Category: News

What You Should Consider for This Tax Season

Cartoon figures conducting tax business.

Do You Know What To Bring Your Accountant This Tax Season?

It’s never too early to think about the upcoming tax season. No matter if you’re a business owner or regular taxpayer, you’re sure to have an easier time of taking care of your taxes by working with a knowledgeable accountant. So, do you know what paperwork you need to complete the process? Not to worry, KMA is here to help.

For Business Owners

There’s no denying that business owners have access to plenty of tax planning programs and software that take care of sorting out their tax burden for them. The truth of the matter is everything from a one-person business to a medium-sized company should be handled by an accountant. There may be new tax laws or write-offs you aren’t yet aware of and may not be until it’s too late. Make things easier for yourself and bring in an accountant with experience helping businesses of your size. So what paperwork do you need to bring with you for your Tax Day meeting?

Specific documents you need include:

  • The paperwork for any assets you took on or got rid of this tax year
  • Financial statements such as income, profit-loss, cash flow statements and balance sheets
  • Receipts for such business expenses as advertising/marketing, travel expenses, utilities, rent, office equipment, maintenance and shipping
  • Employee payroll information
  • Expenses for company vehicles
  • Business use-of-home details if your home or a room/area of your home doubles as your business HQ

It’s also a great idea to have the last year’s tax return with you. This is useful for accounting how much money you made and lost this tax year.

Some independent contractors, freelancers and business owners like to get a head start on their tax bill. Making quarterly installments is great for reducing any potential penalties and fees incurred for not paying your tax bill throughout the year. If you do make these installment payments, bring the amount and the day you paid them for your accountant.

Additional Tips for Business Owners

Accountants love working with people who are well-prepared and organized. Give yourself plenty of time to gather all the documents mentioned above and any others you think your accountant may require. Rather than waiting until the beginning of April to take care of your tax bill, start early. Getting the jump on everyone else means your accountant is likely to be in good spirits and not frazzled by the last-minute rush.

As you’re getting your paperwork together, reach out to your accountant to see how she or he wants everything organized. Before heading off, double-check that you have everything. Finally, be sure you ask your accountant for business advice to lower your tax bill and keep more of your hard-earned money in the future.

For Regular Taxpayers

The same principle about accounting software for business owners applies to personal tax bills. If you do decide to do your taxes yourself, at least have an accountant look over the results to ensure everything was done correctly.

As for the paperwork you need to bring with you, it’s a good idea to have your Social Security card if you’re working with someone new. Your accountant will need your SSN and the proper spelling of your legal name. You can substitute this with the previous year’s tax return as long as it has your full legal name and SSN.

Additional paperwork includes forms:

  • W-2, for your wages and salary
  • W-2G, for money earned from gambling
  • 1099-A, if you went through foreclosure this tax year
  • 1099-B, if you sold off such investments as bonds or stocks
  • 1099-C, for canceled debts
  • 1099-DIV, for dividends
  • SSA-1099, for Social Security benefits
  • 1099-MISC, for self-employment and related income

One thing to bear in mind is the fact that you may have received taxable income without a form. For instance, if you did freelance work and were paid less than $600, you likely won’t receive a form. Know that the company or individual who paid you for the work doesn’t always have to submit a form to the IRS. That said, you still have to declare the amount you were paid.

Additional Tips for Regular Taxpayers

If you made charitable donations this tax year, bring those receipts or whatever proof you have of those donations for your accountant. Mortgage interest, tax bond credit, higher education tuition, student loan interest and mortgage payments. Do any of these apply to your tax situation? Or maybe you have documents related to these items. Either way, hand them over or inform your accountant of them.

If you took on gambling losses, medical expenses, moving expenses, car registration payments or real estate tax bills, your accountant should have that information as well. Don’t forget about realized loss/gain for capital investments such as bonds, stocks and mutual funds.

