Really? There are educational tax breaks for older taxpayers? Yes. Here is what you need to know.

Now is a good time to assess your current situation and address those lingering tax moves that may improve your tax picture for 2019. Here are five things to consider:

1. Check on your withholdings. Review your taxable income and the amount of tax you’ve paid to Uncle Sam so far this year. How do the numbers compare to last year? Based on your analysis, you may have to adjust your paycheck withholdings or make quarterly estimated tax payments during the balance of the year to avoid underpayment penalties or a surprising tax bill.

2. Build up your retirement accounts. Don’t neglect your retirement savings during the remainder of the year. In fact, setting aside more money for retirement can lower this year’s tax bill. For instance, if you have a 401(k) plan at work, you can defer up to $19,000 of salary in 2019, plus an extra $6,000 if you’re age 50 or older.

3. Identify potential taxable events. It’s easy to overlook one-time events that will have an impact on your 2019 tax liability. For instance, if you win a prize at a church raffle, the prize is generally taxable to you. Perhaps you changed jobs, lost a child as a dependent, or got married. Each of these events can create a change in your tax obligation. Review your records now to avoid any unpleasant tax surprises later.

4. Consider business property needs. If you acquire business property, you can often choose to write off the cost in the first year the property is placed in service under the latest tax laws. If it makes sense, consider combining the benefits of the Section 179 expensing deduction, up to a maximum of $1 million (indexed for inflation), with 100% bonus depreciation for both new and used property.

5. Account for gig taxes. Finally, workers in the gig economy (like Uber and Lyft drivers) should understand the basic tax rules. Generally, income from such jobs is fully taxable, but you may be entitled to offsetting deductions. Essentially, you’re treated like a self-employed individual. Estimated quarterly tax payments are often required for these workers.

Should you wish a review of your situation, call now. It’s better to be prepared than surprised when it comes to your tax obligation.

As you or family members approach retirement years, it is important to have a basic understanding of the IRS gift giving rules. With this understanding, there are opportunities to leverage this tax law without creating a tax problem.

The rules

• You may give up to $15,000 to any individual (donee) in 2019 and avoid any gift tax filing requirements. 
• If married you and your spouse may transfer up to $30,000 per donee. 
• If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $155,000. 
• Gifts in excess of this annual amount trigger the need to file a gift tax form with your individual tax return. The excess gift amounts are then added to your estate for potential estate taxation. 
• The estate tax currently has a maximum rate of 40% and the donor of the gift (or their estate) is responsible for paying the tax.

Using the rules to your advantage

Remember, you can transfer up to $15,000 ($30,000 if married) to anyone you wish each year tax-free. Additionally, most states also adhere to this federal law. So if you wish to move assets to loved ones without the burden of future taxation, consider the following ideas.

Keep it in perspective

Understanding and leveraging the annual gift tax rules can create tremendous tax savings. But this strategy should be done in conjunction with understanding your personal financial needs. Providing gifts of funds that you might later need for your own retirement can be problematic. It is best to review your gift plans prior to taking action.

Everybody likes getting something for free, and taxes are no different. Investing in securities like municipal bonds (munis) or municipal bond funds generates tax-free interest income. Here is what you need to know.

Advantages of municipal bonds

You pay zero federal tax on municipal bond investment income. This makes municipal bonds more attractive than many comparable taxable investments. A municipal bond paying 6 percent to an investor in the 24 percent tax bracket is actually a better investment than a taxable bond paying interest at 7.9 percent, due to the federal income tax break.

What’s more, municipal bond income isn’t counted for net investment income tax purposes. So if you are subject to this 3.8 percent surtax, municipal bonds provide an additional tax break to you. And, if the bond is issued by an authority within the state where you reside, it’s also exempt from any state income tax.

For these reasons, municipal bonds are a popular investment, especially among retirees, because they are often stable and most bonds carry a relatively low risk.

Potential tax consequences

But that doesn’t mean there are no potential downsides to municipal bonds.

• Alternative minimum tax. If you invest in certain private activity bonds — such as some bonds used to finance projects like a stadium — the income may cause alternative minimum tax complications.
• Capital gains tax. When you sell a municipal bond at a profit, you owe capital gains tax on the sale. For instance, if you buy a bond for $5,000 and sell it for $6,000, you’re still taxed on the $1,000 gain.
• State tax possibility. If you invest in municipal bonds issued by another state, the interest income is taxable by the state where you reside.
• Social Security taxes. Municipal bond income could make some of your Social Security benefits taxable. The taxation of Social Security benefits is based on a calculation that specifically includes tax-free municipal bond income. Depending on your situation, up to 85 percent of the Social Security benefits may be taxable.

Investing in municipal bonds can provide tax-free, stable income, but you need to understand how the investments fit with your situation to maximize the tax savings. 

