(You can count your ownership period plus the gift recipient’s ownership period for purposes of meeting the more-than-one-year rule.)

Even if the appreciated shares have been held for a year or less before being sold, your relative will probably pay a much lower tax rate on the gain than you would.

Increase your return

Paying capital gains taxes on your investment profits reduces your total return. Look for strategies to grow your portfolio by minimizing the amount you must pay to the federal and state governments. These are only a few strategies that may be available to you. Contact us about your situation.

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If you’re a volunteer who works for charity, you may be entitled to some tax breaks if you itemize deductions on your tax return. Unfortunately, they may not amount to as much as you think your generosity is worth.

Because donations to charity of cash or property generally are tax deductible for itemizers, it may seem like donations of something more valuable for many people — their time — would also be deductible. However, no tax deduction is allowed for the value of time you spend volunteering or the services you perform for a charitable organization.

It doesn’t matter if the services you provide require significant skills and experience, such as construction, which a charity would have to pay dearly for if it went out and obtained itself. You still don’t get to deduct the value of your time.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The basic rules

As with any charitable donation, to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can check by using the IRS’s “Tax Exempt Organization Search” tool at irs.gov/charities-non-profits/tax-exempt-organization-search.

If the charity is qualified, you may be able to deduct out-of-pocket costs that are unreimbursed; directly connected with the services you’re providing; incurred only because of your charitable work; and not “personal, living or family” expenses.

Expenses that may qualify

A wide variety of expenses can qualify for the deduction. For example, supplies you use in the activity may be deductible. And the cost of a uniform you must wear during the activity may also be deductible (if it’s required and not something you’d wear when not volunteering).

Transportation costs to and from the volunteer activity generally are deductible — either the actual expenses (such as gas costs) or 14 cents per charitable mile driven. The cost of entertaining others (such as potential contributors) on behalf of a charity may also be deductible. However, the cost of your own entertainment or meal isn’t deductible.

Deductions are permitted for away-from-home travel expenses while performing services for a charity. This includes out-of-pocket round-trip travel expenses, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals. However, these expenses aren’t deductible if there’s a significant element of personal pleasure associated with the travel, or if your services for a charity involve lobbying activities.

Record-keeping is important

The IRS may challenge charitable deductions for out-of-pocket costs, so it’s important to keep careful records and receipts. You must meet the other requirements for charitable donations. For example, no charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the organization. The acknowledgment generally must include the amount of cash, a description of any property contributed, and whether you got anything in return for your contribution.

And, in order to get a charitable deduction, you must itemize. Under the Tax Cuts and Jobs Act, fewer people are itemizing because the law significantly increased the standard deduction amounts. So even if you have expenses from volunteering that qualify for a deduction, you may not get any tax benefit if you don’t have enough itemized deductions.

If you have questions about charitable deductions and volunteer expenses, please contact us.

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Now that most schools are out for the summer, you might be sending your children to day camp. It’s often a significant expense. The good news: You might be eligible for a tax break for the cost.

The value of a credit

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% to 35% of qualifying expenses, subject to a cap. Note: Sleep-away camp does not qualify.

For 2019, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more. Other expenses eligible for the credit include payments to a daycare center, nanny, or nursery school.

Keep in mind that tax credits are especially valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax.

For example, if you’re in the 32% tax bracket, $1 of deduction saves you only $0.32 of taxes. So it’s important to take maximum advantage of all tax credits available to you.

Work-related expenses

For an expense to qualify for the credit, it must be related to employment. In other words, it must enable you to work — or look for work if you’re unemployed. It must also be for the care of your child, stepchild, foster child, or other qualifying relative who is under age 13, lives in your home for more than half the year and meets other requirements.

There’s no age limit if the dependent child is physically or mentally unable to care for him- or herself. Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Credit vs. FSA

If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

If your employer offers a child and dependent care FSA, you may wish to consider participating in the FSA instead of taking the credit. With an FSA for child and dependent care, you can contribute up to $5,000 on a pretax basis. If your marginal tax rate is more than 15%, participating in the FSA is more beneficial than taking the credit. That’s because the exclusion from income under the FSA gives a tax benefit at your highest tax rate, while the credit rate for taxpayers with adjusted gross income over $43,000 is limited to 20%.

Proving your eligibility

On your tax return, you must include the Social Security number of each child who attended the camp or received care. There’s no credit without it. You must also identify the organizations or persons that provided care for your child. So make sure to obtain the name, address and taxpayer identification number of the camp.

Additional rules apply to the child and dependent care credit. Contact us if you have questions. We can help determine your eligibility for the credit and other tax breaks for parents.

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To help defray health care costs, many people now contribute to, or are thinking about setting up, Health Savings Accounts (HSAs). With these accounts, individuals can pay for certain medical expenses on a tax advantaged basis.

The basics

With HSAs, you take more responsibility for your health care costs. If you’re covered by a qualified high-deductible health plan, you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself.

You own the account, which can bear interest or be invested. It can grow 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. So, unlike Flexible Spending Accounts (FSAs), undistributed balances in HSAs aren’t forfeited at year end.

For the 2019 tax year, you can make a tax-deductible HSA contribution of up to $3,500 if you have qualifying self-only coverage or up to $7,000 if you have qualifying family coverage (anything other than self-only coverage). If you’re age 55 or older as of December 31, the maximum contribution increases by $1,000.

