TAX PLANNING GUIDELINES FOR INDIVIDUALS AND BUSINESSES
The Tax Cuts and Jobs Act (“TCJA”) was signed into law at the end of 2017, meaning the 2018 tax year saw the initial impact of the TCJA and raised many questions regarding the implementation of its various provisions. During 2019, most taxpayers filed their first returns that applied these changes, including those for which no guidance had yet been issued. Needless to say, it was a challenging filing season for all involved.
Throughout 2018 and 2019, our tax professionals have been working diligently with clients to explain the changes, modify client organizational structures, adjust their tax compliance reporting systems, and maximize their available tax benefits. We have addressed such diverse issues as whether or not to make certain elections with respect to foreign sourced income, aggregation elections related to the qualified business income deduction, filing for change in accounting methods, and establishing trusts in states that do not have state income taxes.
We have issued Tax Alerts, held webcasts and had many, many individual conversations and meetings with you to address the impact of the TCJA and maximize the benefits afforded by it. We continue to monitor legislative and regulatory activity and, as always, will share our insights with you. We will also be keeping a careful eye on the upcoming presidential elections, as the outcome could have an impact on future legislation.
This 2019 Tax Planning Guidelines for Individuals and Businesses contains a summary of the current individual and business tax landscape, commentary regarding the TCJA and observations on its impact and the ongoing clarifications from the IRS, as well as considerations for the future
NET OPERATING LOSSES
One of the lesser publicized provisions of the TCJA, the change in the rules relating to Net Operating Losses (“NOLs”) has had a major impact. A NOL is generated when, during any tax year, a taxpayer’s allowable business deductions exceed his/her business income. This result, modified by certain adjustments, is referred to as a NOL.
Tax Plan for Tax Year 2020
Fail to Plan Is Plan To Fail!
There are only a few days left to plan for Tax Year 2019. Start planning for the new Tax Year 2020: January 1, 2020 – December 31, 2020. You pay Taxes with your hard earned money. Taxes can be complicated and stressful, you could waste your money if you don’t properly plan or don’t work with the right people and correct website.
In order to reduce your taxes or increase your tax refund in conjunction with your next tax return, tax planning throughout the year is critical. In addition, when planning for life changing events (marriage, home purchase, career change, etc.) you should also consider the possible tax implications. The same is true for unplanned life changing events, they might have unplanned tax consequences.
help you with tax planning by providing, not only free tools but also asking you relevant questions that could result in your income tax reduction. December 31 is a critical deadline for each tax year, since certain contributions (e.g. medical plan contributions, etc. ) have to be completed by December 31. Furthermore, in the case or a marriage or divorce, December 31 is a critical date when it comes to selecting a filing status. The source or type of income you receive throughout a tax year will also determine your taxable income.
Adjust your paycheck withholding with a Form W-4 so you get your next tax refund now. Do you want your tax refund in your paycheck? Recent IRS statistics show that almost 100 million (or 75%) of all Americans get a tax refund check, and the average refund check is for about $2,400. So why not get some of this refund now as part of your regular paycheck? Every month most taxpayers pay an average of $200 too much in income taxes.
If your income has not changed from last year, use our 2020 Tax Return Calculator. Alternatively, you can use the year-to-date income from your latest pay stub to estimate your expected annual income for the year (keep in mind that the calculator is based on currently available figures which may be subject to adjustment).
Personal Tax Planning
With the tax regime becoming more complex, and more focus being put on taxpayers’ individual responsibilities, everyone who is subject to taxation needs professional advice and support if they are to optimise their tax position and ensure they meet all the compliance requirements.
Every pound of income tax you save means more income at your disposal, every well planned disposal of assets means minimal loss of capital gains, and every inheritance tax saving means more benefit for your beneficiaries.
These are a few of the more common questions we get asked by prospective clients considering using our services.
How easy is it to change accountants and why should I change? A: If your existing accountant is offering you an excellent pro-active service at a fair fee then stick with them. However, different accountants will save you different amounts of tax and provide different levels of business advice. If your present accountant doesn’t offer the type of service you want and that we do offer, then changing over to us is very easy. It involves just one letter from you and we take care of everything else for you. Your existing accountant is not usually allowed to charge you for providing the normal handover information.
You seem to offer a lot. Are your fees expensive? A: No! We offer fixed fees linked to the value of what we provide. We’re not always the cheapest and as with many things in life the cheapest is often the most expensive in the long run. However, we are not expensive and we offer excellent value for what we provide. Most importantly we never undertake work without agreeing the fee arrangements in advance so you always know where you stand.
