All posts by [email protected]

Year-end tax planning for businesses in the new tax environment

Advice, Articles

The passage of the Tax Cuts and Jobs Act (TCJA) in late 2017 brought significant changes to the tax landscape. As the first tax season under the law looms on the horizon, new year-end tax planning strategies are emerging. Meanwhile, some of the old tried-and-true strategies have changed and others remain viable.

Fresh opportunities

The TCJA creates several new avenues of potential tax savings for businesses. Some of these, though, may require tough decisions.

For example, the new tax law has prompted some businesses to question whether they should restructure to become a C corporation or a pass-through entity. The former is subject to potential double taxation (at the entity and dividend levels) but now enjoys a corporate tax rate that has fallen from 35% to 21%. The latter faces only an individual tax rate, which can run as high as 37%, but might qualify for a new, full 20% deduction on qualified business income (QBI).

With a full QBI deduction, the maximum effective tax rate for pass-through entities comes out to 29.6%. But there are other factors to consider. For example, the TCJA limits the state and local tax deduction for individual pass-through owners but not for corporations. Further, the new corporate rate is permanent, while the QBI deduction is scheduled to sunset after 2025.

Ultimately, the optimal entity choice depends on each business’s facts and circumstances. A business that goes the pass-through route, though, has several tactics available to maximize its QBI deduction.

The deduction is subject to limits based on W-2 wages paid, the unadjusted basis of a taxpayer’s qualified property, and taxable income. A business, therefore, might increase its wages by converting independent contractors to employees, assuming the benefit isn’t outweighed by higher payroll taxes, employee benefit costs and similar considerations. It could also purchase assets before year end to pump up its unadjusted basis. And individual pass-through owners can maximize their above-the-line and itemized deductions to reduce their taxable income.

The TCJA also establishes a business tax credit for paid family and medical leave — a credit that businesses can claim for 2018 as long as they adopt a retroactive policy before the end of the year. Eligible employers may claim the credit if they have a written policy that provides at least two weeks of annual paid family and medical leave to all employees who meet certain requirements, at a pay rate of at least 50% of normal wages. The maximum credit is 25% of wages paid during leave.

Shifting strategies

Not surprisingly, the TCJA alters several year-end strategies businesses have used in the past to curb liability. It bolsters some strategies, while trimming or ending the advantages of others.

For several years, for example, asset acquisitions have offered a smart way to cut taxes through bonus depreciation and Section 179 depreciation deductions. The TCJA expands both types of deductions, potentially making investments in equipment and other assets even more advisable.

Businesses could immediately write off 50% bonus depreciation on qualified new property purchased in 2017. Before the TCJA, eligible property included new computers, software, vehicles, machinery, equipment, office furniture and qualified improvement property (QIP, generally defined as interior improvements to nonresidential real property).

The TCJA extends and modifies bonus depreciation for qualified property purchased after September 27, 2017, and before January 1, 2023. Businesses can expense the entire cost of such property (both new and used, subject to certain conditions) in the year the property is placed in service. The amount of the allowable deduction will begin to phase out in 2023, dropping off 20% each year for four years until it disappears in 2027, absent congressional action. Be aware that certain property with a longer production period will be eligible for the bonus depreciation for an extra year, as the phaseout doesn’t start until 2024.

Be aware that Congress removed QIP from the definition of qualified property eligible for bonus depreciation, intending that it would nonetheless remain eligible because its recovery period would be reduced to 15 years. (Qualified property must have a recovery period of 20 years or less.) Due to a drafting error, though, the TCJA didn’t define QIP as 15-year property, so it defaults to a 39-year recovery period. Without a technical correction or regulatory guidance, QIP won’t qualify for bonus depreciation in 2018.

QIP placed in service after December 31, 2017, is eligible for immediate expensing (deducting the entire cost) under Sec. 179. The TCJA expands this depreciation to several improvements to nonresidential real property — roofs, HVAC, fire protection systems, alarm systems and security systems, too. It also almost doubles the maximum deduction for qualifying property to $1 million from $510,000 in 2017. (The maximum deduction remains limited to the amount of income from business activity.) The TCJA increases the phaseout threshold to $2.5 million from $2.03 million in 2017.

Businesses traditionally have used employee benefits to shrink their tax liability, too, but the TCJA narrows the benefits-related opportunities. For example, it eliminates or tightens tax breaks for transportation benefits, on-premises meals, moving expenses reimbursement and achievement awards. (Some of these changes are only temporary.) Businesses might, however, reap tax benefits from Health Savings Accounts, Flexible Spending Accounts, Health Reimbursement Accounts, health insurance and group term-life insurance. Moreover, a business could have nontax-related reasons, such as employee recruitment and retention, to offer certain benefits.

Old favorites

Although many tax credits were in the crosshairs as the TCJA was drafted, several of the most popular survived, including the Work Opportunity tax credit, Small Business Health Care tax credit, the New Markets tax credit and the research credit.

The TCJA even boosts the value of the research credit. That’s because taxpayers generally must either reduce their business deductions by the amount of their research credit or take a reduced research credit to preempt a double tax benefit. The reduced credit is computed based on the maximum corporate tax rate. By cutting that rate from 35% to 21%, the TCJA increases the net benefit of the research credit to 79%, vs. 65% in previous years.

Businesses looking to trim their tax bills also can continue to turn to the trusty standby strategy of deferring income into 2019 and accelerating deductions into 2018. For example, a business that uses cash-basis accounting might “slow roll” its invoices to push the receivables into the new year or prepay expenses. Notably, the TCJA has greatly expanded eligibility for cash-basis accounting, making it generally available to businesses with three-year average annual gross receipts of $25 million or less.

There’s still time

Whether your business operates on a calendar- or fiscal-year basis, your 2018 tax bill isn’t yet written in stone. It’s not too late to execute some strategies that reduce your business’s tax liabilities and improve its bottom line.

© 2018

Is more tax reform on the horizon?

Articles

President Trump and Republican lawmakers currently are considering a second round of tax reform legislation as a follow-up to last year’s Tax Cuts and Jobs Act (TCJA). As of this writing, there’s been no actual bill drafted. However, House Ways and Means Committee Chair Kevin Brady (R-TX) just released a broad outline or framework of what the tax package may contain.

