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Archives for Tax Tips

IRS Sets Start Date For Tax Season & Will Now Issue Refunds During Shutdown

We are now in the 3rd week of the government shutdown. The agency’s funding ran out at midnight on December 21, 2018.  The IRS is operating under a contingency plan even though 87.5% of its work force is furloughed.  It stated that a significant portion of that furloughed staff will be recalled for tax season.  On January 4, it was reported by Charles Retting that, while returns would be processed, there would be no refunds issued during the shutdown.  This would cause many Americans who count on those refunds a hardship.  The Tax Court closed on December 28 and will remain closed during the shutdown.

The IRS will issue a new contingency plan in the next few days.  In addition, they also announced on Monday evening (January 7) that it will start processing returns on January 28 and will pay tax refunds despite the shutdown. 

 

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Social Security Strategy

You have waited a long time to get Social Security!  It may sound like the opposite of what you want to do, by putting off drawing social security may actually pay off in the long run in some situations.

If you claim retirement benefits at the earliest possilbe age-62- you take a permanently reduced benefit.  That is generally 75% of what you are entitled to based on your earnings record. In addition, if you continue to work, you may be penalized if you earn more than the annual limit.

If you wait until full retirement age 66 or 67, depending on the year you were born, you will receive your full retirement benefit.

If you delay taking social security even longer, you get an 8 % increase for every year you wait until age 70. That represents a potential increase of 32%!

You can also stop (suspend) benefits and get back some of the delayed benefit.

If you were born before January 1, 1954, you may be eligible for benefits on your spouse’s record.  You can file for spousal benefits at full retirement age and let your own retirement benefits grow until age 70.  To do this, your spouse must qualify for retirement benefits.

If you are divorced, you may still be eligible to receive spousal benefits.

Each situation is different and planning is so important!  Please call our office if you have questions.

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California Sets New Post-Wayfair Sales Tax Rules

As many of you know, I posted a notice about the Wayfair decision earlier this year.  This is regarding online sales to out of state customers. In a much anticipated move, the California Department of Tax and Fee Administration announced last week that out-of-state retailers who sell above certain thresholds will not have to start collecting California Use Taxes on their sales into the state starting April 1, 2019.

California is on of the first bit states to announce its policy; other large states like Texas, New York and Florida has yet to weigh in but you can expect it soon.

 

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New Mileage Rates for 2019

The Internal Revenue Service has issued new mileage rates for 2019.

58 cents per mile drive for business use, up 3.5 cents from the 2018 rate.

20 cents per mile driven for medical or moving purposes

14 cents per mile driven in service for charitable organizations.

Please remember that you are no longer allowed a deduction for moving expenses unless you are active military.  In addition, you may not claim any deduction for unreimbursed employee business travel. Please call our office if you have questions.

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Supreme Court Overturns Quill Decision! – What Does This Mean?

The Supreme Court today, in a 5-4 decision, came down on the side of the states and overturned the Quill Decision.  This grants states greater power to require out-of-state retailers to collect sales tax on sales to in-state residents.  This is a big deal for states.

At issue was the court 1992 Decision in Quill which established the physical presence for sales and use tax nexus.  That was before the surge of online sales and states have been trying to find constitutional ways to collect sales tax from remote sellers to residents in those states. The Quill Decision stated that those retailers had to have a “physical presence” or “nexus” in the state to be forced to collect and remit sales tax to a state. The Supreme Court said Quill was “out of date”.

States like South Dakota will now be allowed to require sellers that are selling substantial amounts of product into the state to collect and remit sales tax. This may be good for states.  However, the small “mom & pop” retailers would have to collect and remit sales to how many states? We may see litigation regarding these small online retailers about the amount of sales necessary to impose the collection obligation on them.  It may even be on a case by case basis….we shall see!

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Are You Trading in Cryptocurrency

The Internal Revenue Service issued a reminder Friday to taxpayers that they need to report any income from gains they get from virtual currency transactions on their tax returns.

The move comes after the IRS forced one of the largest cryptocurrency exchanges in the world, Coinbase, to send information on 13,000 of its users to the IRS last month after a legal battle involving the use of “John Doe” summonses.  That mean if you have engaged in transactions involving Bitcoin, Ethereum, and other digital currencies, you are expected to report those gains to the IRS.

The IRS pointed out that virtual currency transactions are taxable by law, similar to transactions involving other personal property.  The IRS issued guidance in 2014 in Notice 2014-21 spelling out the agency’s position on digital currency transactions for taxpayers and tax preparers.

The IRS warned Friday that taxpayers who do not properly report the income tax consequences of their cryptocurrency transactions fact the possibility of tax audits, and could even be liable for penalty and interest charges when appropriate.

Under Notice 2014-21, virtual currency is treated as property for federal tax purposes, so the general principles that apply to property transactions also apply to the 1,500 or so known varieties of cryptocurrency.  That means reporting payments made with virtual currency.

Payments made to independent contractors and other service providers are also taxable and self-employment tax rules apply. Have you been trading in cryptocurrency?

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How To Avoid Tax Traps with Inherited IRAs

An  inherited Individual Retirement Account (IRA) can be a tremendous boon to the beneficiary.  Who can’t use extra money in retirement!  Most inherited IRAs are cashed out within six months of the death of the family member.  If you do cash it out, there is no way for planning tax strategies! Without proper planning, federal and state taxes can take a sizable bite from the proceeds!

Options for Inherited IRAs:

  •  Take a lump sum distribution of the entire balance
  •   Roll the inherited IRA over into a new account and take the distributions over the longer of the life expectancy of the beneficiary or the decedent.

If the account owner died before reaching the date for RMDs (Required Minimum Distributions), the beneficiary has a third option of withdrawing all the funds by the end of the year containing the fifth anniversary of the decedent’s death (The Five Year Rule). In this case, the life expectancy of the beneficiary must be used.

Keep the Beneficiary Designation Up To Date!

Marriage, divorce and the birth of children can change estate plans.  The IRA will pass by beneficiary designation and not the Will.  Please make sure you keep the beneficiary as you want it.

Titling An Inherited IRA:

An inherited IRA must be titled with both the name of the decedent and the beneficiary plus the word “inherited”. For example, one might title an inherited IRA as “Jane Doe, deceased September 30, 2017, F/B/O Jimmy Doe, beneficiary”.  If you just change the name on the IRA, that is a “cash out” so DO NOT just retitle the inherited IRA to the beneficiary. Retitling the account is best done at the brokerage where the decedent held the IRA before the beneficiary rolls it over to his or her own brokerage.

If Decedent Had Turned 70 1/2 Years of Age and Started RMDs:

If the decedent had already turned age 70 1/2 and started taking required minimum distributions, the beneficiary MUST take the required minimum distribution before the end of that year or there is a 50% penalty and you still must take the distribution.

ROTH?

Consider the beneficiary’s age and if there are already ample retirement sources, converting the inherited IRA to a ROTH may be the way to go.

Please call our office BEFORE just cashing out the inherited IRA!

 

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