Tax Changes to Know

Here are just a few of the biggest changes as we understand them:

1. Lower Tax Rates Made Permanent and a Higher Standard Deduction

The bill makes permanent the individual tax rate percentages first introduced by the 2017 Tax Cuts and Jobs Act (TCJA) for the tax year 2025 and beyond; thereafter income brackets will be indexed for inflation annually. The tax rates, as well as brackets for 2025, are as follows:

The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).

35% for incomes over $250,525 ($501,050 for married couples filing jointly).

32% for incomes over $197,300 ($394,600 for married couples filing jointly).

24% for incomes over $103,350 ($206,700 for married couples filing jointly).

22% for incomes over $48,475 ($96,950 for married couples filing jointly).

12% for incomes over $11,925 ($23,850 for married couples filing jointly).

10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).

Along with this, the standard deduction has been increased slightly to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers for 2025—adjusted annually for inflation going forward.

2. Temporary Deductions (For Tax Years 2025–2028 Only)

• Tips: Up to $25,000 of tips may be deducted from federal taxable income for those who work in industries where tips are customary. The deduction amount phases out by $100 for each $1000 when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. While the deduction applies to “cash” tips only, the OBBBA broadly defines “cash” tips to include tips paid in cash or charged.
• Overtime Pay Deduction: Up to $25,000 of overtime compensation for married filers and $12,500 for single filers may be deducted from federal taxable income. The deduction phases out when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
• Senior Deduction: Mistakenly referred to as a Social Security tax cut, the OBBBA established a temporary income tax deduction of $6,000 per eligible filer for people age 65 or older—provided their modified adjusted gross income does not exceed $75,000 for single filers, or $150,000 for those married filing jointly.
• Auto Loan Interest: Auto loan interest is made income tax deductible for new autos with final assembly in the United States. The deduction is limited to $10,000 and phases out when income exceeds $100,000 for single filers and $200,000 for joint filers.

These deductions can help reduce taxable income to support some middle-income earners but will sunset after 2028 unless renewed.

3. Child and Family Benefits

The child tax credit was permanently raised by another $200 to $2,200 per qualifying child for 2025. Beginning in 2026, this will be indexed for inflation. (Earned income must be at least $2,500 in order to claim any child credit.) The OBBBA also makes permanent the $500 nonrefundable credit for other dependents who do not qualify for the child tax credit, including those over the age of 16, and makes permanent a requirement that the child and at least one parent have a Social Security number.

New Trump Accounts: A tax-deferred savings account is meant for American children born between 2025 and 2028. There is a one-time government deposit of $1,000 and families can contribute up to $5,000 per year with investment growth tax-deferred. Employers can also contribute $2,500 to the employee’s eligible dependent child.

4. Permanently Higher Estate and Lifetime Gift Tax Exemption Amounts

The higher federal Estate and Lifetime Gift Tax exemption amounts will no longer sunset in 2026. Instead of reverting to pre-TCJA levels, the OBBB permanently increases the exemption to $15 million per person, or $30 million for joint filers starting in 2026, with the new exemption amount indexed for inflation going forward. The Generation-Skipping Transfer (GST) exemption will match this amount. (For the 2025 tax year, the exemption amount is $13.99 million or $28.98 million per couple.)

5. SALT Deduction Expands Until 2030 and Current Mortgage Interest Deduction Amount Made Permanent

The deduction cap for State and Local Taxes (SALT) has been increased to $40,000 starting in 2025 and will then climb by 1% annually through 2029 before reverting back to $10,000 in 2030 (phases out for taxpayers with an income over $500,000).

Qualified residence interest deduction: Originally set to increase to $1 million, the OBBBA modified the limit on the deduction for qualified residence interest to a maximum of $750,000 of home acquisition debt permanently. The disallowance of interest on home equity loans has been made permanent unless loan proceeds are used to buy, build, or substantially improve the home securing the loan.

6. Charitable Deduction Increase for Nonitemizers

The OBBB expands the ability of nonitemizers to take a bigger charitable deduction permanently. The preexisting limit of $300 ($600 for married individuals filing jointly) is increased to $1,000 ($2,000 for joint returns). This above-the-line deduction is available only for cash gifts made to public charities.

7. What’s Ending

While some incentives were expanded or made permanent, others are being phased out. For instance, tax credits for electric vehicles (EVs) end September 30, 2025. Other homeowner tax credits for home energy improvements, such as solar panels, doors and windows, and heat pumps, will end December 31, 2025.

While we’ve only highlighted a few key changes, this bill spans over 800 pages, making it important to stay informed and regularly review your plan. Planning ahead remains foundational, as future shifts or challenges could bring additional changes. More guidance is expected from the IRS in the months ahead, but in the meantime, contact us with any questions or concerns.

Schedule an Appointment — This overview is compiled from information believed to be true. This article should not be relied upon for tax or financial advice. Please check with your tax and financial professionals before making any changes to your plan.

Sources:

Article 1 | Article 2 | Article 3 | Article 4 | Article 5 | Article 6 | Article 7 | Article 8

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You can catch Smart Money Radio every Saturday from 12-12:30 PM ET and every Sunday from 9-10 AM ET and 11-12 PM ET on WIOD-AM 610! Tune in to begin your journey to a smarter financial future!

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Meet Your Host, Tatyana Bunich

With over 30 years of experience as a Financial Advisor and Wealth Manager, Tatyana Bunich specializes in tax strategies, retirement planning, investments, and estate planning. She holds Series 7, 63, and 66 licenses and is a Certified Estate Planner (CEP) and Five Star Professional. As the founder of Financial 1 Wealth, Tatyana leads a comprehensive financial planning firm with offices in Columbia, Maryland and South Florida (Boca, Aventura, & Miami).

Tatyana hosts Smart Money Radio on WIOD-AM 610 every Saturday and Sunday, where she shares insights on financial strategies to help listeners secure their future.

Want to learn more about Tatyana? Read her full bio

Got a Question?

Send it in for the chance to have Tatyana read it on air!

We will get back to you to discuss your tax scenario and options to prepare your taxes. You can also reach us here.

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Tax Prep Checklist – What To Bring

The following is a condensed checklist of items that you should look for and bring with you to your appointment this year. Gather everything on this list that applies to you — you’ll need this information to complete your taxes.

Preparation Checklist for Financial 1 Tax | View or Download PDF

Personal Information

  Your Social Security number or tax ID number
  Your employer identification number (EIN), if you own a business
  Your spouse’s full name, social security number or tax ID number, and date of birth
  Identity Protection PIN — if the IRS has issued one to you, your spouse, or your dependent
  Your bank routing and account numbers — if you want to receive your refund by direct deposit or pay your balance electronically
  Foreign reporting and residency information — if this applies to you

Income & Expenses

Personal income:

This includes W-2 income, self-employed 1099 income, and any other income you receive, including dividends and interest. If you have a 401(k) through your employer, your contributions will be captured by your W-2. If you have a traditional IRA, make sure you get a record of those contributions. They reduce your taxable income now in exchange for paying taxes on that money later, when you eventually withdraw from the fund.

  W-2’s from Employers
  1099 INT (Bank Interest)
  1099 DIV (Dividend Interest)
  1099B (Investment Statements / Capital Gains / Losses)
  IRA, 401(k), 403(b), TSP or Employer Retirement Plan statements
  1099R (Pension and Retirement Income) – Did you withdraw money from your retirement account this year? Make sure you have a 1099-R form showing that income. Remember, if you withdrew from a Roth IRA, you don’t have to pay taxes on those funds.
  SSA (Social Security Income)
  1099G (State Tax Refund from Prior Year)
  Unemployment Compensation
  1099 MISC (Self Employed, Independent Income)

Business income and expenses:

In some cases, your business will need to file its own tax return even if you pay those taxes personally. If you own all or part of a business, you’ll need the following information.