Proposed framework

One of the main themes of the proposed legislation is to make permanent certain provisions in the TCJA, including:

  • Federal income tax rate cuts for individual taxpayers,
  • The doubled child tax credit, and
  • The deduction for up to 20% of qualified business income (QBI) from pass-through entities (sole proprietorships, partnerships, LLCs and S corporations).

These pro-taxpayer changes are scheduled to expire at the end of 2025 along with several other TCJA changes, some of which are not taxpayer-friendly.

The framework released by Brady also would help Americans save more for retirement. It would create a new Universal Savings Account that would allow tax-free withdrawals for a variety of needs and would expand Section 529 education savings plans to allow tax-free withdrawals to pay for apprenticeship fees to learn a trade, cover the cost of home schooling and help pay off student debt. Contributions to Universal Savings Accounts would be made with after-tax dollars, like contributions to Roth IRAs. The framework also proposes to permit families to access their retirement accounts penalty free after a birth or adoption and allow new businesses to write off more of their start-up costs.

President Trump has separately suggested lowering the corporate federal income tax rate from 21% to 20%. The TCJA permanently lowered the corporate rate from a maximum of 35% under prior law to a flat 21% for tax years beginning in 2018 and beyond.

Chairman Brady has indicated that indexing capital gains for inflation is also under consideration for Tax Reform 2.0. Indexing would allow taxpayers to increase the tax basis of capital gains assets — such as stocks, mutual fund shares and real estate — to account for inflation. Indexing would result in lower taxable gains when affected assets are sold for a profit. Some observers have argued that indexing could be achieved without the need for legislation by simply issuing IRS regulations that allow indexing.

No “extenders” in Tax Reform 2.0

Chairman Brady has indicated that any Tax Reform 2.0 package probably won’t include extensions of a number of tax breaks that Congress habitually allows to expire and then retroactively extends. These so-called “extenders” will likely be addressed by separate legislation. For individual taxpayers, the two important extenders are the deduction for up to $4,000 of qualified higher-education tuition and fees and tax-free treatment for up to $2 million of forgiven home mortgage debt. Both of these breaks expired at the end of 2017. Other extenders that expired at that time include several business depreciation and expensing breaks and energy related breaks.

Possible technical corrections legislation

Like most major legislation, the TCJA included some errors, oversights and omissions that Congress didn’t intend. Such glitches are typically fixed retroactively by so-called “technical corrections legislation.” House Speaker Paul Ryan (R-WI) has indicated that a technical corrections bill, mainly focused on international tax fixes, may be introduced after the November midterm election — when it would hopefully garner some support from congressional Democrats. Any technical corrections bill would probably be separate from the Tax Reform 2.0 bill.

Retirement savings bill

Separate from the Tax Reform 2.0 discussions, bipartisan legislation has been introduced in the U.S. Senate to help encourage Americans to save more for retirement. The Retirement Enhancement and Savings Act contains a number of incentives that include allowing employees to buy an annuity; making it easier for small companies to offer retirement plans; and permitting people older than age 70½ to contribute to traditional IRAs. It’s possible these provisions could be part of a 2.0 bill or they could make up a stand-alone bill.

Stay tuned

Chairman Brady is encouraging House Republicans to hold “listening sessions” with their constituents during the upcoming August recess with a view toward a committee vote in September. If all goes well, Republicans are tentatively scheduling a House vote on a Tax Reform 2.0 bill by the end of September. Bear in mind that the November midterm election may play into the final package of legislation, as vulnerable Republicans plead their cases for specific provisions. Contact us if you have questions about how the proposed legislation may affect your individual or business tax planning.

© 2018

URGENT MEMO FOR COMPANIES THAT SELL TANGIBLE PROPERTY INTO MULTIPLE STATES

Advice, Articles

Memo

To:        VA Tax Files / VA Clients
From:    Peter V. DeGregori, CPA MST CGMA
Date:     June 28, 2018
Re:        Change in Sales Tax: Supreme Court Ruling for South Dakota v. Wayfair

Summary:

On June 21, 2018, the U.S. Supreme court issued a decision in South Dakota v. Wayfair, overturning the physical presence standard explained in Quill v. North Dakota (Sup Ct 1992) 504 U.S. 298, and other related cases. Prior to this ruling, the Quill case was an important case, which required a physical presence standard for a company to be subject to sales tax if they sold tangible property (typically items you can touch).  In general, the “physical presence” standard is a requirement for a company to be subject to sales tax.  This law became a common case / item to review if an out of state company was subject to sales tax in another state.

As an example, if you have a company, located only in Florida, then generally that company would only be subject to sales tax in Florida based on sales to Florida consumers.  However, if the company shipped products into other states, then they generally they would not be subject to other states’ sales tax if they didn’t have any physical presence in that other state.   So, the outcome would be products sold outside of Florida didn’t have sales tax applied against them and this is the issue that has soured the change of this law.  If a business wasn’t subject to sales tax, then typically the consumer is responsible to pay use tax to their state.  But most consumers do not pay use tax, so the states want a method to subject out of state businesses to sales tax and this new court case has now removed the hurdle of the Quill doctrine.  States want more sales tax revenue, and they have been trying hard to collect sales tax from out of state businesses for a long time.  Now the law has changed based on this court case and states are going to be able to charge sales tax based on where the consumer resides regardless of “physical presence”.

Now, let’s look at what is meant by “physical presence”.  First, this is a generalization, as each state may, unfortunately, have a different set of guidelines, in general, physical presence means that the company had property (fixed assets, inventory, etc.), people, or some other physical connection in a state to subject them to sales tax.  So, this was the concern based on the example above, the company in FL could sell products to every other state and wouldn’t be subject to sales tax in any state other than FL.  This created an unfair playing field with companies in states in which out of state resellers sold into.  So, the US Supreme Court changed the law and now companies are subject to sales tax based on revenue that is generated from a state which is also called “economic nexus”.

Now this is a BIG change for business that sell products to multiple states.  Typically, this is going to affect internet companies but will also affect companies as in my example above.  Most states have not updated their laws to adjust for this Supreme Court ruling, but we are assuming they will soon, as this only allows the states to generate more revenue.

If we look at the current laws, about 29 states have an “economic nexus” already on the books.  So, with this Supreme Court ruling, sales tax would be owed to the state in which an out-of-state company generated an “economic” benefit from.  What is economic benefit? It is typically a generation of revenue or sales.  So, based on my example, if the FL company sold products into other states and those states have an “economic nexus” law, the FL company now needs to be concerned with registering in that state and begin charging, collecting and remitting sales tax.  I know it is a pain, but companies need to follow the laws as those states are allocating resources to find out of state companies that owe them money.

