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Tax Cuts and Jobs Act (TCJA) 2018

The recently enacted Tax Cuts and Jobs Act (TCJA) has altered the tax landscape for a lot of individuals and businesses. The changes are extensive, and this letter provides a high-level overview of some of the highlights to keep you informed. Due to the sweeping nature of the changes and the need for continued guidance, we’d like the opportunity to have a personalized conversation with you now to discuss planning opportunities for your specific situation. Additional conversations and tax projections are likely necessary to ensure we maximize your tax benefits. Please call our office at your earliest convenience to schedule a meeting.

Changes in tax rates

You may have heard in the news that the goal of tax reform was to reduce the number of tax rates from the existing seven rates to three. While that was discussed, the bill that was signed into law still has seven rates, but they are now generally lower with the highest rate being reduced from 39.6% to 37%. The tax rates applicable to net capital gains and qualified dividends did not change.

Increased standard deduction

The new standard deductions are:

      • Heads of household: $18,000

      • Married filing jointly: $24,000

      • All other taxpayers: $12,000

Although you may have historically had itemized deductions exceeding these amounts, other changes to itemized deductions may affect whether you are above the standard deduction in a given year. The increased standard deduction is effective through Dec. 31, 2025.

Elimination of personal and dependent exemptions

In the past, taxpayers received an exemption for themselves, their spouse and each of the eligible dependents that they claimed on their tax return. The TCJA eliminated these exemptions through Dec. 31, 2025.

Child and family tax credit

The TCJA increased the child credit for children under age 17 to $2,000 and also introduced a new $500 credit for a taxpayer’s dependents who are not their qualifying children. In addition, the phase-out limits for these credits have increased to $400,000 for joint filers ($200,000 for others), so that more individuals will be able to take advantage of this credit.

Changes to itemized deductions

  • The overall phase out of itemized deductions has been repealed.

  • The itemized deduction for state and local taxes is limited to a total of $10,000 ($5,000 for those using the filing status of married filing separately). For example, if you paid $15,000 in state income taxes and $6,000 in real estate taxes on your home ($21,000 in total), you would not be able to deduct the $11,000 that exceeds the deduction threshold.

  • Mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million). Loans in existence on December 14, 2017 are grandfathered (balance up to $1 million still allowed).

  • Interest on home equity indebtedness (such as a home equity line of credit) is no longer deductible unless the debt is really acquisition indebtedness (used for home improvement). Consider whether the indebtedness was used for business or investment purposes to determine if an interest deduction may be available in a different category.

  • Cash donations to public charities are now deductible up to 60% of adjusted gross income.

  • Donations to colleges and universities for ticket or seat rights at sporting events are no longer deductible.

  • Miscellaneous itemized deductions, such as investment management fees, tax preparation fees, unreimbursed employee business expenses and safe deposit box rental fees are no longer deductible.

  • Medical expenses are deductible by the amount the expenses exceed 7.5% of adjusted gross income for 2018 (limit changes to 10% starting in 2019).

 

These changes (except as noted) to itemized deductions are in effect from Jan. 1, 2018 through Dec. 31, 2025.

New deduction for qualified business income

A new deduction, effective for tax years 2018 through 2025, was introduced in the TCJA that allows individuals a deduction of 20% of qualified business income from a partnership, S corporation or sole proprietorship, as well as 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.

This deduction will reduce taxable income, but not adjusted gross income, and is available regardless of whether you itemize your deductions. There are many limitations and restrictions to this provision, so we advise that you schedule a personal consultation with us to fully understand the impact on your situation.

Sec. 529 plans

Sec. 529 plans have been a widely used tool to help taxpayers save money for college, presuming they distribute that money for qualified higher-education costs. Depending on your Sec. 529 plan, you may be eligible for a state tax deduction for contributions to the plan. The TCJA expanded the opportunities available for education tax planning by permitting $10,000 per year to be distributed from Sec. 529 plans to pay for private elementary and secondary tuition. Contact us to learn how these new rules may help you pay for private school tuition for your family.

Alimony

Under the prior law, individuals who paid alimony to an ex-spouse received a deduction for the alimony paid, while the individuals receiving the alimony treated those payments as income. Tax reform has eliminated the deduction for alimony paid and the recognition of income for alimony received effective for divorce decrees executed after Dec. 31, 2018. We highly recommend that if you are in the midst of divorce proceedings, please have a conversation with us and your divorce attorney to fully understand the financial impacts that this could have.