To be eligible to contribute to an HSA, you must have a qualifying high deductible health insurance policy and no other general health coverage. For 2019, a high deductible health plan is defined as one with a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage.

For 2019, qualifying policies must have had out-of-pocket maximums of no more than $6,750 for self-only coverage or $13,500 for family coverage.

Account balances

If you still have an HSA balance after reaching Medicare eligibility age (generally age 65), you can empty the account for any reason without a tax penalty. If you don’t use the withdrawal to cover qualified medical expenses, you’ll owe federal income tax and possibly state income tax. But the 20% tax penalty that generally applies to withdrawals not used for medical expenses won’t apply. There’s no tax penalty on withdrawals made after disability or death.

Alternatively, you can use your HSA balance to pay uninsured medical expenses incurred after reaching Medicare eligibility age. If your HSA still has a balance when you die, your surviving spouse can take over the account tax-free and treat it as his or her own HSA, if he or she is named as the beneficiary. In other cases, the date-of-death HSA balance must generally be included in taxable income on that date by the person who inherits the account.

Deadlines and deductions

If you’re eligible to make an HSA contribution, the deadline is April 15 of the following year (adjusted for weekends and holidays) to open an account and make a tax-deductible contribution for the previous year.

So, if you’re eligible, there’s plenty of time to make a deductible contribution for 2019. The deadline for making 2019 contributions is April 15, 2020.

The write-off for HSA contributions is an “above-the-line” deduction. That means you can claim it even if you don’t itemize.

In addition, an HSA contribution isn’t tied to income. Even wealthy people can make deductible HSA contributions if they have qualifying high deductible health insurance coverage and meet the other requirements.

Tax-smart opportunity

HSAs can provide a smart tax-saving opportunity for individuals with qualifying high deductible health plans. Contact us to help you set up an HSA or decide how much to contribute for 2019.

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Is your business hiring this summer? If the employees come from certain “targeted groups,” you may be eligible for the Work Opportunity Tax Credit (WOTC). This includes youth whom you bring in this summer for two or three months. The maximum credit employers can claim is $2,400 to $9,600 for each eligible employee.

10 targeted groups

An employer is generally eligible for the credit only for qualified wages paid to members of 10 targeted groups:

Qualified members of families receiving assistance under the Temporary Assistance for Needy Families program,
Qualified veterans,
Designated community residents who live in Empowerment Zones or rural renewal counties,
Qualified ex-felons,
Vocational rehabilitation referrals,
Qualified summer youth employees,
Qualified members of families in the Supplemental Nutrition Assistance Program,
Qualified Supplemental Security Income recipients,
Long-term family assistance recipients, and
Qualified individuals who have been unemployed for 27 weeks or longer.

For each employee, there’s also a minimum requirement that the employee have completed at least 120 hours of service for the employer, and that employment begin before January 1, 2020.

Also, the credit isn’t available for certain employees who are related to the employer or work more than 50% of the time outside of a trade or business of the employer (for example, working as a house cleaner in the employer’s home). And it generally isn’t available for employees who have previously worked for the employer.

Calculate the savings

For employees other than summer youth employees, the credit amount is calculated under the following rules. The employer can take into account up to $6,000 of first-year wages per employee ($10,000 for “long-term family assistance recipients” and/or $12,000, $14,000 or $24,000 for certain veterans). If the employee completed at least 120 hours but less than 400 hours of service for the employer, the wages taken into account are multiplied by 25%. If the employee completed 400 or more hours, all of the wages taken into account are multiplied by 40%.

Therefore, the maximum credit available for the first-year wages is $2,400 ($6,000 × 40%) per employee. It is $4,000 [$10,000 × 40%] for “long-term family assistance recipients”; $4,800, $5,600 or $9,600 [$12,000, $14,000 or $24,000 × 40%] for certain veterans. In order to claim a $9,600 credit, a veteran must be certified as being entitled to compensation for a service-connected disability and be unemployed for at least six months during the one-year period ending on the hiring date.

Additionally, for “long-term family assistance recipients,” there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000 [$10,000 × 40% plus $10,000 × 50%].

The “first year” described above is the year-long period which begins with the employee’s first day of work. The “second year” is the year that immediately follows.

For summer youth employees, the rules described above apply, except that you can only take into account up to $3,000 of wages, and the wages must be paid for services performed during any 90-day period between May 1 and September 15. That means that, for summer youth employees, the maximum credit available is $1,200 ($3,000 × 40%) per employee. Summer youth employees are defined as those who are at least 16 years old, but under 18 on the hiring date or May 1 (whichever is later), and reside in an Empowerment Zone, enterprise community or renewal community.

We can help

The WOTC can offset the cost of hiring qualified new employees. There are some additional rules that, in limited circumstances, prohibit the credit or require an allocation of the credit. And you must fill out and submit paperwork to the government. Contact us for assistance or more information about your situation.

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If federal income tax and employment taxes (including Social Security) are withheld from employees’ paychecks and not handed over to the IRS, a harsh penalty can be imposed. To make matters worse, the penalty can be assessed personally against a “responsible individual.”

If a business makes payroll tax payments late, there are escalating penalties. And if an employer fails to make them, the IRS will crack down hard. With the “Trust Fund Recovery Penalty,” also known as the “100% Penalty,” the IRS can assess the entire unpaid amount against a responsible person who willfully fails to comply with the law.