Any good news?  Well, yes.  Most states currently have a revenue or quantity threshold to exempt small businesses.  However, the states define small business differently.  For example, most states are not going to require an out of state retailer with only “economic nexus” to be subject to their sales tax if their gross sales in that state are under $100,000 and less than 200 transactions.  This is what is deemed to be the small business exclusion.  However, some other states have a threshold of $250,000 and 200 transactions, but the state of Washington currently has a threshold of $10,000.  Most of these threshold tests are based on prior year sales.  Be careful, please review the current law with us or your tax advisor to make sure you are applying the law correctly.

Based on the Supreme Court ruling, we would expect states to update their “economic nexus” laws and create one if they don’t have one.  So, a retailer should first look at sales by state for the prior year, and then work with us or their tax advisor to determine which state(s) the company is generating revenue from and those states have economic nexus rules.  These rules should not be ignored as most states have stiff penalties, and if needed, the state will have their department of justice file a lawsuit against the out of state business that they feel owe sales tax.

Actions to Consider:

If you are a retailer of tangible products, and you sell into multiple states, and you do not pay sales tax in those states, run a sales report by state for the prior year, and review the economic nexus rules by state with your tax advisor.  Contact us to work with you to minimize the headache.

If you have states in which your company should have been subject to sales tax, and you haven’t been contacted by the state, then consider looking into a voluntary disclosure program (VDP) to request acceptance into the states’ program and hopefully receive the benefit of only having to file sales tax returns for up to three years versus six to eight and be in a position to not have to pay penalties.

Also, if your company sells to resellers, typically you are still required to register and file sales tax returns and show the reduction of taxable sales as they are sold for resale.  This does give the state the right to audit you, so make sure you have annual copies of resell certificates.

Unfortunately, sales tax laws are specific to each state and company based on the transactions, so call us to discuss.

Other Considerations:

There are many other items to consider.  For example, if a company manufactures, resells and sells to consumers, perhaps there is a benefit to dividing up the company so that the manufacturer activity is separated from the reselling activity.  Also, you may need to consider state income tax.  So, to comply with these new sales tax rules, make sure you understand other items that may be related like sales tax, state registration, change in your sales software and invoicing, etc.

There is much to think about and Congress could again change the law, but I feel they are too busy with other things, so all one can do is to deal with the current laws, understand them and apply them accordingly. Please contact us at 949-756-8080 or [email protected] if you would like to discuss.

Overview of Economic Nexus as of June 28, 2018

[table]

[tr][th]STATE[/th] [th]ECONOMIC NEXUS[/th] [th]THRESHOLD[/th][/tr]

[center][tr][td]Alabama[/td] [td]Yes.[/td] [td]$250,000[/td][/tr][/center]

[tr][td]Alaska[/td] [td]N/A[/td] [td]N/A[/td][/tr]

[tr][td]Arizona[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Arkansas[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]California[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Colorado[/td] [td]No.[/td] [td]$100,000
*Special Law, ask tax preparer for details[/td][/tr]

[tr][td]Connecticut[/td] [td]Yes.[/td] [td]$250,000 or 200 units[/td][/tr]

[tr][td]District of Columbia[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Delaware[/td] [td]N/A[/td] [td]N/A[/td][/tr]

[tr][td]Florida[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Georgia[/td] [td]Yes.[/td] [td]$250,000 or 200 units[/td][/tr]

[tr][td]Hawaii[/td] [td]Yes. [/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Idaho[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Illinois[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Indiana[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Iowa[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Kansas[/td] [td]N/A[/td] [td]N/A[/td][/tr]

[tr][td]Kentucky[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Louisiana[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Maine[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Maryland[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Massachusetts[/td] [td]Yes.[/td] [td]$500,000 or 100 units[/td][/tr]

[tr][td]Michigan[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Minnesota[/td] [td]No.[/td] [td]Less than $100,000
*Special Law, ask tax preparer for details[/td][/tr]

[tr][td]Mississippi[/td] [td]Yes.[/td] [td]$250,000[/td][/tr]

[tr][td]Missouri[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Montana[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Nebraska[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Nevada[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]New Hampshire[/td] [td]N/A[/td] [td]N/A[/td][/tr]

[tr][td]New Jersey[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]New Mexico[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]New York[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]North Carolina[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]North Dakota[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Ohio[/td] [td]Yes.[/td] [td]$500,000[/td][/tr]

[tr][td]Oklahoma[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Oregon[/td] [td]N/A[/td] [td]N/A[/td][/tr]

[tr][td]Pennsylvania[/td] [td]Yes.[/td] [td]$10,000[/td][/tr]

[tr][td]Rhode Island[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]South Carolina[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]South Dakota[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[tr][td]Tennessee[/td] [td]Yes.[/td] [td]$500,000[/td][/tr]

[tr][td]Texas[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Utah[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Vermont[/td] [td]No.[/td] [td]$100,000 and notify purchasers who bought more than $500
*Special Law, ask tax preparer for details[/td][/tr]

[tr][td]Virginia[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Washington[/td] [td]Yes.[/td] [td]$100,000 in gross receipts or referrers having at least $267,000 in gross income
*Special Law, ask tax preparer for details[/td][/tr]

[tr][td]West Virginia[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Wisconsin[/td] [td]No.[/td] [td]N/A[/td][/tr]

[tr][td]Wyoming[/td] [td]Yes.[/td] [td]$100,000 or 200 units[/td][/tr]

[/table]Note: this is very high level summary and laws do change, so please discuss with us or your tax advisor and we
recommend you review with our tax memo dated 6/28/2018

Watch out for tax-related identity theft scams all year long

Advice, Articles

With the filing date for 2017 in the rear-view mirror for most businesses and individuals, the last thing they probably want to think about is income taxes. Unfortunately, though, criminals who commit tax-related identity theft don’t work seasonally — they’re constantly devising and unleashing new schemes.

And even though the IRS has taken successful steps to reduce tax-related identity theft in 2017, it cautions taxpayers to stay alert for scams year round and especially right after the tax filing season ends.

What is tax-related identity theft?