Estate and gift tax exemptions

Estate and gift tax laws have undergone a number of changes over the past decade. Under the TCJA, the estate and gift tax exemption almost doubled to $11.18 million per person effective as of Jan. 1, 2018. There is still guidance necessary to reconcile gifts made and estates that occurred prior to the increased exemption and the impact on portability. We would be pleased to work collaboratively with your estate planning attorney to make sure your estate plan is appropriate with this change.

Individual shared responsibility payment

The TCJA repealed the individual shared responsibility payment for failure to have minimal essential healthcare coverage. However, this repeal does not take effect until Jan. 1, 2019. This means that if you did not have minimal essential healthcare coverage in the 2018 calendar year, you will still be subject to the penalty if you do not meet one of the exceptions from coverage.

Please call our office to schedule a planning meeting.

While the TCJA is effective now, there are still many uncertainties. Additional technical guidance and regulations are necessary to provide more clarity on some of the changes. The Internal Revenue Service is working to provide that guidance, which we expect later this year.

We are at your disposal to identify opportunities within the new law that apply to you and help steer you away from new pitfalls and challenges. We are offering free tax update seminars at our location on the 4th Friday of the month starting in August to discuss these changes. Or you may call our office today at 913-451-4400 to set up a tax planning meeting, standard rates apply. As always, planning can help you minimize your tax bill and position you for greater success.

Harvey and Caldwell

Free Seminar

YOU’RE INVITED TO A FREE SEMINAR

2018 Individual Income Tax Update

FRIDAY - August 24, 2018

8:00 AM – 9:30 AM

Please join us for donuts and coffee while we provide you tax updates from the Tax Cut and Jobs Act.  Find out how these tax law changes may affect your 2018 individual income tax return.

Topics
What Has Not Changed Tax Brackets
Personal & Dependent Exemptions Child Tax Credit
Standard Deduction Itemized Deductions

Presenters:

Noelle Caldwell, CPA                 Amisha Mehta, CPA

Jerry Coatney, EA                       Teresa Hodges, CPA


LOCATION:

12980 Metcalf Avenue, Overland Park, KS, 3rd Floor left of elevator


Please RSVP by calling 913-451-4400. Space is limited.

Internet of Things: What It Means to You

Are you always looking for the latest gadget, or do you prefer to wait and see what stands the test of time? Either way, you’re likely connected to the internet of things whether you know it or not. What exactly does this trendy terminology mean? Here’s an overview to bring you up to speed.

Everyone’s Getting Into It
In a nutshell, the internet of things describes a technological ecosystem of devices — think cars, heart monitors and kitchen appliances — that send and receive data via the internet. This trend is spreading to diverse and surprising industries, including agriculture, retail and transportation, as hardware gets stronger and cheaper.

Less About the Device, More About the Data
Don’t expect to browse the web, stream your favorite TV show or use instant messaging services on these gadgets like you can on your smartphone or computer. Reminder alerts, seamless firmware updates and similar features will appeal to consumers, but the real draw is for manufacturers and other companies. They will benefit from the enormous amount of data that can provide analytics and insight into how people are using the devices, as well as personal data like health-related metrics.

Exciting Pros, Worrisome Cons
Security and privacy are the primary concerns surfacing with the internet of things and for good reason. The extensive data flowing from so many devices poses a logistical issue for IT infrastructure, not to mention the vulnerability to hackers and other cyberattacks.

Staying current with new tech can feel like a full-time hobby, but for those looking to constantly improve and optimize their lives, each year brings further advancements. Just remember to embrace the internet of things and other changes with your eyes wide open

How will health care reform affect you and your taxes?

We hope you had a wonderful weekend! Many of you are in the midst of celebrating Hanukkah, & the rest of us are gearing up for Christmas. Needless to say, it is a crazy busy time of year!

If you attended the seminar we had last week you know this was a hot topic. So our CPA thought it would be a good idea to get this up onto the blog for those who were unable to attend.

How will health care reform affect you and your taxes?

