Category: Helpful Articles
In addition to a year-end funding bill, lawmakers finalized the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The retirement bill includes expansion of the automatic contribution to savings plans to 15% of employee pay, allows some part-time employees to participate in 401(k) plans and raises the age limit for IRA contributions from age 70½ to 72.
Also included in the retirement package are provisions aimed at Gold Star families, eliminating an unintended tax on children and spouses of deceased military family members. As with the funding bill, the Senate is expected to pass and the president to sign the bill by the end of the week.
Watch the Individual Deductions and Updates video here.
What’s happening with deductions in 2019?
The standard deduction for separate filers is $12,200 and for joint filers, it’s $24,400. Itemized deductions are more beneficial if taxpayers ‘bunch’ deductions into one year. The itemized deductions that may be able to be shifted from year-to-year are real estate taxes, state income tax estimates. This bunching strategy needs to be discussed with your tax advisor to most benefit.
Some expenses are limited or no longer tax-deductible
Let’s discuss what expenses are limited or no longer tax-deductible. State and local tax deduction, including sales tax, property tax, and state income tax, is limited to $10,000. Home office expenses and unreimbursed business expenses are no longer deductible if you are a W-2 employee. Personal casualty and theft losses are only allowed if it arises due to an event officially declared a federal disaster area. Finally, work-related moving expenses are not deductible, except for members of the Armed Forces.
Medical Savings and Spending Accounts – Health Savings Account and Flexible Spending Accounts
Health Savings Accounts also known as HSA’s are available to participants in qualified high-deductible health plans. You can contribute pre-tax income up to $3,500 for self-only coverage or $7,000 for family coverage into an employer-sponsored HSA account. HSAs can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year, allowing the account to grow.
Flexible Spending Accounts, also known as FSA’s, can be funded with $2,700 pretax income in an employer-sponsored account but have limitations on what can be rolled over to the following year based on the employer plan. The plan pays or reimburses you for qualified medical expenses. What you don’t use by calendar year’s end, you generally lose.
Contact your CPA to discuss these deductions in more depth.
Watch the gift and estate tax planning video here.
Estate Planning
Because the Tax Cuts and Jobs Act has put estate and gift tax exemptions at record-high levels, fewer taxpayers are worrying about these taxes. But the high exemptions currently are available only through 2025 and Congress could pass legislation that reduces the limits sooner. So whether or not you’d be subject to estate tax at the current exemptions, it’s a good idea to consider if you can seize opportunities to potentially lock in tax savings today.
Estate Tax
While the TCJA keeps the estate tax rate at 40%, it has doubled the lifetime exemption base amount from $5 million to $10 million. The inflation-adjusted amount for 2019 is $11.4 million.
Gift tax
The gift tax continues to follow the estate tax, so the gift tax exemption also has increased under TCJA. You can exclude certain gifts of up to $15,000 per recipient in 2019 or $30,000 per recipient if your spouse elects to split the gift with you, without depleting any of your lifetime gift and estate tax exemption.
Choose gifts wisely.
Donations to qualified charities aren’t subject to gift tax, as well as tuition and medical expenses paid directly to the provider. Consider both estate and income tax consequences and the economic aspects of any gifts you’d like to make. To minimize estate tax, gift property with the greatest future appreciation potential. To minimize your beneficiary’s income tax, gift property that hasn’t appreciated significantly while you’ve owned it. To minimize your own income tax, don’t gift property that’s declined in value. Instead, consider selling the property, taking the tax loss and then gifting the tax proceeds. Have questions? Please contact us at ATA.
Watch planning for your investment portfolio video here.
Recent changes to ordinary income tax rates and tax brackets affect the tax you pay on investments. Your long term capital gains rate can be as much as 20 percentage points lower than your ordinary income tax rate, which make long-term gains more attractive.
If you’ve sold investments this year, and have substantial gains, then you may want to review your portfolio for unrealized losses and consider selling them before year end to offset your gains.
Income investments
Some types of investments produce income in the form of dividends or interest. Here are some tax consequences to consider:
Qualified dividends are taxed at the favorable long-term capital gains tax rate rather than at your higher ordinary-income tax rate.
Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive taxwise than other income investments, such as CDs and taxable bonds.
Capital Losses
If net losses exceed net gains, you can only deduct up to $3,000 of the losses per year. You carry forward the excess losses until they are used.
Although tax considerations are important, don’t let them control your investment decisions. You need to consider your goals, risk tolerance, fees, and other factors related to buying and selling securities.
