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Tax Preparation vs. Tax Planning
风流女房东Many people assume tax planning is the same as tax preparation, but the two are quite different. Let's take a closer look:
What is Tax Preparation?
风流女房东Tax preparation is the process of preparing and filing a tax return. Generally, it is a one-time event that culminates in signing your return and finding out whether you owe the IRS money or will be receiving a refund.
For most people, tax preparation involves one or two trips to your accountant (CPA), generally around tax time (i.e., between January and April), to hand over any financial documents necessary to prepare your return and then to sign your return. They will also make sure any tax reporting on your return complies with federal and state tax law.
风流女房东Alternately, Individual taxpayers might use an enrolled agent, attorney, or a tax preparer who doesn't necessarily have a professional credential. For simple returns, some individuals prepare tax returns themselves and file them with the IRS. No matter who prepares your tax return, however, you expect them to be trustworthy (you will be entrusting them with your personal financial details), skilled in tax preparation, and to accurately file your income tax return in a timely manner.
What is Tax Planning?
Tax planning is a year-round process (as opposed to a seasonal event) and is a separate service from tax preparation. Both individuals and business owners can take advantage of tax planning services, which are typically performed by a CPA and accounting firm or an Enrolled Agent (EA) with in-depth experience and knowledge of tax law, rather than a tax preparer.
Examples of tax planning include the following: Bunching expenses (e.g., medical) to maximize deductions, tax-loss harvesting to offset investment gains, increasing retirement plan contributions to defer income, and determining the best timing for capital expenditures to reap the tax benefits. Good recordkeeping is also an important part of tax planning and makes it easier to pay quarterly estimated taxes, for example, or prepare tax returns the following year.
Tax planning is something that most taxpayers do not take advantage of - but should - because it can help minimize their tax liability on next year's tax return by planning ahead. While it may mean spending more time with an accountant, say quarterly - or even monthly - the tax benefit is usually worth it. By reviewing past returns, an accountant will have a more clear picture of what you can do this year to save money on next year's tax return.
风流女房东If you're ready to learn more about what strategies you can use to reduce your tax bill next year, please call the office.
Individual Taxpayers: Year-End Tax Planning Strategies
With the end of the year fast approaching, now is the time to take a closer look at tax planning strategies you can use to minimize your tax burden for 2020.
General Tax Planning Strategies
风流女房东General tax planning strategies for individuals include accelerating or deferring income and deductions, as well as careful consideration of timing-related tax planning strategies concerning investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following strategies:
Investments. Selling any investments on which you have a gain (or loss) this year. For more on this, see Investment Gains and Losses, below.
Year-end bonus.风流女房东 If you anticipate an increase in taxable income this year, in 2020, and are expecting a bonus at year-end, try to get it before December 31.
Contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2021 tax return in 2022. Don't hesitate to call the office if you have any questions about this.
Charitable deductions.Bunching charitable deductions (scroll down to read more about charitable deductions) every other year is also a good strategy if it enables the taxpayer to get over the higher standard deduction threshold under the Tax Cuts and Jobs Act of 2017 (TCJA). Another option is to put money into a donor-advised fund that enables donors to make a charitable contribution and receive an immediate tax deduction. The fund is managed by a public charity on behalf of the donor, who then recommends how the money is distributed over time. Please call if you would like more information about donor-advised funds.
Under the CARES Act of 2020, this year (2020) eligible individuals may take an above-the-line deduction of up to $300 ($600 married, filing jointly) in cash for charitable contributions made to qualified charitable organizations. Cash contributions are those that are paid with cash, check, electronic fund transfer, or payroll deduction. Taxpayers can claim the deduction even if they do not itemize on their 2020 taxes.
Medical expenses.Medical expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI), therefore, you might pay medical bills in whichever year they would do you the most tax good. To deduct medical and dental expenses in 2020, these amounts must exceed 7.5 percent of AGI. By bunching medical expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing the deduction.
Deductible expenses such as medical expenses and charitable contributions can be prepaid this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid. Likewise, with checks. For example, if you charge a medical expense in December but pay the bill in January, assuming it's an eligible medical expense, it can be taken as a deduction on your 2020 tax return.
Stock options. If your company grants stock options, then you may want to exercise the option or sell stock acquired by exercising an option this year. Use this strategy if you think your tax bracket will be higher in 2020. Generally, exercising this option is a taxable event; the sale of the stock is almost always a taxable event.