Just like with business owners, be proactive about taking care of your personal tax bill. We know you may be reluctant to file if you have a sneaking suspicion you owe Uncle Sam. Putting it off won’t lower that tax bill. In fact, doing your taxes ASAP lets you figure out how you’re going to pay for unexpected fees and tax expenses before deadlines hit. If you do owe, talk with your accountant to see how you can keep that from happening again next year.

No matter what type of business you run, KMA is at your disposal for taking care of your tax services. Contact us today to get the jump on tax season.

What Taxpayers Need To Know About the Tax Cuts and Jobs Act

Scissors cutting an all caps TAX

New Tax Cuts and Jobs Act

In the largest tax law overhaul since the Reagan administration, the passage of the Tax Cuts and Jobs Act in December 2017 significantly changes the way businesses and individuals are taxed. Although the corporate tax changes are permanent, the changes that affect individuals expire in 2025. As the 2018 tax year comes to a close, here’s what you need to know about how the new law will impact your finances.

Income Tax Reductions For Middle-Income Households

If you fall into this category, defined as households that earn $49,000 to $86,000, the nonpartisan Tax Policy Center estimates that you’ll see a reduction of about $930 on your 2018 income taxes. The next-highest tax bracket, those who earn an annual household income between $86,000 and $149,000, will see an average income tax cut of about $1,810.

Low-income households will typically see an increased tax refund. For example, a family of four making $30,000 in 2018 will get a refund of about $7,326 compared to $6,509 in 2017 according to the Tax Policy Center. Although the tax rates will rise each year between 2018 and 2015, these increases are less dramatic than in past years.

Because companies were encouraged by the IRS to update withholding amounts to reflect these changes as early as February 2018, you’ve likely already noticed some of the savings in the form of a higher paycheck.

Changes in Deductions Impact Homeowners

Taxpayers can still opt to either take the standard deduction or itemize their deductions when they file 2018 income taxes. However, the standard deduction has been increased from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married couples filing jointly.

Before 2017, homeowners significantly benefited from the ability to deduct mortgage interest, property taxes, and related costs. Under the new law, new limits have been placed on these deductions. The $1 million cap for mortgage interest deductions has been decreased to $750,000.

This change will be most impactful for those who own property in high-cost-of-living areas such as New York City and San Francisco. Most homeowners in more affordable areas will no longer itemize their deductions with the increased standard deduction. All deductions for state and local taxes have been capped at a total of $10,000, meaning you may owe more in those areas.

In the market for a new home? Analysts say these changes may result in lower housing prices, a boon for those looking to buy in the next year or two.

Other changes in this category include the elimination of moving expense deductions for non-military members and alimony deductions for those paying spousal support (but not for those receiving it).

Higher Alternative Minimum Tax Thresholds

With the Alternative Minimum Tax (AMT), high-income taxpayers are required to calculate their taxes twice: once under the standard deduction rules and once using the stricter AMT rules that eliminate most deductions. They would then owe the higher amount, a law originally passed to prevent the richest among us from avoiding tax responsibility.

Although early versions of the Tax Cuts and Jobs Acts eliminated the AMT (which increasingly impacts middle-class households), it has been retained for the present. However, the threshold for those subject to AMT has been raised from $55,400 to $70,300 for individual taxpayers and from $86,200 to $109,400 for married couples filing jointly. For example, if you are single and earned $65,000 annually in both 2017 and 2018, almost $10,000 of your income was subject to AMT last year but it no longer applies to you in 2018.

Perks for Parents

For 2018 to 2025, the child tax credit has been increased from $1,000 to $2,000. Last year, couples earning more than $110,000 annually were not eligible for this credit; moving forward, that threshold has increased to $400,000, meaning that more families will benefit. For individuals, the threshold has been increased from $75,000 to $200,000. However, a common exemption of $4,150 for each person and his or her dependents has been eliminated under these tax changes.

Parents may also benefit from changes to 529 savings plans that allow these tax-free funds to be used for K-12 private and parochial school tuition as well as for college and university. However, when used for elementary or high school tuition the limit is $10,000 per year and includes only tuition, while college students can use the funds for room, board, books, fees and other approved costs.