It’s massive, and it’s complicated. At more than 2,000 pages, the Affordable Care Act (ACA for short) has left businesses and individuals confused about what the law contains and how it affects them.

The aim of the law is to provide affordable, quality health care for all Americans. To reach that goal, the law requires large companies to provide health insurance for their employees starting in 2015. Medium-sized companies have until 2016 to provide health insurance to employees. Uninsured individuals must generally get their own health insurance starting in 2014. Those who fail to do so face penalties.

Insurance companies must also deal with new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventive services must be covered with no out-of-pocket costs, young adults can stay on parents’ policies until age 26, and lifetime dollar limits on health benefits are not permitted.

The law mandates health insurance coverage, but not every business or individual will be affected by this requirement. Here’s an overview of who will be affected.

FOR BUSINESSES – It’s all in the numbers

Fewer than 50 employees
Companies with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for businesses with 50 or fewer employees, allowing them to buy health insurance through the Small Business Health Options Program (SHOP).
Fewer than 25 employees
For 2010 through 2013, small companies that paid at least 50% of the health insurance premiums for their employees could be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000 ($50,800 in 2014, as adjusted for inflation). For 2014, the maximum credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP. Special rules apply where SHOP is not available.
50 to 99 employees
Businesses with 50 to 99 employees have until January 1, 2016, to meet the requirement of providing minimum, affordable health insurance to workers or face penalties. To qualify for this transitional relief, employers must certify that they have not laid off workers in order to come under the 100 employee threshold.
100 or more employees
For companies with 100 or more full-time employees, the requirement to provide “affordable, minimum essential coverage” to employees is scheduled to become effective January 1, 2015. The IRS is encouraging large companies to comply with the ACA requirements in 2014 even though there are no penalties for failure to do so.
The business play or pay penalty
Starting in 2015, companies with 100 or more employees that don’t offer minimum essential health insurance face an annual penalty of $2,000 times the number of full-time employees over a 30-employee threshold. If the insurance that is offered is considered unaffordable (it exceeds 9.5% of family income), the company may be assessed a $3,000 per-employee penalty. These penalties apply only if one or more of the company’s employees buy insurance from an exchange and qualify for a federal credit to offset the cost of the premiums.

FOR INDIVIDUALS – It’s all about coverage

A great deal of attention has been focused on the health insurance exchanges or “Marketplace” that opened for business on October 1, 2013. Confusion about the Affordable Care Act left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything.
Also, if you buy your health insurance on your own, you can keep your coverage if your plan is still offered by the insurance company. You can keep insurance that doesn’t meet the law’s minimum coverage requirements through October 2017 if your state permits it. However, the only way to get any premium-lowering tax credits based on your income is to buy a plan through the Marketplace.

The exchanges (Marketplace)

Each state will either develop an insurance exchange (Marketplace) or use one provided by the federal government. The Marketplace will allow those seeking coverage to comparison shop for health plans from private insurance companies.

There are four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.

Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace has a calculator to assist individuals in determining the amount, if any, of their federal tax credit.

The individual play or pay penalty

Individuals will generally need to have coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Under certain circumstances, you may qualify for an exemption from the 2014 requirement to have health insurance. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.

The penalty increases to $325 or 2% of income for 2015 and to $695 or 2.5% of income for 2016. For 2017 and later years, the penalty is inflation-adjusted. Those who choose not to be insured and to pay the penalty instead will still be liable for 100% of their medical bills.

MORE ABOUT THE LAW AND YOUR TAXES

In addition to the penalties required by the Affordable Care Act, the law made other tax changes that could affect you. Among them are the following:
● Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
● The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses is now 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016.
● The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
● The payroll Medicare tax increases from 1.45% of wages and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion.
● A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, most capital gains) for single taxpayers with income over $200,000 and married couples with income over $250,000.

Pre-Tax Reimbursement
One unintended consequence of the Affordable Care Act is explained in an IRS Notice issued in September 2013. Effective January 1, 2014, employers may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee’s premiums or reimburse their payment must include these amounts in the employee’s taxable wages. Only if the employer offers a group plan can pre-tax dollars be used for health insurance premiums.

The Affordable Care Act may be one of the most complicated and confusing laws ever passed, but one thing is very clear: the law will affect the taxes of most Americans. In order to manage your tax bill, you will have to factor the new health care rules into your overall personal and business tax planning. For guidance, contact our office.