I’ve just had my accounts done and don’t need an accountant until next year, so is there any need to contact you now? A: We can’t over emphasise the importance of tax planning at an early stage, not crisis driven advice. Ideally you do tax planning before the year even starts but after that, the earlier the better. The same is applicable to all areas of advice and we are about helping you change the future, not just reporting what has already happened
How to save tax as a couple
You can’t escape paying tax on income, but you may be able to split some of your income with your spouse. And if your spouse is in a lower tax bracket, you’ll pay less tax as a couple
Kim and Henry
Kim, an executive at a health care firm, is the couple’s primary income earner, and Henry is a self-employed photographer. The couple saves tax in several ways, all involving investments.
If Kim simply gave money to Henry to invest, as a way to pay less tax on income and returns, attribution rules would pass the tax bill back to Kim. But she uses a prescribed rate loan. Kim loans $100,000 to Henry that she received as an inheritance. She charges Henry interest at the government’s prescribed rate, currently 2%, and investment income is taxable to Henry at his lower rate. It takes a large loan like this and a significant difference in marginal tax rates for the strategy to be worthwhile
Mark and Laura
Mark owns an event planning business. His wife, Laura, has been working part-time to bring in new business, largely through social media. She is paid by the company with dividends taxed at her personal rate. But when the new Tax on Split Income (TOSI) rules took effect on January 1, 2018, their previously acceptable income-splitting arrangement was in jeopardy. Laura worked fewer than 20 hours per week, which subjects her dividends to tax at the highest marginal rate
The couple had a decision to make – switch payment to salary, which is not subject to the TOSI rules, or meet the new requirements. They prefer the relative simplicity of dividends over the paperwork that salary involves. So Laura now works a minimum of 20 hours per week and continues to receive tax-friendly dividends. The couple still benefits from income splitting and Laura keeps time records to demonstrate they are onside of TOSI rules
most powerful postmortem planning pointers for trusts and estates
After a client passes away, there is much more to do than just prepare a final Form 1040, U.S. Individual Income Tax Return. Taking control of the postmortem planning process can be a powerful way to save tax dollars for the decedent’s estate and family. Postmortem planning also applies to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return; state death tax returns, if needed; and income tax returns for the estate and any revocable trusts set up during life
Select a Fiscal Year End for the Estate
The assets that earned income during a client’s lifetime will continue to do so after his or her death. Until the estate distributes those assets to beneficiaries, an estate income tax return will need to be filed each year, generating a Schedule K-1 to each residual beneficiary to the extent distributions are made. Using a fiscal year end can be a powerful tool to defer tax on that income and allow beneficiaries time to plan for its inclusion in their personal returns. Any of the 12 month-end dates that follow the decedent’s death can be the fiscal year-end date, but the year cannot exceed 12 months.
Elect to Include Income Earned in the Decedent’s Trust on the Estate’s Income Tax Return
Trusts are required to use a calendar year end. However, a tax adviser can elect to include the income from a decedent’s qualified revocable trust on the estate income tax return. Doing that provides an array of benefits not normally available to trusts, the most significant of which may be the ability to use the estate’s fiscal year end for trust income. This election lasts two years beyond the decedent’s date of death (longer if a Form 706 is required to be filed; consult the instructions to Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate), which is normally plenty of time to deal with closing out a trust. Known as a Sec. 645 election, it is made by filing Form 8855 with the Form 1041. This election can be made even if there are no income-producing probate assets in the estate.
Manage Distributions to Minimize Overall Tax
Estate and trust income taxes reach the highest tax bracket of 35% at $11,650 of taxable income for 2012. If residual beneficiaries are in lower brackets, it will save tax for the family overall to distribute income out of the estate to them in a timely fashion. The fiduciary has until 65 days after the end of the tax year to make distributions for that tax year. Capital gains stay at the Form 1041 level and are taxed there, except on a final return
Prepare Form 1041 on the Accrual Basis
Excess deductions over income on an estate Form 1041 do not carry over to the next year and therefore are wasted (except on a final return; see below). If the fiduciary finds that the estate has paid large expenses without much income during the first year or, as is more often the case, the estate has ample income but will not pay related legal and administrative expenses until later, the fiduciary can prepare Form 1041 on the accrual basis and accrue the income or expenses into the current year