When disaster strikes, Americans can always be counted on to help. That help comes in countless ways, but often the easiest way to help is by donating money to charities.

Sadly, criminals are just as likely to answer the call after a disaster or emergency as the millions of people who open their wallets. Scammers solicit donations to fake charities and can pose as employees of legitimate charities or federal agencies to dupe disaster victims trying to get disaster relief.

Although some legitimate charities do contact people out of the blue, people should always be suspicious of unsolicited contact.

Taxpayers donating money should keep a few things in mind:

• Use the IRS Tax Exempt Organization Search tool to find or verify qualified charities. Donations to these real charities may be tax deductible.
• Research a charity before sending a donation to confirm that the charity is real and to know whether the donation is tax deductible.
• Always get a receipt and keep a record of the donation.
• Review bank and credit card statements closely to make sure donation amounts are accurate.

Keep scammers’ tricks in mind:

• Legitimate charities do not ask for gift cards, cash, or wire transfers.
• Scammers may claim to work for the IRS or another government agency.
• Thieves may pose as a representative of a legitimate charity to ask for money or private information from well-intentioned taxpayers.
• Scammers can change their caller ID to make it appear they are a legitimate organization calling from a legitimate phone number.
• Scammers make vague and sentimental claims but give no specifics about how your donation will be used.
• Scammers set up bogus websites using names that sound like real charities.
• Bogus organizations often claim a donation is tax deductible when it’s not.

Disaster victims should know:
Disaster victims can call the IRS disaster assistance line at 866-562-5227. IRS representatives will answer questions about tax relief or disaster-related tax issues.

Donating to a charity is a great way to help others after a disaster or emergency. If taxpayers suspect a scam or fraud, they can report it to The Federal Trade Commission.

 

Tax Tip:  2023-110

The base Medicare Part B monthly premium for 2022 increases to $170.10/month (from $148.50/month for 2021).

The higher premiums some taxpayers have to pay for 2022 vary depending on the taxpayers’ modified AGI (MAGI) as shown on their 2020 income tax returns. The various MAGI levels increased a small amount with the exception of the maximum MAGI levels which stayed the same (except for MFS where the maximum MAGI level actually went down). The exact costs and modified AGI levels can be found at medicare.gov by clicking on the “Your Medicare Costs” tab and then on “Part B Costs”. The top of the page shows the premiums for 2021 and the bottom of the page shows the premiums for 2022.

The highest Medicare Part B premium for 2022 is $578.30/month (up from $504.90/month for 2021) and applies to:

– Individuals with modified AGI of $500,000 or more.

– Married Filing Jointly taxpayers with modified AGI of $750,000 or more.

– Married Filing Separately taxpayers with modified AGI of $409,000 or more ($412,000 for 2021).

The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.

As you are aware, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses. Furthermore, if you transfer stock from one broker to another broker, then the old broker is required to furnish a statement with relevant information, such as tax basis, to the new broker.

The IIJA expands the definition of brokers who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (“Crypto Exchanges”). Any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.

Occasionally you may have a transfer transaction that is not a sale or exchange. For example, if you transfer cryptocurrency from your wallet at one Crypto Exchange to your wallet at another Crypto Exchange, the transaction is not a sale or exchange. For that type of transfer, as with stock, the old Crypto Exchange will be required to furnish relevant digital asset information to the new Crypto Exchange. Additionally, if the transfer is to an account maintained by a party that is not a Crypto Exchange (or broker), the IIJA requires the old Crypto Exchange to file a return with the IRS. It is anticipated that such return will include generally the same information that is furnished in a broker-to-broker transfer.

For the reporting requirements, a “digital asset” is any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. Furthermore, the IRS can modify this definition. As it stands, the definition will capture most cryptocurrencies as well as potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

You may be aware that when a business receives $10,000 or more in cash in a transaction, that business is required to report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. The IIJA will require businesses to treat digital assets like cash for purposes of this reporting requirement.

These digital asset reporting rules will apply to information reporting that is due after December 31, 2023. For Form 1099-B reporting, this means that applicable transactions occurring after January 1, 2023 will be reported. Whether the IRS will refine the Form 1099-B for digital asset nuances, or come up with an entirely new form, is yet to be seen. Form 8300 reporting of cash transactions will presumably follow the same effective dates.

If you use a Crypto Exchange, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so. The transactions subject to the reporting will include not only selling cryptocurrencies for fiat currencies (like U.S. dollars), but also exchanging cryptocurrencies for other cryptocurrencies. A reporting intermediary does not always have perfect information, especially when it comes to an entirely new type of reporting. Thus, the first information reporting cycle for digital assets may be a bit unsettling.

I am here to help you and can provide solutions for any challenges that may develop.