Lower Taxes For Freelance Workers

If you’re a sole proprietor with an independent business, you can benefit from a new 20 percent deduction aimed at freelance workers. This deduction applies specifically to business owners who “pass through” income and deductions from their endeavors to their personal income tax returns, a category that includes everyone from Uber drivers to freelance writers and web developers and beyond.

If you’re a sole proprietor or own an S corporation or partnership, you’ll likely have a much lower tax bill for 2018. If you aren’t sure what type of business you have but you work for yourself, the IRS treats you as a sole proprietor by default.

This deduction is not available for those who earn more than $157,500 annually as individuals or $315,000 for married couples filing jointly.

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The bottom line? Although most taxpayers will save money under these new government tax laws, it’s important to talk to qualified financial professionals to find out how exactly the Tax Cuts and Jobs Act will apply to your specific situation and how their tax services can help save you time and money.

Tax Planning and Why It’s Important

Wood blocks spelling tax planning.

Depending on your current job and income, you may find that you always get money back from the IRS when tax season comes around. Be that as it may, you’re better off not leaving things to chance, an oversight that can find you writing Uncle Sam a large check that includes unpaid taxes and a healthy dose of fees. Your future self, and your financial health, is sure to thank you for looking into tax planning well before the end of the year.

Pay Less in Taxes

Unless you’re an accountant, you likely don’t keep up with changes to tax laws and requirements, which means that you may very well already be in a position to owe more in taxes than you did last year, even if your income didn’t change this year. By keeping in touch with your accountant throughout the year, you can get a heads up regarding new laws that may require you or your employer to withhold more from your check.

If you’re self-employed, make investments, own a business or have children, it’s especially important that you pay close attention to tax planning; not only so you can reduce how much you pay in taxes, but also for profit maximization. Make your life easier and your bank account happier by taking steps to always ensure that you’re on the IRS’s good side.

Have an Easier Time Meeting Your Financial Goals

You likely have plans for your money that go beyond paying bills, such as saving up for retirement, buying a house, sending your kids or college and establishing an emergency fund. You’re sure to have an easier time meeting those goals when you have more money coming in than you do going out. Planning for your taxes lets you know how much money you can expect to pay or receive from the government, information that better allows you to map out and achieve your financial goals and adjust them accordingly.

Make the Most of Planning Strategies

Just as it takes time to meet your financial goals, the same is true of strategies involved in planning your taxes. By getting a head start on those strategies, you give yourself the time necessary to determine how effective those methods are and maximize their overall benefits. This tip is especially essential for those who participate in a 401(k) program or any other type of retirement plan. Not only does getting a head start let you see how a specific plan is working, it also allows you to fully realize the plan’s benefits. You don’t want to be under the impression that the perfect tax strategy isn’t so ideal just because you didn’t give the seed enough time to sprout and flourish.

Avoid Becoming a Cautionary Tale

By planning your taxes, you can learn from the mistakes of others rather than becoming a horror story. Waiting too late or failing to plan at all can cost you serious money, money that belongs in your bank account rather than with the IRS. Cautionary tales abound regarding people who are engaged and sell their current home while still technically single rather than waiting until after the wedding when they could have taken advantage of a joint-filing exclusion. Get into the habit of touching bases with your accountant before making any major changes to your life, no matter how far removed from taxes those changes may seem to be. It’s always best to err on the side of utmost caution when money is involved. Otherwise, you may find yourself sharing your story with others in the hope that they won’t make your avoidable financial blunder.

Make Tax Law Changes Work for You

Just as changing tax laws can result in the need to change how much is withheld from your check or how much you make in estimated quarterly tax payments, those shifting tax laws can also work in your favor. That being said, you have a better chance of making the most of changes when you actually know about them. Because the IRS doesn’t send up a flare regarding shifts to tax laws that will benefit you, planning for your taxes throughout the year lets you know about upcoming laws that can boost your financial health as well as expiring laws that you need to take advantage of before they no longer apply. Just as taxpayers sometimes wait until the last minute to file, Congress sometimes waits until the last minute when it comes to enforcing changes made to tax laws. Keeping your finger on the pulse of those laws puts you in a better position to pounce on opportunity the moment it presents itself.

