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Take Advantage before Changes Occur- Plan now for tax changes coming at the end of 2025

Unless Congress takes action, a number of temporary tax laws are going to expire at the end of 2025. This means you have this year and next to take advantage of the current rules. That doesn’t mean Congress won’t extend the current laws, but why take the chance? Here are some of the larger changes to consider:

  • Tax rates will go up, with very different income brackets.

Result: Most taxpayers will be subject to higher tax rates with the top rate moving from 37% to 39.5%. The income subject to these rates will also change dramatically. Now is the time to effectively manage tax brackets to avoid higher rates!

  • Many more taxpayers will itemize deductions and have them subject to phase outs.

Result: Standard deductions may go down and your deductions may be lowered if your income exceeds certain thresholds. There is good news as the $10,000 tax limitation will be removed, and currently-excluded deductions are planned to be reintroduced.

  • More will be impacted by the alternative minimum tax

Result: Many more families will be subjected to a potential second tax calculation with the higher of the two tax rates being used to tax your income.

  • The child tax credit will be reduced, as will the phaseout for qualifying for the credit

Result: Most families with children will see a higher tax bill.

  • There will be different capital gain tax rules

Result: Planning sales of assets will be more important than ever and is a tremendous tax planning opportunity to consider prior to the tax change!

  • Exemptions will be re-introduced

Result: This tax reduction provision may take some of the sting out of the rollback of temporary tax laws.

  • Small businesses may lose their 20% QBI deduction

Result: While small businesses in flow through tax entities, such as S Corporations, partnerships and sole proprietorships, will lose a valued tax break, look for Congress to re-introduce other tax incentives to combat the perceived lack of tax fairness when compared with other countries.

Given these pending changes on the tax horizon, now is a great time to see if you can take advantage of the current tax laws BEFORE they are scheduled to change.



Ideas for a Great Refund

Three of every four Americans got a refund check last year according to IRS statistics. With a little planning, you can maximize the benefit of your refund. Here are some ideas:

Pay off debt. If you have debt, a great spending priority can be to reduce or eliminate it. This is especially true if you have any credit card debt. With rate increases, credit card interest can cripple you financially. Start by paying down debts with the highest interest rates and work your way down the list until you bring your debt burden down to a manageable level.

Save for retirement. Saving for retirement works like debt, but in reverse. The longer you set aside money for retirement, the more time you give the power of compound earnings to work for you. This money can even continue working for you long after you retire. Consider depositing some or all of your refund check into a Traditional or Roth IRA. You can contribute a total of $7,000 to an IRA in 2024, or $8,000 if you’re 50 years old or older.

Save for a home. Home ownership is a source of wealth and stability for many Americans. If you don’t own a home yet, consider building up a down payment fund using some of your refund. If you already own a home, consider using your refund to start paying your mortgage off early. This is especially important if you have a recent mortgage with higher interest rates.

Invest in yourself. Sometimes the best investment isn’t financial, but personal. If there’s a course of study or conference that would improve your skills or knowledge, that could be a wise use of your money in the long run.

Give some of it away. Helping people, and being able to deduct gifts and charity from your next tax return, isn’t the only benefit of giving to a good cause.



Seeing Inside the Mind of the IRS- Using the IRS Audit Technique Guidelines (ATGs)

While most of us are never audited, when it happens we can often feel overwhelmed. Remember that the IRS auditor performs these audits every day. They know what to look for, and may ask leading questions that are easy to answer incorrectly. Here are some tips to help you when you are in the crosshairs of an IRS audit.

  • Timely address IRS correspondence. Do not let any issues raised in an IRS correspondence letter get to a point where a face-to-face examination is required.
  • Ask for help. Do this right away. Too many taxpayers think the problem is easy to resolve, but inadvertently say the wrong thing, resulting in another audit issue.
  • Understand what’s being asked. Clearly understanding the core question behind the audit can simplify the solution. Why is the IRS asking to see your 1099s? Do they have a form that you do not? Why are they asking about your small business profits? Are they thinking your business is a hobby?
  • See the audit the way an IRS auditor is trained to see it. The IRS focuses auditor training in several areas. These are published in Audit Techniques Guides (ATGs) and are available for review on their web site at www.irs.gov (search for Audit Techniques Guides in the search bar). They are invaluable in identifying areas for potential audits, and can help you understand what the IRS likes to question. While most of the ATGs deal with business taxation, reviewing the topics can be useful in understanding where audit risks are most likely and what you can do to prepare yourself in case of an audit.

Common ATG Topics: * Architects * Art Galleries * Attorneys * Business Consultants * Capitalization versus Repairs * Cash-Based Business * Child Care Provider * Construction * Research Credits * Farmers * Hobbies (activity not engaged for profit) * Lawsuit Awards and Settlements * Ministers * Partnerships * Retail * Veterinary Medicine * Wineries and Vineyards

If you have one or more business activities that touch any of these topics, it makes sense to understand how IRS auditors are trained. By reviewing the specific ATG, you can understand the process of an IRS audit and gain some insight into how the auditor will proceed.