Some business owners and executives facing a cash flow crunch may be tempted to dip into the payroll taxes withheld from employees. They may think, “I’ll send the money in later when it comes in from another source.” Bad idea!

No corporate protection

The corporate veil won’t shield corporate officers in these cases. Unlike some other liability protections that a corporation or limited liability company may have, business owners and executives can’t escape personal liability for payroll tax debts.

Once the IRS asserts the penalty, it can file a lien or take levy or seizure action against a responsible individual’s personal assets.

Who’s responsible?

The penalty can be assessed against a shareholder, owner, director, officer, or employee. In some cases, it can be assessed against a third party. The IRS can also go after more than one person. To be liable, an individual or party must:

Be responsible for collecting, accounting for, and paying over withheld federal taxes, and willfully fail to pay over those taxes. That means intentionally, deliberately, voluntarily and knowingly disregarding the requirements of the law.
The easiest way out of a delinquent payroll tax mess is to avoid getting into one in the first place. If you’re involved in a small or medium-size business, make sure the federal taxes that have been withheld from employees’ paychecks are paid over to the government on time. Don’t ever allow “borrowing” from withheld amounts.

Consider hiring an outside service to handle payroll duties. A good payroll service provider relieves you of the burden of paying employees, making the deductions, taking care of the tax payments and handling record keeping. Contact us for more information.

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Roth 401(k) accounts have been around for 13 years now. Studies show that more employers are offering them each year. A recent study by the Plan Sponsor Council of America (PSCA) found that Roth 401(k)s are now available at 70% of employer plans, up from 55.6% of plans in 2016.

However, despite the prevalence of employers offering Roth 401(k)s, most employees aren’t choosing to contribute to them. The PSCA found that only 20% of participants who have access to a Roth 401(k) made contributions to one in 2017. Perhaps it’s because they don’t understand them.

If you offer a Roth 401(k) or you’re considering one, educate your employees about the accounts to boost participation.

A 401(k) with a twist

As the name implies, these plans are a hybrid — taking some characteristics from Roth IRAs and some from employer-sponsored 401(k)s.

An employer with a 401(k), 403(b) or governmental 457(b) plan can offer designated Roth 401(k) accounts.

As with traditional 401(k)s, eligible employees can elect to defer part of their salaries to Roth 401(k)s, subject to annual limits. The employer may choose to provide matching contributions. For 2019, a participating employee can contribute up to $19,000 ($25,000 if he or she is age 50 or older) to a Roth 401(k). The most you can contribute to a Roth IRA for 2019 is $6,000 ($7,000 for those age 50 or older).

Note: The ability to contribute to a Roth IRA is phased out for upper-income taxpayers, but there’s no such restriction for a Roth 401(k).

The pros and cons

Unlike with traditional 401(k)s, contributions to employees’ accounts are made with after-tax dollars, instead of pretax dollars. Therefore, employees forfeit a key 401(k) tax benefit. On the plus side, after an initial period of five years, “qualified distributions” are 100% exempt from federal income tax, just like qualified distributions from a Roth IRA. In contrast, regular 401(k) distributions are taxed at ordinary-income rates, which are currently up to 37%.

In general, qualified distributions are those:

Made after a participant reaches age 59½, or
Made due to death or disability.

Therefore, you can take qualified Roth 401(k) distributions in retirement after age 59½ and pay no tax, as opposed to the hefty tax bill that may be due from traditional 401(k) payouts. And unlike traditional 401(k)s, which currently require retirees to begin taking required minimum distributions after age 70½, Roth 401(k)s have no mandate to take withdrawals.

Not for everyone

A Roth 401(k) is more beneficial than a traditional 401(k) for some participants, but not all. For example, it may be valuable for employees who expect to be in higher federal and state tax brackets in retirement. Contact us if you have questions about adding a Roth 401(k) to your benefits lineup.

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Businesses use two types of audits to gauge financial results: internal and external. Here’s a closer look at how they measure up.

Focus

Internal auditors go beyond traditional financial reporting. They focus on a company’s internal controls, accounting processes and ability to mitigate risk. Internal auditors also evaluate whether the company’s activities comply with its strategy, and they may consult on a variety of financial issues as they arise within the company.

In contrast, external auditors focus solely on the financial statements. Specifically, external auditors evaluate the statements’ accuracy and completeness, whether they comply with applicable accounting standards and practices, and whether they present a true and accurate presentation of the company’s financial performance. Accounting rules prohibit external audit firms from providing their audit clients with ancillary services that extend beyond the scope of the audit.

The audit “client”

Internal auditors are employees of the company they audit. They report to the chief audit executive and issue reports for management to use internally.

External auditors work for an independent accounting firm. The company’s shareholders or board of directors hires a third-party auditing firm to serve as its external auditor. The external audit team delivers reports directly to the company’s shareholders or audit committee, not to management.

Qualifications

Internal auditors don’t need to be certified public accountants (CPAs), although many have earned this qualification. Often, internal auditors earn a certified internal auditor (CIA) qualification, which requires them to follow standards issued by the Institute of Internal Auditors (IIA).

Conversely, the partner directing an external audit must be a CPA. Most midlevel and senior auditors earn their CPA license at some point in their career. External auditors must follow U.S. Generally Accepted Auditing Standards (GAAS), which are issued by the American Institute of Certified Public Accountants (AICPA).

Reporting format

Internal auditors issue reports throughout the year. The format may vary depending on the preferences of management or the internal audit team.

