Category: News

AGREEMENT ON TAX REFORM – IMPACT TO INDIVIDUALS

Posted on February 20, 2019 by - News

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.

Ordinary Income Tax Rates
The conference agreement replaces the existing tax rate structure, choosing the seven-rate structure previously proposed by the Senate. However, the agreement changed the Senate’s breakpoints for the higher marginal rates and lowered the top marginal tax rate to 37 percent. Further, the agreement does not adopt the House’s proposal to phase out the 12-percent bracket for high income taxpayers.

Long-term Capital Gains and Qualified Dividends
Long-term capital gains and qualified dividends tax rates remain largely unchanged from present law and apply the following rates based on the taxpayer’s taxable income:
Tax Rate Married Filing Jointly and Surviving Spouses Single Head of Household Married Filing Separately Estates & Trusts
0% $0 – $77,200 $0 – $38,600 $0 – $51,700 $0 – $38,600 $0 – $2,600
15% $77,200 – $479,000 $38,600 – $425,800 $51,700 – $452,400 $38,600 – $239,500 $2,600 – $12,700
20% Over $479,000 Over $425,800 Over $452,400 Over $239,500 Over $12,700

Kiddie Tax
The conference agreement calls for a child’s earned income to be taxed at the rates applied to single filers and a child’s net unearned income to generally be taxed at ordinary income and preferential (i.e. capital gains) rates applied to estates and trusts. Accordingly, a child’s income would no longer be taxed at the parents’ rate.

Inflation Adjustments
The breakpoints for the ordinary income, long-term capital gains, and qualified dividends tax brackets would be adjusted in future years for inflation. However, inflation would be measured using the Chained Consumer Price Index (C-CPI), which generally provides a slower inflationary adjustment than the current Consumer Price Index (CPI) measurement. This measurement of inflation is applied for all individual tax inflation adjustments permitted in the Act and would be permanent, not expiring in 2025 with the other individual provisions.

Standard Deduction and Personal Exemptions
The conference agreement increases the standard deduction beginning in 2018 to $24,000 for joint filers, $18,000 head-of-household filers, and $12,000 for all other individual filers. The deduction would be indexed for inflation in future years. The additional standard deduction for the elderly and the blind was retained; the House had previously proposed to repeal the additional deduction.

Further, the conference agreement suspends the deduction for personal exemptions through 2025. The conference agreement, however, retains the $100 and $300 exemptions for complex and simple trusts, respectively, and a $4,150 exemption for qualified disability trusts which is to be adjusted for inflation in future years. The House had previously proposed to repeal the exemption for qualified disability trusts.

Child Tax Credit
The Child Tax Credit would be increased to $2,000 per qualifying child, with up to $1,400 being fully refundable. A qualifying child is a dependent child who is under age 17. The Credit would begin to phase out for joint filers with adjusted gross income exceeding $400,000 and other filers with adjusted gross income exceeding $200,000.

An additional $500 non-refundable credit may be available for other dependents, provided however, that such additional credit is only available to non-citizen dependents if they are a resident of the United States.

Currently, the Child Tax Credit is $1,000 per qualifying child and is nonrefundable. The Child Tax Credit currently phases out for joint filers with adjusted gross income exceeding $110,000.

Adjustments to Income (“Above-the-Line” Deductions)
Moving Expenses
The conference agreement suspends through 2025, the deduction for moving expenses except in the case of a member of the U.S. military who moves pursuant to a military order. Currently, individuals may take an above-the-line deduction for certain unreimbursed moving expenses incurred by reason of relocating for work.

Alimony
For any divorce or separation agreements entered into after December 31, 2018, the deduction for alimony or separate maintenance payments is repealed. Recipients of alimony or separate maintenance payments will no longer be required to include the alimony payments in their gross income. Under the new provisions, alimony or separate maintenance payments will be treated similar to child support, in that they are not accounted for in the tax system (no deduction and no inclusion). Existing alimony and separate maintenance agreements are grandfathered in as are any modifications to existing agreements unless, however, the parties to a modification expressly provide that the new rules should apply to the modified agreement.

Prenuptial agreements are not grandfathered in and taxpayers may wish to revisit those agreements in light of these new provisions.

Itemized Deductions
Medical Expense
The medical expense deduction threshold would be temporarily lowered to permit a deduction against both the regular tax and alternative minimum tax (AMT) for medical expenses in excess of 7.5-percent of adjusted gross income for all taxpayers itemizing deductions in 2017 and 2018. Currently, the 7.5-percent adjusted gross income threshold is only available for taxpayers over age 65 (younger taxpayers have a 10-percent adjusted gross income threshold) and all taxpayers have a 10-percent of adjusted gross income threshold for AMT purposes.

Taxes
The sum of the itemized deductions for state and local real property taxes, state and local personal property taxes, and state and local income or sales taxes may not exceed $10,000 ($5,000 for married individuals filing separate returns). The deduction for foreign real property taxes is suspended through 2025. The $10,000 limitation does not apply to foreign income taxes paid or taxes paid or accrued in carrying on a trade or business.

