Tag: <span>IRS</span>

With the year-end approaching, it is time to start thinking about strategies that may help lower your tax bill for not only 2021 but 2022 as well.

Planning is more challenging than usual this year due to the uncertainty surrounding pending legislation that could, among other things, increase top rates on both ordinary income and capital gain starting in 2022.

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.

If proposed tax increases do pass, however, the highest income taxpayers may find that the opposite strategies produce better results. Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

Our firm has compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you, or a family member, may benefit from many of them. We can narrow down specific actions when we meet to review your particular tax situation.

Please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:

• Higher-income individuals must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of MAGI over a threshold amount, $250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case. • As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax will depend on the taxpayer’s estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize additional NII for the balance of the year, others should try to reduce MAGI other than NII, and some individuals will need to consider ways to minimize both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs or most other retirement plans.
• Pending legislative changes to the 3.8% net investment income tax NIIT proposed to be effective after this tax year would subject high income, phased-in starting at $500,000 on a joint return; $400,000 for most others, S shareholders, limited partners, and LLC members to NIIT on their pass-through income and gain that is not subject to payroll tax. Accelerating some of this type of income into 2021 could help avoid NIIT on it under the potential 2022 rules, but would also increase 2021 MAGI, potentially exposing other 2021 investment income to the tax.
• The 0.9% additional Medicare tax also may require higher-income earners to take year-end action. It applies to individuals whose employment wages and self-employment income total more than an amount equal to the NIIT thresholds, above. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. This would be the case, for example, if an employee earns less than $200,000 from multiple employers but more than that amount in total. Such an employee would owe the additional Medicare tax, but nothing would have been withheld by any employer.
• Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to net long-term capital gain to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount, $80,800 for a married couple; estimated to be $83,350 in 2022. An example: If $5,000 of long-term capital gains you took earlier this year qualifies for the zero rate then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses will offset $5,000 of capital gain that is already tax-free.
• Postpone income until 2022 and accelerate deductions into 2021 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2021 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. In some cases, it may benefit some taxpayers to actually accelerate income into 2021. An example: A person who will have a more favorable filing status this year than next such as head of household versus individual filing status, or who expects to be in a higher tax bracket next year.
• If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in stocks and mutual funds that have devalued into a Roth IRA in 2021 if eligible to do so. Keep in mind that the conversion will increase your income for 2021, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation.
• It may be advantageous to try to arrange with your employer to defer, until early 2022, a bonus that may be coming your way. This might cut as well as defer your tax. Again, considerations may be different for the highest income individuals.
• Many taxpayers will not want to itemize because of the high basic standard deduction amounts that apply for 2021,$25,100 for joint filers, $12,550 for singles and for marrieds filing separately, $18,800 for heads of household, and because many itemized deductions have been reduced or eliminated, including the $10,000 limit on state and local taxes; miscellaneous itemized deductions; and non-disaster related personal casualty losses. You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions will not save taxes unless they total more than your standard deduction. In addition to the standard deduction, you can claim a $300 deduction , $600 on a joint return, for cash charitable contributions.

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. An example: a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years’ worth of charitable contributions this year. The COVID-related increase for 2021 in the income-based charitable deduction limit for cash contributions from 60% to 100% of MAGI assists in this bunching strategy.

• Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2021 deductions even if you do not pay your credit card bill until after the end of the year.
• If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2021, consider asking your employer to increase withholding of state and local taxes or make estimated tax payments of state and local taxes before year-end to pull the deduction of those taxes into 2021. But this strategy is not good to the extent it causes your 2021 state and local tax payments to exceed $10,000.
• Required minimum distributions RMDs from an IRA or 401(k) plan or other employer-sponsored retirement plan have not been waived for 2021, as they were for 2020. If you were 72 or older in 2020 you must take an RMD during 2021. Those who turn 72 this year have until April 1 of 2022 to take their first RMD but may want to take it by the end of 2021 to avoid having to double up on RMDs next year.
• If you are age 70½ or older by the end of 2021, and especially if you are unable to itemize your deductions, consider making 2021 charitable donations via qualified charitable distributions from your traditional IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. However, if you are still entitled to claim the entire standard deduction. The qualified charitable distribution amount is reduced by any deductible contributions to an IRA made for any year in which you were age 70½ or older, unless it reduced a previous qualified charitable distribution exclusion.
• Take an eligible rollover distribution from a qualified retirement plan before the end of 2021 if you are facing a penalty for underpayment of estimated tax and increasing your wage withholding won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2021. You can then timely roll over the gross amount of the distribution, the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2021, but the withheld tax will be applied pro rata over the full 2021 tax year to reduce previous underpayments of estimated tax.
• Consider increasing the amount you set aside for next year in your employer’s FSA if you set aside too little for this year and anticipate similar medical costs next year.
• If you become eligible in December of 2021 to make HSA contributions, you can make a full year’s worth of deductible HSA contributions for 2021.
• Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2021 to each of an unlimited number of individuals. You cannot carry over unused exclusions to another year. These transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
• If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred or on the return for the prior year, generating a quicker refund. If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2021 to maximize your casualty loss deduction this year.

These are just some of the year-end steps that can be taken to save taxes.

If you received an Economic Impact Payment in 2021 or received  Advanced Child Tax Credit Payments, these amounts will be required to be reconciled on your 2021 Federal Income Tax Return.

With holidays rapidly approaching, we wish each of you safe travels and wonderful times with friends and family.

We are here to serve you and look forward to your call.

Here’s how a taxpayer’s custody situation may affect their advance child tax credit payments  

COVID Tax Tip 2021-147, October 5, 2021

Parents who share custody of their children should be aware of how the advance child tax credit payments are distributed. It is important to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year.

Here are some of the most common questions about shared custody and the advance child tax credit payments.

If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments?

Who receives 2021 advance child tax credit payments is based on the information on the taxpayer’s 2020 tax return, or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?

Parents who will not be eligible to claim the child tax credit when they file their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.

If parents alternate years claiming their child on their tax return, will the IRS send the 2021 advance child tax credit payments to the parent who claimed the child on their 2020 tax return even though they will not claim them on their 2021 tax return?

Yes. Because the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may be excused from repaying some or all of the excess amount if they qualify for repayment protection. If a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?

Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

With the recently enacted American Rescue Plan, there were changes made to the child tax credit that may benefit many taxpayers, most notably:

• The amount has increased for certain taxpayers
• The credit is fully refundable
• The credit may be partially received in monthly payments
• The qualifying age for children has been raised from 16 to 17

The IRS will pay half the credit in the form of advance monthly payments beginning July 15 and ending Dec. 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

How much will you receive?

The credit for children ages five and younger is up to $3,600 with up to $300 received in monthly payments. The credit for children ages 6 to 17 is up to $3,000 with up to $250 received in monthly payments.

How do you qualify?

The following criteria must be met to quality:

• A 2019 or 2020 tax return was filed and claimed the child tax credit, or your information was provided to the IRS using the non-filer tool
• Have a main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
• Care for a qualifying child who is under age 18 at the end of 2021, and who has a valid Social Security number
• Have a modified adjusted gross income less than certain limits:
  • $75,000 for single filers
  • $150,000 for married filing jointly filers
  • $112,500 for head of household filers

The credit begins to phase out above those thresholds. Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

You won’t need to do anything to receive payments as the IRS will use information on file to start issuing payments.

IRS’s child tax credit update portal

The IRS has a child tax credit and update portal where you can update your information to reflect any recent changes to things like filing status or number of children. You can also opt out of the advance payments and check on payment status in the portal. If you file a joint return, both you and your spouse will need to opt out, otherwise a portion of the payment will still be issued. If you prefer not to opt out online, you can also call the IRS at 1-800-908-4184.

We’re here to help

If you have any questions or need help making decisions based on your specific situation, please contact our office today at 205-663-8686 or cris@essential-solutions.biz.

Thank you for trusting us with your tax preparation and planning needs.

If you’re one of the millions of Americans waiting patiently for your 2020 federal tax refund, I sympathize with you. This tax filing season has been one like never before and I am hearing from many of you wondering why you haven’t received your payment yet. There are several reasons for the delays, but I can assure you that your return was prepared with the utmost care and expertise, and it is likely part of the sizable IRS backlog of returns.