According to the IRS, tax-related identity theft generally occurs when a thief uses a stolen Social Security number (SSN) to file a tax return claiming a fraudulent refund. The victimized taxpayer may not learn of the theft until he or she attempts to file a tax return and finds that a return has already been filed for that SSN. Alternatively, the taxpayer might discover the theft upon receipt of a letter from the IRS saying it has identified a suspicious return that uses the taxpayer’s SSN.

Thieves have devised a variety of methods to obtain the information they need to file a tax return under another person’s SSN. During the past several years, the IRS, Federal Trade Commission (FTC) and state tax agencies have issued warnings as new methods come to the forefront.

How does tax-related identity theft occur?

But filing fraudulent returns isn’t the only way that taxpayers are victimized. Scam artists are using multiple channels to conduct their tax-related identity theft schemes, including:

Phone schemes. This past April, less than 10 days after the tax return filing deadline, the IRS highlighted a new phone scam conducted by fraudsters who program their computers to display the phone number of the local IRS Taxpayer Assistance Center (TAC) on the taxpayer’s Caller ID. If the taxpayer questions the legitimacy of the caller’s demand for a tax payment, the caller directs him or her to IRS.gov to verify the local TAC phone number.

The perpetrator hangs up, calls back after a short period — again “spoofing” the TAC number — and resumes the demand for money. These scam artists generally require payment on a debit card, which allows them to directly access the victim’s bank account.

In another phone scheme, the criminals claim they’re calling from the IRS to verify tax return information. They tell taxpayers that the agency has received their returns and simply needs to confirm a few details to process them. The taxpayers are prompted to provide personal information such as an SSN and bank or credit card numbers.

Digital schemes. Emails that appear to be from the IRS are part of phishing schemes intended to trick the recipients into revealing sensitive information that can be used to steal their identities. The emails may seek information related to refunds, filing status, transcript orders or PIN information.

The scammers have developed twists on this approach, too. The emails might seem to come from an individual’s tax preparer and request information needed for an IRS filing. Or the information request could arrive via text messages. Whether by text or email, the communication states that “you are to update your IRS e-file immediately” and includes a link to a fake website that mirrors the official IRS site. Emails also could include links that cause the recipients to download malware that infects their computers and tracks their keystrokes or allows access to files stored on their computers.

Do businesses need to worry?

The short answer is yes — businesses have also been targeted by criminals intent on victimizing their employees or the businesses themselves.

For several years now, criminals have employed different spoofing techniques known as business email compromise (BEC) or business email spoofing (BES). They disguise an email to a company’s human resources or payroll department so it seems to come from an executive in the company. The email requests a list of all employees and their Forms W-2 — information that can be used to file returns in the employees’ names.

Scammers also are pursuing businesses’ Employer Identification Numbers (EINs). They then report false income and withholding and file for a refund in the companies’ names. Even worse for the companies, the IRS could go after them for payroll taxes reported as withheld but not remitted.

The IRS recently announced that it has seen a sharp increase in the number of fraudulent filings of certain business tax forms, including Schedule K-1 and those filed by corporations and partnerships. As a result, the IRS may ask businesses for additional information (such as the driver’s license numbers of owners) to help identify suspicious tax returns.

How does the IRS contact taxpayers?

The IRS has made it clear that it will not:

  • Threaten to bring in law enforcement to have someone arrested for nonpayment of taxes,
  • Revoke a driver’s license, business license or immigration status for nonpayment,
  • Demand a specific payment method, such as a prepaid debit card, gift card or wire transfer,
  • Request a debit or credit card number over the phone,
  • Demand the payment of taxes without the opportunity to question or appeal the amount owed (the IRS usually mails a bill when a taxpayer owes taxes),
  • Send unsolicited emails, texts or messages through social media channels suggesting taxpayers have refunds or need to update their accounts, or
  • Request any sensitive information online.

The IRS will call or visit a home or business in only very limited circumstances. It might do so, for example, if a taxpayer has a severely overdue tax bill, to secure an employment tax payment, or to tour a business as part of an audit or a criminal investigation. But even in those special situations, the IRS generally will first send several notices by mail.

What can victims and targets do?

If you know or suspect you’ve fallen prey to tax-related identity theft, you’ll need to file IRS Form 14039, “Identity Theft Affidavit.” The IRS and FTC recently announced a joint project that allows people to report such theft to the IRS online through the FTC’s IdentityTheft.gov website. Remember, though, that filing the affidavit doesn’t eliminate the need to pay your taxes.

In addition, the FTC advises victims of all types of identity theft to file a complaint on its website and contact one of the three major credit bureaus (TransUnion, Experian and Equifax) to place a fraud alert on their credit records. You also should contact your financial institutions and close any financial or credit accounts opened or tampered with by identity thieves.

If you received, but didn’t fall for, a scam email, you should still report it. The IRS urges individuals who receive unsolicited emails purporting to come from the IRS to forward the messages to [email protected] before deleting.

Stay alert

Don’t make the mistake of letting your guard down because tax season has passed. If you receive a suspicious communication from the IRS or other taxing authority, contact us for confirmation of its validity and advice on how to proceed.

© 2018

Tax Cuts and Jobs Act offers favorable tax breaks for businesses

Articles

The Tax Cuts and Jobs Act (TCJA), which was signed into law on December 22, 2017, contains a treasure trove of tax breaks for businesses. Overall, most companies and business owners will come out ahead under the new tax law, but there are a number of tax breaks that were eliminated or reduced to make room for other beneficial revisions. Here are the most important changes in the new law that will affect businesses and their owners.

New 21% corporate tax rate

Under pre-TCJA law, C corporations paid graduated federal income tax rates of 15% on taxable income of $0 to $50,000; 25% on taxable income of $50,001 to $75,000; 34% on taxable income of $75,001 to $10 million; and 35% on taxable income over $10 million. Personal service corporations (PSCs) paid a flat 35% rate.

For tax years beginning in 2018, the TCJA establishes a flat 21% corporate rate, and that rate also applies to PSCs.

Reduced corporate dividends deduction

Under pre-TCJA law, C corporations that received dividends from other corporations were entitled to partially deduct those dividends. If the corporation owned at least 20% of the stock of another corporation, an 80% deduction applied. Otherwise, the deduction was 70% of dividends received.

For tax years beginning in 2018, the TCJA reduces the 80% deduction to 65% and the 70% deduction to 50%. These reductions are part of the price businesses have to pay for the new 21% corporate rate.