  1099s for your business income, including 1099-Ks if applicable
  Balance sheet
  Profit and loss statement
  Receipts or other documentation for expenses (such as detailed mileage logs)
  Documentation of any sales tax you collected (or should have collected), organized by state

Real estate business income and expenses:

If you have properties that you rent out, you’ll want to bring this information too.

  Any rental income and related expenses
  Property tax bills and proof of payment
  Receipts for maintenance, repairs, and improvement costs
  Mortgage interest statements (Form 1098)

Estimated Tax Payments & Credits

Estimated tax payments:

If you made estimated tax payments, be sure you have your 1040-ES forms on hand. Those are direct credits against this year’s tax liability. Don’t pay those taxes twice!

  Estimated tax payments you paid throughout the year. Make sure you have the documentation you need to show how much you paid and when.

Personal credits:

A credit is an amount you subtract from the tax you owe. This can lower your tax payment or increase your refund. If you qualify for any of the following IRS tax credits, be sure to gather the documentation you’ll need.

Deductions Checklist:

A deduction is an amount you subtract from your income when you file so you don’t pay tax on it. By lowering your income, deductions lower your tax. For most people, the standard deduction will save you more money but if you have enough individual deductions, listing them out (itemizing) may reduce your tax liability.

The Standard deduction is $14,600 per person, or $29,200 per couple.
(If your total deductions are less, do not itemize).

Personal deductions (non-itemized):

The IRS allows the following deductions whether or not you’re claiming the standard deduction.

  Alimony payments
  Business use of your car
  Business use of your home
  Money you put in an IRA
  Money you put in health savings accounts
  Penalties on early withdrawals from savings
  Student loan interest
  Teacher expenses
  Work-related education expenses — for some military, government, self-employed, and people with disabilities
  Moving expenses — for military service members

Itemized deductions:

The IRS allows these deductions only if you’re itemizing your deductions instead of claiming the standard deductions. For most people, the standard deduction will save you more money but if you have enough individual deductions, listing them out may reduce your tax liability. If you’re itemizing your deductions, be sure to gather your receipts.

  Deductible taxes — Income tax, sales tax, real estate tax, and personal property taxes paid during the year

• State and local income tax OR local general sales taxes
• State and local real property taxes
• State and local personal property taxes (such as vehicle registration fees)

  Home mortgage interest
  Capital losses
  Donations to charity – Make sure you get receipts for any charitable contributions you’ve made throughout the year.
  Medical and dental expenses over 7.5% of your adjusted gross income
  Gains from sale of your home
  Canceled debt on home
  Bad debts
  Gambling losses
  Losses from disasters and theft
  Opportunity zone investment
Miscellaneous itemized deductions

If you have questions on any of these, don’t hesitate to send us a message or call at 410-908-9293.

The post Tax Preparation Information and Checklist appeared first on Financial 1 Tax.

Tax Day in 2025

Changes for Tax Year 2024

We’ve gathered a few notable tax changes below for you to consider. Additionally, you can visit the IRS’s page regarding the tax changes for 2024.

Inflation Adjustment

The IRS has adjusted marginal tax brackets and the standard deduction for 2024 in response to inflation. Because of this, you might see an increase in your paychecks, depending on your withholding. Another change includes increases to the allowed contribution amounts for tax-advantaged retirement savings accounts.

Income Tax Brackets Change

With new tax brackets in 2024, some taxpayers may find that their tax bill is lower than expected. Here’s a look at the tax brackets for 2024:

Standard Deduction Increase

The standard deductions provided by the IRS are popular for their simplicity. Standard deductions are set amounts by which taxpayers can use to lower their taxable income based on their filing status.

Here’s a table that breaks down standard deduction changes between 2023 and 2024:

Capital Gains Tax Thresholds Change

For the 2024 tax year, individual tax filers will not have to pay any capital gains tax if their total taxable income is $47,025 or less. The capital gains tax rate jumps to 15% if your income is $47,026 to $518,900. If your income is higher than that, you’ll pay 20% in capital gains.

Earned Income Tax Credit Rises

This is a refundable tax credit designed for qualifying earners. It may or may not apply to your scenario. Workers who earn a low to moderate income may be able to reduce their tax liability through the earned income tax credit.

Here are the earned income tax credit requirements for 2024:

There are other rules that might qualify or disqualify you from receiving the earned income tax credit. If you’re not certain if you qualify for the credit, please contact us.

Gift Limit Goes Up

For tax year 2024, you can now give gifts up to $18,000 per person without having to filing a gift tax return. This is an annual limit to be able to exclude certain gifts. Other rules may apply, depending on the gift.

If you are planning to give gifts and want to plan in advance, please contact us.

Other Changes That May Apply to You

The IRS has made a variety of other changes that may affect your tax liability for tax year 2024.

We Are Here to Help

Please keep in mind that the rules for these options and changes can be more complicated, depending on your tax scenario. Have a question? Reach out anytime. As always, we look forward to helping you with your tax returns and helping you to plan your future.

– The Financial 1 Team

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. The views stated in this letter are not necessarily the opinion of Tatyana Bunich (CEP) (RFC) or Financial 1 and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this article may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

The post What’s New – 2025 Tax Changes (Tax Year 2024) appeared first on Financial 1 Tax.

Tax Season is Coming

Happy 2024! We hope you enjoyed the holidays.

To prepare for the coming tax season, there are a few deadlines you should know. In early 2024, we’ve listed important upcoming deadlines to prepare for your 2023 Tax Year filings. Have questions? Schedule an appointment with us — in person, by phone, or by Zoom, whichever is most convenient for you.

Upcoming Dates You Need to Know

Early 2024, for the 2023 Tax Year:

January 16 — All 4th quarter estimated taxes due
January 31 — Must issue 1099-NEC and W2’s to contractors & employees
March 15 — S-corps and Partnership tax returns due
April 15 — Personal tax returns due (and extension file requests)

To schedule an appointment online right now in Calendly, click here — we are happy to meet with you in person, by Zoom, or by phone call.

The post Deadlines to Prepare for Tax Season appeared first on Financial 1 Tax.

Tax Day 2024

Seven Big Changes for Tax Year 2023

Before we skip ahead to this year, everything you need to know about tax year 2022, and filing your taxes in April is here in this blog “Proactive Year-end Tax Planning for 2022 and Beyond”.

Inflation Adjustment

Last October 2022, an inflation adjustment was announced by the IRS for tax year 2023. The increase is around 7%, which will affect your federal tax bracket and other amounts. The adjustment is a bigger jump than what we see each year, and will help some people stay in a lower bracket. That’s a helpful change.

Income Tax Brackets Change

The seven tax brackets for income tax stayed the same in 2022. For 2023, the IRS has notably changed the income thresholds. Compare the changes below for those seven tax rates.

Click your scenario below to expand and compare the rates between tax years 2022 and 2023:

Standard Deduction Increase

For the 2023 tax year, the deduction is going up at $900 to $1,800 depending on your tax scenario. If you take the standard deduction to lower the income you can taxed on, this is a nice plus. For single filers (and married filing separately), the deduction increases $900. For married couples, it’s up $1,800. For heads of households, it’s up $1,400.

For those over 65 or blind, this deduction is up $1,500. For the additional scenario of being unmarried (and not a surviving spouse), it’s $1,850 higher.

Capital Gains Tax Thresholds Change

For 2023, the income thresholds are going up for long-term gains. Short-term gains are still taxed as ordinary income. This impacts tax on the profits during the sale of an asset, like a stock transaction. This includes sales of cryptocurrency, too.

Earned Income Tax Credit Rises

This is a refundable tax credit designed for qualifying earners. It may or may not apply to your scenario, but the refundable credit is going up. Depending on your income and number of children, the earned income credit (EIC) is $560 to $6,935 for tax year 2022.

For 2023, the max is increased to $7,430. For that maximum, you must be qualify and have 3 children or more.

Side note: you may still qualify for the EIC if you do not have children, though the EIC requirements still apply. If you have questions, please contact us.