It’s possible that someone in your family will need assisted living care at some point in their life. This care can be at an assisted living facility, a nursing home, or in their own home. Often, assisted living care is expensive and not fully reimbursable by typical health insurance policies. Thankfully, there is a medical expense itemized deduction when the out-of-pocket amount exceeds 10 percent of your adjusted gross income.

Here’s what you can do to increase the chances for you or a loved one to maximize their tax deduction. 

• Know the chronically ill definition. To qualify, care expenses must be incurred for rehabilitative, maintenance or personal care services of a chronically ill person under a plan of care created by a licensed health care practitioner. For tax purposes, a chronically ill individual is generally someone who is unable to perform at least two of the five activities of daily living which include eating, toiletry, transferring, bathing, dressing and continence. The chronically ill definition also includes the need of supervision due to a cognitive impairment such as Alzheimer’s.
• Obtain a breakdown. Don’t assume that every expense is a medical deduction. It is always best to get a breakdown of the cost of care. You’ll also need to track which expenses have been reimbursed by insurance as those reimbursed costs are not deductible.
• Track premium costs. If you have long-term care insurance and pay for health insurance keep track of these costs as some or all of the premiums may be deductible.
• Keep a travel log. Be aware that travel expenses incurred for medical care of the family member may also be deducted. For example, if the resident must be transported to a doctor’s office, dentist’s office or hospital, the cost can be added to the deductible amount.
• Record in-house expenses. Finally, remember that expenses for medical care at the facility are deductible, regardless of whether you can deduct monthly living expenses. For instance, if you’re charged separately for a visiting dentist, the cost is added to the deductible total.

If you have questions regarding your specific situation, please call.

Despite what you may think, the marriage penalty is still alive and well. Whether you’re changing your filing status in 2019 because of marriage, divorce or another event (or it’s staying the same), you should review this information and plan accordingly.

What is the marriage penalty?

The marriage penalty occurs when the dollar ranges for married taxpayers (joint filers) are not exactly double the dollar ranges for single taxpayers. It results from the way the graduated tax rate system works, based on your tax filing status and other tax return items. Married taxpayers are often taxed more than they’d be as two single filers.

Situations subject to the marriage penalty

• High-income. A disparity for the dollar ranges still exists for the two top tax brackets of 35 percent and 37 percent. That means that the marriage penalty often applies to high-income couples. Wealthy couples may save money by avoiding a marriage certificate!
• Income disparity between spouses. For example, Riley makes $30,000 per year and Avery makes $150,000. Before getting married, Riley has a marginal tax rate of 12 percent and Avery has a marginal tax rate of 24 percent. Once they marry, their income is combined and Riley’s tax rate is now taxed at Avery’s marginal tax rate of 24 percent.
• Local taxes over $10,000. Legislation also limits the annual deduction for state and local tax (SALT) payments to $10,000. This limit is the same for a married couple as a single taxpayer. For instance, assume that a couple pays $25,000 in property taxes in 2019. As joint filers, their deduction is limited to $10,000, whereas they could write off a total of $20,000 if they were both single filers.

Tax-planning opportunity

While no one is saying you should get married or divorced because of the marriage penalty, factoring it into your tax planning can make a big difference. Please call if you wish to review your situation.

Does your child, grandchild, or someone else you know need a place to live while attending college? Instead of renting a dorm or apartment, buying a condo or small house might make more sense. This can save money and provide tax breaks, but you need to do the math and be aware of the risks.

The benefits of buying

• Lower monthly costs. The benefits can vary based on the location of the school and demand for off-campus housing. But purchasing a place can save on monthly rent and utilities. It can be especially attractive if the school’s meal plan is overpriced.
• More tax breaks. Home owners can write off mortgage interest and property taxes, subject to certain limits. And by renting out your home to other students, you may depreciate the property and deduct other expenses as part of the rental activity.
• Create income potential. Speaking of renting out the home, this can turn an expense (dorm cost) into a steady source of income on a monthly basis.
• Cash in on market appreciation. Although there are no guarantees, the value of real estate generally goes up. So, the condo or house you buy while your student is attending school may be worth a lot more when it is time to sell.
• Lower tuition costs. Your home or condo purchase may allow your student to establish residency in the college’s state. This residency status can lead to a lower tuition rate. Residency laws vary by location and can be very specific, so thorough research is required.

Risks to consider

Of course, buying real estate also comes with inherent risks.

• The home could decrease in value.
• Landlords are subject to limits and special passive activity rules.
• Expenses like upkeep and closing costs on the sale must be handled.
• Dealing with college students as tenants can be a hassle.

Look before you leap into a deal to see if it makes sense for your family. Call today for assistance.

Suppose you own property you intend to transfer to your loved ones. Perhaps you are considering giving your children an ownership interest in your principal residence. Before you act, you should review the tax consequences of your decision. Specifically, tax law includes several provisions involving sales to related parties. As you might imagine, this covers relatives like your children, grandchildren and siblings, but it also applies to business entities you own. Here are four common situations you may encounter, and tips to help you avoid tax trouble:

1. Installment sales. With an installment sale of investment or business real estate over two or more years, you can defer tax on your gain until the tax years in which payments are actually received. However, if you sell the property to a related party who disposes of it within two years, the remaining tax is due immediately.