Corporate alternative minimum tax repealed

Prior to the TCJA, the corporate alternative minimum tax (AMT) was imposed at a 20% rate. However, corporations with average annual gross receipts of less than $7.5 million for the preceding three tax years were exempt. For tax years beginning in 2018, the new law repeals the corporate AMT. For corporations that paid the corporate AMT in earlier years, an AMT credit was allowed under prior law. The new law allows corporations to fully use their AMT credit carryovers in their 2018–2021 tax years.

New deduction for pass-through businesses

Under prior law, net taxable income from pass-through business entities (such as sole proprietorships, partnerships, S corporations and LLCs that are treated as sole proprietorships or as partnerships for tax purposes) was simply passed through to owners. It was then taxed at the owners’ standard rates. In other words, no special treatment applied to pass-through income recognized by business owners.

For tax years beginning in 2018, the TCJA establishes a new deduction based on a noncorporate owner’s qualified business income (QBI). This new tax break is available to individuals, estates and trusts that own interests in pass-through business entities. The deduction generally equals 20% of QBI, subject to restrictions that can apply at higher income levels.

QBI is generally defined as the net amount of qualified items of income, gain, deduction and loss from any qualified business of the noncorporate owner. For this purpose, qualified items are income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. QBI doesn’t include certain investment items, reasonable compensation paid to an owner for services rendered to the business or any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the partnership or LLC.

The QBI deduction isn’t allowed in calculating the noncorporate owner’s adjusted gross income (AGI), but it reduces taxable income. In effect, it’s treated the same as an allowable itemized deduction.

W-2 wage limitation. For pass-through entities other than sole proprietorships, the QBI deduction generally can’t exceed the greater of the noncorporate owner’s share of:

  • 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
  • The sum of 25% of W-2 wages plus 2.5% of the cost of qualified property.

Qualified property is the depreciable tangible property (including real estate) owned by a qualified business as of year end and used by the business at any point during the tax year for the production of qualified business income.

Under an exception, the W-2 wage limitation doesn’t apply until an individual owner’s taxable income exceeds $157,500 ($315,000 for joint filers). Above those income levels, the W-2 wage limitation is phased in over a $50,000 range ($100,000 range for joint filers).

Service business limitation. Finally, the QBI deduction generally isn’t available for income from specified service businesses (such as most professional practices other than engineering and architecture and businesses that involve investment-type services such as brokerage and investment advisory services). Under an exception, the service business limitation doesn’t apply until an individual owner’s taxable income exceeds $157,500 ($315,000 for joint filers). Above those income levels, the service business limitation is phased in over a $50,000 phase-in range ($100,000 range for joint filers).

The W-2 wage limitation and the service business limitation don’t apply as long as your taxable income is under the applicable threshold. In that case, you should qualify for the full 20% QBI deduction.

New limits on business interest deductions

Subject to some restrictions and exceptions, prior law stated that interest paid or accrued by a business generally is fully deductible. Under the TCJA, affected corporate and noncorporate businesses generally can’t deduct interest expenses in excess of 30% of “adjusted taxable income,” starting with tax years in 2018. For S corporations, partnerships and LLCs that are treated as partnerships for tax purposes, this limit is applied at the entity level rather than at the owner level.

For tax years beginning in 2018 through 2021, adjusted taxable income is calculated by adding back allowable deductions for depreciation, amortization and depletion. After that, these amounts aren’t added back in calculating adjusted taxable income.

Business interest expense that’s disallowed under this limitation is treated as business interest arising in the following taxable year. Amounts that cannot be deducted in the current year can generally be carried forward indefinitely.

Taxpayers (other than tax shelters) with average annual gross receipts of $25 million or less for the three previous tax years are exempt from the interest deduction limitation. Some other taxpayers are also exempt. For example, real property businesses that elect to use a slower depreciation method for their real property with a normal depreciation period of 10 years or more are exempt. Another exemption applies to interest expense from dealer floor plan financing (for example, financing by dealers to acquire motor vehicles, boats or farm machinery that will be sold or leased to customers).

Reduced or eliminated employer deductions for business-related meals and entertainment

Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule will now also apply to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be nondeductible.

Changes to some employee fringe benefits

The new law disallows employer deductions for the cost of providing commuting transportation to an employee (such as hiring a car service), unless the transportation is necessary for the employee’s safety.

It also eliminates employer deductions for the cost of providing qualified employee transportation fringe benefits (for example, parking allowances, mass transit passes and van pooling), but those benefits are still tax-free to recipient employees.

Foreign tax provisions

The TCJA includes a bevy of changes that will affect taxpayers who conduct foreign operations. In conjunction with the reduced corporate tax rate, the changes are intended to encourage multinational companies to conduct more operations in the United States, with the resulting increased investments and job creation in this country.
 
Other changes

Here are some of the other business-related changes in the TCJA:

  • For business net operating losses (NOLs) that arise in tax years ending after December 31, 2017, the maximum amount of taxable income that can be offset with NOL deductions is generally reduced from 100% to 80%. In addition, NOLs incurred in those years can no longer be carried back to an earlier tax year (except for certain farming losses). Affected NOLs can be carried forward indefinitely.
  • More generous business asset expensing and depreciation tax breaks are available. The maximum Section 179 deduction increases to $1 million, and the phaseout threshold amount is increased to $2.5 million (from $510,000 and $2.03 million respectively). There are also much better first-year bonus depreciation rules.
  • The Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction, is eliminated for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers.
  • A new limitation applies to deductions for “excess business losses” incurred by noncorporate taxpayers. Losses that are disallowed under this rule are carried forward to later tax years and can then be deducted under the rules that apply to NOLs. This new limit kicks in after applying the passive activity loss rules. However, it applies to an individual taxpayer only if the excess business loss exceeds the applicable threshold.
  • The eligibility rules to use the more-flexible cash method of accounting are liberalized to make them available to many more medium-size businesses. Also, eligible businesses are excused from the chore of doing inventory accounting for tax purposes.
  • The Section 1031 rules that allow tax-deferred exchanges of appreciated like-kind property is allowed only for real estate for exchanges completed after December 31, 2017. Beginning in 2018, there are no more like-kind exchanges for personal property assets. However, the prior-law rules still apply if one leg of an exchange has been completed as of December 31, 2017, but one leg remains open on that date.
  • Faster depreciation is allowed for eligible farming assets.
  • Compensation deductions for amounts paid to principal executive officers generally cannot exceed $1 million per year, subject to a transition rule for amounts paid under binding contracts that were in effect as of November 2, 2017.
  • Specified R&D expenses must be capitalized and amortized over five years, or 15 years if the R&D is conducted outside the United States instead of being deducted currently. This begins with tax years beginning after December 31, 2021.