As of June 5, the IRS reported there are more than 18 million 2020 returns in its pipeline to be processed, and a few million others yet to be finalized from 2019. This past year has been extraordinary, the least of which being the COVID public health crisis and widespread unemployment. In addition, a series of stimulus payments from the federal government to help people navigate COVID financial woes was also managed by the IRS, and to ensure all eligible citizens received stimulus money, the IRS told Americans that everyone should file a tax return. Between more returns, unemployment amendments, issuing stimulus money and processing regular returns, the IRS has had its work cut out for it. Like many businesses during the pandemic, the IRS also had obstacles to overcome like switching its workforce from onsite to virtual and operating with a reduced staff.

If you have not received your refund 21 days after filing, it is likely that it is under further review. This happens more frequently when a return includes a recovery rebate credit, suspicion of identity theft or fraud, a claim for an earned income credit or other criteria that will ping a return for a manual review.

If you receive any correspondence from the IRS regarding your return, please contact me with a copy of the letter you received, and I can guide you through that. Unfortunately, due to the delays in processing, some notices are being sent by the IRS despite timely follow-up by you, or myself on your behalf. At this point, I am as powerless as you to speed up the IRS process, so patience is our best option right now.

I will keep you updated with all important news from the IRS that may apply to your situation. Thank you for your trust in me as your tax return professional and I look forward to serving you in the future.

Here Is How the Third Economic Impact Payment Is Different From Earlier Payments

The third Economic Impact Payment is different from the first and second payments in several ways.

The third Economic Impact Payment is an advance payment of the 2021 recovery rebate credit.

The two earlier payments are advance payments of the 2020 recovery rebate credit. Eligible people who didn’t get a first and second Economic Impact Payment or got less than the full amounts, may be eligible to claim the 2020 recovery rebate credit and must file a 2020 tax return even if they don’t usually file a tax return.

The third Economic Impact Payment will be larger for most eligible people.

Eligible individuals who filed a joint tax return will receive up to $2,800, and all other eligible individuals will receive up to $1,400. Those with qualifying dependents on their tax return will receive up to $1,400 per qualifying dependent.

More people qualify as dependents.

Unlike the first two payments, the third payment is not restricted to children under 17. Eligible families will get a payment for all qualifying dependents claimed on their return. This may include older relatives like college students, adults with disabilities, parents and grandparents.

Income phase-out amounts are different for the third payments.

Taxpayers will not receive a third payment if their Adjusted Gross Income exceeds:

• $160,000, if married and filing a joint return or if filing as a qualifying widow or widower.
• $120,000, if filing as head of household.
• $80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns

This means that some people won’t be eligible for the third payment, even if they received first or second EIPs or are eligible for a 2020 recovery rebate credit.

Some people may be eligible for a Supplemental Payment.

The amount of the third payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019. If the taxpayer’s 2020 return hasn’t been processed, the IRS used 2019 tax return information to calculate the third payment.

If the third payment is based on the 2019 return, and is less than the full amount, the taxpayer may qualify for a supplemental payment. After their 2020 return is processed, the IRS will automatically re-evaluate their eligibility using their 2020 information. If they’re entitled to a larger payment, the IRS will issue a supplemental payment for the additional amount.

Changes to earlier eligibility requirements.

For taxpayers who file jointly and only one individual has a valid SSN, the spouse with a valid SSN will receive up to a $1,400 third payment and up to $1,400 for each qualifying dependent claimed on their 2020 tax return. For taxpayers who don’t have a valid SSN, but have a qualifying dependent who has an SSN, they will only receive up to $1,400 for a qualifying dependent claimed on their return only if they meet all other eligibility and income requirements. If either spouse was an active member of the U.S. Armed Forces at any time during the taxable year, only one spouse needs to have a valid SSN for the couple to receive up to $2,800 for themselves, plus up to $1,400 for each qualifying dependent.

If married taxpayers filing jointly did not receive one or both of the first two Economic Impact Payments because one spouse didn’t have a Social Security number valid for employment, they may be eligible to claim a 2020 recovery rebate credit on their 2020 tax return for the spouse with the SSN valid for employment.