Realize That Your Healthcare Is Likely Linked to Your Taxes and Income

No matter how you may feel about the current state of health insurance in the U.S., there’s no denying that it’s likely impacted your tax liability. Those who buy insurance through the health exchange have premiums that are linked to their current income, which means that receiving a raise can hurt them financially if they don’t plan accordingly. By sitting down and talking with an accountant, you can figure out how to keep from being hit with sticker shock upon learning that you owe hundreds or even thousands of dollars to the IRS.

Why Hire a Tax Professional?

Tax professionals showing how much they can help your business.

Delegating taxation responsibilities to your employees could slow down or setback your overall growth plans. You can end up reducing or straining your staffing capabilities. Without specialized and up-to-date training in taxation, you also run the risk of your employees not being experienced enough to provide the best possible business tax services.

Specialized Expertise and a Seasoned Approach

Outsourced tax services enable your business to tap into the expertise of a seasoned and experienced professional who understands the different IRS and state schedules. Effective tax planning and filing requires a thorough understanding of up-to-date regulations and how to reduce liabilities. Your employees may not be able to stay on top of your business tax matters and tax law changes while they also carry out their other day-to-day assigned responsibilities.

An Independent Auditor Reduces Risk and Builds Confidence

The Sarbanes-Oxley Act of 2002 requires public companies to maintain an independent outside audit. The company’s annual reports are reviewed for errors and accuracy to prevent shareholder fraud. For private companies, one of the many benefits of contracting outsourced taxation services is that it functions as a third-party watch dog. Having independently audited financial statements shows your customers and your employees that you are committed to full and thorough reporting.

Conserve Two of Your Major Resources: Time and Money

Time is money and nobody likes to lose of any of that, especially when it’s due to costly mistakes. The time factor alone can often be one of the biggest constraints in meeting profitability goals. When you outsource your taxation needs, your mind can remain at ease because you know that your taxation requirements will be completed accurately. Without the burden of penalties and time expenditures, you’ll have more resources available to achieve your business goals.

Removing Payroll Tax Concerns

When you outsource business tax services, you can be confident that payroll reports will be filed accurately and on time. Paycheck errors are also reduced and payments can be made through one simple plan. Ensuring that your employees are paid properly is an important factor in maintaining a positive workforce culture and fostering productivity.

Find Out for Yourself

By combining technological and innovative excellence with our commitment to productivity and quality, KMA works to realize our vision of being the best in the field. Our success is measured by our clients’ growth and the degree of satisfaction they have in our services. Contact us today and let’s talk. We’ll show you how our reliable and expert tax services will put your mind at ease and free up you staff to grow your business. You’ll also find out why our clients feel secure in the fact that we always have your best interests in mind.

Accounting Trends 2018

Graphic for accounting trends featuring a bill, coin, and a pen.

Technological advances and business shifts are bringing new trends to the accounting sector. Staying current makes you a more informed business owner or working professional. Being unaware of emerging trends and laws can, however, have a negative effect on your bottom line or it can increase your tax liabilities. These are three of the accounting trends you should be aware of to remain on top of things.

Outsourcing Services

Businesses are discovering that outsourcing their accounting and taxation needs brings significant advantages. Outsourcing enables your staff to focus on the core functions of growing your sales and lets you make the best use of time and financial resources. You can also obtain the services of seasoned accounting and taxation experts at reasonable costs while remaining assured of their up-to-date knowledge of changing laws. For working professionals, skipping the DIY approach and contracting the services of accounting professionals reduces the chances of tax filing or planning mistakes that can result in costly penalties or lost opportunities for tax reductions.

