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 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.

This special report reviews some of the broader tax law changes along with a wide range of tax reduction strategies. As you read this report, please take note of each tax strategy that you think could be beneficial to you. Not all ideas are appropriate for all taxpayers. We always recommend that you address any tax strategy with your tax professional to consider how one tax strategy may affect another and calculate the income tax consequences (both state and federal). Remember, tax strategies and ideas that have worked in the recent past might not even be available under today’s new tax laws. Always attempt to understand all the details before making any decisions—it is always easier to avoid a problem than it is to solve one.

Please note—your state income tax laws could be different from the federal income tax laws. Visit FindLaw for a wide range of tax information and links to tax forms for all 50 states. All examples mentioned in this report are hypothetical and meant for illustrative purposes only.

Beginning of the 2019 Tax Season

The beginning of tax season 2019 was initially in question due to the government shutdown. On January 7, the Internal Revenue Service (IRS) assured taxpayers they would indeed begin processing tax returns on January 28, 2019. The deadline to file 2018 tax returns is Monday, April 15 for most taxpayers (those who live in Maine or Massachusetts have until April 17 to file due to Patriots’ Day holiday on April 15 and Emancipation Day on April 16 for the District of Columbia).

IRS Commissioner Chuck Rettig said that, despite the government shutdown, “IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years.” The IRS recalled furloughed employees to assist in the work required to process returns. (Source: IRS.gov)

Even after the federal shutdown, one thing you can count on is tax season. This year’s tax season brings major adjustments for the IRS, taxpayers and tax preparers alike due to the tax law changes and new 2018 Form 1040 required to adhere to the rules created by the Tax Cut and Jobs Act (TCJA).

2018 Tax Law Updates

For 2018, the form 1040 has been completely redesigned. Form 1040, which many taxpayers can file by itself, is supplemented with new Schedules 1 through 6. These additional schedules will be used as needed to complete more complex tax returns. Forms 1040A and 1040EZ are no longer available. We have time to look into tax planning ideas for your 2019 taxes, but here are some things that 2018 tax filers should review. They include:

• Tax brackets have been adjusted.
• The standard deduction has increased.
• The Child Tax Credit has increased.
• Some deductions and exemptions are gone.
• There are changes to state and local tax (SALT) deductions.
• There are new deduction rates for medical expenses.
• Capital gains will still impact your income.
• There is still a 3.8% Medicare Investment Tax.
• Charitable donations are still deductible.
• You might still be able to contribute to retirement plans (or take an RMD) if appropriate.

2018 Tax Tables

Click the charts to enlarge.

2018 Tax Rates and Income Brackets

There are still seven federal income tax brackets for 2018. The lowest of the seven tax rates is 10%, while the top tax rate is now 37%. The income that falls into each is scheduled to be adjusted in 2019 for inflation. For 2018, use the chart in this report to see what bracket your final income falls into.

TAX TIP: If you are not sure how best to file, ask your tax preparer or review IRS Publication 17, Your Federal Income Tax, which is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

2018 Standard Deduction Amounts

Most taxpayers claim the standard deduction. For 2018, the standard deduction has increased for all filers and has almost doubled in size. Previously set at $6,350 for single tax filers and $12,700 for joint filers, the amounts are now $12,000 for single filers and $24,000 for those filing jointly ($18,000 for head of household filers). If you are filing as a married couple, an additional $1,300 is added to the standard deduction for each person age 65 and older. If you are single and age 65 or older, an additional deduction of $1,600 can be made.

Increased Child Tax Credit

For 2018, the maximum child tax credit has doubled to $2,000 per qualifying child, of which $1,400 (up from $1,100) can be claimed for the additional child tax credit. The bill also adds a new, non-refundable credit of $500 for dependents other than children. The modified adjusted gross income threshold at which the credit begins to phase out has increased to $200,000 (previously $110,000) and $400,000 if married filing jointly.

New Tax Law Deduction Changes

Some deductions and exemptions allowed in previous years are now eliminated. In the past, those who used a standard deduction could also include a personal exemption if they were not a dependent. That personal exemption is no longer an option. Also, deductions for interest on home mortgages have been reduced and interest from home equity loans eliminated.

There are also changes to state and local tax deductions. Under the new law, a taxpayer’s state and local tax (SALT) deduction is limited to $10,000. This includes both state income and property taxes. This might most affect taxpayers who live in states with high property taxes and those who pay larger State income tax bills. Several tax articles even suggest that some retirees might find it even more beneficial to move to a more tax-friendly state with lower property taxes in an effort to reduce their tax liabilities.