Invoices. If you're self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December; however, make sure you keep an eye on estimated tax requirements. Conversely, if you anticipate a lower income next year, consider deferring sending invoices to next year.
Withholding. If you know you have a set amount of income coming in this year that is not covered by withholding taxes, there is still time to increase your withholding before year-end and avoid or reduce any estimated tax penalty that might otherwise be due.
风流女房东Avoid the penalty by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.
Accelerating or Deferring Income and Deductions
Strategies that are commonly used to help taxpayers minimize their tax liability include accelerating or deferring income and deductions. Which strategy you use depends on your current tax situation.
风流女房东Most taxpayers anticipate increased earnings from year to year, whether it's from a job or investments, so this strategy works well. On the flip side, however, if you anticipate a lower income next year or know you will have significant medical bills, you might want to consider deferring income and expenses to the following year.
风流女房东In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2020, depending on your situation. Roth IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest are examples of these types of tax benefits.
风流女房东Accelerating income into 2020 is also a good idea if you anticipate being in a higher tax bracket next year. This is especially true for taxpayers whose earnings are close to threshold amounts that make them liable for the Additional Medicare Tax or Net Investment Income Tax ($200,000 for single filers and $250,000 for married filing jointly). See more about these two topics, below.
Examples of accelerating income include:
A prepayment of anticipated real property taxes that have not been assessed prior to 2021 is not deductible in 2020.
Under TCJA, the deduction for state and local taxes (SALT) was capped at $10,000. Once a taxpayer reaches this limit the two strategies above are not effective for federal returns.
Additional Medicare Tax
Taxpayers whose income exceeds certain threshold amounts ($200,000 single filers and $250,000 married filing jointly) are liable for an additional Medicare tax of 0.9 percent on their tax returns but may request that their employers withhold additional income tax from their pay to be applied against their tax liability when filing their 2020 tax return next April.
As such, high net worth individuals should consider contributing to Roth IRAs and 401(k) because distributions are not subject to the Medicare Tax. Also, if you're a taxpayer who is close to the threshold for the Medicare Tax, it might make sense to switch Roth retirement contributions to a traditional IRA plan, thereby avoiding the 3.8 percent Net Investment Income Tax (NIIT) as well (more about the NIIT below).
Alternate Minimum Tax
The alternative minimum tax (AMT) applies to high-income taxpayers that take advantage of deductions and credits to reduce their taxable income. The AMT ensures that those taxpayers pay at least a minimum amount of tax and was made permanent under the American Taxpayer Relief Act (ATRA) of 2012. Furthermore, the exemption amounts increased significantly under the Tax Cuts and Jobs Act of 2017 (TCJA), and the AMT is not expected to affect as many taxpayers. Also, in 2020 the phaseout threshold increased to $518,400 ($1,036,800 for married filing jointly). Both the exemption and threshold amounts are indexed for inflation.
AMT exemption amounts for 2020 are as follows:
风流女房东Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.
Keep in mind that a written record of your charitable contributions - including travel expenses such as mileage - is required to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check, or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a canceled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.
In addition to the $300 above the line deduction for taxpayers that don't itemize (see above), taxpayers who do itemize deductions can take advantage of another provision in the CARES Act that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI) - but only for tax year 2020. In 2019, the limit for the deduction for cash contributions was 60% of AGI.
Qualified charitable distributions (QCDs). Taxpayers who are age 70 1/2 and older can reduce income tax owed on required minimum distributions (RMDs) - a maximum of $100,000 or $200,000 for married couples - from IRA accounts by donating them to a charitable organization(s) instead. Eligible taxpayers can take advantage of QCDs even though the CARES Act eliminated the requirement for required minimum distributions for 2020.
Starting in 2020, the age at which taxpayers are required to take minimum distributions from IRAs, SIMPLE IRAs, SEP IRAs, or other retirement plan accounts was raised to age 72. In prior years, the age was 70 1/2.
Investment Gains and Losses
Investment decisions are often more about managing capital gains than about minimizing taxes. For example, taxpayers below threshold amounts in 2020 might want to take gains; whereas taxpayers above threshold amounts might want to take losses.
Fluctuations in the stock market are commonplace; don't assume that a down market means investment losses as your cost basis may be low if you've held the stock for a long time.
Minimize taxes on investments by judicious matching of gains and losses. 风流女房东Where appropriate, try to avoid short-term capital gains, which are taxed as ordinary income (i.e., the rate is the same as your tax bracket).
