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Replacing Lost Tax Breaks for Your Growing Children

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites. All rights reserved.



Reminder: Second Quarter Estimated Taxes Due- Now is the time to make your estimated tax payment

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is now here.

Due date: Monday, June 17th 2019

Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

  • Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year.
  • 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 withholdings to make up the difference.
  • Self-employed need to account for FICA taxes. Remember to account for your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
  • Don’t forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you’re required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

* If your income is over $150,000 ($75,000 if married filing separate), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.



2020 Health Savings Account Limits- New contribution limits are on the horizon

The savings limits for the ever-popular health savings accounts (HSA) are now set for 2020. The new limits are outlined here with current year amounts noted for comparison.

What is an HSA?

An HSA is a tax-advantaged savings account whose funds can be used to pay qualified health care costs for you, your spouse and your dependents. The account is a great way to pay for qualified health care costs with pre-tax dollars. In fact any investment gains on your funds are also tax-free as long as they are used to pay for qualified medical, dental or vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a high-deductible health plan (HDHP).

The limits

Note: An HDHP plan has minimum deductible requirements that are typically higher than traditional health insurance. To qualify for an HSA, your coverage must have out-of-pocket payment limits in line with the maximums noted above.

Not sure what an HSA is all about? Please call to discuss whether an HSA is right for you.



2018 Audit Rates- Don't get complacent…

The IRS reported audit rates declined last year for the seventh year in a row and reached their lowest level since 2002. That’s good news for people who don’t like to be audited (which is everybody)!

But don’t get complacent. A closer look at the IRS data release reveals some audit pitfalls you should know about.

Audit Rate Statistics for Individuals

Observations

  • Fewer audit examinations obscure the reality that you may still have to deal with issues caught by the IRS’s automated computer systems. While not as daunting as a full audit, you’ll need to keep your records handy to address any problems.
  • Average rates are declining, but audit chances are still high on both ends of the income spectrum: no-income and high-income taxpayers.
  • No-income taxpayers are targets for audits because the IRS is cracking down on fraud in refundable credits designed to help those with low income, such as the Earned Income Tax Credit (EITC).
  • High-income taxpayers have long been a target for IRS audits, but saw a big decline in audit rates in 2018. Still, taxpayers with over $500,000 in income have more than double the chance of being audited than lower income taxpayers. Not only do these taxpayers tend to have more complicated tax returns, but the vast majority of federal income tax revenue comes from them.
  • Complicated returns are more likely to be audited. Returns with large charitable deductions, withdrawals from retirement accounts or education savings plans, and small business expenses (using Schedule C) are more likely to be the target of an IRS audit.

Stay Prepared

Always retain your tax records and support documents for as long as you need them to substantiate claims on a return. The IRS normally has a window of three years from the filing date to audit a return, but this can be extended if the agency believes there’s any fraudulent activity.

If you receive an audit letter from the IRS, it’s best to reach out for assistance as soon as possible.



How to Maximize Your Social Security- What every taxpayer should know

You can begin receiving your Social Security retirement benefit as early as age 62. But by putting off your benefit start date you can receive a check that is 8% higher for each year you delay receiving your benefit.

The basics

Full retirement age. Those born between 1943 and 1954 reach their full Social Security benefit payment at age 66*. This is called your full retirement age.

Early benefit penalty. Those same retirees can begin receiving their benefit at age 62. But if you start your benefits before reaching your full retirement age, the amount paid to you is permanently reduced.

Bonus payment amounts. But there is also a bonus for each year you delay receiving benefits past your full retirement age. Your Social Security benefit is increased by 8% per year.

The maximum cap amount. After age 70, the Social Security benefit is maximized. Further delay in starting your benefits adds no additional payments.

Is a delay worth the wait?

Here are reasons to delay receiving your Social Security benefits until you reach age 70:

You expect to live longer. If your parents and grandparents lived long lives, you may wish to delay receipt of your initial Social Security benefits. The opposite is true if you have a shorter life expectancy.

You do not need the income. If you are still working or have alternative income sources, it may be better to delay receiving your benefits. An 8 percent increase in monthly payments is a good increase versus other investment alternatives.

Your spouse has died. You will need to review the possibility of receiving survivor benefits based on your spouse’s earnings. Later you could then start collecting your own Social Security retirement benefits based on your earnings.

If your benefits are taxed. If you have other income, your Social Security retirement benefits could be subject to income tax if you are not yet at the full retirement age.

Should you delay receiving your Social Security benefits? There often is not one answer that fits all situations. Consider reviewing your situation prior to making a decision.

* Full retirement age increases by 2 months each year after 1954 until reaching a full retirement age of 67 for those born in 1960 or later.