Gift Limit Goes Up

For tax year 2023, you can now give gifts up to $17,000 per person without having to filing a gift tax return. This is an annual limit to be able to exclude certain gifts. Other rules may apply, depending on the gift.

If you are planning to give gifts and want to plan in advance, please contact us.

Other Changes That May Apply to You

Quick notes on adoption, estate tax and FSAs, below:

We Are Here to Help

Please keep in mind that the rules for these options and changes can be more complicated, depending on your tax scenario. Have a question? Reach out anytime. As always, we look forward to helping you with your tax returns and helping you to plan your future.

– The Financial 1 Team

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. The views stated in this letter are not necessarily the opinion of Tatyana Bunich (CEP) (RFC) or Financial 1 and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this article may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

The post What’s New in 2024 (Tax Year 2023) appeared first on Financial 1 Tax.

One of our main goals as holistic financial professionals is to help our clients recognize tax reduction opportunities within their investment portfolios and overall financial planning strategies. Staying current on the ever-changing tax environment is a key component to help our clients benefit from potential tax reduction strategies.

Other than some IRS inflation adjustments, calendar year 2022 has brought limited changes in tax laws for individuals. Many of the provisions that were passed in bills like, The Inflation Reduction Act of 2022, affected corporations, such as the corporate minimum tax of 15% for corporations with adjusted federal income over $1 billion dollars. While President Biden has offered some personal income tax and estate planning tax changes in his proposed 2022 budget and tax plans, many experts feel that it is very unlikely that any changes, if approved, will take affect this calendar year. This report focuses on information that could be helpful for individuals in conjunction with tax planning for calendar year 2022. It also has a section that shares some key details from President Biden’s suggested American Families Plan and some noteworthy proposals included in the budget and green book from Biden’s recent 2022 Budget Plan.

Remember, the Tax Cuts and Jobs Act (TCJA) enacted in 2017 brought many changes to the tax code. The Tax Cuts and Jobs Act included many provisions for individuals that took effect in 2018 but are currently set to expire after 2025. One big uncertainty for all taxpayers is what will happen to the tax code after 2025.

As financial professionals, we try to be proactive when it makes sense. The objective of this report is to share strategies that could be effective if considered and implemented before year-end. Please note that this report is not a substitute for using a tax professional. In addition, many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

Income Tax Rates for 2022

For 2022 there are still seven tax rates. They are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Under current law this seven-rate structure will phase out on January 1, 2026.

Year-end Tax Planning for 2022

One of our primary goals is to help our clients try to optimize their tax situations. This report offers many suggestions and reviews strategies that can be useful to achieve this goal.

Everyone’s situation is unique but it is wise for every taxpayer to begin their final year-end planning now! Choosing the appropriate tactics will depend on your income as well as a number of other personal circumstances. As you read through this report it could be helpful to note those strategies that you feel may apply to your situation so you can discuss them with your tax preparer.

Some items to consider include:

Evaluate the use of itemized deductions versus the standard deduction.

For 2022 tax returns, the standard deduction amounts will increase to $12,950 for individuals and married couples filing separately, $19,400 for heads of household, and $25,900 for married couples filing jointly and surviving spouses.

As a reminder, the Tax Cuts and Jobs Act roughly doubled the standard deduction. Its goal was to decrease tax payments for many of those who typically claim this standard deduction. Although personal exemption deductions are no longer available, the larger standard deduction, combined with lower tax rates and an increased child tax credit, could result in less tax. You should consider running the numbers to assess the impact on your situation before deciding to take itemized deductions.

The TCJA still eliminates or limits many of the previous laws concerning itemized deductions. An example is the state and local tax deduction (SALT), which is still currently capped at $10,000 per year, or $5,000 for a married taxpayer filing separately.

Consider bunching charitable contributions or using a donor-advised fund.

For those taxpayers who are charitably inclined it makes sense to think about a plan. One way to utilize the tax advantages of charitable contributions is through a strategy referred to as “bunching”. Bunching is the consolidation of donations and other deductions into targeted years so that in those years, the deduction amount will exceed the standard deduction amount.

Another strategy is to consider using a donor-advised fund. A donor-advised fund, or DAF, is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. Taxpayers can take advantage of the charitable deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It can be a win-win situation. ​If you are charitably inclined and need some guidance, please call us and we can assist you.

Review your home equity debt interest.

For mortgages taken out after October 13, 1987, and before December 16, 2017 (i.e., enters into a binding contract by that date), mortgage interest is fully deductible up to the first $1,000,000 of mortgage debt incurred to acquire or improve a qualified residence. The TCJA lowered the threshold to $750,000 or $375,000 (married filing separately) for homes purchased after December 15, 2017, but before January 1, 2026. All interest paid on any mortgage taken out before October 13, 1987, is fully deductible regardless of your mortgage amount (“grandfathered debt”). Many mortgage holders refinanced for lower rates or to cash out in the last few years, so remember, to the extent debt increases the interest might not be deductible.

Interest on home equity lines of credit (HELOCs) and cash-out refinancings may be deductible as well if the funds were used to improve the home that secures the loan (or if the proceeds were invested). Please share with your tax preparer how the proceeds of your home equity loan were used. If you used the cash to pay off credit cards or other personal debts, the interest isn’t deductible, but that may change when the TCJA sunsets at the end of 2025.

Revisit the use of qualified tuition plans.

Qualified tuition plans, also named 529 plans, are a great way to tax efficiently plan the financial burden of paying tuition for children or grandchildren to attend elementary or secondary schools. Earnings in a 529 plan originally could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. However, they changed that so 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. Unlike IRAs, there are no annual contribution limits for 529 plans. Instead, there are maximum aggregate limits, which vary by plan. Under federal law, 529 plan balances cannot exceed the expected cost of the beneficiary’s qualified higher education expenses. Limits vary by state. Some states even offer a state tax credit or deduction up to a certain amount.

Contributions to a 529 plan are considered completed gifts for federal tax purposes, and in 2022 up to $16,000 per donor, per beneficiary, qualifies for the annual gift tax exclusion. Excess contributions above $16,000 must be reported on IRS Form 709 and will count against the taxpayer’s lifetime estate and gift tax exemption amount ($12.06 million in 2022).

There is also an option to make a larger tax-free 529 plan contribution, if the contribution is treated as if it were spread evenly over a 5-year period. For example, a $80,000 lump sum contribution to a 529 plan can be applied as though it were $16,000 per year, as long as no other gifts are made to the same beneficiary over the next 5 years. Grandparents sometimes use this 5-year gift-tax averaging as an estate planning strategy. ​If you want to explore setting up a 529 plan, call us and we would be happy to assist you.

Maximize your qualified business income deduction (if applicable).

One of the most talked about changes from the Tax Cuts and Jobs Act enacted in 2017 is the qualified business income deduction under Section 199A. Current proposals want to change this deduction, but for 2022, taxpayers who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20% of their qualified business income. Please be careful because this deduction is subject to various rules and limitations.

There are planning strategies to consider for business owners. For example, business owners can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for business owners to convert their independent contractors to employees where possible, but before doing so, please make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies can include investing in short-lived depreciable assets, restructuring the business, and leasing or selling property between businesses. ​This piece of the tax code is complicated and would take an entire report to discuss, so we recommend that if you are a business owner, you should talk with a qualified tax professional about how this new Section 199A could potentially work for you.

Consider All of Your Retirement Savings Options for 2022

If you have earned income or are working, you should consider contributing to retirement plans. This is an ideal time to make sure you maximize your intended use of retirement plans for 2022 and start thinking about your strategy for 2023. For many investors, retirement contributions represent one of the smarter tax moves that they can make. Here are some retirement plan strategies we’d like to highlight.

401(k) contribution limits increased. The elective deferral (contribution) limit for employees under the age of 50 who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $20,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains the same at $6,500 ($27,000 total). As a reminder, these contributions must be made in 2022.