Medical Expense Deduction

The Tax Cuts and Jobs Act (TCJA) retroactively made the 7.5% threshold available to any individual taxpayer regardless of age for 2017 and it stays there for 2018. The 10% threshold amount returns in 2019. The TCJA tax bill also eliminates the tax penalty for not having health insurance after December 31, 2018.

TAX TIP: For 2018, taxpayers can deduct medical expenses that are over 7.5% of their adjusted gross income as opposed to the higher 10%.

Investment Income

People with enough income to pay taxes at the 37% rate will pay 20% in 2018 on their net long-term capital gains and qualified dividends.

Long-term capital gains are taxed at more favorable rates compared to ordinary income. One tax strategy is to review your investments that have unrealized long-term capital gains and sell enough of the appreciated investments in order to generate enough long-term capital gains to push you to the top of your federal income tax bracket. This strategy could be helpful if you are in the 0% capital gains bracket and do not have to pay any federal taxes on this gain. Then, if you want, you can buy back your investment the same day, increasing your cost basis in those investments. If you sell them in the future, the increased cost basis will help reduce longterm capital gains. You do not have to wait 30 days before you buy back this investment—the 30-day rule only applies to losses, not gains.

Note: This non-taxable capital gain for federal income taxes might not apply to your state.

TAX TIP: Remember that marginal tax rates on long-term capital gains and dividends can be higher than expected. The 3.8% surtax can raise the effective rate to 18.8% for single filers with income from $38,601 to $425,800 and 23.8% for single filers with income above $479,000. It can raise the effective rate to 18.8% for married taxpayers filing jointly with income from $77,201 to $479,000 and to 23.8% for married taxpayers filing jointly with income above $479,000.

Calculating Capital Gains and Losses

With all of these different tax rates for different types of gains and losses in your marketable securities portfolio, it’s probably a good idea to familiarize yourself with some of the rules:

• Short-term capital losses must first be used to offset short-term capital gains.
• If there are net short-term losses, they can be used to offset net long-term capital gains.
• Long-term capital losses are similarly first applied against long-term capital gains, with any excess applied against short-term capital gains.
• Net long-term capital losses in any rate category are first applied against the highest tax rate long-term capital gains.
• Capital losses in excess of capital gains can be used to offset up to $3,000 of ordinary income.
• Any remaining unused capital losses can be carried forward and used in the same manner as described above.

TAX TIP: Please remember to look at your 2017 income tax return Schedule D (page 2) to see if you have any capital loss carryover for 2018. This is often overlooked, especially if you are changing tax preparers.

Please double-check your capital gains or losses. If you sold an asset outside of a qualified account during 2018, you most likely incurred a capital gain or loss. Sales of securities showing the transaction date and sale price are listed on the 1099 generated by the financial institution. However, your 1099 might not show the correct cost basis or realized gain or loss for each sale. You will need to know the full cost basis for each investment sold outside of your qualified accounts, which is usually what you paid for it, but this is not always the case.

3.8% Medicare Investment Tax

The year 2018 is the sixth year of the net investment income tax of 3.8%. It is also known as the Medicare surtax. If you earn more than $200,000 as a single or head of household taxpayer, $125,000 as married taxpayers filing separately or $250,000 as married joint return filers, then this tax applies to either your modified adjusted gross income or net investment income (including interest, dividends, capital gains, rentals, and royalty income), whichever is lower. This 3.8% tax is in addition to capital gains or any other tax you already pay on investment income.

A helpful strategy has been to pay attention to timing, especially if your income fluctuates from year to year or is close to the $200,000 or $250,000 amount. Consider realizing capital gains in years when you are under these limits. The inclusion limits may penalize married couples, so realizing investment gains before you tie the knot may help in some circumstances. This tax makes the use of depreciation, installment sales, and other tax deferment strategies suddenly more attractive.

Medicare Health Insurance Tax on Wages

If you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately), the Affordable Care Act levies a special 0.9% tax on your wages and other earned income. You’ll pay this all year as your employer withholds the additional Medicare Tax from your paycheck. If you’re self-employed, plan for this tax when you calculate your estimated taxes.

If you’re employed, there’s little you can do to reduce the bite of this tax. Requesting non-cash benefits in lieu of wages won’t help—they’re included in the taxable amount. If you’re self-employed, you may want to take special care in timing income and expenses (especially depreciation) to avoid the limit.

Charitable Gifts and Donations

When preparing your list of charitable gifts, remember to review your checkbook register so you don’t leave any out. Everyone remembers to count the monetary gifts they make to their favorite charities, but you should count non-cash donations as well. Make it a priority to always get a receipt for every gift. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. Remember that you’ll have to itemize to claim this deduction, but when filing, the expenses incurred while doing charitable work often is not included on tax returns.