NOTE: This Memo is intended to provide you with an informative summary of the tax issues connected with the Affordable Care Act. This massive package of legislation contains varying effective dates, definitions, limitations, and exceptions that cannot be summarized easily. Also be aware that in the political environment surrounding this law, changes to the law have already been made and more changes could be made at any time. For details and guidance in applying the tax provisions of this law to your situation, seek professional assistance. (Last updated 7/7/14)

 

Please let us know if you have any questions and/or concerns, we are always here for you. We wish you all a very Happy Holiday Season!

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Client Memo

Do year-end planning to cut your 2014 taxes

We hope you had a wonderful weekend!  With Christmas only 10 days away, I am sure everyone is busy wrapping up their Christmas shopping.  I know at this time of year the last thing we want to think about are things we can do now that will still have an impact on this years taxes.  Believe it or not there are still some steps you can take before the end of the year to impact this years taxes.

Do year-end planning to cut your 2014 taxes

The end of another year is fast approaching, and it’s once again time to take steps to reduce taxes on your personal and business returns. Planning advice for 2014 includes strategies for accelerating deductions and deferring income as well as managing assets.

Bunch your deductions
For example, bunching deductions on your personal income tax return can make sense for 2014. Bunching means you concentrate itemized deductions into the year offering the most tax benefit and claim the standard deduction in alternate years. Even if the current limitation on itemized deductions applies to you, bunching can be effective when combined with other tax planning such as reducing adjusted gross income.

One category of itemized deductions that lends itself to bunching is charitable contributions. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.

Instead of cash, donating appreciated assets before December 31 may be more tax advantageous. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.

For instance, say the value of the shares you own in a mutual fund has gone up since you bought into the fund. If you sell those shares and donate the proceeds to charity, you’ll have capital gain. But when you donate the shares to the charity, you can claim a deduction for the value on the date of your donation, garnering a benefit without the related income tax bill.

Other itemized deductions you can control in order to maximize tax savings include real estate taxes and state income taxes

Check exposure to the AMT
Just remember to check your exposure to the alternative minimum tax and the 3.8% net investment income tax when deciding in which year to pay these tax bills. Why? Certain itemized deductions — such as taxes — are disallowed under the AMT rules, but can help reduce exposure to the net investment income tax.

What if you’re not planning to itemize? Taking a look at your deductions is still a useful exercise. One reason: The standard deduction is also disallowed under AMT rules, and you may benefit by itemizing even when your total itemized deductions are under the threshold.

The standard deduction for 2014 is $12,400 when you’re married filing jointly and $6,200 when you’re single.

Monitor adjusted gross income
Another tax planning strategy is to reduce adjusted gross income (AGI). One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize.

Above-the-line tax savers include such items as retirement plan contributions, student loan interest deduction, and the health savings account deduction.

Set up a retirement plan
When you have a business, contributions to a self-employed retirement plan also reduce AGI above-the-line. Depending on the plan you choose, you can set up the paperwork before year-end and make contributions by the due date of your 2014 tax return.

For instance, say you’re the sole owner of your business. Establishing a 401(k) gives you the opportunity to set aside as much as $17,500 in salary deferral (plus an extra $5,500 if you’re over age 50). In addition, you can put up to 20% of your business profit into your plan

Manage asset policies
Another tax-saving suggestion for your business is to review your asset management policies. Depreciation is probably the first thing you think of when you consider tax benefits for business assets. And you probably already know bonus depreciation expired at the end of 2013 and the Section 179 expensing deduction was reduced to $25,000 for 2014. (Be aware that Congress may reinstate the larger deductions.)

While accelerated depreciation tax rules affect your current year deduction, remember that changes to these rules have no impact on the total amount you can deduct over the life of an asset. In addition, you still have tax planning opportunities.

One such opportunity is to take advantage of the new repair and capitalization regulations. These rules, which generally take effect this year, provide safe-harbor thresholds for writing off the cost of certain business supplies, repairs, and maintenance. What you need to do before year-end: Create and implement a written policy to comply with the rules.