External auditors issue financial statements quarterly for most public companies and at least annually for private ones. In general, external audit reports must conform to U.S. Generally Accepted Accounting Principles (GAAP) or another basis of accounting (such as tax or cash basis reporting). If needed, external auditing procedures may be performed more frequently. For example, a lender may require a private company that fails to meet its loan covenants at year end to undergo a midyear audit by an external audit firm.

Common ground

Sometimes the work of internal and external auditors overlaps. Though internal auditors have a broader focus, both teams have the same goal: to help the company report financial data that people can count on. So, it makes sense for internal and external auditors to meet frequently to understand the other team’s focus and avoid duplication of effort. Contact us to map out an auditing strategy that fits the needs of your company.

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If you read the Internal Revenue Code (and you probably don’t want to!), you may be surprised to find that most business deductions aren’t specifically listed. It doesn’t explicitly state that you can deduct office supplies and certain other expenses.

Some expenses are detailed in the tax code, but the general rule is contained in the first sentence of Section 162, which states you can write off “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”

Basic definitions

In general, an expense is ordinary if it’s considered common or customary in the particular trade or business. For example, insurance premiums to protect a store would be an ordinary business expense in the retail industry.

A necessary expense is defined as one that’s helpful or appropriate. For example, let’s say a car dealership purchases an automatic defibrillator. It may not be necessary for the operation of the business, but it might be helpful and appropriate if an employee or customer suffers a heart attack.

It’s possible for an ordinary expense to be unnecessary — but, in order to be deductible, an expense must be ordinary and necessary.

In addition, a deductible amount must be reasonable in relation to the benefit expected. For example, if you’re attempting to land a $3,000 deal, a $65 lunch with a potential client should be OK with the IRS. (Keep in mind that the Tax Cuts and Jobs Act eliminated most deductions for entertainment expenses but retains the 50% deduction for business meals.)

Examples of not ordinary and unnecessary

Not surprisingly, the IRS and courts don’t always agree with taxpayers about what qualifies as ordinary and necessary expenditures.

In one case, a man engaged in a business with his brother was denied deductions for his private airplane expenses. The U.S. Tax Court noted that the taxpayer had failed to prove the expenses were ordinary and necessary to the business. In addition, only one brother used the plane and the flights were to places that the taxpayer could have driven to or flown to on a commercial airline. And, in any event, the stated expenses including depreciation expenses, weren’t adequately substantiated, the court added. (TC Memo 2018-108)

In another case, the Tax Court ruled that a business owner wasn’t entitled to deduct legal and professional fees he’d incurred in divorce proceedings defending his ex-wife’s claims to his interest in, or portion of, distributions he received from his LLC. The IRS and the court ruled the divorce legal fees were nondeductible personal expenses and weren’t ordinary and necessary. (TC Memo 2018-80)

Proceed with caution

The deductibility of some expenses is clear. But for other expenses, it can get more complicated. Generally, if an expense seems like it’s not normal in your industry — or if it could be considered fun, personal or extravagant in nature — you should proceed with caution. And keep records to substantiate the expenses you’re deducting. Consult with us for guidance.

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Once your 2018 tax return has been successfully filed with the IRS, you may still have some questions. Here are brief answers to three questions that we’re frequently asked at this time of year.

Question #1: What tax records can I throw away now?
At a minimum, keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So you can generally get rid of most records related to tax returns for 2015 and earlier years. (If you filed an extension for your 2015 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You’ll need to hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed a legitimate return. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years if you want to be extra safe.)

Question #2: Where’s my refund?
The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Refund Status” to find out about yours. You’ll need your Social Security number, filing status and the exact refund amount.

Question #3: Can I still collect a refund if I forgot to report something?
In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. So for a 2018 tax return that you filed on April 15 of 2019, you can generally file an amended return until April 15, 2022.

However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.

We can help
Contact us if you have questions about tax record retention, your refund or filing an amended return. We’re available all year long — not just at tax filing time!

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Americans who are 65 and older qualify for basic Medicare insurance, and they may need to pay additional premiums to get the level of coverage they desire. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But one aspect of paying premiums might be positive: If you qualify, they may help lower your tax bill.

Medicare premium tax deductions
Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Fewer people now itemize
Qualifying for a medical expense deduction can be difficult for a couple of reasons. For 2019, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 10% of AGI. (This threshold was 7.5% for the 2018 tax year.)

The Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for 2018 through 2025. For 2019, the standard deduction amounts are $12,200 for single filers, $24,400 for married joint-filing couples and $18,350 for heads of households. So, fewer individuals are claiming itemized deductions.

However, if you have significant medical expenses (including Medicare health insurance premiums), you may itemize and collect some tax savings.

Important note: Self-employed people and shareholder-employees of S corporations can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums. So, they don’t need to itemize to get the tax savings from their premiums.

Other deductible medical expenses
In addition to Medicare premiums, you can deduct a variety of medical expenses, including those for ambulance services, dental treatment, dentures, eyeglasses and contacts, hospital services, lab tests, qualified long-term care services, prescription medicines and others.

Keep in mind that many items that Medicare doesn’t cover can be written off for tax purposes, if you qualify. You can also deduct transportation expenses to get to medical appointments. If you go by car, you can deduct a flat 20-cents-per-mile rate for 2019, or you can keep track of your actual out-of-pocket expenses for gas, oil and repairs.