IRA contribution limits unchanged.​ ​The limit on annual contributions to an Individual Retirement Account (IRA) remains at $6,000 for 2022. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 (for a total of $7,000). IRA contributions for 2022 can be made all the way up to the April 17, 2023, filing deadline.

Higher IRA income limits. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (MAGI) of $68,000 and $78,000 for 2022. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $109,000 to $129,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2022 as the couple’s income reaches $204,000 and completely at $214,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range remains at $0 to $10,000 for 2022. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Increased Roth IRA income cutoffs.​ The MAGI phase-out range for taxpayers making contributions to a Roth IRA is $204,000 – $214,000 for married couples filing jointly in 2022. For singles and heads of household, the income phase-out range is $129,000 – $144,000. For a married individual filing a separate return, the phase-out range remains at $0 to $10,000. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Larger saver’s credit threshold. The MAGI limit for the saver’s credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers is $68,000 for married couples filing jointly in 2022, $51,000 for heads of household and $34,000 for all other filers.

Be careful of the IRA one rollover rule.Investors are limited to only one rollover from all of their IRAs to another in any 12-month period. A second IRA-to-IRA rollover in a single year could result in income tax becoming due on the rollover, a 10% early withdrawal penalty, and a 6% per year excess contributions tax as long as that rollover remains in the IRA. Individuals can only make one IRA rollover during any 1-year period, but there is no limit on trustee-to-trustee transfers. Multiple trustee-to-trustee transfers between IRAs and conversions from traditional IRAs to Roth IRAs are allowed in the same year. If you are rolling over an IRA or have any questions on IRAs, please call us.

Roth IRA Conversions

In 2022, some IRA owners may want to consider converting part or all of their traditional IRAs to a Roth IRA. This is never a simple or easy decision. Roth IRA conversions can be helpful, but they can also create immediate tax consequences and can bring additional rules and potential penalties. Under the current laws, you can no longer unwind a Roth conversion by re-characterizing it. It is best to run the numbers with a qualified professional and calculate the most appropriate strategy for your situation. ​Call us if you would like to review your Roth IRA conversion options.

Capital Gains and Losses

Looking at your investment portfolio can reveal a number of different tax saving opportunities. Start by reviewing the various sales you have realized so far this year on stocks, bonds and other investments. Then review what’s left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment, versus realized, which means you’ve actually sold the investment.)

Know your basis. In order to determine if you have unrealized gains or losses, you must know the tax basis of your investments, which is usually the cost of the investment when you bought it. However, it gets trickier with investments that allow you to reinvest your dividends and/or capital gain distributions. We will be glad to help you calculate your cost basis.

Consider loss harvesting. If your capital gains are larger than your losses, you might want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. However, you are limited to only $3,000 ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. ​If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security in order to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale. However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security, perhaps a different stock, in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Always double-check brokerage firm reports. If you sold a security in 2022, the brokerage firm reports the basis on an IRS Form 1099-B in early 2023. Unfortunately, sometimes there could be problems when reporting your information, so we suggest you double-check these numbers to make sure that the basis is calculated correctly and does not result in a higher amount of tax than you need to pay.

Long-term Capital Gains Tax Rates

Tax rates on long-term capital gains and qualified dividends changed for 2022. You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2022. In 2022, the 0% rate applies for individual taxpayers with taxable income up to $41,675 on single returns, $55,800 for head-of-household filers and $83,350 for joint returns. If this is the case, then the strategy is to figure out how much long-term capital gains you might be able to recognize to take advantage of this tax break.

The 3.8% surtax on net investment income stays the same for 2022. It starts for single people with modified AGI over $200,000 and for joint filers with modified AGI over $250,000.

NOTE​: The 0%, 15% and 20% long-term capital gains tax rates only apply to “capital assets” (such as marketable securities) held longer than one year. Anything held one year or less is considered a “short-term capital gain” and those are taxed at ordinary income tax rates.

Some Notable and Continuing Tax Changes for 2022

Some previous itemized deductions are still affected in 2022 under the tax laws. They include:

The floor for deductible medical expenses is still at 7.5%. The 2022 threshold for deducting medical expenses on Schedule A is 7.5% of your 2022 adjusted gross income (AGI). The IRS on IRS.gov provides a long list of expenses that qualify as “medical expenses,” so it can be a good idea to keep keeping track of yours if you think you may qualify.

State and local income, sales, and real and personal property taxes (SALT)​ ​are still limited to $10,000.

The deduction for casualty and theft losses​ ​is currently allowed only for presidentially declared disaster areas.

Alimony deductions.​ For divorce and separation instruments executed or modified after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor-spouse, nor includible in the income of the payee-spouse.

Education Planning

Education benefits.​ The student loan interest deduction, education credits, exclusion for savings bond interest, tuition waivers for graduate students, and the educational assistance fringe benefit are all still available in 2022. 529 plan funds can be used to pay for fees, books, supplies and equipment for certain apprenticeship programs. In addition, up to $10,000 in total (not annually) can now be withdrawn from 529 plans to pay off student loans.

The 2022 lifetime learning credit, allows you to claim 20% of your out-of-pocket costs for tuition, fees and books, for a total of $2,000 as a tax credit. It phases out for couples from $118,00 to $138,00 and from $59,000 to $69,000 for singles.

Charitable Giving

This is a great time of year to clean your garage or house and give your items to charity. Please remember that you can only write off donations to a charitable organization if you itemize your deductions. Sometimes your donations can be difficult to value. You can find estimated values for your donated items through a value guide offered by Goodwill.

Send cash donations to your favorite charity by December 31, 2022. Be sure to hold on to your canceled check or credit card receipt as proof of your donation. If you contribute $250 or more, you also need a written acknowledgement from the charity. If you plan to make a significant gift to charity this year, consider gifting appreciated stocks or other investments that you have owned for more than one year. Doing so boosts the savings on your tax returns. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, not the amount you paid for the asset and therefore you avoid having to pay taxes on the profit.

Do not donate investments that have lost value. It is best to sell the asset with the loss first and then donate the proceeds, allowing you to take both the charitable contribution deduction and the capital loss. Also remember, if you give appreciated property to charity, the unrealized gain must be long-term capital gains in order for the entire fair market value to be deductible. (The amount of the charitable deduction must be reduced by any unrealized ordinary income, depreciation recapture and/or short-term gain.)

The law allowing taxpayers age 70½ and older to make a Qualified Charitable Distribution (QCD) in the form of a direct transfer of up to $100,000 directly from their IRA over to a charity, including all or part of the required minimum distribution (RMD) was made permanent in 2015. If you meet the qualifications to utilize this strategy, the funds must come out of your IRA by December 31, 2022. Please call us if this is a strategy you are interested in considering.

Additional Year-end Tax Strategies and Ideas

Make use of the annual gift tax exclusion. ​You may gift up to $16,000 tax-free to each donee in 2022. These “annual exclusion gifts” do not reduce your $12.06 million lifetime gift tax exemption. This annual exclusion gift is doubled to $32,000 per donee for gifts made by married couples of jointly held property or when one spouse consents to “gift-splitting” for gifts made by the other spouse.

Help someone with medical or education expenses. ​There are opportunities to give unlimited tax-free gifts when you pay the provider of the services directly. The medical expenses must meet the definition of deductible medical expenses. Qualified education expenses are tuition, books, fees, and related expenses, but not room and board. You can find the detailed qualifications in IRS Publications 950 and the instructions for IRS Form 709 on the IRS website.

Make gifts to trusts. ​These gifts often qualify as annual exclusion gifts ($16,000 in 2022) if the gift is direct and immediate. A gift that meets all the requirements removes the property from your estate. The annual exclusion gift can be contributed for each beneficiary of a trust. We are happy to review the details with your estate planning attorney.