Another potential tax saver involving business assets: Examine the tax benefits of leasing business equipment instead of buying. Depending on the type of lease, you may be able to deduct payments in full as you make them. What’s the downside? Generally you’ll forfeit depreciation deductions. Run an analysis to determine which option will work best for you.

Consider shifting income
A planning strategy to help reduce taxes on both your business and personal returns is shifting income among family members.

For your business, the strategy could mean hiring family members and paying a reasonable — and deductible — salary for work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll tax expense.

An income-shifting technique is to make gifts of income-producing property to family members in lower tax brackets. (Be aware of the “kiddie tax.”) Though you can’t take a tax deduction for gifts, future income is taxed to the recipient, and may mitigate your exposure to the 3.8% net investment income tax.

Gifts of up to $14,000 per person ($28,000 when you’re married) made before year-end incur no income, gift, estate, or generation-skipping taxes.

These are just a few of the tax planning opportunities available for 2014. To discuss the tax-cutting options suited to your individual circumstances, call us to schedule a year-end tax review.

 

We wish you all a very Happy Holiday Season!
All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Tax Planning Letter Year-End 2014 http://www.planningtips.com/4422/default.asp?Co_ID=18386&Tip_ID=4422&pg=2

Safer, Smarter Holiday Shopping

Good Morning everyone! We hope you had a wonderful weekend! I cannot believe that Thanksgiving is upon us. Given it is a week of thanks, we want to start off this weeks blog by saying thank you. Thank you for trusting us to handle all of your tax & financial planning needs. We are very grateful to have you as a client!

I received this email from my insurance company & since Black Friday & Cyber Monday is upon us, I thought this would be a great topic for this week.

Safer, Smarter Holiday Shopping

The busiest shopping weekend of the year has arrived. If you’ll be joining the crowd of more than 140 million Black Friday shoppers, take some extra precautions to protect yourself, your purchases and your personal information.

In the Store
From fistfights to identity theft, Black Friday shopping brings a few safety risks. Consider these holiday shopping safety tips:
-Keep your purse close to your body or your wallet in an inside coat pocket or front pants pocket.
-Don’t argue or fight over an item.
-Don’t take your money out until asked to do so.
-Use only one credit card. Remember the 2013 Target breach? Should something similar occur, you can reduce the risk of having multiple cards compromised.
-Save your receipts and monitor your credit card activity.
-Ask for help moving and loading large items if needed.
-If shopping with children, select a central location to meet in case you are separated. Teach kids how to ask a security guard or employee for help if they’re lost.

In the Car
With so many people out and about, you may encounter some aggressive drivers on the road. Don’t add to the problem: Remember to drive defensively and curb your road rage. Parking lots can be dangerous too, so be on guard:
-Be patient when looking for a parking space. Don’t speed up to catch that empty (or soon-to-be empty) spot, and be cautious of other drivers who do.
-Park your vehicle in a well-lit area.
-Look around and under your vehicle before approaching it.
-Store shopping bags in your trunk and out of plain sight.
-Look for other cars or people, and back out slowly.

On the Internet
Opting to join Black Friday or Cyber Monday from your couch? You still need to be on the lookout. And while there are plenty of advantages to e-commerce, it’s also wise to take steps to protect your identity.
Here are a few tips:
-Always review your order confirmations and credit card statements in a timely manner. Staying abreast of your statements can help you catch errors and unusual charges.
-Do not email your credit card information to individuals privately offering items for sale.
-Never make online financial transactions via websites or institutions with which you are not familiar. Many thieves set up fake sites to steal information from unsuspecting victims.
-Be especially skeptical of unsolicited emails – even those that appear to be from institutions you trust – asking you to follow particular links, respond with identifying information, or change passwords. Another common phishing practice is to set up websites that pose as the sites of trusted institutions in order to gather legitimate passwords from unsuspecting users.
-Be sure to log off completely from any website following an online transaction. Don’t just close your browser: Find the link that logs you off.
-Stick to retailers you know, and never commit to a deal that seems too good to be true.
-Make sure that websites where you’re shopping are secured. Look for a secured symbol at the bottom of your browser (the symbol is most often displayed as a small padlock).
-Only provide your account information when the browser indicates an encrypted (scrambled) connection. An encrypted connection is normally indicated by an “https://” in your browser’s address bar in front of the address of the page you are viewing.