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible as an itemized charitable donation. You can also claim a charitable deduction for the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking your child’s Scout troop on an outing. For 2018, the IRS will let you deduct that travel at .14 cents per mile.

Child and Dependent Care Credit

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school daycare while working. Some parents overlook claiming the tax credit for child care costs during the summer. This tax break can also apply to summer day camp costs. The key is that for deduction purposes, the camp can only be a day camp, not an overnight camp. So, If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children.

Contribute to Retirement Accounts

If you haven’t already funded your retirement account for 2018, consider doing so by April 15, 2019. That’s the deadline for contributions to a traditional IRA (deductible or not) and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2019, you can wait until then to put 2018 contributions into those accounts. To start tax-free compounding as quickly as possible, however, try not to delay in making contributions. If eligible, a deductible contribution will help you lower your tax bill for 2018 and your contributions will compound tax-deferred.

To qualify for the full annual IRA deduction in 2018, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, there is a phaseout from $63,000 to $73,000 for singles and from $101,000 to $121,000 for married taxpayers filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $186,000. For 2018, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the calendar year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2018 is $55,000.

Although contributing to a Roth IRA instead of a traditional IRA will not reduce your 2018 tax bill (Roth contributions are not deductible), it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2018) to a Roth IRA, you must earn $120,000 or less a year if you are single or $189,000 if you’re married and file a joint return.

The amount you save from making a contribution will vary. If you are in the 22% tax bracket and make a deductible IRA contribution of $5,500, you will save $1,210 in taxes the first year. Over time, future contributions could save you thousands, depending on your contribution, income tax bracket and the number of years you keep the money invested. If you have any questions on retirement contributions, please call us.

Roth IRA Conversions

A Roth IRA conversion is when you convert part or all of your traditional IRA into a Roth IRA. This is a taxable event. The amount you converted is subject to ordinary income tax. It might also cause your income to increase, thereby subjecting you to the Medicare surtax. Roth IRAs grow tax-free and withdrawals are tax-free in the future, a time when tax rates might be higher.

Whether to convert part or all of your traditional IRA to a Roth IRA depends on your particular situation. It is best to prepare a tax projection and calculate the appropriate amount to convert. Remember—you do not have to convert all of your IRA to a Roth. Roth IRA conversions
are not subject to the pre-age 59½ penalty of 10%.

Many 401(k) plan participants can convert the pre-tax money in their 401(k) plan to a Roth 401(k) plan without leaving the job or reaching age 59½. There are a number of pros and cons to making this change. Please call us to see if this makes sense for you.

Inherited IRAs

Be careful if you inherit a retirement account. In many cases, the decedent’s largest asset is a retirement account. If you inherit a retirement account, such as an IRA or other qualified plan, the money is usually taxable upon receipt. There is no step-up in basis on investments within retirement accounts and therefore most distributions are 100% taxable.

Non-spouse beneficiaries usually cannot roll over an inherited IRA to their own IRA, but the solution to this problem can be easy: establish an Inherited IRA, also known as a “stretch” IRA. Non-spouse beneficiaries of any age are allowed to start their required minimum distributions (RMDs) the year following the year the owner died and stretch them out over their own life expectancy. This will reduce your income taxes significantly compared to having all of the IRA taxed in one year. Please note that it is very important to take the RMD from an inherited IRA every year as penalties for not doing so are very severe – 50% of the amount you did not take.

These tax laws are very complicated and you must implement the requirements carefully to avoid any unnecessary income taxes and penalties. Please contact us before receiving any distributions from a retirement account you inherit. Remember—it is easier to avoid a problem than it is to solve one!

Required Minimum Distributions (RMD)

If you turned age 70½ during 2018, you still have until April 1, 2019, to take out your first RMD. This is a onetime opportunity in case you forgot the first time. The deadline for taking out your RMD in the future will be December 31 of each year. If you do not pay out your RMD by this deadline, you may be subject to a 50% penalty on the amount you were supposed to take out. If you have any questions on your Required Minimum Distributions please call us.

TAX TIP:  You usually do not have to take out an RMD from your current employer’s retirement account as long as you work there and don’t own over 5% of the company. See your plan administrator if you have any questions.

Other Overlooked Tax Items and Deductions

Reinvested Dividends – This isn’t a tax deduction, but it is an important calculation that can save investors a bundle. Former IRS commissioner Fred Goldberg told Kiplinger magazine for their annual overlooked deduction article that missing this break costs millions of taxpayers a lot in overpaid taxes.

Many investors have mutual fund dividends that are automatically used to buy extra shares. Remember that each reinvestment increases your tax basis in that fund. That will, in turn, reduce the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Please keep good records. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.