Estate, Gift, and Generation-Skipping Tax Changes

Exemption amounts for gift, estate, and generation-skipping taxes are another issue that proposals are trying to change. For 2022 the limits are at $12.06 million ($24.12 million for married couples) and the income tax basis step up/down to fair market value at death is in place. Any amount over that is subject to 40% Federal taxes. This high amount provides high net worth individuals a significant planning window to make gifts and set up irrevocable trusts.

As a reminder, as of now, in 2026, the estate tax exclusion is due to revert to pre-2018 levels (adjusted for inflation, which we project will be $6-7 million under current law).

In 2019, the Treasury Department and the Internal Revenue Service issued final regulations under IR-2019-189 confirming that individuals who take advantage of the increased gift tax exclusion or portability amounts in effect from 2018 to 2025 will not be adversely impacted when TCJA sunsets on January 1, 2026. Claiming the portable exemption will remain an important discussion topic for descendants with large estates. For those who have large estates, please call us to discuss your situation.

Tax Law Proposals

On March 28, 2022, the Biden Administration released the Fiscal Year 2023 Budget, and the “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” which is commonly referred to as the “Green Book.” The Green Book summarizes the Administration’s tax proposals contained in the Budget. The Green Book is not a proposed legislation and each of the proposals will have to be introduced and passed by Congress.

Some of the Green Book’s Significant Proposed Changes to Current Law:

Business taxation

• Increase the corporate income tax rate from 21% to 28%

Individual taxation

• Impose a 20% minimum tax on individuals who have more than $100 million in assets – A taxpayer subject to the minimum tax would make two calculations: Their “normal” tax liability under our current realization system, and the “minimum” tax under the proposal. Tax would be paid on the greater of the two.
• Treat death as a realization event

Taxation of investments in real property

• Restrict deferral of gain for like-kind exchanges under section 1031
• Treat 100% of depreciation recapture on the sale of section 1250 property as ordinary income

Cryptocurrency taxation

• Apply securities loan rules to digital assets
• Apply the mark-to-market rules to digital asset dealers and traders
• Require information reporting for digital asset transactions

Passing legislation takes time and even if any legislation is passed, it’s very likely that all proposed changes will not take effect for 2022. Retroactive tax increases are very rare and unusual. However, it’s wise to be informed of potential changes. Also as mentioned earlier in this report, many tax laws are set to sunset on December 31, 2025, and change for 2026, even if no legislation is passed.

Our goal is to keep clients updated when tax laws change so that they can proactively plan. If you would like to discuss any of these potential tax law changes with us, please feel free to contact us and we’d be happy to assess your unique financial situation.

Conclusion

One of our primary goals is to keep clients aware of tax law changes and updates. This report is not a substitute for using a tax professional. Please note that many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

There are many other additional tax reduction strategies that will vary depending on your financial picture. We encourage you to come in so that we can review your particular situation and hopefully take advantage of those tax rules that apply to you. We will try to monitor impactful changes and as always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

Please share this information with others!

Have a friend, family member, or colleague that would benefit from this financial advice? Please share this report or give our office a call at our Florida office (954) 892-6020 or Maryland office (410) 908-9293.

Find us:

150 S. Pine Island Road, Suite 360, Plantation, FL 33324
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Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results.

Note: The views stated in this letter are not necessarily the opinion of Tatyana Bunich (CEP) (RFC) or Financial 1 and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this newsletter may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

Rules and laws governing 529 plans are varied and subject to change. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Tax laws and provisions may change at any time. Death of the contributor prior to the end of the five-year period may result in a portion of the contribution to be included in the contributor’s estate. Please consult a qualified tax professional to discuss tax matters. Source: irs.gov. Contents provided by the Academy of Preferred Financial Advisors, Inc. Reviewed by Keebler & Associates. © Academy of Preferred Financial Advisors, Inc. 2022.

The post Proactive Year-end Tax Planning for 2022 and Beyond appeared first on Financial 1 Tax.

Your crypto transactions have tax implications, and reporting correctly to the IRS is very important in 2022.  We’ve put a quick guide together for you to get set up to help protect yourself. As always, we are happy to answer questions and work with you to maximize your return and make sure you are following the latest tax laws.

A Starter Guide to Crypto Taxes

You will notice a question on your 2021 Form 1040 about cryptocurrency.

The question reads: “At any time during 2021, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

The IRS requires you to answer with yes or no. If you check the “yes” box, the IRS will expect income, transactions or reporting from crypto on your return. If you are not sure if you need to check yes, please give us a call or schedule an appointment. You can work with us in person, on an online Zoom call, or on the phone.

Since the IRS has various tracking methods and exchanges do formal reporting, it’s not a good idea to try to avoid your crypto obligation. More audits are predicted.

How It Works

• Cryptocurrency is treated like “property” for taxes.
• When you buy, sell or exchange it, it counts as a taxable event with a capital gain (or loss).
• Earning income from cryptocurrency is taxed as ordinary income.

Since the IRS considers cryptocurrency to be property for taxes, it’s taxed the same way as stocks or gold.

You will report these capital gains and income on your tax return in different forms. The most important thing you can do to prepare is to keep records of your transactions. For some of you, this means a lot of details from your digital wallets. If possible, download that transaction activity where ever possible, and include that for your tax appointment.

Guidelines for Reporting

When you buy and hold cryptocurrency, it is not necessarily a “taxable event”. For example, you can buy Bitcoin and hold it for years and not have to pay taxes on it.

Taxes come in to play when crypto is sold or traded, as described in some of the scenarios below. Please note: these don’t apply if you trade in tax-free or tax-deferred accounts, such as IRAs (individual retirement accounts).

I purchased crypto with U.S. dollars — if you just bought Bitcoin with dollars, you do not have to report that to the IRS, according to the 1040 guidance. Same with transferring crypto to your personal wallet (a wallet you own).

I exchanged cryptocurrency — exchanging one coin for another is taxable. For example, purchasing Bitcoin (BTC) using Ethereum (ETH) is a taxable event.

I bought something with crypto — paying for goods and services using your crypto has tax implications. For example, when you buy an item with Bitcoin, it is a transaction that can result in a gain or loss. This depends on the value of Bitcoin at the time you received your BTC, and the price of BTC when you used it as payment (effectively “selling” it at the point of sale).

I sold crypto — when you place a trade, that is a taxable event. For example, you may have sold some of your Ethereum back to U.S. dollars in your FTX account for more than you originally paid, which resulted in a gain. Similar to selling shares of a stock, your taxes will consider the cost basis (what you originally paid) and what you sold it for (resulting in a gain or loss).

I traded or minted NFTs — NFTs are non-fungible tokens, created on a blockchain to prove you are the owner of a digital item. You may be buying and selling these one-of-a-kind assets in a marketplace like OpenSea. These transactions are taxable, but the guidance from the IRS on these is seemingly limited (so far). Many factors can affect your liability, such as if you are a creator or an investor, and if it’s a hobby or a business. Here are some notes and considerations, but keep in mind these conditions can be much more nuanced:

• Paying gas fees when you mint NFTs is a taxable event.
• Trading Etherum when minting NFTs can generate capital gains (short term or long term rates below).
• Minting NFTs for your business can be treated as ordinary income (ask us for help with this).
• Generally, you can deduct expenses only if it’s part of your business.
• Once you sell or exchange an NFT, this is a new taxable event.
• Royalties you earn from an NFT is taxed as income.

I invested in NFTs — taxes for these investments work much the same way as crypto trading. NFTs can be considered “collectibles” for taxes, especially for artwork. Collectibles are subject to capital gains, just like other cryptocurrencies. When you buy an NFT with Ethereum (or sell the item), what you owe will be reported based on if you made a profit and how long you held the NFT (short term or long term). You can claim losses, too.

Short Term and Long Term Capital Gains

Find your tax rates for 2021 and 2022.

How long you hold crypto before a sale or transaction plays a part in what you report.