In 2020 tax rates on capital gains and dividends remain the same as 2019 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have been adjusted for inflation as follows:
Where feasible, reduce all capital gains and generate short-term capital losses up to $3,000. As a general rule, if you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) can be claimed as a deduction against income.
Wash Sale Rule.风流女房东 After selling a securities investment to generate a capital loss, you can repurchase it after 30 days. This is known as the "Wash Rule Sale." If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., and ETF or another mutual fund with the same objectives as the one you sold.
Net Investment Income Tax (NIIT)
风流女房东The Net Investment Income Tax, which went into effect in 2013, is a 3.8 percent tax that is applied to investment income such as long-term capital gains for earners above a certain threshold amount ($200,000 for single filers and $250,000 for married taxpayers filing jointly). Short-term capital gains are subject to ordinary income tax rates as well as the 3.8 percent NIIT. This information is something to think about as you plan your long-term investments. Business income is not considered subject to the NIIT provided the individual business owner materially participates in the business.
Mutual Fund Investments
Before investing in a mutual fund, ask whether a dividend is paid at the end of the year or whether a dividend will be paid early in the following year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.
Depending on your financial circumstances, it may or may not be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date. To find out a fund's ex-dividend date, call the fund directly.
Please call if you'd like more information on how dividends paid out by mutual funds affect your taxes this year and next.
Year-End Giving To Reduce Your Potential Estate Tax
风流女房东The federal gift and estate tax exemption is currently set at $11.58 million but increases to $11.70 million in 2021. The maximum estate tax rate is set at 40 percent.
Gift Tax. Sound estate planning often begins with lifetime gifts to family members. In other words, gifts that reduce the donor's assets subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax.
风流女房东Gifts to a donee are exempt from the gift tax for amounts up to $15,000 a year per donee in 2020 and remain the same for 2021.
Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $30,000 ($15,000 each). Though what's given may come from either you or your spouse or both of you, both of you must consent to such "split gifts."
风流女房东Gifts of "future interests," assets that the donee can only enjoy at some future period such as certain gifts in trust, generally don't qualify for exemption; however, gifts for the benefit of a minor child can be made to qualify.
If you're considering adopting a plan of lifetime giving to reduce future estate tax, don't hesitate to call the office for assistance.
Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.
You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings and built-in gain on the sale.
Gift tax returns for 2020 are due the same date as your income tax return (April 15, 2021). Returns are required for gifts over $15,000 (including husband-wife split gifts totaling more than $15,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $15,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed." Please call the office if you're considering making a gift of property whose value isn't unquestionably less than $15,000.
Tax Rate Structure for the Kiddie Tax
The kiddie tax rules changed under the TCJA. For tax years 2018 through 2025, unearned income exceeding $2,200 is taxed at the rates paid by trusts and estates instead of the parent’s tax rate. For ordinary income (amounts over $12,950), the maximum rate is 37 percent. For long-term capital gains and qualified dividends, the maximum rate is 20 percent.
Exception. 风流女房东If the child is under age 19 or under age 24 and a full-time student and both the parent and child meet certain qualifications, then the parent can include the child's income on the parent's tax return.
Other Year-End Moves
Roth Conversions.风流女房东 Converting to a Roth IRA from a traditional IRA would make sense if you've experienced a loss of income (lowering your tax bracket) or your retirement accounts have decreased in value. Please call if you would like more information about Roth conversions.
Maximize Retirement Plan Contributions.风流女房东 If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. It doesn't need to be funded until you pay your taxes, but allowable contributions will be deductible on this year's return.
If you are an employee and your employer has a 401(k), contribute the maximum amount ($19,500 for 2020), plus an additional catch-up contribution of $6,500 if age 50 or over, assuming the plan allows this, and income restrictions don't apply.
风流女房东If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $6,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over.
Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay medical bills.
风流女房东In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the amount of excess over 10 percent of AGI). For amounts withdrawn at age 65 or later not used for medical bills, the HSA functions much like an IRA.
To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and you must not be enrolled in Medicare. For 2020, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,400 for self-only coverage or $2,800 for family coverage.
529 Education Plans. Maximize contributions to 529 plans, which can now be used for elementary and secondary school tuition as well as college or vocational school.
Don't Miss Out.
风流女房东Implementing these strategies before the end of the year could save you money. If you are ready to save money on your tax bill, please contact the office today.