Don’t make that costly mistake.

If you’re not sure what your basis is, ask the fund or us for help. Funds often report to investors the tax basis of shares redeemed during the year. Regulators currently require that for the sale of shares purchased, financial institutions must report the basis to investors and to the IRS.

Student-Loan Interest Paid by Parents – Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, the child can deduct up to $2,500 of student-loan interest paid by their parents each year. (The parents can’t claim the interest deduction even though they actually foot the bill because they are not liable for the debt).

Charitable Gift Directly made from IRA – Individuals at least 70½ years of age can still exclude from gross income qualified charitable distributions (QCD) from IRAs of up to $100,000 per year. Please remember to double check on what counts as a qualified charity and distribution before using this tax strategy.

Seven Helpful Tax Time Strategies

1.)  Although many deductions have been eliminated under the new laws, it might still be helpful to write down or keep all receipts you think are even possibly tax-deductible. Sometimes, taxpayers assume that various expenses are not deductible and do not even mention them to their tax preparer. Don’t assume anything—give your tax preparer the chance to tell you whether something is or is not deductible.

2.)  Be careful not to overpay Social Security taxes. If you received a paycheck from two or more employers, and earned more than $128,400 in 2018 (up from $127,200 in 2017) you may be able to file a claim on your return for the excess Social Security tax withholding.

3.)  Don’t forget items carried over from prior years because you exceeded annual limits, such as capital losses, passive losses, charitable contributions and alternative minimum tax credits.

4.)  Check your 2017 tax return to see if there was a refund from 2017 applied to 2018 estimated taxes.

5.)  Calculate your estimated tax payments for 2019 very carefully. Many computer tax programs will automatically assume that your income tax liability for the current year is the same as the prior year. This is done to avoid paying penalties for underpayment of estimated income taxes. However, in some cases this might not be a correct assumption, especially if 2018 was an unusual income tax year due to the sale of a business, unusual capital gains, the exercise of stock options, or even winning the lottery!

6.)  Remember that IRS.gov is a valuable online resource for tax information.

7.)  Always double check your math where possible and remember it is always wise to consult a tax preparer before filing.

Proactive Tax Planning for 2019

With the passage of the Tax Cuts and Jobs Act (TCJA), tax brackets, thresholds, and tax rates changed for many filers in 2018. We will try to keep our clients updated during the year on potential strategies that could possibly be helpful. For now, please review the 2019 tax brackets for single filers and married taxpayers filing jointly and the planning ideas listed in this report.

Some Things Taxpayers Should Consider to Proactively Tax Plan for 2019:

  Prepare a 2019 tax projection – Taxpayers already know the 2019 rates and by reviewing their 2018 situation and all 2019 expectations of income, a qualified tax preparer could be able to help you with a tax projection for 2019.

  New contribution limits for retirement savings – For 2019, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000. The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The catch-up contribution limits for those 50 and over remain unchanged.

  Explore if a potential Roth IRA conversion is helpful for your situation – A Roth IRA can be beneficial in your overall retirement planning. Investments in a Roth IRA have the potential to grow tax-free and they don’t have required minimum distributions during the lifetime of the original owner. Also, Roth IRA assets may pass to your heirs tax-free. Roth conversions include complex details and are not right for everyone, so please call us to see if this makes sense for you.

  Take advantage of annual exclusion gifts – For 2019, the maximum amount of gift tax exemption is $15,000. This means you can give up to that amount to a family member without having to pay a gift tax. Ideas for gifting can include, contributing to a working child (or grandchild’s) IRA, or gifting to a 529 plan, which is a tax-sheltered plan for college expenses.

  Consider bunching your charitable donations into a Donor Advised Fund (DAF) – Now is the time to explore if it is helpful for your tax situation to deposit cash, appreciated securities or other assets in a Donor Advised Fund, and then distributing the money to charities over time. Up to 50% of your adjusted gross income can be deductible if given as donations to typical charities.

  Look into Health Savings Accounts (HSAs) – In general, to qualify to contribute to a health savings account in 2019, you must have a health insurance policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage. You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019, which is slightly more than the 2018 limits. If you’re 55 or older anytime in 2019, you’ll continue to be able to contribute an extra $1,000. HSA’s include complex details and are not right for everyone, so please call us to see if this makes sense for you.

Conclusion

Filing your 2018 taxes will include many changes from previous years. The new tax rates and many of the changes that were approved are set to expire after 2025. An essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum. Managing wealth involves careful planning and keeping updated and informed of any changes that affect investors. When filing your 2019 taxes, the rules and laws currently in place do not vary too much from your 2018 taxes One of our primary goals is to keep you informed of the changes that will be affecting investors like you. We believe that taking a proactive approach is better than a reactive approach—especially regarding income tax strategies!