Need more information?
Contact us if you have additional questions about Medicare coverage options or claiming medical expense deductions on your personal tax return. Your advisor can help determine the optimal overall tax-planning strategy based on your personal circumstances.

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While the Tax Cuts and Jobs Act (TCJA) reduces most income tax rates and expands some tax breaks, it limits or eliminates several itemized deductions that have been valuable to many individual taxpayers. Here are five deductions you may see shrink or disappear when you file your 2018 income tax return:

1. State and local tax deduction. For 2018 through 2025, your total itemized deduction for all state and local taxes combined — including property tax — is limited to $10,000 ($5,000 if you’re married and filing separately). You still must choose between deducting income and sales tax; you can’t deduct both, even if your total state and local tax deduction wouldn’t exceed $10,000.

2. Mortgage interest deduction. You generally can claim an itemized deduction for interest on mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible. For 2018 through 2025, the TCJA reduces the mortgage debt limit from $1 million to $750,000 for debt incurred after Dec. 15, 2017, with some limited exceptions.

3. Home equity debt interest deduction. Before the TCJA, an itemized deduction could be claimed for interest on up to $100,000 of home equity debt used for any purpose, such as to pay off credit cards (for which interest isn’t deductible). The TCJA effectively limits the home equity interest deduction for 2018 through 2025 to debt that would qualify for the home mortgage interest deduction.

4. Miscellaneous itemized deductions subject to the 2% floor. This deduction for expenses such as certain professional fees, investment expenses and unreimbursed employee business expenses is suspended for 2018 through 2025. If you’re an employee and work from home, this includes the home office deduction. (Business owners and the self-employed may still be able to claim a home office deduction against their business or self-employment income.)

5. Personal casualty and theft loss deduction. For 2018 through 2025, this itemized deduction is suspended except if the loss was due to an event officially declared a disaster by the President.

Be aware that additional rules and limits apply to many of these deductions. Also keep in mind that the TCJA nearly doubles the standard deduction. The combination of a much larger standard deduction and the reduction or elimination of many itemized deductions means that, even if itemizing has typically benefited you in the past, you might be better off taking the standard deduction when you file your 2018 return. Please contact us with any questions you have.

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As you likely know by now, the Tax Cuts and Jobs Act (TCJA) reduced or eliminated many deductions for individuals. One itemized deduction the TCJA kept intact is for investment interest expense. This is interest on debt used to buy assets held for investment, such as margin debt used to buy securities. But if you have investment interest expense, you can’t count on benefiting from the deduction.

3 hurdles

There are a few hurdles you must pass to benefit from the investment interest deduction even if you have investment interest expense:

1. You must itemize deductions. In the past this might not have been a hurdle, because you may have typically had enough itemized deductions to easily exceed the standard deduction. But the TCJA nearly doubled the standard deduction, to $24,000 (married couples filing jointly), $18,000 (heads of households) and $12,000 (singles and married couples filing separately) for 2018. Plus, some of your other itemized deductions, such as your state and local tax deduction, might be smaller on your 2018 return because of TCJA changes. So you might not have enough itemized deductions to exceed your standard deduction and benefit from itemizing.

2. You can’t have incurred the interest to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.

3. You must have sufficient “net investment income.” The investment interest deduction is limited to your net investment income. For the purposes of this deduction, net investment income generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

Will interest expense save you tax?

As you can see, the answer to the question depends on multiple factors. We can review your situation and help you determine whether you can benefit from the investment interest expense deduction on your 2018 tax return.

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While the Tax Cuts and Jobs Act (TCJA) generally reduced individual tax rates for 2018 through 2025, some taxpayers could see their taxes go up due to reductions or eliminations of certain tax breaks — and, in some cases, due to their filing status. But some may see additional tax savings due to their filing status. (more…)

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If you’re like many Americans, letters from your favorite charities have been appearing in your mailbox in recent weeks acknowledging your 2018 year-end donations. But what happens if you haven’t received such a letter — can you still claim an itemized deduction for the gift on your 2018 income tax return? It depends. (more…)

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While most provisions of the Tax Cuts and Jobs Act (TCJA) went into effect in 2018 and either apply through 2025 or are permanent, there are two major changes under the act for 2019. Here’s a closer look. (more…)

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Nearly one year later, tax reform is still making headlines and we continue to learn more about its broad implications. Whether your previous tax filing posture was straightforward or complex, you will be impacted by the myriad of changes to the tax code. Now more than ever, it is imperative to thoughtfully consider year-end tax planning opportunities and ensure you are positioned to be in compliance with the new rules.

To support year-end tax planning and help you plan for the year ahead, Roth&Co offers you a 2018 Year-End Tax Planning guide. The guide provides valuable information about the new changes to the tax laws while providing corresponding planning tips.

Please download our complimentary year end tax planning guide for individuals

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Now that 2019 has begun, there isn’t too much you can do to reduce your 2018 income tax liability. But it’s smart to begin preparing for filing your 2018 return. Because the Tax Cuts and Jobs Act (TCJA), which was signed into law at the end of 2017, likely will have a major impact on your 2018 taxes, it’s a good time to review the most significant provisions impacting individual taxpayers.