Contact: John Michaels

(202) 822-0728

jmichaels@naea.org

 For Immediate Release

Alabaster Tax Practitioners Attends National Tax Practice Institute™

Washington, D.C. – 8/3/17 — In order to stay up-to-date on the latest changes in tax regulations, Cris Nelson, EA, and Kenyatta Ector, EA. attended the three-day National Tax Practice Institute® in Las Vegas, July 31 – August 3, 2017, further developing and fortifying their skills representing taxpayers before the IRS.

The course, open only to licensed tax professionals, was developed to prepare licensed representatives to protect their clients’ rights by disseminating the most recent information about IRS laws and procedures critical to representation.

At its core, NTPI is a three-level program developed to hone the skills of enrolled practitioners at all stages of their careers. With each level of this program, students expand their knowledge and skills, and gain the additional expertise needed to successfully guide their clients through the often challenging maze of IRS codes, internal regulations, and agency structure.

Enrolled agents (EAs) are a diverse group of independent, federally-authorized tax practitioners who have demonstrated a high level of technical competence in tax law and are licensed to practice by the United States government. EAs advise and represent taxpayers before the IRS, including taxpayers who are being examined, are unable to pay or are trying to avoid or recover penalties. EAs also prepare tax returns for individuals, partnerships, corporations, estates, trusts and any other entities with tax-reporting requirements. Unlike tax attorneys and CPAs, who may or may not choose to specialize in taxation, all EAs specialize in taxation and are required by the federal government to maintain their professional skills with continuing professional education. They are the only federally-authorized tax practitioners with unlimited rights of representation before IRS. That’s why they’re known as “America’s Tax Experts!”

Cris Nelson. EA and Kenyatta Ector, EA are members of the National Association of Enrolled Agents (NAEA) and the Alabama Society of Enrolled Agents.

###

 About the National Association of Enrolled Agents

The National Association of Enrolled Agents (NAEA) has been powering enrolled agents, America’s tax experts^®, for more than 45 years. NAEA is a non-profit membership organization composed of tax specialists licensed by the U.S. Treasury Department. NAEA provides the networking, educational opportunities, programs and services that enable enrolled agents and other tax professionals to excel beyond their peers. Enrolled agents are the only federally-licensed tax practitioners who both specialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. To find out more, visit www.naea.org and follow NAEA on Facebook and Twitter.

The IRS wants taxpayers to know it stands ready to help in the event of a disaster. If a taxpayer suffers damage to their home or personal property, they may be able to deduct the loss they incur on their federal income tax return. If their area receives a federal disaster designation, they may be able to claim the loss sooner.

Ordinarily, a deduction is available only if the loss is major and not covered by insurance or other reimbursement.

Here are 10 tips taxpayers should know about deducting casualty losses:

1. Casualty loss.  A taxpayer may be able to deduct a loss based on the damage done to their property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
3. Covered by insurance.  If a taxpayer insured their property, they must file a timely claim for reimbursement of their loss. If they don’t, they cannot deduct the loss as a casualty or theft. Reduce the loss by the amount of the reimbursement received or expected to receive.
4. When to deduct.  As a general rule, deduct a casualty loss in the year it occurred. However, if a taxpayer has a loss from a federally declared disaster, they may have a choice of when to deduct the loss. They can choose to deduct it on their return for the year the loss occurred or on an original or amended return for the immediately preceding tax year.

   This means that if a disaster loss occurs in 2017, the taxpayer doesn’t need to wait until the end of the year to claim the loss. They can instead choose to claim it on their 2016 return. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.

5. Amount of loss.  Figure the amount of loss using the following steps:
   • Determine the adjusted basis in the property before the casualty. For property a taxpayer buys, the basis is usually its cost to them. For property they acquire in some other way, such as inheriting it or getting it as a gift, the basis is determined differently. For more information, see Publication 551, Basis of Assets.
   • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which a person could sell their property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
   • Subtract any insurance or other reimbursement received or expected to receive from the smaller of those two amounts.