We wish you all a very Happy Thanksgiving & happy shopping!
All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Staff Writer (October 14, 2014 & February 20, 2011) Safer, Smarter Holiday Shopping, & Purchases & Online Security. State Farm. Retrieved November 23, 2014, from
http://learningcenter.statefarm.com/safety-2/family-1/safer-smarter-holiday-shopping/index.html?cmpid=enews-nov14 http://learningcenter.statefarm.com/family/finances/purchases-and-online-security/

Do year-end planning to cut your 2014 taxes

We hope that everyone had a wonderful Halloween! Now that November is here, the rest of the year is going zoom by!  This is an article from our November tax planning letter.  I thought it was worth sharing now that there is a little time between Halloween & Thanksgiving.  Now that the World Series is over, and we can actually be productive human beings again, this is an important thing to consider before we are in full swing holiday mode.
Do year-end planning to cut your 2014 taxes

The end of another year is fast approaching, and it’s once again time to take steps to reduce taxes on your personal and business returns. Planning advice for 2014 includes strategies for accelerating deductions and deferring income as well as managing assets.

Bunch your deductions
For example, bunching deductions on your personal income tax return can make sense for 2014. Bunching means you concentrate itemized deductions into the year offering the most tax benefit and claim the standard deduction in alternate years. Even if the current limitation on itemized deductions applies to you, bunching can be effective when combined with other tax planning such as reducing adjusted gross income.

One category of itemized deductions that lends itself to bunching is charitable contributions. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.

Instead of cash, donating appreciated assets before December 31 may be more tax advantageous. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.

For instance, say the value of the shares you own in a mutual fund has gone up since you bought into the fund. If you sell those shares and donate the proceeds to charity, you’ll have capital gain. But when you donate the shares to the charity, you can claim a deduction for the value on the date of your donation, garnering a benefit without the related income tax bill.

Other itemized deductions you can control in order to maximize tax savings include real estate taxes and state income taxes.

Check exposure to the AMT
Just remember to check your exposure to the alternative minimum tax and the 3.8% net investment income tax when deciding in which year to pay these tax bills. Why? Certain itemized deductions — such as taxes — are disallowed under the AMT rules, but can help reduce exposure to the net investment income tax.

What if you’re not planning to itemize? Taking a look at your deductions is still a useful exercise. One reason: The standard deduction is also disallowed under AMT rules, and you may benefit by itemizing even when your total itemized deductions are under the threshold.

The standard deduction for 2014 is $12,400 when you’re married filing jointly and $6,200 when you’re single.

Monitor adjusted gross income
Another tax planning strategy is to reduce adjusted gross income (AGI). One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize.

Above-the-line tax savers include such items as retirement plan contributions, student loan interest deduction, and the health savings account deduction.

Set up a retirement plan
When you have a business, contributions to a self-employed retirement plan also reduce AGI above-the-line. Depending on the plan you choose, you can set up the paperwork before year-end and make contributions by the due date of your 2014 tax return.

For instance, say you’re the sole owner of your business. Establishing a 401(k) gives you the opportunity to set aside as much as $17,500 in salary deferral (plus an extra $5,500 if you’re over age 50). In addition, you can put up to 20% of your business profit into your plan.

Manage asset policies
Another tax-saving suggestion for your business is to review your asset management policies. Depreciation is probably the first thing you think of when you consider tax benefits for business assets. And you probably already know bonus depreciation expired at the end of 2013 and the Section 179 expensing deduction was reduced to $25,000 for 2014. (Be aware that Congress may reinstate the larger deductions.)

While accelerated depreciation tax rules affect your current year deduction, remember that changes to these rules have no impact on the total amount you can deduct over the life of an asset. In addition, you still have tax planning opportunities.

One such opportunity is to take advantage of the new repair and capitalization regulations. These rules, which generally take effect this year, provide safe-harbor thresholds for writing off the cost of certain business supplies, repairs, and maintenance. What you need to do before year-end: Create and implement a written policy to comply with the rules.

Another potential tax saver involving business assets: Examine the tax benefits of leasing business equipment instead of buying. Depending on the type of lease, you may be able to deduct payments in full as you make them. What’s the downside? Generally you’ll forfeit depreciation deductions. Run an analysis to determine which option will work best for you.