In a simple trade example where you made money — you buy $500 of Bitcoin, and then sell it for $1,000. You will have a capital gain of $500. This is calculated as: sale price ($1,000) minus the cost basis ($500) = +$500 profit.

Similarly, in a trade you lost money — you buy $500 of Bitcoin, and then sell it for $400. You will have capital loss. This is calculated as: sale price ($400) minus the cost basis ($500) = -$100 loss.

Important note: you can adjust your cost basis (what you paid) by subtracting any fees or commissions paid to complete the transaction. Since what qualifies for this varies (adjusted cost basis and adjusted sale amount), it’s important to get the most up-to-date guidance before making your calculations.

Keep in mind: your losses can reduce the gains for tax purposes. Individual filers can deduct up to $3K of losses from taxable income if losses exceed gains.

The Difference Between Short and Long Term

Generally, you can follow these guidelines:

The tax rates for long-term and short-term are different. Your overall taxable income can vary these rates, too.

Here are the relevant tax forms:

• Form 8949 — capital gains and losses.
• Form 1040 — Schedule D.

Side note: non-business related NFT trades can also be reported on Schedule D. Code “C” in column F can designate an NFT sale as a “collectible”. We recommend working with a tax professional, please contact us.

Short-Term Tax Rates

Calculate your short-term capital gains or ordinary income earned through crypto trades bought and sold in less than a year.

Long-Term Tax Rates

Calculate your long-term capital gains for crypto held for more than one year.

Crypto Income and Other Events

Did you receive cryptocurrency as payment for work? Does your business accept Bitcoin as payment? Receiving income this way, instead of U.S. dollars, should be reported.

Likewise, mining coins or receiving tokens as a reward are included as income. The market value of that crypto at the time you receive it, will contribute to your gross income calculation.

“A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” -Source: Internal Revenue Service

If you mine cryptocurrency — miners receive cryptocurrency as a “reward”. If you earn cryptocurrency this way, it is taxable income and could be reported on a Form 1099-NEC. It should be priced at the “fair market value” on the day you received the reward. This income must be reported even if you do not receive a form 1099.

If you receive cryptocurrency as payment for goods or services — businesses that accept Bitcoin and cryptocurrency should consider those the payments as taxable income, just like cash or credit card. When reporting for taxes, the dollar value is the “fair market value” of the cryptocurrency on the day and time you received it.

If you participate in a fork or airdrop — when a crypto project sends out free tokens as an airdrop, the new coins count as a taxable event, and taxes should be factored in on these new coins. A hard fork (change in the blockchain’s protocol) doesn’t always mean new crypto is issued. If you do receive an airdrop with new virtual currency following a hard fork, this will be considered ordinary income for tax purposes. If you do not, the fork is not a taxable event for you.

If you stake cryptocurrencies — “staking” earns rewards, similar to earning interest. This money paid to you is taxable income, valued at the fair market value at the time you earn it.

If you give to charity — you can donate cryptocurrency to qualified charities, and, depending on how you itemize, get a tax deduction. Deduct the fair market value of your cryptocurrency at the time of the donation. When done correctly, you do not have to pay capital gains taxes on donations. Giving crypto to charity is considered non-cash charitable contributions. It is recommended you obtain documentation from the charity, especially for gifts over $250 in value.

If you lost crypto or it was stolen — in most cases, you cannot deduct these as losses. The two categories that the IRS recognizes for losses of capital assets include theft and casualty losses. Technically, both can apply in certain instances. For example, theft can apply if your wallet is hacked, or even if your exchange is hacked. Casualty loss could possibly apply when crypto is sent to the wrong wallet or similar “sudden” loss events (please note: there are other factors that would come in to play for these situations). Either way, you cannot deduct these kinds of losses due to new tax laws effecting tax years 2018 to 2025.

If you make a tax-free crypto transaction — transactions in a Traditional IRA (tax-deferred) or a Roth IRA (tax-free), can avoid taxation. You may also avoid taxes by holding your crypto long-term (more than 12 months) and selling it under certain filing and income scenarios. Your taxable income must be less than or equal to $40,400 (single filer), or less than or equal to $80,800 (married filing jointly). As you can see on the long-term capital gains table above, these conditions put you at 0% long-term capital gains tax.

Keeping Records and Planning for the Future

IRS guidance outlines that you should keep records, like date, time and value. If you receive Form 1099-B, that will help you with your records, and any activity on those forms should be included in your return. Looking ahead, you will see more 1099-B forms from crypto exchanges in tax year 2023, based on newly established laws in the U.S. (the American Infrastructure Bill of 2021).

It’s prudent to follow all tax regulations and report appropriate crypto activities on your tax return. While crypto has “anonymous” and decentralized qualities, the IRS has some methods of tracking, including blockchain analytics tools. Exchanges and brokerages may report transactions with Form 1099-B and/or provide information directly to federal agencies, following various laws and regulations. Mining may produce the issuance of form 1099-MISC or 1099-NEC, which reports the ordinary income you earned.

Coinbase shared millions of customer transactions to the IRS after a 2016 summons. They send out 1099-MISC for rewards, and transaction detail if you exceed the $600 minimum. In 2023, all exchanges will be required to send 1099-B forms with all transaction activity. Regardless of the forms you receive, even if documented in a 1099, you must still report taxable activity.

Keep in mind: whenever you receive a form 1099, they are also issued to the IRS.

You should consider planning in advance with one of our CPAs for:

• Large portion of your portfolio is in crypto.
• Staking or mining business.
• DeFi transactions.

Important Notes

This information is provided for educational purposes only. Please keep in mind that your taxes are unique and your personal scenario must be considered individually. Depending on your transactions, reporting your crypto may be more complicated than the guide presented here. Our aim is to get you familiar with the tax rules involved and prepare you for what to expect. We work directly with all of our clients to work out your individual tax scenarios. Questions? Call us!

The post Cryptocurrency Taxes and Reporting appeared first on Financial 1 Tax.

One of our main goals as holistic financial professionals is to help our clients recognize tax reduction opportunities within their investment portfolios and overall financial planning strategies. Staying current on the ever-changing tax environment is a key component to help our clients benefit from potential tax reduction strategies.

2021 has been an unusual year and there is still major legislation being discussed that could have an effect on your taxes. It is the first year of a new administration, so investors should consider taking into consideration the impact of possible future tax strategies. This report includes information on possible tax law changes and some notable changes proposed in the Build Back Better Act that you should be aware of. The main focus of this report is on what individual taxpayers can do to potentially save money on their 2021 taxes.

The Tax Cuts and Jobs Act (TCJA) enacted in 2017 brought many changes to the tax code. The Tax Cuts and Jobs Act included many provisions for individuals that took effect in 2018 but are currently set to expire after 2025. One big uncertainty for all taxpayers is what will happen to the tax code after 2025.

As financial professionals, we try to be proactive when it makes sense. The objective of this report is to share strategies that could be effective if considered and implemented before year-end. Please note that this report is not a substitute for using a tax professional. In addition, many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

Income Tax Rates for 2021

For 2021 there are still seven tax rates. They are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Under current law this seven-rate structure will phase out on January 1, 2026.

Year-end Tax Planning for 2021

One of our primary goals is to help our clients try to optimize their tax situations. This report offers many suggestions and reviews strategies that can be useful to achieve this goal.

Everyone’s situation is unique but it is wise for every taxpayer to begin their final year-end planning now! Choosing the appropriate tactics will depend on your income as well as a number of other personal circumstances. As you read through this report it could be helpful to note those strategies that you feel may apply to your situation so you can discuss them with your tax preparer.

Some items to consider include:

Evaluate the use of itemized deductions versus the standard deduction.

For 2021 tax returns, the standard deduction amounts will increase to $12,550 for individuals and married couples filing separately, $18,800 for heads of household, and $25,100 for married couples filing jointly and surviving spouses.