3 Things to Know About Summer Job Taxes

Summer brings warm weather, fun outdoor activities and new opportunities to earn some additional income. However, taxes on seasonal income need to be handled with care, whether they’re related to your child’s first job or an extra income opportunity for you. Here are some tips to help you manage the taxes on your summer earnings:

  1. Students should take advantage of tax-free earnings limits. If you anticipate making less than the annual standard deduction ($12,200 for single in 2019), none of your earnings are subject to federal taxes! If possible, earn at least that amount each year to maximize your tax-free earnings. Remember, if you can be claimed as a dependent on someone else’s tax return, the limits for tax-free unearned income such as interest and dividends are lower.

    Tip: If your annual earnings will be less than the standard deduction, you can claim EXEMPT on your Form W-4. That prevents federal income taxes from being withheld from your paycheck.

  2. Independent contractors need to make estimated payments. As an independent contractor, you are responsible for paying all the taxes on your earnings. To do this, you make quarterly estimated tax payments to the IRS using Form 1040-ES. In addition to federal and state taxes, independent contractors need to pay a self-employment tax of 15.3 percent of earnings.

    Tip: Track your expenses and save receipts. By doing this, you can subtract eligible expenses like mileage, supplies and uniforms from your gross earnings. Use this lower income number to calculate your self-employment tax and correctly estimate your income tax obligation.

  3. Closely monitor tax withholdings. As an employee, your employer withholds taxes based on what you claim on Form W-4. Unfortunately, the tax tables used by this form to calculate your withholdings do not account for seasonal jobs. This typically results in paycheck withholdings being too low for supplemental income workers and too high for students working during the summer.

    Tip: If you anticipate earnings in excess of the standard deduction, you will need to request proper withholdings. A safe approach to determine the correct amount is to claim 0 or 1 on your Form W-4 and see what your first paycheck looks like. From there, a tax forecast that involves your entire year’s earnings will help you adjust this amount up or down.

With a little tax planning, you can ensure that your summer job provides the income you are looking for without the disappointment of unexpected taxes. Please call if you have any questions.



The $500,000 Homeowner Tax Break- Understand the rules now to avoid a tax surprise later

There is large tax break that allows you to exclude up to $250,000 ($500,000 married) in capital gains on the sale of your personal residence. But making the assumption that this gain exclusion will always keep you safe from tax can be a big mistake. Here is what you need to know:

The basics

To qualify for the capital gain tax exclusion when you sell your home, you need to pass three hurdles:

  1. It’s your main home. It can be a traditional home, a condo, a houseboat, or mobile home. Main home also means the place of primary residence when you own two or more homes.
  2. You pass the ownership test. You must own your home during two of the past five years.
  3. You pass the residency test. You must live in the home for two of the past five years.

In addition, there are some additional quirks to know, including:

  • You can pass the ownership test and the residence test at different times.
  • You may only use the home gain exclusion once every two years.
  • You and your spouse can be treated jointly OR separately depending on the circumstances.

When to pay attention

You have been in your home for a long time. The longer you live in your home the more likely you will have a large capital gain. Long-time homeowners should check to see if they have a capital gains tax problem prior to selling their home.

Two homes into one. Often newly married couples with two homes have a potential tax liability as both individuals may pass the required tests on their own property but not on their new spouse’s property. Prior to selling these individual homes, you may wish to create a plan of action that reduces your tax exposure.

Selling a home after divorce. Property transferred as a result of a divorce is not deemed a sale of your home. However, if the ex-spouse that retains the home later sells the home, it may have an impact on the amount of gain exemption available.

You are helping an older family member. Special rules apply to the elderly who move out of a home and move into assisted living and nursing homes. Prior to selling property it is best to review options and their related tax implications.

You do not meet the five-year rule. In some cases you may be eligible for a partial gain exclusion if you are required to move for work, disability, or unforeseen circumstances.

Other situations. There are a number of other exceptions to the home gain exclusion rules. These include foreclosure, debt forgiveness, inheritance, and partial ownership.

Recordkeeping is key

The key to obtaining the full benefit of this tax exclusion is in retaining good records. You must be able to prove both the sales price of your home and the associated costs you are using to determine the gain on your property. So keep all sales records, original home purchase records, improvement costs, and other documents that support your home’s capital gain calculation.



Toss This. Not That.- Your guide to post tax-filing record retention

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites. All rights reserved.



Improve Next Year’s Tax Situation Now!

Tax day is more than the end of tax filing season – it’s the start of tax-planning season.



Tax Day is Here!- Last-minute details, tips and freebies

The individual tax-filing deadline is Monday, April 15. Here is your guide to tax day deadlines, payments, forms and of course … free stuff!