Off to a new year, which means an update on market conditions!
Showing posts with label articles. Show all posts
Showing posts with label articles. Show all posts
Market Update January 2023
Some really good information about where the market is and looking forward to the future!
Market Update July 2022
These economic statistics might give you a different perspective that what is generally being discussed today!
Beware of Scams
Where there are federal and state tax agencies giving out money, unfortunately there are also scammers. As taxpayers, we all must remain aware and vigilant. There are people who are out to fool each of us to get our information and steal money from us. This happens everyday and is not a new topic. The methods change depending upon the time and season, but the need for caution from taxpayers remains the same.
This year the IRS, state agencies, and the entire tax industry has had to warn taxpayers about a new scam where people are phishing for information using the Economic Impact Payment as the bait. As a reminder, do not disclose bank account or other personal information to people who use text messages, emails, or other suspicious methods to contact people. Do not open links but instead go to the website in an independent browser by searching out the legitimate website. The IRS doesn't send text or emails or call people with threats. Never make payments to individuals who will only accept payments via gift cards.
Payroll Tax Deferrals
In early August, President Trump officially issued an executive order for a payroll tax deferral to begin September 1. In this letter, we want to fill in the blanks, answering: Just what is the new payroll tax deferral, and who does it help?
Let's
start by clarifying a few things:
- Payroll tax relief only applies to those
with a biweekly pre-tax paycheck of less than $4,000.
- The deferral only applies to those on a
payroll. The relief won't aid millions of those unemployed or furloughed
due to COVID-19.
- The relief only addresses the employee's
6.2% share of Social Security taxes, not the 1.45% Medicare taxes.
- The employee is expected to repay the
deferred payroll tax through ratable payroll withholding between January
1, 2021, and April 30, 2021.
On
August 8, 2020, the President issued four executive orders extending
unemployment bonuses and postponing payroll taxes.
Payroll
tax deferral is the order of interest to most of us. Basically, from September
1 - December 31, employees won't have to pay their 6.2% Social Security
earnings. Although in theory, this makes workers 6.2% better off, we will be
expected to pay this back into the government's coffers over the first four
months of 2021.
Who Qualifies for Payroll Tax Relief?
Payroll
tax deferral only aids those on a payroll. The President's deferral does not
apply to the self-employed. President Trump's payroll tax relief only applies
to people who earn a pre-tax income of less than $4,000 biweekly -
approximately $104,000 annually. The maximum deferral is $2,149 ($8,666 x 4
months x .062).
Relief, or a Short-Term Loan?
A
further thing to consider is the upcoming election. Should President Trump win
a second term, he has said his administration would work toward forgiveness of
the deferred payroll tax and ask Congress for appropriate legislation.
Please give us a call with any additional questions that you may have!
Retirement Planning Seminar
RETIREMENT PLANNING SEMINAR
Tuesday & Thursday September 22 & 24
12:00 P.M. (noon)
Please join us for this, our first in a line of free monthly seminars we are sponsoring. This seminar is being offered 2 different days to accommodate your schedule. We have room for 10 people each session to attend in person. Will also be available vie video call. Please RSVP in order to guarantee your seat. This seminar will be under an hour and will be focused on helping you and those you love prepare for retirement.
How to Fill Out a W-4
A properly
filled out W-4 form is the first step in tax preparation and it directly
affects the size of your income tax bill. However, for many this form can feel
overwhelming and confusing. Here are some basic guidelines for filling out the
W-4 to maximize your paycheck and your tax return.
A W-4 form is
an IRS document filled out by anyone that is employed and receives payroll
income. It is usually filled out when someone is newly employed, or when they
need to change information regarding their paycheck. The form tells the
employer how much of your paycheck should be withheld for taxes. The IRS wants
you to pay your taxes “as you go” instead of waiting until you file your annual
tax return to pay. The W-4 allows that to happen.
One of the
first questions is “Am I exempt?” This asks if you are exempt from paying
taxes. The answer to this is question is that you probably are not exempt.
However, if you think you will earn very little money, and therefore don’t
expect to owe income taxes, you may qualify.