As a reminder, the Tax Cuts and Jobs Act roughly doubled the standard deduction. Its goal was to decrease tax payments for many of those who typically claim this standard deduction. Although personal exemption deductions are no longer available, the larger standard deduction, combined with lower tax rates and an increased child tax credit, could result in less tax. You should consider running the numbers to assess the impact on your situation before deciding to take itemized deductions.

The TCJA still eliminates or limits many of the previous laws concerning itemized deductions. An example is the state and local tax deduction (SALT), which is still currently capped at $10,000 per year, or $5,000 for a married taxpayer filing separately.

Consider bunching charitable contributions or using a donor-advised fund.

For those taxpayers who are charitably inclined it makes sense to think about a plan. One way to utilize the tax advantages of charitable contributions is through a strategy referred to as “bunching”. Bunching is the consolidation of donations and other deductions into targeted years so that in those years, the deduction amount will exceed the standard deduction amount.

Another strategy is to consider using a donor-advised fund. A donor-advised fund, or DAF, is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. Taxpayers can take advantage of the charitable deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It can be a win-win situation. ​If you are charitably inclined and need some guidance, please call us and we can assist you.

Review your home equity debt interest.

For mortgages taken out after October 13, 1987, and before December 16, 2017 (i.e. enters into a binding contract by that date), mortgage interest is fully deductible up to the first $1,000,000 of mortgage debt. The threshold has been lowered to the first $750,000 or $375,000 (married filing separately) on homes purchased after December 15, 2017. All interest paid on any mortgage taken out before October 13, 1987 is fully deductible regardless of your mortgage amount (called “grandfathered debt”). This change under the TCJA law applies to all tax years between 2018 and 2025. Many mortgage holders refinanced for lower rates in the last few years so remember for larger mortgages, that could change your situation.

Home equity lines of credit (HELOCs) are deductible as well, but only if the funds were used to buy or substantially improve the home that secures the loan. Please share with your tax preparer how the proceeds of your home equity loan were used. If you used the cash to pay off credit card or other personal debts, then the interest isn’t deductible.

Revisit the use of qualified tuition plans.

Qualified tuition plans, also named 529 plans, are a great way to tax efficiently plan the financial burden of paying tuition for children or grandchildren to attend elementary or secondary schools. Earnings in a 529 plan originally could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. However, they changed that so 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. Unlike IRAs, there are no annual contribution limits for 529 plans. Instead, there are maximum aggregate limits, which vary by plan. Under federal law, 529 plan balances cannot exceed the expected cost of the beneficiary’s qualified higher education expenses. Limits vary by state, ranging from $235,000 to $529,000. Some states even offer a state tax credit or deduction up to a certain amount.

Contributions to a 529 plan are considered completed gifts for federal tax purposes, and in 2021 up to $15,000 per donor, per beneficiary, qualifies for the annual gift tax exclusion. Excess contributions above $15,000 must be reported on IRS Form 709 and will count against the taxpayer’s lifetime estate and gift tax exemption amount ($11.7 million in 2021).

There is also an option to make a larger tax-free 529 plan contribution, if the contribution is treated as if it were spread evenly over a 5-year period. For example, a $75,000 lump sum contribution to a 529 plan can be applied as though it were $15,000 per year, as long as no other gifts are made to the same beneficiary over the next 5 years. Grandparents sometimes use this 5-year gift-tax averaging as an estate planning strategy. ​If you want to explore setting up a 529 plan, call us and we would be happy to assist you.

Maximize your qualified business income deduction (if applicable).

One of the most talked about changes from the Tax Cuts and Jobs Act enacted in 2017 is the qualified business income deduction under Section 199A. Current proposals want to change this deduction, but for 2021, taxpayers who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20% of their qualified business income. Please be careful because this deduction is subject to various rules and limitations.

There are planning strategies to consider for business owners. For example, business owners can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for business owners to convert their independent contractors to employees where possible, but before doing so, please make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies can include investing in short-lived depreciable assets, restructuring the business, and leasing or selling property between businesses. ​This piece of tax legislation is complicated and would take an entire report to discuss, so we recommend that if you are a business owner, you should talk with a qualified tax professional about how this new Section 199A could potentially work for you.

Consider All of Your Retirement Savings Options for 2021

If you have earned income or are working, you should consider contributing to retirement plans. This is an ideal time to make sure you maximize your intended use of retirement plans for 2021 and start thinking about your strategy for 2022. For many investors, retirement contributions represent one of the smarter tax moves that they can make. Here are some retirement plan strategies we’d like to highlight.

401(k) contribution limits unchanged. ​The elective deferral (contribution) limit for employees under the age of 50 who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $19,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases also to an additional $6,500 ($26,000 total). As a reminder, these contributions must be made in 2021.

IRA contribution limits unchanged.​ ​The limit on annual contributions to an Individual Retirement Account (IRA) which was increased in 2019, remains at $6,000 for 2021. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 (for a total of $7,000). IRA contributions for 2021 can be made all the way up to the April 15, 2022, filing deadline.

Higher IRA income limits. ​The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (MAGI) of $66,000 and $76,000 for 2021. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $105,000 to $125,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2021 as the couple’s income reaches $198,000 and completely at $208,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range remains at $0 to $10,000 for 2021. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Increased Roth IRA income cutoffs.​ The MAGI phase-out range for taxpayers making contributions to a Roth IRA is $198,000 – $208,000 for married couples filing jointly in 2021. For singles and heads of household, the income phase-out range is $125,000 – $140,000. For a married individual filing a separate return, the phase-out range remains at $0 to $10,000. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Larger saver’s credit threshold. ​The MAGI limit for the saver’s credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers is $66,000 for married couples filing jointly in 2021, $49,500 for heads of household and $33,000 for all other filers.

Be careful of the IRA one rollover rule. ​Investors are limited to only one rollover from all of their IRAs to another in any 12-month period. A second IRA-to-IRA rollover in a single year could result in income tax becoming due on the rollover, a 10% early withdrawal penalty, and a 6% per year excess contributions tax as long as that rollover remains in the IRA. Individuals can only make one IRA rollover during any 1-year period, but there is no limit on trustee-to-trustee transfers. Multiple trustee-to-trustee transfers between IRAs and conversions from traditional IRAs to Roth IRAs are allowed in the same year. If you are rolling over an IRA or have any questions on IRAs, please call us.

Roth IRA Conversions

There are some rule change proposals that are discussed later in this report for Roth IRA conversions, but in 2021, some IRA owners may want to consider converting part or all of their traditional IRAs to a Roth IRA. This is never a simple or easy decision. Roth IRA conversions can be helpful, but they can also create immediate tax consequences and can bring additional rules and potential penalties. Under the current laws, you can no longer unwind a Roth conversion by re-characterizing it. It is best to run the numbers with a qualified professional and calculate the most appropriate strategy for your situation. ​Call us if you would like to review your Roth IRA conversion options.

Capital Gains and Losses

Looking at your investment portfolio can reveal a number of different tax saving opportunities. Start by reviewing the various sales you have realized so far this year on stocks, bonds and other investments. Then review what’s left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment, versus realized, which means you’ve actually sold the investment.)

Know your basis. ​In order to determine if you have unrealized gains or losses, you must know the tax basis of your investments, which is usually the cost of the investment when you bought it. However, it gets trickier with investments that allow you to reinvest your dividends and/or capital gain distributions. We will be glad to help you calculate your cost basis.

Consider loss harvesting. ​If your capital gains are larger than your losses, you might want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. However, you are limited to only $3,000 ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. ​If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security in order to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale. However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security, perhaps a different stock, in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Always double-check brokerage firm reports. ​If you sold a security in 2021, the brokerage firm reports the basis on an IRS Form 1099-B in early 2022. Unfortunately, sometimes there could be problems when reporting your information, so we suggest you double-check these numbers to make sure that the basis is calculated correctly and does not result in a higher amount of tax than you need to pay.

