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Archives for Tax Tips

Children Now Face ID Theft

Parents should be aware and check their child’s credit history.  A new federal law going into effect in September will make it easier for families to combat the growing problem of identity fraud of minors.  Parents can now make inquiries about credit files in their child’s name and freeze a file at no cost.

Data-security experts say children are increasingly targeted by thieves who steal social security numbers to create fake identities. They then apply for credit cards and take out loans using the stolen social security number.  Experian estimates that one in four children will be affected before they become an adult.  Criminals see the clean credit history of a child as very attractive because parents rarely check the credit history of the children. That can allow the theft to go on for years before being detected.

Young children do not have credit files unless parents open them or, someone committing fraud did. Once a child’s personal information is stolen, cleaning it up can be difficult.

Once the new law goes into effect in September, parents should contact the three main credit-reporting companies and check on the credit files of their children.  Parents should open credit files for the child and then freeze it.  The credit reporting system us built on the idea that the first person to claim an identity is that person.  Protect the credit of your children!

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State & Local Tax Credits – New Regulations

The Internal Revenue Service has released a proposed regulation regarding the newly imposed limitations for state and local taxes.  The new Tax Law limits state and local taxes to a $10,000 limit.  This will impact many taxpayers in high tax states such as New York, New Jersey and California.  The IRS under Proposed Regulation 1.170A-1(h)(3) states that when a taxpayer makes a payment to a charitable organization, the federal charitable contribution deduction on Schedule A is reduced by any state or local tax credit that the taxpayer receives for that contribution.

Arizona taxpayers currently can receive a state tax credit for contributions to certain qualifying charitable organizations in Arizona.  For 2018, that amount is $800 for a couple and $400 for single taxpayers.  In Arizona, contributions to a qualifying Charitable Foster Care Organization give the couple a $1,000 state tax credit.  It would appear that any state tax credit received will now lower any federal Schedule A contribution.

Tax Planning is even more important with the new tax law so call our office if you have questions.

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Entertainment & Transportation – The New Law

Now that the tax rules are in place, business owners are coping with understanding and implementing the changes. The goal of lowering taxes, primarily for businesses, needs to be tempered by eliminating certain business deductions or individual income exclusions so that the federal revenue does not decline too much. Public Law 115-97, known as the Tax Cuts and Jobs Act (TCJA) became law on December 22, 2017. Many of the new rules took place just 10 days later on January 1, 2018.

Under TCJA, entertainment expenses incurred after January 1, 2018 are not deductible.  Prior to January 1, they were 50% deductible.  Over the years, businesses interpreted these rules broadly and, for the most part, were allowed the 50% deduction.  The IRS has been focusing on spousal travel and convention travel outside the U.S. The IRS agents tended to ignore these expenses except where they were clearly entertainment (e.g. concerts or sports games). Now no amounts are deductible.

One of the most controversial areas and one where guidance is needed is addressing whether business meals with current clients are deductible.  Or, is it considered entertainment? It may seem obvious that when a business owner shares a meal that is not extravagant with a current client where business decisions are discussed, some should be deductible. Taxpayers will prefer to look at the TCJA conference committee report, which describes both the House and the Senate amendments.  It states that “taxpayers may still generally deduct 50 percent of the food and beverage expenses associated with operating their trade or business.” It states that this is not the only example so business meals when not traveling may be deductible.

There is still uncertainty on this and professionals are asking the IRS for additional guidance.  You should plan estimated taxes conservatively until more is known.

Parking Benefits are sticky.  The employee benefit is the fair market value of the parking provided and is not taxable to the employee.  However, that cost to the employer is not deductible.  Stay tuned!



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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.


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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