Rates and exemptions

Generally, taxpayers will be subject to lower tax rates for 2018. But a couple of rates stay the same, and changes to some of the brackets for certain types of filers (individuals and heads of households) could cause them to be subject to higher rates. Some exemptions are eliminated, while others increase. Here are some of the specific changes:

Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
Elimination of personal and dependent exemptions
AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers for 2018
Approximate doubling of the gift and estate tax exemption, to $11.18 million for 2018

Credits and deductions

Generally, tax breaks are reduced for 2018. However, a few are enhanced. Here’s a closer look:

Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
Near doubling of the standard deduction, to $24,000 (married couples filing jointly), $18,000 (heads of households) and $12,000 (singles and married couples filing separately) for 2018
Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes
New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income or sales taxes; $5,000 for separate filers)
Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
Elimination of the deduction for interest on home equity debt
Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters)
Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
Elimination of the AGI-based reduction of certain itemized deductions
Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year

How are you affected?

As you can see, the TCJA changes for individuals are dramatic. Many rules and limits apply, so contact us to find out exactly how you’re affected. We can also tell you if any other provisions affect you, and help you begin preparing for your 2018 tax return filing and 2019 tax planning.

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Do you have investments outside of tax-advantaged retirement plans? If so, you might still have time to shrink your 2018 tax bill by selling some investments ― you just need to carefully select which investments you sell.

Try balancing gains and losses

If you’ve sold investments at a gain this year, consider selling some losing investments to absorb the gains. This is commonly referred to as “harvesting” losses.

If, however, you’ve sold investments at a loss this year, consider selling other investments in your portfolio that have appreciated, to the extent the gains will be absorbed by the losses. If you believe those appreciated investments have peaked in value, essentially you’ll lock in the peak value and avoid tax on your gains.

Review your potential tax rates

At the federal level, long-term capital gains (on investments held more than one year) are taxed at lower rates than short-term capital gains (on investments held one year or less). The Tax Cuts and Jobs Act (TCJA) retains the 0%, 15% and 20% rates on long-term capital gains. But, for 2018 through 2025, these rates have their own brackets, instead of aligning with various ordinary-income brackets.

For example, these are the thresholds for the top long-term gains rate for 2018:

Singles: $425,800
Heads of households: $452,400
Married couples filing jointly: $479,000

But the top ordinary-income rate of 37%, which also applies to short-term capital gains, doesn’t go into effect until income exceeds $500,000 for singles and heads of households or $600,000 for joint filers. The TCJA also retains the 3.8% net investment income tax (NIIT) and its $200,000 and $250,000 thresholds.

Don’t forget the netting rules

Before selling investments, consider the netting rules for gains and losses, which depend on whether gains and losses are long term or short term. To determine your net gain or loss for the year, long-term capital losses offset long-term capital gains before they offset short-term capital gains. In the same way, short-term capital losses offset short-term capital gains before they offset long-term capital gains.

You may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing your adjusted gross income. Any remaining net losses are carried forward to future years.

Time is running out

By reviewing your investment activity year-to-date and selling certain investments by year end, you may be able to substantially reduce your 2018 taxes. But act soon, because time is running out.

Keep in mind that tax considerations shouldn’t drive your investment decisions. You also need to consider other factors, such as your risk tolerance and investment goals.

We can help you determine what makes sense for you. Please contact us.

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Prepaying property taxes related to the current year but due the following year has long been one of the most popular and effective year-end tax-planning strategies. But does it still make sense in 2018?

The answer, for some people, is yes — accelerating this expense will increase their itemized deductions, reducing their tax bills. But for many, particularly those in high-tax states, changes made by the Tax Cuts and Jobs Act (TCJA) eliminate the benefits.

What’s changed?

The TCJA made two changes that affect the viability of this strategy. First, it nearly doubled the standard deduction to $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for singles and married couples filing separately, so fewer taxpayers will itemize. Second, it placed a $10,000 cap on state and local tax (SALT) deductions, including property taxes plus income or sales taxes.

For property tax prepayment to make sense, two things must happen:

1. You must itemize (that is, your itemized deductions must exceed the standard deduction), and

2. Your other SALT expenses for the year must be less than $10,000.

If you don’t itemize, or you’ve already used up your $10,000 limit (on income or sales taxes or on previous property tax installments), accelerating your next property tax installment will provide no benefit.

Example

Joe and Mary, a married couple filing jointly, have incurred $5,000 in state income taxes, $5,000 in property taxes, $18,000 in qualified mortgage interest, and $4,000 in charitable donations, for itemized deductions totaling $32,000. Their next installment of 2018 property taxes, $5,000, is due in the spring of 2019. They’ve already reached the $10,000 SALT limit, so prepaying property taxes won’t reduce their tax bill.

Now suppose they live in a state with no income tax. In that case, prepayment would potentially make sense because it would be within the SALT limit and would increase their 2018 itemized deductions.

Look before you leap

Before you prepay property taxes, review your situation carefully to be sure it will provide a tax benefit. And keep in mind that, just because prepayment will increase your 2018 itemized deductions, it doesn’t necessarily mean that’s the best strategy. For example, if you expect to be in a higher tax bracket in 2019, paying property taxes when due will likely produce a greater benefit over the two-year period.

For help determining whether prepaying property taxes makes sense for you this year, contact us. We can also suggest other year-end tips for reducing your taxes.