Fixed-Rate Pricing for Services

Hourly billing for accounting services is becoming less the norm as businesses appreciate the much greater value of flat rates and retainer fees. In addition to easier line-item budgeting for outsourced accounting and taxation services, many businesses are learning the value of remaining proactive. There’s much to be gained from obtaining the advice of an accounting or taxation expert before finalizing an important business decision. Fixed rate and monthly or quarterly retainer fee billing arrangements mean there won’t be an unexpected consulting fee showing up whenever you reach for the phone to get some strategic advice or a fresh perspective.

The Gig Economy

A growing number of working professionals are embracing the “gigging” approach to their careers as a secondary (moonlighting) income, for skill-building or to take advantage of the flexibility. For businesses, this represents an opportunity to streamline the onboarding and payroll process and achieving a greater degree of adaptability. It also creates new reporting and tax filing requirements for the parties at both ends of the employment transaction.

Now Is the Time To Consider Outsourcing

These trends will place greater demands on businesses and working professionals as they are required to adapt their accounting, taxation and bookkeeping procedures to keep up. Rather than overtaxing existing resources, outsourcing provides a convenient and cost-effective solution. In addition to relying upon cutting edge technology and best in class accounting practices, KMA is an AICPA-approved CPA firm. Our quality-control systems are independently reviewed by the American Institute of Certified Public Accountants to ensure our clients of our compliance with the highest possible standards and practices. Contact us now to learn how we can keep you on top of the trends instead of lagging behind them.

How Does the Government Shutdown Impact the IRS?

Please read this important information from the IRS regarding the shutdown.

With the government shutdown, there are still some essential activities that will continue during the shutdown, such as:
• Testing of upcoming Filing Year programs.
• Upcoming Tax Year forms design and printing.
• Electronic returns that are processed systematically up to the point of refunds.
• Processing paper tax returns through batching.

These are some of the activities that will cease until the funds are appropriated for the IRS to continue:
• Guidance on 2017 Tax Act will stop.
• Refunds will not be issued, but the IRS will continue to send acknowledgements.
• Service center processing after the point of batching will not occur.
• Form 1040X Amended Returns will not be processed.

Short-term shutdown (less than 5 days) would have less of an impact on the agency and refund delays.

We will provide updates as we have more information.

AGREEMENT ON TAX REFORM – IMPACT TO INDIVIDUALS

Individual Tax Reform Summary

On Friday, December 15, a joint conference committee comprised of House and Senate members released an agreed-upon version of the Tax Cuts and Jobs Act (the “Act”). The Act provides the most comprehensive update to the tax code since 1986 and includes a number of provisions of particular interest to our private clients.

The Act now goes before the full House and Senate for a vote the week of December 18, 2017, but is widely expected to pass as a result of some last-minute negotiations to secure a projected unanimous GOP vote in the Senate.

As was previously proposed in the earlier Senate bill, individual tax reform is temporary. Unless noted, the provisions discussed below would go into effect on January 1, 2018, and expire on December 31, 2025.

Read more

HOUSE TAX BILL RELEASED

On November 2, 2017, the House of Representatives released a draft tax reform bill titled the “Tax Cuts and Jobs Act.” The bill would reduce individual and business tax rates, would modify or eliminate a variety of itemized deductions as well as repeal the estate and alternative minimum taxes, and would change the taxation of foreign income. The Ways & Means Committee intends to formally markup the bill the week of November 6 with full House floor consideration planned before Thanksgiving. Most of the provisions would be effective starting in 2018.

Details

Under the House bill, individuals would be subject to four tax brackets at 12, 25, 35, and 39.6 percent. The 39.6 rate would apply at $1 million for married taxpayers filing jointly and $500,000 for other filers. The standard deduction would be increased, from $6,350 to $12,200 for single filers and from $12,700 to $24,400 for married taxpayers filing jointly. Personal exemptions would be repealed; however, the child tax credit would be expanded.