6. $100 rule.  After figuring the casualty loss on personal-use property, reduce that loss by $100. This reduction applies to each casualty-loss event during the year. It does not matter how many pieces of property are involved in an event.
7. 10 percent rule.  Reduce the total of all casualty or theft losses on personal-use property for the year by 10 percent of the taxpayer’s adjusted gross income.
8. Future income.  Do not consider the loss of future profits or income due to the casualty.
9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report the casualty loss on a federal tax return. Claim the deductible amount on Schedule A, Itemized Deductions.
10. Business or income property.  Some of the casualty loss rules for business or income property are different from the rules for property held for personal use.

Call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster-area losses see Publication 547, Casualties, Disasters and Thefts. Get it and other IRS tax forms on IRS.gov/forms at any time.

 

IRS Summertime Tax Tip 2017-01, July 3, 2017

Although the IRS reports a 400 percent surge in phishing and malware incidents during the 2016 tax season, there are simple steps you can take to help protect yourself.

Here are nine hints that can help:

1. Beware of IRS Impersonators. Some crooks call taxpayers to say they must settle their “tax bill.” These are fake calls and often demand payment on prepaid debit cards, gift cards or wire transfers. Also, students should know there’s no “Federal Student Tax.” If you get any unexpected calls, e-mails, letters or texts from someone claiming to be from the IRS, remember, the IRS never calls to demand immediate payment using a specific method nor will it threaten you with local law enforcement.
2. Understand and Use Security Software. Security software helps protect computers against digital threats online. Generally, the operating system will include security software or you can access free security software from well-known companies or Internet providers. Essential tools include a firewall, virus and malware protection, and file encryption. Don’t buy security software offered as an unexpected pop-up ad on your computer or e-mail. It’s likely from a scammer.
3. Let Security Software Update Automatically. Malware—malicious software—evolves constantly and your security software suite updates routinely to keep pace.
4. Look for the “S.” When shopping or banking online, see that the site uses encryption to protect your information. Look for “https” at the beginning of the Web address. The “s” is for secure. Additionally, make sure the https carries through on all pages, not just the sign-on page.
5. Use Strong Passwords. Use passwords of eight or more characters, mixing letters, numbers and special characters. Don’t use your name, birth date or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share passwords with anyone. Calls, texts or e-mails pretending to be from legitimate companies or the IRS asking to update accounts or seeking personal financial information are almost always scams.
6. Secure Wireless Networks. A wireless network sends a signal through the air that lets it connect to the Internet. If your home or business Wi-Fi is unsecured, it also lets any computer within range access your wireless and potentially steal information from your computer. Criminals can also use your wireless to send spam or commit crimes that would be traced back to you. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
7. Be Cautious When Using Public Wireless Networks. Public Wi-Fi hot spots are convenient but often not secure. Tax or financial information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hot spot doesn’t require a password, it’s probably not secure.
8. Avoid E-mail Phishing Attempts. Never reply to e-mails, texts or pop-up messages asking for personal, tax or financial information. One com-mon trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. They ask for Social Security numbers and other personal information, which could be used to file false tax returns. The sites may also infect your computer. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.
9. Get Professional Advice. To make sure you can take advantage of all allowable tax-deferred savings, tax credits and deductions, consult with a licensed tax professional, your enrolled agent (EA). EAs are the only federally licensed tax professionals with unlimited rights of representation before the IRS. EAs abide by a code of ethics and must complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code.

You can save money and trouble if you follow professional advice and your own good sense when taking care of taxes.

1. Accelerate Deductions and Defer Income

It sometimes makes sense to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

2. Bunch Itemized Deductions

Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving a procedure into this year or postponing it until next year. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.

3. Make Up a Tax Shortfall with Increased Withholding

Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall by increasing withholding on your salary or bonuses. A bigger estimated tax payment can leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.

4. Leverage Retirement Account Tax Savings

It’s not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement accounts (IRAs) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2016 contribution limits are $18,000 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).

5. Reconsider a Roth IRA Rollover

It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

6. Get Your Charitable House in Order

If you plan on giving to charity before the end of the year, remember that a cash contribution must be documented to be deductible. If you claim a charitable deduction of more than $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a contemporaneous written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.

