Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

In his book, The Rebel Rules: Daring to Be Yourself in Business, author Chip Conley describes what investors look for in a management team when considering providing startup money to new businesses. He says your management team should consist of a “brain trust that includes a passionate visionary, a ‘get-your-hands-dirty’ operator, and a responsible, finance-minded executive.” 

Even if you’re never going to seek venture capital money to fund your business, this tidbit of advice makes a great strategy question to consider for your business, especially if you are an entrepreneur. Do you have these three roles in your company? 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

After years of saving for retirement, it’s time to start using those savings—even if you don’t really need to. Once you reach 70 ½ years old, you must begin taking annual distributions from your qualified retirement plan. This is called a required minimum distribution (RMD.) If you don’t take your RMD, the IRS imposes a severe penalty—it’s a tax of 50% of the amount that was not withdrawn in time! Additionally, any RMD taken is considered ordinary income and will count toward your taxable income for the year.

What if you don’t need that money for current living expenses? An excellent alternative to consider is converting your IRA’s RMD into a qualified charitable distribution (QCD.)

A QCD is a direct transfer of your IRA funds to a qualified 501 (c)(3) charitable organization. QCDs can be counted toward satisfying your RMD for the year, as long as the amount is $100,000 or less per taxpayer. For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline, which is typically December 31^st.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

If you receive an audit notice from the IRS, do not panic.  Just breathe! Read the letter in its entirety to see what they are auditing.  In many cases, it's a great idea to hire a tax representation professional to deal with the audit, especially if it's a field audit (described below).

Why You 

An audit can be triggered in any number of ways. It could be that the IRS computer randomly pulled your number.  Certain amounts on the return can trigger this: high mortgage interest, high charitable contributions, high business expenses, business losses for many years, no W-2s for Officers, high travel expenses, etc.  If you have the proof, then there will not be a problem. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions

The Tax Cuts and Jobs Act created a new tax incentive to defer (and possibly even eliminate) capital gains taxes by investing in a Qualified Opportunity Zone (QOZ).

What is a Qualified Opportunity Zone?

A Qualified Opportunity Zone is an economically distressed community. For an area to be recognized as a Qualified Opportunity Zone, the state must nominate the area and the Secretary of the US Treasury must certify the nomination. An investment in a Qualified Opportunity Zone is expected to result in the creation of jobs and quality-of-life improvement for residents of low-income communities.

What is a Qualified Opportunity Zone Fund and Who Can Invest in One?
A Qualified Opportunity Zone fund invests in eligible property located within a Qualified Opportunity Zone. It is either a corporation or partnership for income tax purposes, must be in the United States, and must be at least 90% invested in Qualified Opportunity Zone businesses or property. Individual taxpayers, S and C corporations, partnerships, trusts, estates, RICs (regulated investment company), and REITs (real estate investment trust) are eligible to invest in a Qualified Opportunity Zone fund.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

 When you pay a bill in your business, are you 100 percent comfortable that the bill payment is correct and justified? Is there ever a chance that that bill is fake or fraudulent? What about duplicates? With so many fake bills being mailed to businesses these days, it makes sense to think about controls you can put into place to reduce the risk that you might write a check out of your hard-earned profits that should never be written.

Accounts Payable Controls

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

In the more than 30 years since the Tax Reform Act of 1986 (1986 Act) eliminated the General Utilities doctrine, a major goal of the small business community has been the avoidance of double taxation on income. Choosing a C corporation subjects the taxable income of the business to two layers of taxation; once when it is earned, and a second time when it is distributed to shareholders as a dividend or other form of distribution. Dividend and capital gains rates have been lowered since 1986, lessening the negative effect of this double taxation. Since then, most small businesses have opted out of the C corporation structure and have chosen to be taxed as a pass-through entity: as an S corporation or as an LLC (taxed as either a partnership or S corporation). This eliminates the double taxation of income. Of the two entities, the S corporation has the additional advantage of avoiding self-employment taxes on net income that is passed through to shareholders. LLC members who are similar to limited partners are likely able to gain similar treatment on their share of net income, but this remains a “gray” area of tax law, and it has elicited numerous court cases between taxpayers and regulators.