Remember—if you ever have any questions regarding your investments, please be sure to call us first before making any decisions. We pride ourselves in our ability to help clients make decisions! Often, there is a simple solution to your question or concern. Don’t worry about things that you need not worry about.

How long should I keep my records?

According to IRS Publication 17, you must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support items shown on your return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax.

This table is modeled after one from IRS Publication 17 and contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period beginning after the return was filed. Returns filed before the due date are treated as being filed on the due date.

Period of Limitations

Questions to Consider!

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410-908-9293 to we would like to offer you a complimentary, one-hour, Wealth Preservation Strategy Session with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call us at 410.908.9293 and we’d be happy to assist you!

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s.

The post Filing 2018 Income Taxes and Proactive Tax Planning for 2019 appeared first on Financial 1 Tax.

One of our main goals as holistic financial advisors 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 necessary to help our clients benefit from potential tax reduction strategies.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA). The act is complex and impacts numerous tax specializations, including individual, corporate, and international planning. This report focuses on what individual taxpayers can do to save money in 2018. Unless indicated otherwise, the act provisions discussed here take effect in 2018 and expire after 2025.

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.

New Income Tax Rates for 2018

The seven new tax rates for 2018 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They will phase out in eight years.

Tax Reform Update

As we enter into year-end tax planning, our main goal shifts to helping clients understand the impact of the Tax Cuts and Jobs Act and optimizing their tax positions. That is no small task given that there are over 130 new tax provisions. This report offers many suggestions and reviews strategies like loss and gain harvesting that have been useful even before the current round of tax law changes.

The Tax Cuts and Jobs Act created some changes with regards to tax planning opportunities for individuals in 2018.

Some things to consider include:

 — Evaluating the use of itemized deductions versus the standard deduction

The Tax Cuts and Jobs Act roughly doubles the standard deduction. For single and married filing separately filers the standard deduction is increase from $6,350 to $12,000, while married filing jointly has gone from $12,700 to $24,000. The new laws also eliminate or limit many of the previous laws concerning itemized deductions. An example is the state and local tax deduction (SALT), which is now capped at $10,000 per year, or $5,000 for a married taxpayer filing separately. Additionally, the Tax Cuts and Jobs Act temporarily eliminates miscellaneous itemized deductions subject to the 2% floor (like tax preparation fees and employee business expenses) and limits the home mortgage interest deduction to home acquisition debt of up to $750,000, or $375,000 for a married taxpayer filing separately.

So, what should a taxpayer consider?

For those who typically claim the standard deduction, it is more than likely that their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, could now result in less tax. According to Accounting Today, some taxpayers who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You should consider running the numbers to assess the impact on your situation before deciding. Depending on the results, you may even need to adjust your estimated quarterly tax payments or think about turning in a new Form W-4 to your employer.

— Considering bunching charitable contributions or using a donor-advised fund

The Tax Cuts and Jobs Act temporarily increases the limit on cash contributions to public charities and certain private foundations from 50 to 60 percent of adjusted gross income. For many taxpayers, the doubling of the standard deduction and changes to key itemized deductions will result in them not itemizing in 2018, therefore benefiting from this increased limit. One way to combat this is to bunch or increase your charitable contributions in alternating years. 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’s a win-win situation.

— Reviewing your home equity debt interest

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so it was originally proposed.  According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it can be treated as home acquisition debt subject to the new $750,000/$375,000 limit. This is good news for homeowners, if they used the funds for the home.  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, even if the payoff occurred prior to 2018.

— Revisiting 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 for college. Earnings in a 529 plan 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. However, 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 $520,000. Some states even offer a state tax credit or deduction up to a certain amount.  If you are paying tuition for children or grandchildren to attend elementary or secondary schools, it might be advantageous to set up or revisit a 529 plan. This is also a strategy that can reduce your estate. If you want to explore setting up a 529 plan, call us.

— Maximizing your qualified business income deduction (if applicable)

One of the most talked about changes from the Tax Cuts and Jobs Act is the new qualified business income deduction under Section 199A. Taxpayers who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20 percent of their qualified business income. Please be careful, because this deduction is subject to various rules and limitations.

There are some planning strategies that should be considered 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 new piece of tax legislation 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 2018

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 2018 and start thinking about your strategy for 2019.  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 $18,500, up from $18,000. (On November 1, 2018, the IRS announced an increase to $19,000 for 2019.)  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 at an additional $6,000 ($24,500 total).  As a reminder, these contributions must be made in 2018.