Tax season is approaching, which means for business owners that tax planning is taking place. Continue reading or view the 2019 business tax planning video for tips.
Depreciation:
For business owners who own equipment and heavy-duty vehicles please keep in mind that up to $1,020,000 of qualified fixed asset additions can be expensed in 2020 under Section 179, including equipment, furniture, roofs, HVAC equipment, and security systems. Also, the first $18,000 of vehicles with a towing capacity of 6,000 pounds or less and the first $25,000 of vehicles with a towing capacity exceeding 6,000 pounds are eligible to be expensed under Section 179.
Also, bonus depreciation of up to 100% will be allowed on equipment, furniture, and software placed in service during 2020. In addition, up to $18,000 of bonus depreciation is allowed on new passenger vehicles purchased in 2020. Careful tax planning can help you maximize your depreciation deductions in 2020. Contact your ATA tax professional to assist you in maximizing this tax benefit.
Section 199A Deduction:
Owners of partnerships, LLCs, S-Corporations, and sole proprietorships could be eligible for a deduction of up to 20% of qualified business income. It reduces taxable income whether or not you itemize deductions. Anyone with taxable income of $321,400 or less ($160,700 if single) is entitled to the full 20% deduction, and those with taxable income of up to $421,400 ($210,700 if single) are entitled to the deduction, subject to limitations. Contact your ATA tax professional to see if your business is eligible for this tax benefit.
Employee Benefits:
In this economy, attracting and retaining your best employees is essential to your business. One way to accomplish this goal is through offering them a variety of tax-friendly benefits. If you provide your employees with a qualified high-deductible health plan (HDHP), consider offering them Health Savings Accounts or Flexible Spending Accounts. If you have employees that incur daycare expenses, consider offering Flexible Spending Accounts for child and dependent care expenses. Contact your ATA tax professional if you would like to discuss implementing these benefits in your company.
Do you have a Flexible Spending Account (FSA) with your employer? Make sure to take full advantage of it in the new year. For 2020, the contribution limit will rise to $2,750 (up from $2,700 in 2019). If an employer chooses, employees can carry over up to $500 of unused funds into 2021.
Otherwise, FSAs have a “use or lose” provision. FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Amounts contributed aren’t subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, an employer can contribute to an employee’s FSA.
You probably don’t have to be told about the need for a will. But do you know what provisions should be included and what’s best to leave out? The answers to those questions depend on your situation and may depend on state law.
1. Basic provisions
Typically, a will begins with an introductory clause, identifying yourself along with where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills. After the introductory clause, a will generally explains how your debts and funeral expenses are to be paid. The provisions for repaying debt generally reflect applicable state laws.
Don’t include specific instructions for funeral arrangements. It’s likely that your will won’t be accessed in time. Spell out your wishes in a letter of instructions, which is an informal letter to your family. A will may also be used to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you.
2. Specific bequests
One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside of your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries. If you’re using a trust to transfer property, make sure you identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won’t be suitable for inclusion in a trust. If your estate includes real estate, include detailed information about the property and identify the specific beneficiaries.
Once you’ve covered real estate and other tangible property, move on to intangible property, such as cash and securities. Again, you may handle these items through specific bequests where you describe the property the best you can. Finally, most wills contain a residuary clause. As a result, assets that aren’t otherwise accounted for go to the named beneficiaries, often adult children, grandchildren or a combination of family members.
3. Naming an executor
Toward the end of the will, name the executor — usually a relative or professional — who is responsible for administering it. Of course, this should be a reputable person whom you trust. Also, include a successor executor if the first choice is unable to perform these duties. Frequently, a professional is used in this backup capacity.
4. Cross the t’s and dot the i’s
Your attorney will help you meet all the legal obligations for a valid will in the applicable state and keep it up to date. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. Don’t use beneficiaries as witnesses. This could lead to potential conflicts of interest. Contact us with questions. © 2019
“Gamification.” It’s perhaps an odd word, but it’s a cool concept that’s become popular among many types of businesses. In its most general sense, the term refers to integrating characteristics of game-playing into business-related tasks to excite and engage the people involved.
Might it have a place in your company?
Internal focus
Sometimes gamification refers to customer interactions. For example, a retailer might award customers points for purchases that they can collect and use toward discounts. Or a company might offer product-related games or contests on its website to generate traffic and visitor engagement.
But, these days, many businesses are also using gamification internally. That is, they’re using it to:
- Engage employees in training processes,
- Promote friendly competition and camaraderie among employees, and
- Ease the recognition and measurement of progress toward shared goals.