Long-term Capital Gains Tax Rates

Tax rates on long-term capital gains and qualified dividends did not change for 2021. You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2021. In 2021, the 0% rate applies for individual taxpayers with taxable income up to $40,400 on single returns, $54,100 for head-of-household filers and $80,800 for joint returns. If this is the case, then the strategy is to figure out how much long-term capital gains you might be able to recognize to take advantage of this tax break.

The 3.8% surtax on net investment income stays the same for 2021. It starts for single people with modified AGI over $200,000 and for joint filers with modified AGI over $250,000.

NOTE​: The 0%, 15% and 20% long-term capital gains tax rates only apply to “capital assets” (such as marketable securities) held longer than one year. Anything held one year or less is considered a “short-term capital gain” and those are taxed at ordinary income tax rates.

Some Notable and Continuing Tax Changes for 2021

Some previous itemized deductions are still affected in 2021 under the tax laws. They include:

The floor for deductible medical expenses is still at 7.5%. ​The 2021 threshold for deducting medical expenses on Schedule A is 7.5% of your 2021 adjusted gross income (AGI). The IRS on IRS.gov provides a long list of expenses that qualify as “medical expenses,” so it can be a good idea to keep keeping track of yours if you think you may qualify.

State and local income, sales, and real and personal property taxes (SALT)​ ​are still limited to $10,000.

The deduction for casualty and theft losses​ ​is currently allowed only for presidentially declared disaster areas.

Alimony deductions.​ ​For divorce and separation instruments executed or modified after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor-spouse, nor includible in the income of the payee-spouse.

Education Planning

Education benefits.​ The student loan interest deduction, education credits, exclusion for savings bond interest, tuition waivers for graduate students, and the educational assistance fringe benefit are all still available in 2021. 529 plan funds can be used to pay for fees, books, supplies and equipment for certain apprenticeship programs. In addition, up to $10,000 in total (not annually) can now be withdrawn from 529 plans to pay off student loans.

The 2020 lifetime learning credit, which allows you to claim 20% of your out-of-pocket costs for tuition, fees and books, for a total of $2,500, phases out for couples at $160,001 and $180,000. The AGI range for singles is $80,001 and $90,000.

Charitable Giving

This is a great time of year to clean your garage or house and give your items to charity. Please remember that you can only write off donations to a charitable organization if you itemize your deductions. Sometimes your donations can be difficult to value. You can find estimated values for your donated items through a value guide offered by Goodwill.

Send cash donations to your favorite charity by December 31, 2021 and be sure to hold on to your canceled check or credit card receipt as proof of your donation. If you contribute $250 or more, you also need a written acknowledgement from the charity. If you plan to make a significant gift to charity this year, consider gifting appreciated stocks or other investments that you have owned for more than one year. Doing so boosts the savings on your tax returns. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, not the amount you paid for the asset and therefore you avoid having to pay taxes on the profit.

Do not donate investments that have lost value. It is best to sell the asset with the loss first and then donate the proceeds, allowing you to take both the charitable contribution deduction and the capital loss. Also remember, if you give appreciated property to charity, the unrealized gain must be long-term capital gains in order for the entire fair market value to be deductible. (The amount of the charitable deduction must be reduced by any unrealized ordinary income, depreciation recapture and/or short-term gain.)

The law allowing taxpayers age 70½ and older to make a Qualified Charitable Distribution (QCD) in the form of a direct transfer of up to $100,000 directly from their IRA over to a charity, including all or part of the required minimum distribution (RMD) was made permanent in 2015. If you meet the qualifications to utilize this strategy, the funds must come out of your IRA by December 31, 2021. Please call us if this is a strategy you are interested in considering.

Additional Year-end Tax Strategies and Ideas

Make use of the annual gift tax exclusion. ​You may gift up to $15,000 tax-free to each donee in 2021. These “annual exclusion gifts” do not reduce your $11,700,000 lifetime gift tax exemption. This annual exclusion gift is doubled to $30,000 per donee for gifts made by married couples of jointly held property or when one spouse consents to “gift-splitting” for gifts made by the other spouse.

Help someone with medical or education expenses. ​There are opportunities to give unlimited tax-free gifts when you pay the provider of the services directly. The medical expenses must meet the definition of deductible medical expenses. Qualified education expenses are tuition, books, fees, and related expenses, but not room and board. You can find the detailed qualifications in IRS Publications 950 and the instructions for IRS Form 709 on the IRS website​.

Make gifts to trusts. ​These gifts often qualify as annual exclusion gifts ($15,000 in 2021) if the gift is direct and immediate. A gift that meets all the requirements removes the property from your estate. The annual exclusion gift can be contributed for each beneficiary of a trust. We are happy to review the details with your estate planning attorney.

Estate, Gift, and Generation-Skipping Tax Changes

Exemption amounts for gift, estate, and generation-skipping taxes are another issue that proposals are trying to change. For 2021 the limits are at $11.7 million ($23.4 million for married couples), up from $11.58 million in 2020 and the income tax basis step up/down to fair market value at death is in place. Any amount over that is subject to 40% Federal taxes. This high amount provides high net worth individuals a significant planning window to make gifts and set up irrevocable trusts.

As a reminder, as of now, in 2026, the estate tax exclusion is due to revert to pre- 2018 levels of $5 million (adjusted for inflation).

On November 26, 2019, the Treasury Department and the Internal Revenue Service issued final regulations under IR-2019-189 confirming that individuals who take advantage of the increased gift tax exclusion or portability amounts in effect from 2018 to 2025 will not be adversely impacted when TCJA sunsets on January 1, 2026. Claiming the portable exemption will remain an important discussion topic for descendants with large estates. For those who have large estates, please call us to discuss your situation.

Tax Law Proposals

As of the early November writing of this report, tax law changes were still not finalized. Some of the noteworthy proposals as they were proposed by either President Biden or the House Ways and Means Committee in September are currently no longer being discussed. These include the restoration of the 39.6% top tax bracket and a retroactive increase of the 20% capital gains rate to 25% for individuals earning over $400,000 and married filing jointly taxpayers earning more than $450,000.

Other proposals that are currently not being pursued include changes to RothIRA conversion rules and the termination of the temporary increase in the Unified Credit (replacing the current $11.7 million estate and gift tax exemption with an exemption of approximately $6 million per person starting in 2022).

As of November 3, several proposals were still being considered starting in 2022. They include:

• Expansion of 3.8% Net Investment Income Tax (NIIT): The proposal calls for the expansion of the 3.8% tax to apply to net income derived in the ordinary course of trade or business for taxpayers with a taxable income of more than $500,000 for joint filers and $400,000 for single filers.
• A new surtax on high income earners: The current proposal calls for a new additional tax on individuals with a modified adjusted gross income of over $10,000,000 that increases for those with AGI’s over $25,000,000. Please note this does not include state taxes.

Another noteworthy item being discussed is the possible changing of the SALT tax limitations starting as early as 2021. Please remember it is uncertain as of early November writing of which tax changes, if any, will be passed into law. We only include this section in an attempt to make clients aware of any potential key proposals for tax planning purposes.

Our goal is to keep clients updated when tax laws change so that they can proactively plan. If you would like to discuss any of these potential tax law changes with us, please feel free to contact us and we’d be happy to assess your unique financial situation.

Conclusion

One of our primary goals is to keep clients aware of tax law changes and updates. This report is not a substitute for using a tax professional. Please note that many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

There are many other additional tax reduction strategies that will vary depending on your financial picture. We encourage you to come in so that we can review your particular situation and hopefully take advantage of those tax rules that apply to you. We will try to monitor impactful changes and as always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), registered investment advisor. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s.

Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, LLC (IFG) and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this newsletter may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

Rules and laws governing 529 plans are varied and subject to change. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Tax laws and provisions may change at any time. Please consult a qualified tax professional to discuss tax matters. Source: irs.gov. Contents provided by the Academy of Preferred Financial Advisors, Inc. Reviewed by Keebler & Associates. © Academy of Preferred Financial Advisors, Inc. 2021.

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