Itemized deductions would be changed significantly by the bill. Deductions for state and local income and sales taxes would be eliminated for individuals, and the deduction for local property taxes paid would be capped at $10,000. Mortgage interest expense deductions would be limited to acquisition indebtedness on the taxpayer’s principal residence of up to $500,000 for new mortgage indebtedness, reduced from the current limit of $1 million (existing mortgages would be grandfathered). Home equity indebtedness would no longer be deductible. Cash contributions to public charities would be limited to 60 percent of the donor’s adjusted gross income, an increase from 50 percent adjusted gross income limitation under current law. Deductions for tax preparation fees, medical expenses, moving expenses, and personal casualty losses would be repealed, but the deduction for personal casualty losses would remain for relief provided under special disaster relief legislation. The overall limitation on itemized deductions would also be removed. The individual alternative minimum tax (AMT) would be repealed. Transition provisions would ensure taxpayers with AMT carryforwards would be able to use the remaining credits between 2018 and 2022.

Notably, most of the reform provisions are effective beginning after 2017; however, the changes to the mortgage interest expense deduction are effective for debt incurred on or after November 2, 2017.

The exclusion of gain from the sale of a principal residence would be phased out for married taxpayers with an adjusted gross income in excess of $500,000 ($250,000 for single filers) but the act changes the use requirements and calls for taxpayers to live in the residence for five of the previous eight years to qualify, up from the current requirement to use the residence for two of the previous five years. The bill further repeals the deduction for alimony payments effective for any divorce decree or separation agreement executed after 2017.

Estate, gift, and generation-skipping transfer (GST) tax exclusions for individuals would be increased to $10 million (as of 2011) and then adjusted for inflation, and the estate and GST taxes would then be repealed after 2023 but would maintain the step-up in basis provisions. Beginning in 2024, the top gift tax rate would be lowered to 35 percent with a lifetime exemption of $10 million and an annual exclusion of $14,000 (as of 2017) indexed for inflation.

Impacting businesses, the corporate tax rate would be reduced from 35 percent to 20 percent, and certain “business income” from pass-through entities would be taxed at 25 percent instead of an owner’s individual rate. Bonus depreciation of 100 percent would be available for qualifying property placed in service before January 1, 2023, new property types would qualify for bonus depreciation and expense amounts would be expanded. The bill proposes to eliminate the Domestic Production Activities Deduction and change other aspects of entertainment expenses, net operating losses, like-kind exchanges, business credits, and small-business accounting methods, among other provisions. The bill would also repeal the corporate alternative minimum tax (AMT) and make existing AMT credit carryforwards refundable over a period of five years.

Taxation of a corporation’s foreign income would change from a worldwide system to an exemption system, with a 100-percent exemption from U.S. tax for the foreign source portion of dividends paid by a foreign subsidiary to U.S. corporate shareholders that own 10 percent or more of the foreign subsidiary. To transition to the exemption system, the bill also includes a transition tax for untaxed foreign earnings accumulated under the current worldwide taxing system. The House bill also includes provisions to prevent base erosion. A separate tax alert discussing in more detail the House bill’s proposals relating to the taxation of foreign income and foreign persons is forthcoming.

The bill would impact tax-exempt entities as well through the expanded application of unrelated business income tax (UBIT) rules and a flat 1.4 percent tax of the net investment income of entities including private foundations.

Insights

The release of the House bill represents the first significant and detailed legislative step toward tax reform under the Trump Administration. As drafted, most of the provisions would be effective for the 2018 tax year. The House Ways & Means Committee is expected to formally markup the legislation the week of November 6, with full House consideration planned before Thanksgiving.

There are additional provisions in the proposed legislation effecting education credits, retirement accounts, deferred compensation, and private foundations, among others.

2017 KMA Year End Tax Planning with Special Report on Tax Reform

Click HERE to view 2017 Year End Tax Planning

Year-end 2017 presents a unique set of challenges for taxpayers. At the top of the list are the uncertainties created by the possibilities within proposed tax reform legislation – what changes might be made, and whether those changes would be retroactive for 2017.

Highlights of the 2017 Year End Tax Planning include:

  • Tax Reform – Different Paths
  • Rate Cuts – 2017 or 2018?
  • Standard v. Itemized Deductions
  • Depreciation Strategies
  • Life-Cycle Considerations
  • Timing Strategies