Tax Tips to Aid in Retiring Early

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It's Tax Time! Don't Forget 1st Quarter Estimated Payments.- Now is the time to pay your taxes AND make your estimated tax payment.

Both your individual tax return AND first quarter estimated tax payment are due. Here is what you need to know.

First quarter due date: Monday, April 15, 2024

The estimated tax payment rule

You are required to withhold or prepay throughout the 2024 tax year at least 90 percent of your 2024 total tax bill, or 100 percent of your 2023 federal tax bill.* A quick look at your 2023 tax return and a projection of your 2024 tax obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks.

Things to consider

  • Underpayment penalty. If you do not have proper tax withholdings throughout the year, you could be subject to an underpayment penalty. A quick payment at the end of the year may not be enough to avoid the penalty.
  • W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 wage withholdings to make up the difference.
  • Self-employed. In addition to paying income taxes, self-employed workers must also pay Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.
  • Use your refund. An alternative option to pay your first quarter estimated tax is to apply some or all of your tax refund.
  • Pay more in the first quarter. By paying a little more than necessary in the first quarter, you can be in a position to adjust future estimated tax payments downward later this year if your tax obligation trends lower than you originally thought.
  • Not sure if you need to make a quarterly payment? Take a quick look at your tax return to see the amount of tax you paid last year. Divide this amount by the number of paychecks you receive each year and compare to your most recent paycheck. Is enough being withheld from each paycheck? Talk to your employer if you decide you need to adjust your withholdings to cover next year’s tax bill.

*If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2023 tax obligation to avoid an underpayment penalty on your 2024 tax return.



IRS Notices Creating Alarm- Here is what to know

Beginning In April a number of IRS notices began hitting mailboxes. Unfortunately, the notices are coming in cold, as the IRS is turning on mailing their notices after a long time of being turned off. Their process is creating a lot of undue alarm.

Example: A small business, current in their tax payments, receives a right to levy asset notice. In other words, pay this tax, interest and penalties or we will have the immediate right to take your assets and keep you from leaving the country. Typically a number of notices are sent before the levy notice, but the levy notice is the first notice received. Even worse, the cause of the problem was the IRS incorrectly appling their tax payment to tax year 2024 instead of 2023.

Example: An individual receives a notice of the IRS assigning their account to a collection agency. In reality, the taxpayer paid their tax and was waiting for the IRS to clarify what, if any, interest was due on their late payment. No response was ever sent by the IRS.

What is happening

The IRS turned its notice system back on after a long hiatus during the pandemic. Unfortunately, it appears no review or adjustments were made before the notices were turned back on. So,

  • There was no correspondence back from taxpayers to clear up errors over this time period. These are errors the taxpayer did not know about because notices were turned off.
  • The letter cycle clock never stopped. This means instead of getting the next notice in the series, you might receive the fourth or fifth letter in a series.

To make matters worse

In the first example, the IRS representative could see the payment, see it was erroneously applied to next year’s, as yet unfiled, tax return, but the IRS representative was not authorized to correct the error. After calling the department with authorization, the accountant learned the ability to transfer payments was disabled for up to 30 days.

Even worse, just because the error is now known, that communication does not necessarily get passed to the collections (levy ) group. So the levy activity may still be going on, even though the error (theoretically) is now known.

And these notices were mailed in April, right in the middle of tax filing season.

What to do

If you receive a notice, don’t panic, but don’t ignore it.

Call for help in order to respond to the IRS in a timely manner. This almost always means 30 days, so it can generally be handled right after the upcoming tax filing deadline.

Since little review appears to be done on many of these open tax cases, that missing step will typically be your first step to help clarifying and fixing the problem.



Keep Track of Home Improvements- The large gain exclusion creates a tax risk

One of the more popular provisions in the tax code is the $250,000 capital gain exclusion ($500,000 for a married couple) of any profit made when selling your home. As long as you follow the rules, most home sales transactions are not a taxable event.

  • But what if the tax law changes?
  • What if you rent out your home?
  • What if you have a home office?
  • What if you cannot prove the cost of your home?

Your best defense to a potentially expensive tax surprise in your future is proper record retention.

The problem

The gain exclusion is so high, that many of us are no longer keeping track of the true cost of our home. This mistake can be costly. Remember, this gain exclusion still requires documentation to support the tax benefit.

The calculation

To calculate your home sale gain, take the sales price received for your home and subtract your basis. Basis is an IRS tax term that equals the original cost of your home including closing costs, adjusted by the cost of any improvements you have made in your home. You might also have a reduction in home value due to prior damage or casualty losses. As long as the home sold is owned by you as your principal residence in at least two of the last five years, you can usually take advantage of the capital gain exclusion on your tax return.