Year-End Tax Planning Strategies for Business Owners
Several end-of-year tax planning strategies are available to business owners that can be used to reduce their tax liability. Let's take a look:
Businesses using the cash method of accounting can defer income into 2021 by delaying end-of-year invoices so that payment is not received until 2021. Businesses using the accrual method can defer income by postponing the delivery of goods or services until January 2021.
Purchase New Business Equipment
Bonus Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
Section 179 Expensing. Businesses should take advantage of Section 179 expensing this year whenever possible. In 2020, businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $1.04 million of the first $2.59 million of property placed in service by December 31, 2020. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.59 million threshold and eliminated above amounts exceeding $3.63 million.
Computer or peripheral equipment placed in service after December 31, 2017, are not included in listed property.
风流女房东For property placed in service in taxable years beginning after December 31, 2017, taxpayers can elect to include certain improvements made to nonresidential real property after the date when the property was first placed in service.
1. Qualified improvement property, which means any improvement to a building's interior. However, improvements do not qualify if they are attributable to:
风流女房东2. Roofs, HVAC, fire protection systems, alarm systems, and security systems.
Qualified Property. Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.
风流女房东Please contact the office if you have any questions regarding qualified property.
Timing for purchase of business equipment. You might be able to increase your tax benefit if you buy equipment at the right time. Here's a simplified explanation:
Conventions. The tax rules for depreciation include "conventions" or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.
If you're planning on buying equipment for your business, please call and speak with a tax professional who can help you figure out the best time to buy that equipment and take full advantage of these tax rules.
Other Year-End Moves to Take Advantage Of
Qualified Business Income Deduction.风流女房东 Many business taxpayers - including owners of businesses operated through sole proprietorships, partnerships, and S corporations, as well as trusts and estates, may be eligible for the qualified business income. This deduction is worth up to 20 percent of qualified business income (QBI) from a qualified trade or business for tax years 2018 through 2025. Your taxable income must be under $163,300 ($326,600 for joint returns)in 2020 to take advantage of the deduction.
风流女房东The QBI is complex, and tax planning strategies can directly affect the amount of deduction, i.e., increase or reduce the dollar amount. As such, it is especially important to speak with a tax professional before year's end to determine the best way to maximize the deduction.
Small Business Health Care Tax Credit.风流女房东 Small business employers with 25 or fewer full-time-equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $55,000 in 2019) may qualify for a tax credit to help pay for employees' health insurance. The credit is 50 percent (35 percent for non-profits).
Business Energy Investment Tax Credits. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2022, and businesses that want to take advantage of these tax credits can still do so.
Business energy credits include geothermal electric, large wind (expires at the end of 2020), and solar energy systems used to generate electricity, to heat, cool, or to provide hot water for use in a structure, or to provide solar process heat.
Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible; excluded, however, are passive solar and solar pool heating systems. Utilities are allowed to use the credits as well.
Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) can take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or invoice). Businesses with applicable financial statements can deduct $5,000. Small businesses with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic.
Depreciation Limitations on Luxury, Passenger Automobiles, and Heavy Vehicles. As a reminder, tax reform changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction for 2020 is $10,100 for the first year.
Deductions are based on a percentage of business use. A business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.
风流女房东For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used ("new to you") vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,100 in 2020.
Heavy vehicles including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. As such, heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well.
Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2020. Call today if you need help setting up a retirement plan.
Dividend Planning.风流女房东 Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.
Paid Family and Medical Leave Credit.风流女房东 Last chance to take advantage of the employer credit for paid family and medical leave, which expires at the end of 2020.
Year-end Tax Planning Could Make a Difference in Your Tax Bill
风流女房东If you'd like more information, please call to schedule a consultation to discuss your specific tax and financial needs and develop a plan that works for your business.
Investing in Opportunity Zones: The Facts
The Tax Cuts and Jobs Act included numerous changes for businesses and individuals. One of these was the creation of the Opportunity Zones tax incentive, the purpose of which is to spur economic development and job creation in distressed communities by providing tax benefits to investors.
Which Communities Qualify as Opportunity Zones?
Low-income communities and certain contiguous communities qualify as Opportunity Zones if a state, the District of Columbia, or a U.S. territory nominated them for that designation and the U.S. Treasury certified that nomination. Using this nomination process, 8,764 communities in all 50 states, the District of Columbia, and five U.S. territories were certified as Qualified Opportunity Zones (QOZs). Congress later designated each low-income community in Puerto Rico as a QOZ effective December 22, 2017.