If you have questions or concerns about the digital asset reporting rules, please do not hesitate to contact me.

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.

With year-end approaching, it is time to think about moves that may help lower your business’s taxes for 2021 and 2022.

2021 is more challenging than usual due to the uncertainty surrounding pending legislation that could increase corporate tax rates plus the top rates on both business owners’ 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 most small businesses, as will the bunching of deductible expenses into this year or next to maximize their tax value. If proposed tax increases do pass, however, the highest income businesses and owners 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.

We have 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 or your business, but you may benefit from many of them. We can determine specific actions when we meet to tailor a particular plan for your business, In the meantime, 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:

• Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2021, if taxable income exceeds $329,800 for a married couple filing jointly, about half that for others, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business, such as law, accounting, health, or consulting, the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property, such as machinery and equipment held by the business. The limitations are phased in; for example, the phase-in applies to joint filers with taxable income up to $100,000 above the threshold, and to other filers with taxable income up to $50,000 above their threshold.
• Taxpayers may be able to salvage some or all of this deduction, by deferring income or accelerating deductions to keep income under the dollar thresholds, or be subject to a smaller deduction phaseout, for 2021. Depending on their business model, taxpayers also may be able increase the deduction by increasing W-2 wages before year-end. The rules are quite complex.
• More small businesses are able to use the cash method of accounting rather than the accrual method than were allowed to do so in earlier years. To qualify as a small business a taxpayer must, among other things, satisfy a gross receipts test, which is satisfied for 2021 if, during a three-year testing period, average annual gross receipts don’t exceed $26 million. Next year this dollar amount is estimated to increase to $27 million. Not that many years ago it was $1 million. Cash method taxpayers may find it   easier to shift income, for example, by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments. • Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2021, the expensing limit is $1,050,000, and the investment ceiling limit is $2,620,000. Expensing is generally available for most depreciable property. other than buildings, and off-the-shelf computer software. It is also available for interior improvements to a building. but not for its enlargement, elevators or escalators, or the internal structural framework, for roofs, and for HVAC, fire protection, alarm, and security systems.

The generous dollar ceilings mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year.  Expensing eligible items acquired and placed in service in the last days of 2021, rather than at the beginning of 2022, can result in a full expensing deduction for 2021.

• Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment bought used, with some exceptions, or new if purchased and placed in service this year, and for qualified improvement property, described above as related to the expensing deduction. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2021.
• Businesses may be able to take advantage of the de minimis safe harbor election, also known as the book-tax conformity election, to expense the costs of lower-cost assets and materials and supplies, assuming the costs aren’t required to be capitalized under the UNICAP rules. To qualify for the election, the cost of a unit of property cannot exceed $5,000 if the taxpayer has an applicable financial statement. If there’s no AFS, the cost of a unit of property cannot exceed $2,500. Where the UNICAP rules are not an issue, and where potentially increasing tax rates for 2022 are not a concern, consider purchasing qualifying items before the end of 2021.
• A corporation, other than a large corporation, that anticipates a small net operating loss (NOL) for 2021 and substantial net income in 2022 may find it worthwhile to accelerate just enough of its 2022 income or to defer just enough of its 2021 deductions to create a small amount of net income for 2021. This allows the corporation to base its 2022 estimated tax installments on the relatively small amount of income shown on its 2021 return, rather than having to pay estimated taxes based on 100% of its much larger 2022 taxable income.
• Year-end bonuses can be timed for maximum tax effect by both cash- and accrual-basis employers. Cash-basis employers deduct bonuses in the year paid, so they can time the payment for maximum tax effect. Accrual-basis employers deduct bonuses in the accrual year, when all events related to them are established with reasonable certainty. However, the bonus must be paid within 2½ months after the end of the employer’s tax year for the deduction to be allowed in the earlier accrual year. Accrual employers looking to defer deductions to a higher-taxed future year should consider changing their bonus plans before yearend to set the payment date later than the 2.5-month window or change the bonus plan’s terms to make the bonus amount not determinable at year end.
• To reduce 2021 taxable income, consider deferring a debt-cancellation event until 2022. • Sometimes the disposition of a passive activity can be timed to make best use of its freed-up suspended losses. Where reduction of 2021 income is desired, consider disposing of a passive activity before year-end to take the suspended losses against 2021 income. If possible 2022 top rate increases are a concern, holding off on disposing of the activity until 2022 might save more in future taxes.

In our year- end planning, these are some of the steps that can be taken to save taxes.

Our firm looks 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.