IRA contribution limits unchanged. The limit on annual contributions to an Individual Retirement Account (IRA) remains unchanged at $5,500. (On November 1, 2018, the IRS announced an increase to $6,000, the first adjustment since 2013). 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 $6,500). IRA contributions for 2018 can be made all the way up to the April 15, 2019 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 $63,000 and $73,000 for 2018.  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 $101,000 to $121,000 for 2018.  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 2018 as the couple’s income reaches $189,000 and completely at $199,000 for 2018. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is $0 to $10,000 for 2018. 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 $189,000 to $199,000 for married couples filing jointly in 2018. For singles and heads of household, the income phase-out range is $120,000 to $135,000 in 2018.  For a married individual filing a separate return, the phase-out range is $0 to $10,000 for 2018. 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 $63,000 for married couples filing jointly in 2018, $47,250 for heads of household and $31,500 for all other filers.

Be careful of the IRA one rollover rule. IRA investors were always limited to one rollover per year, per IRA. Investors are still limited to make 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 one-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 this, please call us.

Roth IRA Conversions

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 new 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 if married filing jointly ($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.

Sell worthless investments. If you own an investment that you believe is worthless, ask your tax preparer if you can sell it to someone other than a related party for a minimal amount, say $1, to show that it is, in fact, worthless. The IRS often disallows a loss of 100% because they will usually argue that the investment has to have at least some value.

Always double-check brokerage firm reports. If you sold a security in 2018, the brokerage firm reports the basis on an IRS Form 1099-B in early 2019. 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.

Zero Percent Tax on Long-term Capital Gains

You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2018.  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.

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 is taxed at ordinary income tax rates.

This strategy might be helpful if in 2018 if you were temporarily unemployed, are someone whose income varies from year to year, or are under the age of 70 and may soon be transitioning into retirement or already retired.

If you’re ineligible for the 0% capital gains tax rate but you have adult children in the 0% bracket, consider gifting appreciated securities to them. Your adult children who file their own tax returns might pay less in capital gains tax than if you sold the stock yourself and gifted the cash to them.

Some Notable Tax Changes for 2018

Several itemized deductions are significantly different under the new tax laws. They include:

The floor for deductible medical expenses is reduced to 7.5 percent (from 10 percent) for 2018, and 2019. It makes sense to schedule discretionary medical procedures in 2018 and 2019 if doing so will lead to a medical expense deduction.

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

Although existing mortgages are grandfathered in subject to the prior $1 million cap, interest expense on acquisition indebtedness for up to two homes is capped at $750,000 total for loans incurred after December 15, 2017 through 2025. Interest on home equity loans is not deductible after 2017 through 2025.

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

Miscellaneous itemized deductions disallowed after 2017 include:  tax preparation fees, investment expenses, and unreimbursed employee expenses. Individuals with significant unreimbursed employee expenses, including mileage, internet/phone charges, and education costs should consider setting up an excludable working condition fringe benefit arrangement or accountable plan from their employers.

Alimony deduction changes. Under prior law, alimony and separate maintenance payments were deductible by the payor and includible in income by the payee. 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. These changes will profoundly affect the structure of divorce settlements.

The moving expense deduction is suspended, except for the in-kind moving and storage expenses for members of the Armed Forces (or their spouse or dependents) on active duty who move pursuant to a military order and incident to a permanent change of station.

Alternative Minimum Tax (AMT) Changes

When Tax Law changes were initially discussed, there were high hopes that the dreaded individual alternative minimum tax (AMT) would be repealed. Unfortunately, it still exists under the new Tax Cuts and Jobs Act. However, the AMT rules are now more taxpayer-friendly.

The AMT calculation can be complicated and you should discuss your situation with your tax professional, but here are some basic facts. In 2017, the AMT exemption amount was $54,300 for unmarried individuals ($84,500 for married individuals filing a joint return). This exemption is phased out at a 25 percent rate when alternative minimum taxable income (AMTI) exceeds $120,700 ($160,900 for married individuals filing a joint return). In 2018, the exemptions significantly increase to $70,300 for unmarried individuals ($109,400 for married individuals filing a joint return). More importantly, the phaseout thresholds are increased to $1 million for married individuals filing a joint return and $500,000 for other individual taxpayers. High-income taxpayers, particularly those in high-tax states like California, New York, and New Jersey, are going to lose significant amounts of deductions because of the $10,000 cap on state and local taxes, but they could have some relief because of the lower tax rates and changes made to the alternative minimum tax.

Although the new tax laws reduce the odds that you will owe the AMT for 2018-2025, if your AMT bill exceeds your regular tax bill, you owe the higher AMT amount. The good news could be that if you owe the AMT under the new rules for 2018-2025, you probably owe less (maybe a lot less) than under the old rules.