   Tip: To solve this problem, insert language in the legal agreement that does not allow the disposition of the property within two years.

2. Selling at a discount. If you’re selling a house to a related party, you may wish to give that person a sweetheart deal. Unfortunately, the IRS may reclassify the transaction as a gift if the property is sold at considerably less than its fair market value (FMV). Fortunately, you have some wiggle room. If you discount the sale by less than 25 percent, you should be OK.

   Tip: Err on the side of safety by having an appraisal of the property before the transfer date OR build documentation that justifies the FMV.
   

3. Transferring remainder interests. In some cases, a homeowner may transfer an interest in a home to his or her estate while continuing to live there. Although this may meet certain objectives, the estate can’t take advantage of the $250,000 home sale exclusion ($500,000 for joint filers). However, if the heirs subsequently meet the two-out-of-five-year ownership and use requirements, the exclusion becomes available.

   Tip: Prior to transferring interest in your home to anyone (including a trust or an estate), understand the impact of this action on the tax-free home gain exclusion.
   

4. Like-kind exchanges. Often, instead of selling business or investment property, an owner may trade for another, similar property hoping to either defer or avoid taxable gains. Under recent legislation, tax-free exchanges of like-kind properties are eliminated, except for qualified real estate transactions. Tax is generally deferred until the replacement property is sold, but the tax law imposes a two-year holding requirement on the parties to the deal. Alternatively, you may qualify under a special exception, such as proving tax avoidance wasn’t the purpose of the sale.

   Tip: Related property transactions of this type can get complicated. Ask for a review of your situation before trading any property.

To discuss the specifics of a property sale to one of your family members, please call.

The IRS remains on the lookout for tax scams that can blindside unsuspecting taxpayers. Now two variations of past scams are currently making the rounds. Here’s what you need to know:

The new scams

• The SSN hustle. This scam resembles another where callers impersonate IRS agents. In this version, the scammer claims to be able to suspend or cancel your Social Security number (SSN) because of some overdue taxes. Even if you don’t answer the call, they will leave a robocall voicemail in hopes that you will call back.

  Action: Hang up the phone immediately or delete the voicemail.

• Fake tax agency. With this scheme, you receive a letter threatening an IRS lien or levy. The lien or levy is based on bogus delinquent taxes owed to the Bureau of Tax Enforcement. But there’s a catch — that agency doesn’t exist!

  Action: Remember, letters regarding a federal tax issue will come directly from the IRS. Letters claiming to be from this fake agency can be shredded and disregarded.

Clues to identify any IRS scam

You can avoid a tax scam by understanding that the IRS (or its authorized private collection firms) will NEVER:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.
• Threaten to have local police or other law enforcement groups immediately arrest a taxpayer for failing to pay tax.
• Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
• Request credit or debit card numbers over the phone.

Protect yourself and others

If you are contacted by someone threatening action because of unpaid taxes, don’t give out any personal information. If it’s a phone call, hang up immediately and contact the IRS directly at 1-800-829-1040. If it’s an email, don’t respond, click any links or open any attachments. Forward the email to phishing@irs.gov and delete it.

Other questions? Don’t hesitate to call!

One of the basics in retirement is to be as tax efficient with your income as possible. In 2019, income tax rates range from 0 to 37 percent, plus a potential 3.8 percent net investment tax. Understanding how these progressive tax rates apply to ordinary income creates a tremendous retirement planning opportunity.

The basic concept

Many retirees can control their taxable income each year by the amount they work and how much they withdraw from retirement savings accounts like IRAs and 401(k)s. When your income drives you into a higher income tax rate, you will need to decide if you want to maximize the tax rate applied to this range of income.

Example: Assume you are a single taxpayer with $10,000 in retirement income from a part-time job. You also have $150,000 savings in a 401(k) retirement account. The income range and applicable tax rate for a single taxpayer in 2019 is as follows;

In this example, excluding other variables, you have the opportunity to withdraw an additional $29,475 from the 401(k) at an income tax rate of 12 percent. Income beyond this amount will be taxed at 22 percent or higher.

*Note: Taxable income typically includes wages, interest, non-qualified dividends, short-term capital gains (assets owned for one year or less), taxable Social Security benefits and withdrawals from most 401(k), 403(b), and non-Roth IRAs.

Other factors add complexity

Unfortunately, planning for tax-efficient retirement is never simple. There are other things to consider:

• Your age
• The taxability of your Social Security benefits
• Income phase-outs of other tax benefits
• Required minimum distributions at age 70 1/2 or older
• Your state tax situation
• Other taxes (estate taxes, inheritance taxes and capital gain taxes)

What to do?

Making tax efficiency an integral part of your retirement plan can be complicated. But the rewards are tremendous for those willing to start early, dedicate the time to planning, and ask for assistance.