Following the
exemption question there are three worksheets to address:
- Personal Allowances
- Deductions and Adjustments
- Two-Earners/Multiple Jobs (for people with more than one job or married people in which both work).
Personal Allowances Worksheet
The Personal
Allowances worksheet is for everyone. The Personal Allowances represent your
deductions. The more deductions you claim, the less money will be withheld from
your paycheck. Follow the directions entering in numbers in boxes A-D. Box B
and C give you options for entering numbers. Box D asks for the number of
dependents. Sometimes we don’t know exactly what our tax situation might be
like, and it is difficult to know what number to enter. Remember that each allowance claimed affects the amount withheld from
your paychecks. You will receive a tax refund if you don’t claim enough
allowances and therefore overpay your taxes throughout the year. If you claim
too many allowances you may owe the IRS money on your income taxes. If
you owe more than $1,000 you also have to pay a penalty. Make your best
estimate for accuracy and remember that the allowances can be adjusted later as
needed.
Some examples
might be:
Single, one
job, no dependents: SINGLE, ONE ALLOWANCE
High school or
college student, single, claimed by your parents on their taxes: SINGLE, NO
ALLOWANCES
Married, three
children, spouse does not work: MARRIED, 5 ALLOWANCES
Deductions and Adjustments Worksheet
The Deductions
and Adjustments worksheet is only for those who expect to have deductions for
the year that will lower their taxable income. This can help to ensure that
there is not excess withholdings. The worksheet can seem complicated, so the
IRS has an online calculator that can help you determine what to enter at https://apps.irs.gov/app/withholdingcalculator/index.jsp
Two-Earners Worksheet
The Two-Earners
worksheet is for households with more than one income. The extra income may
push you into a higher tax bracket, so the IRS wants to ensure you have enough
withheld to avoid the penalties.
Final Steps
When you have
finished with the worksheets, you will fill out the informational portion of
the W-4 that includes the standard name, address, social security number and
tax filing status. You will then enter in the totals from your worksheets. From
there, you will give the form to your employer and get to work! If the W-4 is
filled out accurately, you won’t owe any additional tax when you file your
return (and you may not receive a refund either). Update your W-4 with your
employer whenever life events change your situation, such as marriage,
childbirth, child leaving the nest, etc. Always consult a qualified tax advisor with
questions.
Should I Turn My Hobby Into A Business?
You love to go horseback riding and you own your horse you have trained yourself. But it can be awfully expensive for feed, grooming, veterinary expenses and boarding. What if you could write off all of those expenses? You start thinking that perhaps all you need to do is turn your knack for horse training into a business!
Horses and other hobbies can be a lot of fun and an important aspect of life, but it can be challenging to turn a hobby into a business. Being a professional horse trainer, for example, would allow you to write off expenses related to your activities. This can be a huge financial benefit to those who are recognizing these expenses with their own horses or pastimes. But the IRS doesn’t want people deducting expenses related to hobbies. So, how can you classify it as a business and not be in hot water with the IRS?
Perhaps, the first test of “hobby vs. business” is a profit motive. Do you really try and make money with your horses? Do you take losses each year from your activities? The IRS has said they will presume that an activity is carried on for profit if it makes a profit during at least three of the last five tax years (or two out of the last seven years for horses), but that is a mere guideline and not a rule.
The IRS will also look for other evidence that you are a professional horse trainer or that your activity is a business. These are the nine factors the IRS lists that can be considered to determine whether it is a business engaged in making a profit:
1. Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
2. Whether the time and effort you put into the activity indicates you intend to make it profitable.
3. Whether you depend on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
7. Whether you were successful in making a profit in similar activities in the past.
8. Whether the activity makes a profit in some years and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
If the IRS decides your horse is merely a hobby and not a business, all deductions taken in past years may be disallowed, possibly resulting in a hefty tax liability. Consult with a qualified tax advisor regarding your hobby to see if it would qualify as a legitimate business. It will require constant and diligent recordkeeping to show that your love of horses really has translated into a business, but it can be vitally important if the IRS comes knocking.