Other Family and Education Planning Changes

Child and family credit. The act increases the child tax credit to $2,000 per qualifying child, with $1,400 of this amount being refundable. The act also adds a $500 nonrefundable credit for qualifying dependents other than children. More importantly, the act increases the phaseout for the child tax credit to $400,000 from $110,000 for married taxpayers filing a joint return and to $200,000 from $75,000 for other taxpayers.

The “kiddie tax.” The tax on unearned income of children is completely overhauled by the act. Parents’ income and the unearned income of siblings no longer factor into the equation. Instead, earned income of a child is taxed according to an unmarried taxpayer’s rates. Taxable income attributable to net unearned income is taxed according to the unfavorable tax rates applicable to trusts and estates.

Education benefits. Although they were in jeopardy, 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 – remain intact.

ABLE accounts. Contributions to ABLE accounts are now eligible for the retirement saver’s credit and a child’s 529 account can be rolled over to an ABLE account for the child.

Qualified Charitable Distribution

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, satisfying 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 your RMD deadline (i.e. December 31, 2018).

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 2018. These “annual exclusion gifts” do not reduce your $11,180,000 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 at www.irs.gov.

Contribute to a Qualified Tuition Plan (529 Plan) on behalf of a beneficiary. The effective annual contribution limit to 529 Plans for 2018 is $15,000.  Transfers to 529 Plans count as annual exclusion gifts. Withdrawals (including earnings) used for qualified education expenses (tuition, fees, books and other related expenses) are income tax free. The tax law even allows you to give the equivalent of five years’ worth of contributions up front ($15,000 x 5 = $75,000) with no gift tax consequences. Earnings on non-qualifying distributions are subject to income tax and a 10% penalty. Overall contribution limits vary by state. Many states also provide contribution incentives such as tax deductions, tax credits or matching grants. If you’d like to learn more about what your state’s parameters are for 529 plans, please call us and we can assist you.

Estate, Gift, and Generation-Skipping Tax Changes

Exemption amounts for gift, estate, and generation-skipping taxes have almost doubled from $5.6 million to $11.18 million ($22.36 million for couples), and the income tax basis step up/down to fair market value at death continues under the act. These changes provide high net worth individuals a significant planning window to make gifts and set up irrevocable trusts.

Remember, as of now, the exemption amounts will revert in 2026 to 2017 levels (although the exemption amount has never decreased before), claiming the portable exemption will remain an important discussion topic for decedents with more than $3 million in assets.

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.  As always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

Questions to Consider!

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410.908.9293 to we would like to offer you a complimentary, one-hour, Wealth Preservation Strategy Session with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call us at 410.908.9293 and we’d be happy to assist you!

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. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits such as financial aid, scholarship funds or protection from creditors that are only available if you invest in that state’s 529 plan.

The post Year-End Tax Moves for 2018 appeared first on Financial 1 Tax.

Tatyana Bunich CEP.RFC — 410-908-9293

The ratification of the 16th Amendment allowed for the collection of income tax. Starting in 1913, American taxpayers used IRS Form 1040 to prepare and file their tax returns. The first tax return was three pages with only one page of instructions. Over the last 100+ years, the length of the instructions has changed numerous times.

In 2017, Congress passed the largest piece of tax reform legislation in over three decades.  To conform to the changes that need to be implemented due to this new Tax Cuts and Jobs Act, the IRS released over 50 drafts or revised forms and schedules on its website in June.

The most anticipated one was the 1040, U.S. Individual Income Tax Return form. As promised, the “postcard” size was achieved, and Form 1040 was reduced to one double-sided half page, as compared to the previous two full pages. The objective was to simplify the tax reporting process for many taxpayers. The first page is primarily text data including contact information, social security number, filing status, dependents, signature, and of course, the option to donate to the presidential election campaign. The second page is dedicated to the actual monetary information needed to complete this tax form. This new 1040 also consolidates and replaces 1040A and 1040EZ, two forms that will no longer be necessary. This means that starting in 2019 (for 2018 tax returns), all 150 million taxpayers will be using the same form.

The Treasury projects that 65% of taxpayers will only have to file the new 1040, plus at most one additional schedule. However, that leaves the remaining 35% potentially finding this attempt at simplification more confusing than ever.

Here are things to remember, when looking at the proposed 1040:

It’s still a draft

The IRS warns taxpayers not to file the recently released 1040 as it is still in draft form, stating, “This is an early release draft of the 2018 IRS Form 1040, U.S. Individual Income Tax Return, which the IRS is providing for your information, review, and comment… Do not file draft forms. Also, do not rely on draft forms, instructions, and publications for filing. We generally do not release drafts of forms until we believe we have incorporated all changes. However, in this case we anticipate it is likely that this draft will change at least slightly before being released as final. Whether this draft changes or not, we will post a new draft later this summer with our standard coversheet indicating we do not expect that draft to change.”