Any questions?

The TCJA is the largest overhaul of the tax code in more than 30 years, and we’ve covered only the highlights of the business-related tax provisions here. Please contact us if you have questions about how they may affect your business.

© 2017

Sending Your Kids To Day Camp May Provide a Tax Break

Advice, Articles


When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit!

Dollar-for-dollar savings

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2018, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Qualifying for the credit

A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Eligible costs for care must be work-related. This means that the child care is needed so that you can work or, if you’re currently unemployed, look for work.

If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), also sometimes referred to as a Dependent Care Assistance Program, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

Determining eligibility

Additional rules apply to the child and dependent care credit. If you’re not sure whether you’re eligible, contact us. We can help you determine your eligibility for this credit and other tax breaks for parents.

© 2018

Before Choosing an Annuity, Know the Tax Implications

Articles

Guaranteed payments.

That’s the allure of many annuities. But “guaranteed” doesn’t mean tax-free.

Annuities come in many flavors and can cost a lot to set up. So when figuring out if one is right for you, you have to consider many factors, including the tax implications. The last thing you want is to be surprised by your tax bill when your goal is to have adequate income in retirement.

“An annuity is a tool. You have to use it wisely,” said certified financial planner Mari Adam of Adam Financial Associates.

Qualified vs. non-qualified annuities

Although there are many types, annuities fall into one of two broad categories: qualified or non-qualified. And the payouts are taxed differently.

If you fund an annuity with pre-tax money, it’s considered a “qualified” annuity. Payments from qualified annuities are fully subject to income tax because you weren’t taxed on your contributions when they went in or on the growth of your money as it accrued, just like in a 401(k) or traditional IRA.

Qualified annuities are usually funded with money from an IRA, 401(k) or other tax-deferred account.

If you buy an annuity with after-tax money, that’s considered a non-qualified annuity. You’ll only owe income tax on a portion of your payments, because you’ve already been taxed on the principal you invested.

What part of your payments will be taxable is determined by a so-called “exclusion ratio,” said Mark Luscombe, principal federal tax analyst of Wolters Kluwer Tax & Accounting US.

The ratio is based on the principal you invested, the earnings on your principal and the length of your annuity. Your investment return may be fixed or variable, depending on which type of annuity you chose.

If your non-qualified annuity payments are based on your life expectancy and you happen to live longer than expected, that will affect the taxes you pay, too. Say you start collecting non-qualified annuity payments at 65 and your life expectancy is 85. Your payments from age 65 to 85 will be partially taxable based on your exclusion ratio. But if you end up living to 97, 100% of your payments from years 86 to 97 could be subject to tax, Luscombe noted.

There is one instance in which annuity payments could be tax free: if you bought an annuity within a Roth IRA or Roth 401(k). In that case, you use after-tax money to buy your annuity and, because it’s a Roth, the earnings will grow tax free, as opposed to just tax deferred the way they are in most other annuities.

“Roths would qualify for a 100% exclusion if the timing and age requirements are met,” Luscombe said.

Other tax issues to consider

There are plenty of other tax considerations that come into play with annuities.

For instance, depending on where you live, your state may tax annuity income somewhat differently than the federal government.

“It would probably be safest to check with the law of a particular state to see if annuities are treated in that state the same as for federal purposes,” Luscombe noted.

And don’t forget potential tax penalties. With any annuity, check the rules for when you may start taking withdrawals or receiving regular payments.

Also consider the estate tax consequences. Say you’re investing in a non-qualified annuity for the tax deferral on your investment gains, but you die before you start collecting payments. Your chosen heir will have to foot your tax bill, Adams said.

That’s because, unlike with stocks or other investments, there is no “step-up in basis” for those who inherit annuities, Adam noted. A step-up simply means a person would owe no tax on any of the unrealized capital gains that accrued on an investment before they inherited it.

Since annuity products can be very complicated and expensive to set up, talk to a tax adviser about the tax implications before agreeing to buy one.

“It is also important to discuss the overall financial and investment implications of the annuity with someone other than the person selling the annuity,” Luscombe said.

Young Entrepreneurs Are More Likely to Rely on a CPA at Tax Time

Advice, Articles, , , ,

For self-employed individuals, getting a little help from an expert accountant can make filing taxes a lot easier. Just as teachers are the authority when it comes to education, CPAs are the authority on all things taxes. But who uses accountants today, and what purpose do you serve in the eyes of your clients?

In an effort to better understand how entrepreneurs interact with accountants and pay their taxes, we commissioned an independent survey of 500 self-employed workers ages 18 and up, in the US. What we found may be the key to helping you prioritize your client relationships in 2019.

Older and younger taxpayers use accountants differently

Would you believe self-employed workers aged 18-24 are more likely to use an accountant than those 55 and older? It’s true! While 28 percent of self-employed workers aged 18-24 rely on an accountant to do their taxes, the same can only be said for 21 percent of workers over the age of 54.

But these age groups also have different reasons for using an accountant. Fifty percent of self-employed taxpayers over the age of 55 view their accountant as an essential business advisor, while only 27 percent of those under 55 would say the same.

The biggest reason folks under 55 use an accountant, as opposed to just filing their taxes themselves? They don’t know how. In fact, 37 percent admit they’ve never done their taxes themselves and they never want to. Eighteen percent say doing it themselves is just a waste of time, while 17 percent claim they’ve tried and failed to do their own taxes in the past, prompting them to seek help.

With a new set of federal tax laws changing the game for everyone next year, there’s likely an even greater chance taxpayers will be relying on an accountant in 2019. That is, for those who’ve realized the tax reform took place. Out of our 500 survey respondents, 9 percent didn’t know there was a tax reform.

If they’re not using an accountant, what are they doing?

Overall, 32 percent of self-employed workers rely on an accountant to do their taxes, but that number begs the question: What about the remaining 68 percent?

As it turns out, the numbers are about even. Thirty-one percent of taxpayers say they’re doing their own taxes on paper, while the last third rely on a tax software like TurboTax.

Interestingly, younger self-employed workers are less inclined to use a tax software than their older counterparts. While 42 percent of self-employed workers aged 55 and over are most likely to file online or through another tax software option, only 33 percent of taxpayers aged 18-24 would say the same. Younger taxpayers are also more likely (but only by 1 percent) to file on paper. An interesting choice for the iGeneration.