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Once upon a time, some parents and grandparents would attempt to save tax by putting investments in the names of their young children or grandchildren in lower income tax brackets. To discourage such strategies, Congress created the “kiddie” tax back in 1986. Since then, this tax has gradually become more far-reaching. Now, under the Tax Cuts and Jobs Act (TCJA), the kiddie tax has become more dangerous than ever. (more…)

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Taxes are not generally at the forefront of people’s minds when entering a casino or a racetrack. However, gambling winnings or losses can carry significant tax implications. Any money you win gambling is considered taxable income by the IRS.

Gambling income has its own set of rules, and is subject to strict recordkeeping requirements.

Here are 4 key tips about gambling and taxes: (more…)

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Recently, Governor Phil Murphy signed into law various tax bills that will have an immediate and significant impact on taxpayers in New Jersey. The new tax laws make sweeping changes to the state’s Corporation Business Tax (CBT) Act and results in possibly the most significant overhaul of the CBT since it was first enacted in 1945.

They new tax laws are intended to increase revenue, and to raise the highest rate for individual gross income tax purposes. Below is a summary of these changes. (more…)

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With its many changes to individual tax rates, brackets and breaks, the Tax Cuts and Jobs Act (TCJA) means taxpayers need to revisit their tax planning strategies. Certain strategies that were once tried-and-true will no longer save or defer tax. But there are some that will hold up for many taxpayers. And they’ll be more effective if you begin implementing them this summer, rather than waiting until year end. Take a look at these three ideas, and contact us to discuss what midyear strategies make sense for you. (more…)

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“Going green” at home — whether it’s your principal residence or a second home — can reduce your tax bill in addition to your energy bill, all while helping the environment, too. The catch is that, to reap all three benefits, you need to buy and install certain types of renewable energy equipment in the home.
(more…)

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There continues to be much uncertainty about the Affordable Care Act and how such uncertainty will impact health care costs. So it’s critical to leverage all tax-advantaged ways to fund these expenses, including HSAs, FSAs and HRAs. Here’s how to make sense of this alphabet soup of health care accounts. (more…)

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While the Tax Cuts and Jobs Act (TCJA) reduced most ordinary-income tax rates for individuals, it didn’t change long-term capital gains rates. They remain at 0%, 15% and 20%. (more…)

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Many Americans relocate to another state when they retire. If you’re thinking about such a move, state and local taxes should factor into your decision. (more…)

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When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit! (more…)

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If you received a large refund after filing your 2017 income tax return, you’re probably enjoying the influx of cash. But a large refund isn’t all positive. It also means you were essentially giving the government an interest-free loan.

That’s why a large refund for the previous tax year would usually indicate that you should consider reducing the amounts you’re having withheld (and/or what estimated tax payments you’re making) for the current year. But 2018 is a little different.

TCJA and withholding

To reflect changes under the Tax Cuts and Jobs Act (TCJA) — such as the increase in the standard deduction, suspension of personal exemptions and changes in tax rates and brackets —the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks, generally reducing the amount withheld.

The new tables may provide the correct amount of tax withholding for individuals with simple tax situations, but they might cause other taxpayers to not have enough withheld to pay their ultimate tax liabilities under the TCJA. So even if you received a large refund this year, you could end up owing a significant amount of tax when you file your 2018 return next year.

Perils of the new tables

The IRS itself cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld. If, for example, you itemize deductions, have dependents age 17 or older, are in a two-income household or have more than one job, you should review your tax situation and adjust your withholding if appropriate.

The IRS has updated its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations. The calculator reflects changes in available itemized deductions, the increased child tax credit, the new dependent credit and repeal of dependent exemptions.

More considerations

Tax law changes aren’t the only reason to check your withholding. Additional reviews during the year are a good idea if:

You get married or divorced,

You add or lose a dependent,

You purchase a home,

You start or lose a job, or

Your investment income changes significantly.

You can modify your withholding at any time during the year, or even multiple times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. (For estimated tax payments, you can make adjustments each time quarterly payments are due.)

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With the April 17 individual income tax filing deadline behind you (or with your 2017 tax return on the back burner if you filed for an extension), you may be hoping to not think about taxes for the next several months. But for maximum tax savings, now is the time to start tax planning for 2018. It’s especially critical to get an early start this year because the Tax Cuts and Jobs Act (TCJA) has substantially changed the tax environment. (more…)

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While April 15 (April 18 this year) is the main tax deadline on most individual taxpayers’ minds, there are others through the rest of the year that you also need to be aware of. To help you make sure you don’t miss any important 2018 deadlines, here’s a look at when some key tax-related forms, payments and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. (more…)

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What 2017 tax records can you toss once you’ve filed your 2017 return? The answer is simple: none. You need to hold on to all of your 2017 tax records for now. But it’s the perfect time to go through old tax records and see what you can discard. (more…)

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Home ownership is a key element of the American dream for many, and the U.S. tax code includes many tax breaks that help support this dream. If you own a home, you may be eligible for several valuable breaks when you file your 2017 return. But under the Tax Cuts and Jobs Act, your home-related breaks may not be as valuable when you file your 2018 return next year. (more…)

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Normally when appreciated business assets such as real estate are sold, tax is owed on the appreciation. But there’s a way to defer this tax: a Section 1031 “like kind” exchange. However, the Tax Cuts and Jobs Act (TCJA) reduces the types of property eligible for this favorable tax treatment. (more…)

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Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate. (more…)