As promised, it’s smaller

The new 1040 has only 23 numbered lines, as compared to the previous 79 on the old 1040 form. As previously stated, it should replace not only the 1040 but also forms 1040a and 1040EZ. Many lines have been consolidated or moved to schedules. Does size really matter? The IRS expects that almost 90% of taxpayers will file their taxes electronically or use a tax preparer, making the length of tax forms inconsequential. The changes, additions and deletions of lines, which are supposed to make it easier to fill out and understand, are what matter the most. Steve Mnuchin, Treasury Secretary, said, “Our objective is to make this simpler for taxpayers, whether they’re doing it electronically or whether they’re doing it on a physical form.”

It has six additional schedules

The new 1040 has created a “building block” approach to tax reporting. Ideally, taxpayers with straightforward taxes will embrace this simplified form, however, those with more complex finances will have to be mindful of the schedules and what are included on them. For example, deductions and other items are now relegated to a schedule. Some individuals may become confused or overlook potential tax breaks due to them no longer being on Form 1040 and must be filled out on a separate schedule. For example, this includes student loan interest deductions, teaching supply deductions and taxes on household employees. While these schedules are mostly short in and of themselves, they could complicate the tax filing process for many taxpayers.

The schedules are:

• Schedule 1: Additional Income and Adjustments to Income (37 lines). Includes lines 10 through 37 from the 2017
  1040 form. This schedule contains items such as capital gains and losses, student loan interest expense and business income.
• Schedule 2: Tax (7 lines). You’ll find the previous 1040 lines 44 through 47 on this schedule, including the Kiddie Tax, alternative minimum tax and excess premium tax credit refunds.
• Schedule 3: Nonrefundable Credits (10 lines). This includes information from the previous 1040 lines 48 through 55, including credit for child and dependent child care, education credit and energy credit.
• Schedule 4: Other Taxes (12 lines). This includes the lines 57 through 63 previously on the 1040, including Medicare, Social Security, household employment and net investment income taxes.
• Schedule 5: Other Payments and Refundable Credits (14 lines). This includes what was formerly on the 1040 as lines 65 through 74.
• Schedule 6: Foreign Address and Third-Party Designee (3 rows). This simply provides taxpayers with a foreign address a line to list their country, province and postal code and provides a place to list a third-party designee who is authorized to discuss the return with the IRS.

These new schedules do not replace the current schedules such as Schedule C – which will be modified with any changes necessary to reflect the changes in the new tax law.

Some items were removed due to the new tax code

As some items were taken out of tax code, they were consequently taken out of the 1040. For example, there are no personal exemptions available for 2018 – 2025, so these lines were removed.
The former area for adjusted income reporting was eliminated. Line items that were not eliminated from tax code can now be found combined on other lines or the new Schedule 1.

An item was added due to the new tax code

Line 9 was created for the 20% deduction for income earned by pass-through businesses such as partnerships and S corporations.

Schedule 4 – “Other taxes”

Line 14, labeled as “Other Taxes” will refer you to a new Schedule 4. This schedule is for a collection of “other taxes” including self-employment tax, Medicare and Social Security tax, high-income household taxes, household employment tax, repayment of first time homebuyer credit, net investment income tax and the penalty for not having health care (2018 will be the last year this penalty is included).

Do you have questions about the draft 1040?

The IRS has a special email for those who have questions about the new draft form 1040. You can contact them at WI.1040.Comments@IRS.gov. They do warn however, that they cannot respond to all comments due to high volume.

Conclusion

As mentioned, it is expected that 90% of taxpayers will file their taxes electronically or use a tax preparer. Some people are speculating that the changes are merely aesthetic. “Is this a question of form over substance?” asked Bob Kerr, Executive Vice President of the National Association of Enrolled Agents. He also questioned individual states ability to adjust to the new forms, citing, “Are states ready to adjust their programming as IRS iterates version of the new Form 1040?” The changes will be costly as it will require many state and local tax forms to conform to the changes. (Source: www.money.us.news.com 7/5/2018) The main attempt was to streamline the tax recording process for most taxpayers. The final judgement will start after the forms are finalized and taxpayers begin to use and file them.
Our aim is to try to be proactive about tax planning. We are keeping an eye on the changes and how they may affect your situation. Our goal is to understand your specific needs and then create a plan to address those needs. We anticipate sending clients a year-end tax report that will offer ideas on tax planning. We are here to help our clients! If you have any questions please call us.

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