Consider shifting income
A planning strategy to help reduce taxes on both your business and personal returns is shifting income among family members.

For your business, the strategy could mean hiring family members and paying a reasonable — and deductible — salary for work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll tax expense.

An income-shifting technique is to make gifts of income-producing property to family members in lower tax brackets. (Be aware of the “kiddie tax.”) Though you can’t take a tax deduction for gifts, future income is taxed to the recipient, and may mitigate your exposure to the 3.8% net investment income tax.

Gifts of up to $14,000 per person ($28,000 when you’re married) made before year-end incur no income, gift, estate, or generation-skipping taxes.

These are just a few of the tax planning opportunities available for 2014. To discuss the tax-cutting options suited to your individual circumstances, call us to schedule a year-end tax review.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Year-End 2014 Tax Planning Letter http://www.planningtips.com/4422/default.asp?tip_id=4422&co_id=18386&pg=2

Understand the tax rules before lending money to relatives

Good morning everyone, we hope that you had a wonderful weekend! It has definitely been exciting watching the Royals! I was looking over our online advisor this weekend and saw this topic about lending money to relatives. Now that we are approaching the holiday season we do tend to lend money to our family to help make their season more enjoyable. So this topic seemed to be appropriate for the week.

Understand the tax rules before lending money to relatives

There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.

-The IRS says you must charge interest. But lending money to relatives can have tax consequences. The IRS requires that a minimum rate of interest be charged on loans. The rates change every month, and can be found at www.irs.gov. If you do not charge at least the minimum rate, the IRS will still require you to pay tax on the difference between the interest you should have charged and what you actually charged. If these excess amounts become large, or if the loan is forgiven, there may also be gift tax implications.

-There are some exceptions, though. Loans of up to $10,000 can be made at a lower (or zero) rate of interest, as long as the proceeds aren’t invested. Loans between $10,001 and $100,000 are exempt from the minimum interest requirement as well, as long as the borrower’s investment income is $1,000 or less. If the investment income exceeds $1,000, you’ll be taxed on the lesser of this income or the minimum IRS interest.

-Do the paperwork. For the IRS to treat the transaction as a loan and not a gift subject to the gift tax rules, the transaction must look like a loan. The borrower should have the ability to repay the principal and interest. A contract should be prepared which specifies the loan amount, interest rate, the payment dates and amounts, any security or collateral, as well as late fees and steps to be taken if the borrower doesn’t pay. Have the document signed and dated by all the parties.

-Can you claim a deduction if you’re not repaid? If the borrower defaults, you may be eligible for a nonbusiness bad debt deduction. However, you must document your efforts to collect the unpaid balance. This may involve the unpleasant task of taking legal action against a family member. The preparation of a signed contract, though, may make the borrower think twice before attempting to evade his or her responsibilities.

For assistance in structuring a family loan that doesn’t create tax concerns, give us a call. We’re here to help.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns. Go Royals!

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA October Online Advisor: http://www.planningtips.com/Planning_Tips.asp?Co_ID=18386&Tip_ID=6850

Planning For Your Financial Future

Good morning everyone, we hope that you had a wonderful weekend! It was nice being able to watch the Chief’s for Monday night football! This weeks topic is actually from an email I received from my insurance agent. I know we talk a lot about financial planning (hey, we do that too) in the midst of all the tax talk, and I liked this article. It was a nice reminder for me that even your latte habit needs to be accounted for when establishing a baseline investment strategy.

Planning For Your Financial Future

A plan is essential for reaching any goal. It keeps you focused and can eventually lead to success. The same thing goes for a financial goal. If you want stability and security down the road, you need to have a strategy.

But when you’re just starting to think about your future, and retirement seems so far away, it can be hard to get started on a strategy. Here’s some information to help you begin thinking about a plan.

 

Establish A Budget
The best way to start is by figuring out a budget so you can get in the habit of saving before spending. If you don’t follow a budget, you might be spending more than you realize, and saving less than you could be.

Begin by tracking your spending for a month. The easiest way to do this is by going about your life as usual. Keep track of the bills you pay and items you buy, from groceries to your daily coffee. At the end of the month, compare what you earned with what you spent.