 

Younger workers may be better for business

As an accountant, you should be heartened by these current trends. While you have yet to prove yourself an indispensable business resource in the eyes of young up-and-comers, your foot is well inside the door.

Many self-employed individuals aged 18-24 haven’t done their own taxes before, and they don’t want to start. Considering these young taxpayers are 23 percent more likely to be audited by the IRS than taxpayers 55 and older, they also have an incentive to invest in your services.

With this year’s tax season behind us, it’s a great time to look to the future. Continue to build a trusting relationship with your younger clients. They may not be your biggest customers yet, but soon enough, they could be.

5 Fun Ways to Teach Your Kids About Money

Advice, Articles, ,

Here’s a list of five fun ways to teach kids about money, which will help them with financial literacy—and help parents so the kids aren’t living with us forever:

1. Toys

You can start very young teaching basics with toys such like these:

Piggy Bank

As early as age 2, there are toys like The Learning Journey Numbers and Colors Pig E Bank, which has colored coins the bank counts as you put them in the slot. You can get this toy for around $19.

Cash Register

Beginning with toddlers (around age 3), you can use a play cash register to let kids play “store” and understand the basics of money. This can help them learn how much money they have, how much they have left when they buy something, and how things add up when you buy multiple things. One popular cash register from Learning Resources costs about $30 on Amazon.

Checkbook

Made for kids 5 and up, this Learning Resources Pretend & Play Checkbook comes with a calculator, checkbook, deposit slips and guide to help kids learn about managing a bank account and writing checks. Even if checks aren’t often used much anymore, it’s still a fun way to help your kids learn about money and debiting accounts. It costs approximately $12.

2. Online Games

These games are available online for you to help your kids learn about money and finance:

Cash Puzzler

This simple money game on Visa’s Practical Money Skills site is made for ages 3-6 and involves putting together a “puzzle” from mixed up pieces of a bill ($1-$100).

Smart Money Commanders

Ruby’s Troupe is an organization that uses an interactive theatre with a fun-loving group of puppets to teach kids ages 3-10 (and their parents) about money and finance. The program was created by puppeteer Phyllis Mattson and Debbie Todd, a licensed CPA. It has online modules where children watch puppets, get coloring pages, and have access to games and activities.

“We have three purposes when it comes to teaching about managing money,” Todd explains. “First is for them to find out it’s fun. Second is to find out it’s practical. And third is that they can do it and be successful at it.”

They also focus lessons on the emotional and psychological aspects of money, because that is where a lot of mistakes can be made. They’ve also done live sessions and Todd says it’s amazing to see the “tall kids” (parents) sit in the back and learn with the kids: “By the end, we’ve provided the parents with the tools to have a non-confrontational, non-threatening conversation with their children.”

Ruby’s Troupe also donates 90% of its profits to charity, including nonprofits and foundations that promote financial literacy, which is critically lacking here in the U.S. Only 17 states offer financial literacy courses for high school students and a recent report card by Champlain College’s Center for Financial Literacy gave only five states—Alabama, Missouri, Tennessee, Utah, and Virginia—an ‘A’ grade for providing personal finance education.

Peter Pig’s Money Counter

Made for children from 5-8, this interactive game from Visa helps kids learn about counting and saving money along with U.S. currency.

Clay Piggy

Clay Piggy is an online game created for Kindergarten and above by a parent who didn’t find any fun options when trying to teach her own daughter about money. Students learn basic money management skills such as how to earn, spend, save, invest, and give.

There are different scenarios in the game where they have to take a job to earn money, create a budget, understand wants and needs, watch their credit scores, be a responsible investor by assessing credit profiles of other users who asking for loan, learn how to pay taxes, look at their paychecks and more.

“Parents need to talk to their children about savings and give them situations at an early age where they have to manage money,” explains Narinder Budhiraja, founder of Clay Piggy. “Lots of people learn about money by making mistakes and then spend lot of years fixing their mistakes. This bring lot of stress in their personal life. At Clay Piggy, we are determined to change that behavior.”

Currently Clay Piggy is currently only available for schools to use, but they’re planning to roll out an application for parents later this year.

Money Metropolis

Another game on Visa’s Practical Money Skills site, this one is created for 7-12 year olds to make life decisions that impact whether their virtual bank account will make or earn money.

Mt. Everest Money Simulation

This game is a choose-your-own-adventure simulation where kids help a backpacker plan a trip to Mt. Everest without going into debt. It’s available from Money Prodigy and is made for kids ages 8-13. You can learn more about it and join the wait list here.

Financial Football and Financial Soccer

Visa’s World Cup-themed soccer game is made for ages 11 and up to test financial management skills and the Financial Football game helps kids learn about money management.

Cash Crunch 101

Created for ages 13 and up, Cash Crunch 101 facilitates the conversation about money. It was created by a teacher for the classroom, but can be used by parents and kids as well.

3. Board Games

By keeping these around your house, your kids can play games with the family to learn more about money:

Monopoly Junior

Kids ages 5-8 can play a version of traditional Monopoly, learning how to count money and accumulate assets. It runs approximately $15.

Game of Life Junior

This version of Hasbro’s Game of Life is a version made for kids as young as 5 years old to go on various adventures and make money along the way. It costs about $25.

Cash Crunch Junior

This board game was created for children ages 7-12 and focuses on the value of money, denominations of money and making change. It’s a great way to help kids learn at home while having fun counting money. It costs $30 and is available on the Cash Crunch Games website.

Money Bags Coin Value Game

Kids ages 7 and older can play this board game from Learning Resources that teaches about collecting, counting and exchanging money. It costs about $16.

Pay Day

Originally launched in 1975, this board game was made for children 8 and older to play with their families. Created by Winning Moves Games, the object is to have the most money at the end of the game, which runs about 35-45 minutes long. Throughout the game, players can make deals on property to earn money, get a salary, pay off bills, take out loans, add to savings, and learn about paying fees. You can get it for approximately $15.

CASHFLOW

Ages 14 and up can learn more about financial skills, investing, and wealth building in a fun way with this interactive game. It was created by Robert Kiyosaki, author of the bestselling personal finance book of all time, Rich Dad Poor Dad, and comes with a PDF guide. The cost is approximately $80 on Amazon.