The TCJA has complicated the decision of whether a small business should operate as a C corporation or a pass-through entity because provisions in the TCJA do the following:

- Reduce the corporate income tax rate to a flat 21 percent.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Section 529 college savings plans are state-sponsored arrangements named after the section of Tax Code that authorizes wonderfully favorable treatment under the federal income and gift tax rules. (Section 529 plans are also sometimes called qualified tuition programs even though they generally cover room and board as well as tuition.) 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Years ago, it was often possible to save taxes by investing in a college-bound child’s name rather than in the parent’s name to take advantage of the child’s lower federal income tax rates (that is, the rates for a single unmarried person). This strategy is called “splitting income with the child.”

The concept of splitting income is simple. The client makes gifts to the college-bound child. Under the $15,000 annual gift tax exclusion (for 2018), a married couple can jointly give up to $30,000 per year to the child without paying any federal gift tax, without diminishing the $11.18 million (for 2018) unified federal gift and estate tax exemption allowed to each spouse. Investments are then made in the child’s name, and the resulting income and gains are split off from the parents’ return and hopefully taxed at the child’s lower rates. The college fund then compounds that much quicker, because the after-tax rate of return is that much higher. However, watch out for the Kiddie Tax rules. 

Under the Kiddie Tax rules for 2018–2025, part of a dependent child’s unearned income (typically from investments) can be taxed at the federal income tax rates that apply to trusts and estates, which can be as high as 37 percent, or 20 percent for long-term capital gains and qualified dividends, instead of at the child’s lower rates (that is, the rates that would otherwise apply to an unmarried taxpayer with a modest amount of income), which can be as low as 10 percent, or 0 percent for long-term gains and dividends. When the Kiddie Tax is applied, it will at least partially defeat the tax-saving purpose behind family income-splitting. That was the intent on the legislation. However, the tax can be minimized or maybe even completely avoided with careful planning.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Taxpayers contemplating divorce are generally aware that their individual retirement account (IRA) and Qualified retirement plan (QRP) assets will likely be divided up as part of the divorce. IRAs and QRP accounts can be split in a tax-effective manner if this is done as part of the divorce decree or property settlement agreement. 

Sometimes when the taxpayer is getting along well with the soon-to-be-ex-spouse, the taxpayer may be tempted to transact a pre-divorce split of IRAs and QRP accounts. This is especially likely in a community property state where the taxpayer clearly understands the spouse will wind up with half of the account balances anyway, when all is said and done.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Employees that receive stock options benefit from both the appreciation potential and lower capital gains. The tax planning objective would be to have most, or all of the profits taxed at a low capital gains rate and postpone taxes as long as possible.

There are generally two basic varieties of employee stock options:

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Among the trigger events of a small company buy-sell agreement, death of a co-owner typically is included.

            Example 1: Wendy Young and Victor Thomas both own 50% of YT Corp. They have a buy-sell, which calls for Wendy to buy Victor’s interest in YT if he dies. Similarly, Victor will buy Wendy’s interest in YT from her estate if she is the first to die.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Many people think of life insurance as a product for family protection. The life of one or two breadwinners is insured; in case of an untimely death, the insurance payout can help with raising children and maintaining the current lifestyle.

            Once the children are able to live independently and a surviving spouse is financially secure, insurance coverage may be dropped. Such a strategy uses life insurance as a hedge against the risk of lost income when that cash flow is vital.

            This type of planning is often necessary. That said, life insurance may serve other purposes, including some that are not readily apparent. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Taxpayers who itemize deductions on Schedule A of their tax return have been able to deduct outlays for state and local income tax as well as property tax with no upper limit. (State and local sales tax may be deducted instead of income tax.) However, as of 2018, the Tax Cuts and Jobs Act of 2017 provides that no more than $10,000 of these state and local tax (SALT) expenses can be deducted on single or joint tax returns ($5,000 for married individuals filing separately).