For a complete list and visual map of census tracts designated as QOZs visit the Opportunity Zones Resources page at the IRS website.
Tax Benefits of Investing in Opportunity Zones
Opportunity Zones offer tax benefits to business or individual investors who can elect to temporarily defer tax on capital gains if they timely invest those gain amounts in a Qualified Opportunity Fund (QOF). Investors can defer tax on the invested gain amounts until the date they sell or exchange the QOF investment, or Dec. 31, 2026, whichever is earlier.
风流女房东The length of time the taxpayer holds the QOF investment determines the tax benefits they receive:
Deferral of Eligible Gain. Gains that may be deferred are called "eligible gains." They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before January 1, 2027, and that aren't from a transaction with a related person. To obtain this deferral, the amount of the eligible gain must be timely invested in a QOF in exchange for an equity interest in the QOF (qualifying investment). Once this is done, taxpayers can claim the deferral on their federal income tax return for the taxable year in which the gain would have been recognized if they had not deferred it.Taxpayers may make an election to defer the gain, in whole or in part. For additional information, see How To Report an Election To Defer Tax on Eligible Gain Invested in a QOF in the Form 8949, Sales and other Dispositions of Capital Assets风流女房东 instructions.
Investing in QOZ Property as a Qualified Opportunity Fund
A QOF is an investment vehicle that files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property. To become a QOF, an eligible corporation or partnership self-certifies by annually filing Form 8996, Qualified Opportunity Fund with its federal income tax return. The return, together with Form 8996, must be filed timely, taking extensions into account. An LLC that chooses to be treated either as a partnership or corporation for federal income tax purposes can organize as a QOF.
Qualified Opportunity Zone Property
风流女房东QOZ property is a QOF's qualifying ownership interest in a corporation or partnership that operates a QOZ business in a QOZ or certain tangible property of the QOF that is used in a business in the QOZ. To be a qualifying ownership interest in a corporation or partnership, (1) the interest must be acquired after December 31, 2017, solely in exchange for cash; (2) the corporation or partnership must be a QOZ business; and (3) for 90% of the holding period of that interest, the corporation or partnership was a QOZ business.
Qualified Opportunity Zone Business Property
QOZ business property is tangible property that a QOF acquired by purchase after 2017 and used in a trade or business and:
Leased property may also qualify as QOZ business property. The lease must be a market-rate lease entered into after December 31, 2017, to qualify.
Qualified Opportunity Zone Business
Each taxable year, a QOZ business must earn at least 50% of its gross income from business activities within a QOZ; however, the regulations provide three safe harbors that a business may use to meet this test. These safe harbors take into account any of the following:
风流女房东Don't hesitate to call if you have any questions or would like additional information about investing in Opportunity Zones.
Seasonal Workers and the Healthcare Law
风流女房东Businesses often need to hire workers on a seasonal or part-time basis. For example, some businesses may need seasonal help for holidays, harvest seasons, commercial fishing, or sporting events. Whether you are getting paid or paying someone else, questions often arise over whether these seasonal workers affect employers with regard to the Affordable Care Act (ACA).
风流女房东For the purposes of the Affordable Care Act the size of an employer is determined by the number of employees. As such, employer-offered benefits, opportunities, and requirements are dependent upon your organization's size and the applicable rules. For instance, if you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, you are an ALE (Applicable Large Employer) for the current calendar year.
If you hire seasonal or holiday workers, here's what you should know about how these employees are counted under the health care law:
Seasonal worker.风流女房东 A seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis, generally for not more than four months (or 120 days). Retail workers employed exclusively during holiday seasons, for example, are seasonal workers.
Seasonal employee.风流女房东 In contrast, a seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less, where the term "customary employment" refers to an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.
The terms seasonal worker and seasonal employee are both used in the employer shared responsibility provisions but in two different contexts. Only the term seasonal worker is relevant for determining whether an employer is an applicable large employer subject to the employer shared responsibility provisions; however, there is an exception for seasonal workers:
Exception: If your workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 during that period were seasonal workers, your organization is not considered an ALE.
For additional information on hiring seasonal workers and how it affects the employer shared responsibility provisions please call.
Tips for Taxpayers: Backup Withholding
风流女房东Taxpayers receiving certain types of income typically reported on certain Forms 1099 and W-2G may need to have backup withholding deducted from these payments. Here are three tips to help taxpayers understand backup withholding:
1. Backup withholding is required on certain non-payroll amounts when certain conditions apply.The payer making such payments to the payee doesn't generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.