Next, take a good look at what you spent your money on. Are there some things you can do without or ways to cut back? Some expenses are fixed, like food, housing and utilities, but some are just luxuries. Can you eliminate some of those? (Remember, though, you don’t need to cut out every unnecessary expense. A luxury-free budget is about as sensible as no budget at all, and completely depriving yourself of all treats could eventually send you on a serious budget-damaging spending spree!)

Set Financial Goals
Your budget will be easier to follow if you set financial goals. In the short-term, you may want to pay off credit card debt. Your long-term goals might include saving for the down payment on a home, your children’s college tuition or retirement.

Once you’ve identified your goals, give yourself a timeline. That will help you figure out how much of your budget to set aside each month.

Review your goals periodically so they’re always fresh in your mind. If you go off course, don’t get frustrated and give up; simply reassess and continue working toward your goals.

Invest Regularly, Even Small Amounts
Investing early in life is advantageous because your money has more time to compound and grow. But it’s never too late to start.

Many people don’t believe they have enough money to become investors. But you don’t have to invest a large amount of money initially or regularly. It’s perfectly fine to start slow and small while you make investing a habit.

An easy way to get started is by opening an Individual Retirement Account (IRA) or by participating in an employer-sponsored 401(k) plan. In many cases, you can even make regular contributions to these plans by having the money taken directly out of your paycheck.

Your investing plan should include a strategy for increasing your contributions. After a few months of investing, when you’ve adjusted to living on less money, boost the amount you’re investing by a percent or two. You can also look for ways to invest lump-sums of money, such as when you get a bonus, a monetary gift or your tax refund.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
State Farm. Planning for Your Financial Future. State Farm. Retrieved September 28, 2014, from https://www.statefarm.com/finances/retirement-plans-iras/planning-for-retirement

Know the tax effects of investing in mutual funds

We hope that everyone had a great weekend & is enjoying football season being underway. It will soon be fall and as we are approaching the end of the year many of us start to consider investing in mutual funds. In order to utilize your money most efficiently (timing matters) this article from our September Online Advisor gives some great tips on things to consider before you purchase.

Know the tax effects of investing in mutual funds
Mutual funds offer an efficient means of combining investment diversification with professional management.

Their income tax effects can be complex, however, and poorly timed purchases or sales can create unpleasant year-end surprises.

Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of its investments, the income or gain must be passed through to the shareholders. The taxable event occurs on the date the proceeds are distributed to the shareholders, who then owe tax on their individual allocations.

If you buy mutual fund shares toward the end of the year, your cost may include the value of undistributed earnings that have previously accrued within the fund. If the fund then distributes those earnings at year-end, you’ll pay tax on your share even though you paid for the built-up earnings when you bought the shares and thus realized no profit. Additionally, if the fund sold investments during the year at a profit, you’ll be taxed on your share of its year-end distribution of the gain, even if you didn’t own the fund at the time the investments were sold.

Therefore, if you’re considering buying a mutual fund late in the year, ask if it’s going to make a large year-end distribution, and if so, buy after the distribution is completed. Conversely, if you’re selling appreciated shares that you’ve held for over a year, do so before a scheduled distribution, to ensure that your entire profit will be treated as long-term capital gain.

Most mutual fund earnings are taxable (unless earned within a retirement account) even if you automatically reinvest them. Funds must report their annual distributions on Forms 1099, which also indicate the nature of the distributions (interest, capital gains, etc.) so you can determine the proper tax treatment.

Outside the funds, shareholders generate capital gains or losses whenever they sell their shares. The gains or losses are computed by subtracting selling expenses and the “basis” of the shares (generally purchase costs) from the selling price. Determining the basis requires keeping records of each purchase of fund shares, including purchases made by reinvestments of fund earnings. Although mutual funds are now required to track and report shareholders’ cost basis, that requirement only applies to funds acquired after 2011.

When mutual funds are held within IRAs, 401(k) plans, and other qualified retirement plans, their earnings are tax-deferred. However, distributions from such plans are taxed as ordinary income, regardless of how the original earnings would have been taxed if the mutual funds had been held outside the plan. (Roth IRAs are an exception to this treatment.)
If you’re considering buying or selling mutual funds and would like to learn more about them, give us a call.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA September Online Advisor: http://www.planningtips.com/6850/oatax2.asp?co_id=18386&tip_id=6850

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