It’s not hard to see how creating positive experiences in these areas might improve the morale and productivity of any workplace. As a training tool, games can help employees learn more quickly and easily. Moreover, with the rise of social media, many workers are comfortable sharing with others in a competitive setting. And, from the employer’s perspective, gamification opens all kinds of data-gathering possibilities to track training initiatives and measure employee performance.
Specific applications
In most businesses, employee training is a big opportunity to reap the benefits of gamification. As many industries look to attract Generation Z — the next big demographic to enter the workforce — game-based learning makes perfect sense for individuals who grew up both competing in various electronic ways on their mobile devices and interacting on social media.
For example, safety and sensitivity training are areas that demand constant reinforcement. But it’s also common for workers to tune out these topics. Framing reminders, updates and exercises within game scenarios, in which participants might win or lose ground by following proper or improper work practices, is one way to liven up the process.
Game-style simulations can also help prepare employees for management or leadership roles. Online training simulations, set up as games, can test participants’ decision-making and problem-solving skills — and allow them to see the potential consequences of various actions beforegranting them such responsibilities in the real-word situations. You might also consider rewards-based games for managers or project leaders based on meeting schedules, staying within budgets, or preventing accidents or other costly mistakes.
Intended effects
Naturally, gamification has its risks. You don’t want to “force fun” or frustrate employees with unreasonably difficult games. Doing so could lower morale, waste time and money, and undercut training effectiveness.
To mitigate the downsides, involve management and employees in gamification initiatives to ensure you’re on the right track. Also consider involving a professional consultant to implement established and tested “gamified” exercises, tasks and contests. We can help you identify and assess the potential costs involved and keep those costs in line.
© 2019
You may have heard of the “nanny tax.” But even if you don’t employ a nanny, it may apply to you. Hiring a housekeeper, gardener or other household employee (who isn’t an independent contractor) may make you liable for federal income and other taxes. You may also have state tax obligations.
If you employ a household worker, you aren’t required to withhold federal income taxes from pay. But you may choose to withhold if the worker requests it. In that case, ask the worker to fill out a Form W-4. However, you may be required to withhold Social Security and Medicare (FICA) taxes and to pay federal unemployment (FUTA) tax.
FICA and FUTA tax
In 2019, you must withhold and pay FICA taxes if your household worker earns cash wages of $2,100 or more (excluding the value of food and lodging). If you reach the threshold, all the wages (not just the excess) are subject to FICA.
However, if a nanny is under age 18 and child care isn’t his or her principal occupation, you don’t have to withhold FICA taxes. So, if you have a part-time babysitter who is a student, there’s no FICA tax liability.
Both an employer and a household worker may have FICA tax obligations. As an employer, you’re responsible for withholding your worker’s FICA share. In addition, you must pay a matching amount. FICA tax is divided between Social Security and Medicare. The Social Security tax rate is 6.2% for the employer and 6.2% for the worker (12.4% total). Medicare tax is 1.45% each for both the employer and the worker (2.9% total).
If you want, you can pay your worker’s share of Social Security and Medicare taxes. If you do, your payments aren’t counted as additional cash wages for Social Security and Medicare purposes. However, your payments are treated as additional income to the worker for federal tax purposes, so you must include them as wages on the W-2 form that you must provide.
You also must pay FUTA tax if you pay $1,000 or more in cash wages (excluding food and lodging) to your worker in any calendar quarter. FUTA tax applies to the first $7,000 of wages paid and is only paid by the employer.
Reporting and paying
You pay household worker obligations by increasing your quarterly estimated tax payments or increasing withholding from wages, rather than making an annual lump-sum payment.
As a household worker employer, you don’t have to file employment tax returns, even if you’re required to withhold or pay tax (unless you own your own business). Instead, employment taxes are reported on your tax return on Schedule H.
When you report the taxes on your return, you include your employer identification number (not the same as your Social Security number). You must file Form SS-4 to get one.
However, if you own a business as a sole proprietor, you include the taxes for a household worker on the FUTA and FICA forms (940 and 941) that you file for your business. And you use your sole proprietorship EIN to report the taxes.
Keep careful records
Keep related tax records for at least four years from the later of the due date of the return or the date the tax was paid. Records should include the worker’s name, address, Social Security number, employment dates, dates and amount of wages paid and taxes withheld, and copies of forms filed.
Contact us for assistance or questions about how to comply with these employment tax requirements.
© 2019