            Example: Marge Williams might have been able to deduct $20,000, $50,000, or even more in SALT payments in 2017. For 2018, Marge’s SALT deduction will be capped at $10,000. Thus, her SALT payments over $10,000 will be made with 100-cent dollars. Previously, those state and local tax bills might have effectively been paid with, say, 65-cent or even 60.4-cent dollars, depending on her federal tax bracket.

            Political figures in high tax states worry that this sizable increase in net tax obligations will cause residents to flee to other states with lower taxes; moreover, residents of other states might be reluctant to move to places where taxes are steep. That may or may not be the case. After all, taxpayers subject to the alternative minimum tax have been making SALT payments with 100-cent dollars for years—SALT is an add-back item in the alternative minimum tax calculation, wiping out the tax benefit—so the new rule might not be as painful as it appears. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Among the tax deduction opportunities that have vanished, from 2018–2025, are miscellaneous itemized deductions that exceed 2% of the taxpayer’s gross income. Such deductions included unreimbursed employee business expenses.

            Drilling down, those no-longer-deductible employee expenses included education outlays that were related to someone’s work at your company.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

When you think of the G.I. Bill, you probably recall reading about a program designed to help military veterans receive college educations after they left the armed forces following World War II. Somewhat less known is that the G.I. Bill has endured, in various forms, until present times.

Last year, the Harry W. Colmery Veterans Education Assistance Act of 2017 became law, named for the American Legion member who wrote the initial G.I. Bill. The latest version is known as the “Forever G.I. Bill” because there is no time limit on receiving benefits for military personnel. Furthermore, education benefits may be transferred to spouses and children. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

For many years, 529 college savings plans have offered a tax-favored way to save for higher education. These plans, officially qualified tuition programs, are named for the IRC section that provides their advantages.

            In brief, 529 plans are funded with after-tax dollars. In college savings plans, account owners choose from a menu of investments, and any earnings are untaxed. Distributions are also tax-free if they do not exceed the qualifying educational expenses of the account beneficiary: payments of tuition, fees, supplies, and certain housing expenses for the account beneficiary’s study at an eligible educational institution. Before 2018, eligible educational institutions included only post-secondary institutions. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Beginning with your 2018 tax return, if you itemize deductions, you can count no more than $10,000 a year of SALT deductions for income and property tax on a single or joint tax return (you can choose to include sales tax instead of income tax). SALT deductions (other than those for state and local income taxes) are not limited if they relate to income from a trade or business or for property held for the production of income.

            Therefore, paying large amounts of SALT will become more painful because there will be scant relief from a federal income tax deduction. The more you pay in SALT each year, the more the $10,000 ceiling will hurt. In addition, if you plan to make a profitable sale of your company within the foreseeable future, the state income tax on your sale could be substantial, yet not deductible.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

The article, “More give in the gift tax,” in this issue mentions that the federal estate tax exemption now exceeds $11 million per person. Accordingly, few individuals or married couples will owe this tax. Nevertheless, there is more to successful wealth transfer than reducing or eliminating estate tax. Ideally, you’ll want your assets to pass to the desired recipients with a minimum of turmoil and expense.

            To start, you should have a will prepared by an experienced attorney. Your will should not only name specific heirs for specific assets, but also identify an executor who will administer your estate and, if relevant, guardians who will care for any minor children.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

The Tax Cuts and Jobs Act of 2017 increased the federal estate tax exemption to $11.18 million for 2018. That’s per person, so the combined exemption for a married couple can be as much as $22,360,000 worth of assets this year.

            The same ceilings apply to the federal gift tax, which offsets the estate tax.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Many small businesses are pass-through entities, including S corporations, partnerships, sole proprietorships, LLCs, and LLPs. The label indicates that all business earnings are passed through to the owners’ personal income tax returns. Thus, they avoid the corporate income tax.

            The TCJA contains a new tax benefit for pass-throughs. This provision is complex, but it is relatively straightforward for taxpayers with taxable income below $157,500 in 2018, or $315,000 on a joint return. Such business owners may qualify for a tax deduction that equals 20% of their qualified business income (QBI).