To keep the tax surprise away

Always keep documents that support calculating the true cost of your home. These documents should include:

  • Closing documents from the original home purchase
  • All legal documents
  • Canceled checks and invoices from any home improvements
  • Closing documents supporting the value when the home is sold

There are some cases when you should pay special attention to tracking your home’s value:

  • You have a home office. When a home office is involved, it can impact the calculation of the capital gain exclusion. This is especially true if you depreciated part of your home for business use.
  • You live in your home for a long time. Most homes will rise in value. The longer you stay in your home, the more likely the value of your home will rise over time. For example, a sizable gain can occur when an elderly single parent sells their home after living in it for over 40 years.
  • You live in a major metropolitan area. Certain areas of the country are known to have rapidly increasing property values.
  • You rent your home. Any time part of your home is depreciated, it can impact the calculation for available gain exclusion. Home rental also can impact the residency requirement calculation to receive the home gain tax exclusion.
  • You recently sold another home. The home sale gain exclusion can only be used once every two years. If you recently sold a home for a gain, keeping all documents related to your new home will be critical.

The best way to protect this tax code benefit is to keep all home-related documents that support calculating the cost of your property. Please call if you wish to discuss your situation.



Anticipating your Refund- What you should know

If you e-file your tax return, you can generally expect to receive your refund within three weeks of it being accepted by the IRS. Expect four or more weeks if you mail in your tax return. But delays can happen.

Refund Delays: The common culprits

These are the most common reasons that refunds are delayed, according to the IRS:

  • Errors or incomplete information. It could be an error in a Social Security number or a mismatch with how a name is recorded with the Social Security administration.
  • Needs further review. In this case the IRS may be highlighting known areas of error or fraud.
  • Affected by identity theft or fraud. This delay is very common and can be as simple as a thief having already filed a tax return using your Social Security number.
  • Bank or creditor refers your information to the IRS due to suspicious activity.
  • Certain credits. If your tax return includes either the Earned Income Tax Credit or the Additional Child Tax Credit, the IRS may want to double-check your calculation because these credits often contain errors.
  • Your return includes Form 8379 (injured Spouse Allocation). These returns can take up to fourteen weeks.

Check the status of your expected refund

If you expect a refund and it goes beyond the stated time frame AND it does not include one of the items listed above, visit Where’s my refund? at the IRS website.

To check on the status of your refund, you’ll need

  • Your Social Security Number
  • Your filing status
  • The exact refund amount

The Where’s my refund? tool is getting better every year. Your refund status is typically available within one to two business days of the IRS accepting your tax return. If your tax return is not found, it means there may be a problem that requires a follow up on your part.



Your Business Tax Return is DUE!- March 15th is quickly approaching

March 15th is the tax-filing due date for 2023 calendar year S corporations and partnerships. While this filing deadline does not require making a tax payment, missing the due date could cost you a hefty penalty.

The penalty

The penalty is calculated based on each month the tax return is late multiplied by each shareholder or partner. So a business tax return with no tax due, filed the day after the March 15th due date, could cost a married couple who jointly own an S corporation $490 in penalties!*

Take action

Here are some ideas to help you avoid penalties:

  • File on time. If you are a partner or shareholder of an S corporation or partnership, remind your fellow owners to file on or before March 15th. In addition to the penalties, filing late shortens the time you have to file your individual tax return.
  • Consider an extension. If your entity cannot file the tax return in time, file an extension on or before March 15th, which gives you an extra six months to file your business return. Remember, you pay the taxes for your flow-through business on your Form 1040 tax return at this year’s April 15th filing deadline.
  • Your personal tax return may be delayed. Do not file your Form 1040 tax return until you receive all your K-1s from each of your S corporation and partnership business activities. But be prepared if your business files an extension, as it’s possible you may need to extend your personal tax return while you wait for the K-1. Remember that an extension to file doesn’t mean an extension to pay your taxes. You may need to estimate how much you’ll owe so you can make a payment by April 15th.
  • Challenge the penalty. If your business does get hit with an IRS penalty for filing late, try to get the penalty abated. This is especially important if you file and pay your personal taxes on time.

If you haven’t filed your S corporation or partnership return for 2023, there’s still time to get it done or file an extension.

*The penalty calculation for 2023 S-corporations and partnerships is $245 for each month or part of a month (up to 12 months) the return is late, multiplied by the number of shareholders or partners.



Common Missing Items = DELAYS- Review these common causes of filing delays

Double-check this list of items that often cause delays with both filing your tax return and getting your much anticipated refund.

Missing W-2 or 1099. Using last year’s tax return, make a list of W-2s and 1099s. Then use the list to ensure they are received and applied to your tax return. Remember, missing items will be caught by the IRS’s matching program.

Missing or invalid Social Security number. E-filed tax returns will come to a screeching halt with a missing or invalid number.

Dependent already claimed. Your return cannot be filed if there is a conflict in this area.

Name mismatch. If recently married or divorced, make sure your last name on your tax return matches the one on file with the Social Security Administration.

No information for a common deduction. If you claim a deduction, you will need to provide support to document the claim.

Missing cost information for transactions. Brokers will send you a statement of sales transactions. If you do not also provide your cost and purchase information, the tax return cannot be filed.

Not reviewing your return and signing your e-file approval. The sooner you review and approve your tax return, the sooner it can be filed.

Forms with no explanation. If you receive a tax form, but have no explanation for the form, questions could arise. For instance, if you receive a retirement account distribution form it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.

Hopefully by knowing these commonly missed pieces of information, you can prepare to have your tax filing experience be a smooth one.