Students and teenagers often get summer jobs. This is a great way to earn extra spending money or to save for later. The IRS offers a few tax tips for taxpayers with a summer job:

1. Withholding and Estimated Tax. Students and teenage employees normally have taxes withheld from their paychecks by the employer.  Some workers are considered self-employed and may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments during the year.
2. New Employees. When a person gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from the employee’s pay. The IRS Withholding Calculator tool on IRS.gov can help a taxpayer fill out the form.
3. Self-Employment. A taxpayer may engage in types of work that may be considered self-employment. Money earned from self-employment is taxable. Self-employment work can be jobs like baby-sitting or lawn care. Keep good records on money received and expenses paid related to the work.  IRS rules may allow some, if not all, costs associated with self-employment to be deducted. A tax deduction generally reduces the taxes you pay.
4. Tip Income. Employees should report tip income. Keep a daily log to accurately report tips. Report tips of $20 or more received in cash in any single month to the employer.
5. Payroll Taxes. Taxpayers may earn too little from their summer job to owe income tax. Employers usually must withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer, in a timely manner.
6. Newspaper Carriers. Special rules apply to a newspaper carrier or distributor. If a person meets certain conditions, then they are self-employed. If the taxpayer does not meet those conditions, and are under age 18, they may be exempt from Social Security and Medicare taxes.
7. ROTC Pay. If a taxpayer is in a ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive may not be taxable, see Publication 3 for details.
8. Use IRS Free File. Taxpayers can prepare and e-file their federal income tax return for free using IRS Free File. Free File is available only on IRS.gov. Some taxpayers may not earn enough money to have to file a federal tax return, by law, but may want to if taxes were withheld. For example, a taxpayer may want to file a tax return because they would be eligible for a tax refund or a refundable credit.  IRS Free File can help with these issues.

Visit IRS.gov for more about the tax rules for students.

IRS Summertime Tax Tip 2017-02, July 5, 2017

 

Attention last minute savers! There’s still time to reduce your tax burden for 2016.

Have you funded a traditional IRA, Roth IRA, or SEP this year? The deadline for contributions to IRAs is April 18, 2017 — this year’s filing deadline. For self-employed taxpayers, contributions to a SEP may be postponed until October 16, 2017 if a tax return extension has been filed.

Increasing your 401(k) contribution so that you are putting in the maximum amount of money allowed is a smart way to lower taxes. If you can’t afford the maximum contribution, $18,000 for 2016, $24,000 if you are age 50 or over, you should still contribute the full amount that will be matched by employer contributions – no reason to leave money on the table!

If you are currently enrolled in an employer sponsored retirement plan, your contribution to a traditional IRA will not be tax deductible, but you will be able to take advantage of tax-deferred interest compounding. The cap for contributions to a traditional or Roth IRA in 2016 is $5,500 for taxpayers under 50 and $6,500 for those over 50.

If you have reason to believe you’ll be in the same or a lower tax bracket next year, it may make sense to defer income by taking capital gains in 2017 instead of in 2016. If you are self-employed or freelancing and can push revenue into a lower earning year, it may be wise to do so. Winding up in a higher tax bracket can result in a big surprise in your tax bill. Your forecast for personal income this year vs. next year is an important issue to discuss with your tax professional.

Charitable deductions are another great way to lower your taxes before year’s end. Just make sure that the charity to which you are donating is recognized by the IRS as being tax-exempt, and that you document and photograph all items donated.

“Loss harvesting” is the practice of selling stocks and mutual funds with the goal of realizing losses. Those losses can offset taxable gains you have realized during the year, dollar for dollar. This is another good conversation to have with your enrolled agent.

To make sure you’re taking advantage of all available tax savings, tax credits and deductions for 2016, be sure to bring the right documents to your tax professional. Along with any Forms W-2 from your employer, bring Forms 1099 declaring misc. income, mortgage interest information, and K-1 forms showing income from a partnership, small business or trust. Bring documentation of any student loans you may be paying off, and money spent on child care.

Some other things to consider: if you collected unemployment benefits at any time during the year, that money is generally taxable and you will need to bring a form 1099-G. For state filing, you’ll want to remember to include any personal property tax paid – for example, on your automobile. Did you collect Social Security, rent a property, receive self-employment income or pay alimony? Cancelled checks and receipts can help to document expenses you wish to claim, such as those related to a home office. Job search expenses, moving expenses and college expenses may all be deductible under certain circumstances. Medical expenses might be deductible, but the bar is high.

As with everywhere else in life, often what the large print giveth the small print taketh away. For instance, IRA contributions — both traditional and Roth — have some tricky limitations (and some workarounds, too). Enrolled agents (“EAs”), America’s tax experts, are well placed to help you navigate. Please feel free to call my office at xxx-xxx-xxxx to schedule an appointment.

 

About Enrolled Agents

To earn the EA license from the US Department of Treasury, candidates must pass a background check and a stringent three-part exam on tax administered by the IRS. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.

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

 

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