Horses and other hobbies can be a lot of fun and an important aspect of life, but it can be challenging to turn a hobby into a business. Being a professional horse trainer, for example, would allow you to write off expenses related to your activities. This can be a huge financial benefit to those who are recognizing these expenses with their own horses or pastimes. But the IRS doesn’t want people deducting expenses related to hobbies. So, how can you classify it as a business and not be in hot water with the IRS?
Perhaps, the first test of “hobby vs. business” is a profit motive. Do you really try and make money with your horses? Do you take losses each year from your activities? The IRS has said they will presume that an activity is carried on for profit if it makes a profit during at least three of the last five tax years (or two out of the last seven years for horses), but that is a mere guideline and not a rule.
The IRS will also look for other evidence that you are a professional horse trainer or that your activity is a business. These are the nine factors the IRS lists that can be considered to determine whether it is a business engaged in making a profit:
1. Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
2. Whether the time and effort you put into the activity indicates you intend to make it profitable.
3. Whether you depend on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
7. Whether you were successful in making a profit in similar activities in the past.
8. Whether the activity makes a profit in some years and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
If the IRS decides your horse is merely a hobby and not a business, all deductions taken in past years may be disallowed, possibly resulting in a hefty tax liability. Consult with a qualified tax advisor regarding your hobby to see if it would qualify as a legitimate business. It will require constant and diligent recordkeeping to show that your love of horses really has translated into a business, but it can be vitally important if the IRS comes knocking.
Bunching Charitable Deductions
With the increase in standard deduction in 2018 for
individuals, it is estimated by the Tax Policy Center that of the 46 million
people who itemize, only 19 million will continue to itemize deductions on
their tax return in 2018. Taxpayers are seeing less benefit by itemizing due to
the increased standard deduction, but they may be able to bunch their
deductions to still receive some benefits from itemizing their deductions.
Bunching charitable expenses is spending and deducting expenses
from two years (or more) into one year. How this is accomplished is by picking
a year to start and paying double (or more) the charitable amounts that one
would normally pay in any given year. It may sound difficult to accomplish, but
it could be done with only one month difference in paying time. A person could
pay all their regular charitable deductions in January of 2018 and then pay the
charitable deductions that they would normally pay in 2019 in December of 2018
instead.
See the following illustration for a married-filing joint
couple who regularly pays $15,000 in charitable deductions to see the benefit
of bunching charitable expenses:
With bunching the taxpayers can take advantage of $11,000
more in deductions over the two year period. At the 12% tax bracket, that is
the potential of $1,320 in tax savings, plus any additional that could arise
from other potential tax credits or lower state income tax. $1,320 or more in
tax savings every two years could be worth the additional planning and
preparation it may take to begin bunching charitable deductions.
Tax Cuts and Jobs Act for 2018
The 2018 tax law that recently passed has a number of
differences from both 2017 tax law and the originally-proposed tax plan. Most
of these changes sunset after 2025, with some exceptions.
Tax rates and brackets have adjusted, as seen below, with
some tax rates going up and some down.
Exemptions have been eliminated, and the standard deduction
has increased to $12,000 for single individuals and $24,000 for married
couples.
AMT exemptions and phase-outs have increased. Child tax
credit has increased to $2,000 for each child (up from $1,000), with a smaller
portion being refundable and with a higher phase out at $400,000 for joint
filers.
Allowable itemized deductions have changed, with medical
expenses being subject to the 7.5% threshold until the end of 2018. State and
local taxes are limited to $10,000 per return. Interest payments are only
deductible for home mortgages up to $750,000, with no deductibility for home
equity lines of credit. Miscellaneous itemized deductions are no longer
allowable. Overall, itemized deductions are no longer limited.
The top corporate tax rates have decreased to 21%, and
pass-through business income is also limited to 29.6% for some businesses.
Estates are only taxed above $11.2 million for individuals
and $22.4 million for couples.
The Affordable Care Act individual mandate penalty has been
repealed beginning in 2019.
There are many additional changes to the tax law as of 2018,
as well. To understand how the new tax law will affect specific individuals,
people should contact their tax advisor. Some aspects of the changes will
increase tax and others will decrease tax, depending on an individual’s
specific tax situation.