2. Backup withholding is set at a specific percentage. For 2020, it is 24 percent.
3. Payments subject to backup withholding include:
Let's take a look at a couple of examples of when the payer must deduct backup withholding:
A TIN specifically identifies the payee and includes Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.
If the TIN does not match the name in IRS records, then payees should make sure that the payer has their correct name and TIN to avoid backup withholding.
Not sure if you need backup withholding? Help is just a phone call away.
Tax-Related Items To Keep in Mind When Disaster Strikes
Unfortunately, disaster can strike at any time. If you've been affected by a disaster this year, here are six tax-related things to keep in mind that usually happen after a major disaster strikes:
风流女房东1. FEMA Declaration of Major Disaster Area
Before the IRS can authorize any tax relief, FEMA must issue a major disaster declaration and identify areas that qualify for their Individual Assistance program. Recent examples of federally declared disaster areas include the California and Oregon wildfires, Iowa derecho, and Hurricanes Delta, Sally, and Laura.
2. More Time to File and Pay
Individuals or businesses located in the disaster area whose address of record is located in an area identified by FEMA for their Individual Assistance program automatically receive extra time from the IRS to file returns and pay taxes.
风流女房东Generally, these affected taxpayers have until the last day of the Extension Period to file tax returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within this Period. The IRS also abates interest and any late filing or late payment penalties that would normally apply during these dates to returns or payments subject to these extensions.
3. Casualty Loss Tax Deduction
Taxpayers who have damaged or lost property due to a federally declared disaster may qualify to claim a casualty loss deduction. This deduction can be claimed on a current or prior-year tax return. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.
4. Disaster Loans or Grants
The Small Business Administration offers financial help to business owners, homeowners and renters in a federally declared disaster area. To qualify, a taxpayer must have filed all required tax returns.
风流女房东5. Prior Year Tax Return Transcript
If you need a tax transcript to support your disaster claim, you can obtain free transcripts by using Get Transcript on the IRS website to access your transcripts immediately online. You can also request mail delivery. You can also call 800-908-9946 to request mail delivery or submit Form 4506-T, Request for Transcript of Tax Return.
If you need a copy of their tax return file Form 4506, Request for Copy of Tax Return. The IRS waives the usual fees and expedites requests for copies of tax returns for taxpayers who need them to apply for disaster-related benefits or to file amended returns claiming disaster-related losses. To speed up the process, when filing Form 4506 (or Form 4506-T), taxpayers should state on the form whether the request is disaster-related and list the state and type of event.
风流女房东6. Change of Address
After a disaster, some people might need to temporarily or permanently relocate. If this applies to you, you will need to notify the IRS of your new address by submitting Form 8822, Change of Address.
风流女房东For questions about this and other federal disaster relief that might be available, please contact the office.
Individual Retirement Arrangements: Terms To Know
风流女房东While many taxpayers already know about Individual Retirement Arrangements, or IRAs, and have set up an IRA with a bank or other financial institution, a life insurance company, mutual fund or stockbroker, there are other taxpayers such as those new to the workforce who may not understand how IRAs help them save for retirement. With this in mind, here is a list of basic terms to help people better understand their IRA options:
Contribution.风流女房东 The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA.
Distribution.风流女房东 The amount that someone withdraws from their IRA.
Required Distribution. 风流女房东There are requirements for withdrawing from an IRA:
Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn.
Roth IRA.风流女房东 This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:
Savings Incentive Match Plan for Employees. 风流女房东This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers.
Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees' retirement. The employee owns and controls a SEP.
Rollover IRA. 风流女房东This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.
For more information about this topic, don't hesitate to call the office today.
Tax Due Dates for November 2020
Employers风流女房东 - Income Tax Withholding. Ask employees whose withholding allowances will be different in 2021 to fill out a new Form W-4. The 2021 revision of Form W-4 will be available on the IRS website by mid-December.
Employers风流女房东 - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2020. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.
Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2020 but less than $2,500 for the third quarter.
Employers 风流女房东- Federal Unemployment Tax. Deposit the tax owed through September if more than $500.
Employees who work for tips风流女房东 - If you received $20 or more in tips during October, report them to your employer. You can use Form 4070.
Employers风流女房东 - Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2020. This due date applies only if you deposited the tax for the quarter in full and on time.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October.
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