7. Give Directly from an IRA

Congress finally made permanent a provision that allow taxpayers 70½ and older to make tax-free charitable distributions from IRAs. Using your IRA distributions for charitable giving could save you more than taking a charitable deduction on a normal gift. That’s because these IRA distributions for charitable giving won’t be included in income at all, lowering your AGI. You’ll see the difference in many AGI-based computations where the below-the-line deduction for charitable giving doesn’t have any effect. Even better, the distribution to charity will still count toward the satisfaction of your minimum required distribution for the year.

8. Zero out AMT

Some high-income taxpayers must pay the alternative minimum tax (AMT) because the AMT removes key deductions. The silver lining is that the top AMT tax rate is only 28 percent. So you can “zero out” the AMT by accelerating income into the AMT year until the tax you calculate for regular tax and AMT are the same. Although you will have paid tax sooner, you will have paid at an effective tax rate less than the top regular tax rate of 39.6 percent. But be careful, this can backfire if you are in the AMT phase-out range or the additional income affects other tax benefits.

9. Don’t Squander Your Gift Tax Exclusion

You can give up to $14,000 to as many people as you wish in 2016, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. You and your spouse can use your exemptions together to give up to $28,000 per beneficiary.

10. Leverage Historically Low Interest Rates

Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. An appreciating market and historically low rates create the perfect atmosphere for estate planning. The past several years presented a historically favorable time, and the low rates won’t last forever

 

Not sure what to do?  Give our office a call!!  663-8686

 

The IRS, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect your tax and financial information and guard against identity theft. Treat your personal information like cash – don’t hand it out to just anyone.

Your Social Security number, credit card numbers, and bank and utility account numbers can be used to steal your money or open new accounts in your name. Every time you are asked for your personal information think about whether you can really trust the request. In an effort to steal your information, scammers will do everything they can to appear trustworthy.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are some best practices you can follow to protect your tax and financial information:

Give personal information over encrypted websites only. If you’re shopping or banking online, stick to sites that use encryption to protect your information as it travels from your computer to their server. To determine if a website is encrypted, look for “https” at the beginning of the web address (the “s” is for secure). Some websites use encryption only on the sign-in page, but if any part of your session isn’t encrypted, the entire account and your financial information could be vulnerable. Look for https on every page of the site you’re on, not just where you sign in.

Protect your passwords. The longer the password, the tougher it is to crack.  Use at least 10 characters; 12 is ideal for most home users. Mix letters, numbers and special characters. Try to be unpredictable – don’t use your name, birthdate or common words. Don’t use the same password for many accounts.  If it’s stolen from you – or from one of the companies with which you do business – it can be used to take over all your accounts. Don’t share passwords on the phone, in texts or by email.  Legitimate companies will not send you messages asking for your password.  If you get such a message, it’s probably a scam. Keep your passwords in a secure place, out of plain sight.

Don’t assume ads or emails are from reputable companies. Check out companies to find out if they are legitimate. When you’re online, a little research can save you a lot of money and reduce your security risk. If you see an ad or an offer that looks too good, take a moment to check out the company behind it. Type the company or product name into your favorite search engine with terms like “review,” “complaint” or “scam.” If you find bad reviews, you’ll have to decide if the offer is worth the risk. If you can’t find contact information for the company, take your business and your financial information elsewhere. The fact that a site features an ad for another site doesn’t mean that it endorses the advertised site, or is even familiar with it.

Don’t overshare on social media – Do a web search of your name and review the results. Mostly likely, the results while turn up your past addresses, the names of people living in the household as well social media accounts and your photographs. All of these items are valuable to identity thieves. Even a social media post boasting of a new car can help thieves bypass security verification questions that depend on financial data that only you should know. Think before you post!

Back up your files. No system is completely secure. Copy important files and your federal and state tax returns onto a removable disc or a back-up drive, and store it in a safe place. If your computer is compromised, you’ll still have access to your files.

Save your tax returns and records. Your federal and state tax forms are important financial documents you may need for many reasons, ranging from home mortgages to college financial. Print out a copy and keep in a safe place. Make an electronic copy in a safe spot as well. These steps also can help you more easily prepare next year’s tax return. If you store sensitive tax and financial records on your computer, use a file encryption program to add an additional layer of security should your computer be compromised.

IRS Security Awareness Tax Tip Number 7, January 4, 2016