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Individual taxpayers who itemize their deductions can deduct either state and local income taxes or state and local sales taxes. The ability to deduct state and local taxes — including income or sales taxes, as well as property taxes — had been on the tax reform chopping block, but it ultimately survived. However, for 2018 through 2025, the Tax Cuts and Jobs Act imposes a new limit on the state and local tax deduction. Will you benefit from the sales tax deduction on your 2017 or 2018 tax return? (more…)

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Under the Tax Cuts and Jobs Act (TCJA), individual income tax rates generally go down for 2018 through 2025. But that doesn’t necessarily mean your income tax liability will go down. The TCJA also makes a lot of changes to tax breaks for individuals, reducing or eliminating some while expanding others. The total impact of all of these changes is what will ultimately determine whether you see reduced taxes. One interrelated group of changes affecting many taxpayers are those to personal exemptions, standard deductions and the child credit. (more…)

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The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to? (more…)

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Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.
(more…)

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The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2017 tax liability — you just must act by December 31:
(more…)

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If you own life insurance policies at your death, the proceeds will be included in your taxable estate. Ownership is usually determined by several factors, including who has the right to name the beneficiaries of the proceeds. The way around this problem is to not own the policies when you die. However, don’t automatically rule out your ownership either.
(more…)

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Many investors, especially more risk-averse ones, hold much of their portfolios in “income investments” — those that pay interest or dividends, with less emphasis on growth in value. But all income investments aren’t alike when it comes to taxes. So it’s important to be aware of the different tax treatments when managing your income investments.
(more…)

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Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only if they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction. (more…)

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If you own a profitable, unincorporated business with your spouse, you probably find the high self-employment (SE) tax bills burdensome. An unincorporated business in which both spouses are active is typically treated by the IRS as a partnership owned 50/50 by the spouses. (For simplicity, when we refer to “partnerships,” we’ll include in our definition limited liability companies that are treated as partnerships for federal tax purposes.)

(more…)

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With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until they’ll be starting their higher education, is a Section 529 plan.

(more…)

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We all work hard for our money, so the last thing we want to do is throw any of it away. Yet a surprising number of us are kissing countless dollars goodbye due to ignorance or poor spending habits.

(more…)

http://money.cnn.com/2017/09/05/pf/losing-money/index.html?iid=Lead

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Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.

Pass the tests
The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

What’s deductible
So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving.

In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too.

But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us.

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Mortgage interest rates are still at low levels, but they likely will increase as the Fed continues to raise rates. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

0% capital gains rate. If the child is in the 10% or 15% income tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself.

As long as the assets are worth $14,000 or less (when combined with any other 2017 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion. Married couples can give twice that amount tax-free if they split the gift. And if you don’t mind using up some of your lifetime exemption ($5.49 million for 2017), you can give even more. Plus, there’s the possibility that the gift and estate taxes could be repealed. If that were to happen, there’d be no limit on how much you could give tax-free (for federal purposes).

Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are still quite low by historical standards. But these rates have begun to rise and are also expected to continue to increase this year. So lending money to a loved one for a home purchase sooner rather than later might be a good idea.

If you choose the loan option, it’s important to put a loan agreement in writing and actually collect payment (including interest) on the loan. Otherwise the IRS could deem the loan to actually be a taxable gift. Keep in mind that you’ll have to report the interest as income. But if the interest rate is low, the tax impact should be minimal.

If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.

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In a recent article, the New York Times declared: “If a family is considering doing some tax planning and they’re putting it off to next year, they can’t go back in time and take advantage of the discounts.” The reason for this dramatic declaration is the fact that proposed IRS regulations aim to eliminate valuation discounts and severely limit the ability to shift wealth. These proposed regulations may significantly impact our ability to provide the ideal estate tax planning to you and our high net-worth clients.
The recent elections illustrate the importance of proper tax planning. President-elect Donald Trump has vowed to repeal the estate tax and replace the “death tax” with a capital gain tax on assets upon the owner’s death. Democrats vow to block any such efforts and plan to reduce the gift tax exception to $1 million. This volatility means that the perfect time for estate planning is now, before any extreme changes are made that limit planning tools that are currently available.

Estate Taxes
Estate tax is a 40% tax that is applied to the fair market value of a decedent’s estate or transfers in the form of gifts during his or her lifetime. In order to limit the double taxation effect of the estate taxes, Congress allowed for a tax credit to allow for a small estate, or an estate with assets of less than $5.45 million, to be exempt. This credit allows for a lifetime exclusion, per person, to transfer up to $5.45 million without being subject to tax.

Tax Planning
An extremely popular tax planning technique to minimize estate taxes is by transferring assets that are held in privately-owned businesses at a reduced fair market value. The fair value of a privately-held business is different from the market value of a publicly-traded stock because of the lack of marketability. Likewise, shares with significant influence or control of a business are more valuable than debt or equity with no voting rights. These concepts provide for a discount that can shrink the appraised value of a business asset by up to 40% and can be used to minimize any estate or gift taxes.

Proposed Regulations
The Treasury Department stated its desire to eliminate these valuation techniques by 2017. This will increase the value of businesses for estate or inheritance tax purposes, including capital gain taxes as proposed by the incoming administration.

Estate Planning
Estate planning involves more than just Federal taxes. Most states levy inheritance taxes and may have restrictions on any Federal tax planning. In addition, basic estate planning documents and trusts can be used to protect assets from creditors, predators or divorce. Finally, business planning and succession may be necessary to specify business continuity while providing for family members who are not involved in the business.

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