4. Activities & Outings

Money Museum

If you live in Chicago or are traveling there this summer, make sure to take your kids to the Chicago Fed’s Money Museum. It’s open Monday through Friday (except for Bank Holidays) and they offer exhibits such as the Alexander Hamilton Exhibit and interactive displays like the “Banker Challenge” game where kids play the role of a bank manager.

Summer Camps

While camps to get your kids outdoors are great, you may want to look into finance camps for a fun, educational experience for part of the summer. Even though finance summer camp may not sound exciting at first, these camps make money and entrepreneurship really fun for kids:

  • Camp BizSmartTM in Santa Clara, CA and Chattanooga, TN helps aspiring young entrepreneurs ages 11-15 learn how to solve business problems and defend their solution to executives and investors.
  • KidsCamps.com offers a directory of camps, showcasing availability in 18 states for business and finance camps.
  • Smart Money Commanders Fun Summer Money Games is launching its first online summer camp in mid-June 2018, which will run through August 2018.
  • Young Americans Center For Financial Education offers workshops in the Denver area both to teach about managing money and running a business.

Your Local Children’s Museums

Check out the children museum(s) in your area. Many of them have rotating exhibits and some of those cover business, money and finance in fun, interactive ways. You can find children’s museums here.

5. Charitable Activities

Teaching your kids how to give to others while on a budget is something that will help them learn various skills and allow them to feel a sense of purpose and pride. Here are some unique ways kids can learn about money and give back:

Kids Boost

There’s an organization in Atlanta, GA that not only encourages children to give back, but teaches them how to raise money. Kids Boost, which currently has a wait list of over 200 kids, is a 501(c)3 organization that gives children from third grade through high school $100 and they put together a fundraiser for a charity of their choice. In just a few years, they’ve given kids $6,000 and they have turned that into more than $110,000, supporting 48 non-profits.

“Fundraising comes with important life lessons such as money management, communication, planning, and accountability,” explains Kids Boost founder and executive director Kristen Wintzel. “This teaches kids so many things while boosting courage and self-esteem and supporting wonderful nonprofits around the world. Most kids go on to either compete another Kids Boost project or continue to get involved in philanthropy and civil engagement. Giving is powerful and giving is contagious!”

Birthday Gift Donations

Instead of adding to the never-ending supply of toys that your kids play with for five minutes, you can use your child’s birthday as an opportunity to give back. Some charities like St. Jude’s offer a birthday fundraising program where you can easily create a page to collect donations for your birthday. Also, Facebook lets you create a fundraiser for various organizations, letting you share and have people donate to anytime including your birthday.

You can also pick a charity that may need physical items and create an Amazon wish list. We did this with my daughter for her birthday—collected toys for the Aflac Cancer and Blood Disorders Center, an idea I borrowed from my cousin. You can deliver the items with your child and make them part of the experience.

This may not seem like its teaching kids how to manage money, but it helps them learn about wants vs. needs and the value of money—along with how it can be used to do good things for others.

Open Communication About Money

The bottom line is that you should get your kids involved in money conversations early on, and make sure it doesn’t become a taboo topic. That will benefit them (and you) in the long run because often times people get embarrassed when dealing with money challenges.

The unfortunate reality, though, is that many people deal with financial issues. A recent survey by the American Psychiatric Association shows that two-thirds of Americans are anxious about paying their bills, up from 56% last year. So the earlier you teach your kids about money and how to talk about it, the better they’ll be set up for success as they grow and have to make their own financial decisions.

For those who may not know where to start, Amanda Grossman, Certified Financial Education Instructor and founder of Money Prodigy says, “The best way parents can get started teaching their kids about money is to find out what your child is interested in, such as goals and what they want to be, do, and have in their lives. You can then tie any money lessons you teach or money conversations you have moving forward to their list of things that are important to them, meaning they’ll be more receptive in receiving the information instead of just thinking you’re babbling on about stuff that doesn’t relate to them.”

Learn more here on Experian.com about teaching your kids financial literacy.

IRS updates Priority Guidance Plan for new tax law

Advice, Articles, ,

The Internal Revenue Service has released an updated Priority Guidance Plan to give tax professionals and taxpayers information about the areas of the Tax Cuts and Jobs Act and other matters where it plans to provide more clarity in the near future.

This third quarter update to the 2017-2018 plan that the IRS issued late Wednesday reflects 13 additional projects, along with information about guidance the IRS has already published during the period from Oct. 13, 2017 through March 31, 2018.

In its initial implementation of the Tax Cuts and Jobs Act, the IRS plans to provide guidance in areas such as the business credit for wages paid to qualifying employees during family and medical leave, along with guidance on reportable policy sales of life insurance contracts.

The IRS also plans to release guidance on the new Section 199A, the deduction of qualified business income of pass-through entities, a murky area of the tax reform law where many practitioners have been demanding guidance. The IRS said in the priority plan it would be issuing “computational, definitional, and anti-avoidance guidance” on Section 199A. The IRS also plans to issue guidance on adopting new small business accounting method changes in its initial implementation of the TCJA. It will also be providing guidance on computation of unrelated business taxable income for separate trades or businesses, as well as changes to electing small business trusts, and on computation of estate and gift taxes to reflect changes in the basic exclusion amount. There will also be guidance coming out on certain issues relating to the excise tax on excess remuneration paid by “applicable tax-exempt organizations.”

The IRS has already released guidance in several areas, including opportunity zones, dispositions of certain partnership interests, withholding and optional flat rate withholding, according to the document.

Another important set of items on the Priority Guidance Plan is President Trump’s executive order withdrawing some earlier Treasury regulations and proposed regulations on matters such as estate, gift and generation-skipping taxes and the definition of a political subdivision.

Last month, the IRS asked the public for input on other items that should be added to the Priority Guidance Plan (see IRS looks for recommendations on priority guidance on new tax law). The update to the plan will identify the guidance projects that the Treasury and the IRS intend to work on as priorities from July 1, 2018, through June 30, 2019.

Staffers on Congress’s Joint Committee on Taxation have also been working on a so-called “Blue Book” that will provide more details on various provisions of the new tax law, along with a set of technical corrections to the tax reform law that they hope to have it in legislative form by the end of the year (see Congressional staff aims to finish technical corrections to tax reform bill). The prospects for passing another tax law anytime soon in Congress are far from certain, although some lawmakers hope to introduce legislation extending the individual tax cuts beyond 2025.