Further, the agreement provides an anti-abuse provision to prevent a deduction in 2017 on the prepayment of state and local income taxes attributable to future years.

Home Mortgage Interest
The itemized deduction for mortgage interest has been reduced to only permit the deduction of interest on acquisition indebtedness not exceeding $750,000 ($375,000 for married filing separate taxpayers) on the taxpayer’s primary or second home. The interest deduction for home equity indebtedness is suspended.

Currently, taxpayers can take a combined acquisition and home equity indebtedness interest expense deduction on $1,100,000 of debt. Debt incurred on or before December 15, 2017, is grandfathered in and subject to the current limitations. Further, taxpayers who entered into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, are also eligible for the current higher limitations.

Charitable Contributions
The conference agreement makes three modifications to current charitable contribution rules. First, the agreement increases the percentage limitation for cash contributions to public charities from 50-percent of adjusted gross income to 60-percent of adjusted gross income.

Second, the agreement denies a charitable deduction for payments made in exchange for college athletic event seating rights. Currently, taxpayers may deduct 80 percent of amounts paid to an eligible college despite receiving tickets to a collegiate athletic event provided a charitable deduction would have otherwise been allowed had the taxpayer not received event tickets in return.

Finally, the agreement repeals the substantiation exception for certain contributions reported by the charitable organization. Currently, taxpayers are not required to obtain a contemporaneous written acknowledgement of contributions in excess of $250 if the donee organization reports the donation on their return.

The conference agreement failed to adopt the House proposal that the charitable standard mileage rate be adjusted for inflation.

Casualty Losses
The deduction for personal casualty losses is suspended through 2025 except in the case of losses attributable to a Federally declared disaster; provided, however, that taxpayers with a personal casualty loss gain for any taxable year during the suspension period may continue to deduct personal casualty losses not attributable to a Federally declared disaster in an amount equal to no more than the personal casualty loss gain.

Further, the conference agreement contains special casualty loss relief for taxpayers who suffered losses in certain 2016 disasters. Primarily, taxpayers affected by such disasters may be able to take up to a $100,000 disaster distribution from their retirement plan. In addition, casualty losses resulting from such disasters would be deductible if they exceed $500, without application of the 10 percent of adjusted gross income threshold. Such losses may be claimed even by taxpayers who elect the standard deduction.

Miscellaneous Itemized Deductions Subject to the 2 percent Floor
All miscellaneous itemized deductions subject to the 2% adjusted gross income floor have been suspended. This includes the miscellaneous itemized deductions for investment fees and expenses, tax preparation fees, and unreimbursed employee business expenses among others.

Overall Limitation on Itemized Deductions
The overall limitation on itemized deductions enacted in 1990, often called the “Pease limitation” (named after former Congressman Donald Pease) has been repealed through 2025.

Other Provisions
529 Plans
The conference agreement expands the definition of qualified higher education expenses that may be paid from a 529 account to include up to $10,000 of expenses for tuition at an elementary or secondary public, private, or religious school, and certain expenses in connection with a homeschool.

Individual Mandate
The shared responsibility payment for individuals failing to maintain minimum essential health insurance coverage has been reduced to $0 beginning after December 31, 2018.

Like-Kind Exchanges
Beginning after December 31, 2017, nonrecognition of gain from like-kind exchanges would be limited to real property not held primarily for sale. Transitional relief is provided for exchanges where property was either disposed of or received in an exchange on or before December 31, 2017.

Electing Small Business Trusts (ESBTs)
ESBTs are eligible S corporation shareholders and are currently permitted to only have as beneficiaries, individuals or entities that would otherwise be eligible to own S corporation stock directly. A nonresident alien individual is currently an impermissible S corporation shareholder and as such, an impermissible current beneficiary of an ESBT. The conference agreement permits nonresident alien individuals to be a potential current beneficiary of an ESBT.

Further, ESBTs are currently permitted to take a charitable contribution deduction in accordance with the contribution deduction rules of trusts. Unlike individuals, trusts do not have a limitation on their contribution deduction and are prohibited from carrying forward excess contributions. The conference agreement calls for ESBTs to determine their charitable deduction going forward in accordance with the rules applicable to individuals. Accordingly, ESBTs would be subject to the charitable deduction percentage limitations and carryforward provisions that individuals are.

Individual Alternative Minimum Tax (AMT)
The individual alternative minimum tax (AMT) has been retained. However, the exemption amounts have been temporarily increased to $109,400 for joint filers and $70,300 for single filers. The current exemptions are $83,800 and $53,900 for joint and single filers, respectively. The House bill had originally proposed the repeal of the individual AMT. The exemption phase-out thresholds would also be increased to $1,000,000 for joint filers and $500,000 for single filers. The phase-out threshold for estates and trusts would be unchanged. The exemptions and phase-out thresholds are indexed for inflation after 2018.

Estate and Gift Taxes
The lifetime exemption for estate and gift taxes is increased to $10,000,000 as of 2011 (and adjusted forward from there for inflation). As a result, taxpayers making gifts, and the estates of decedents dying in 2018 would have a roughly $11,000,000 basic exclusion amount. The estate, gift, and generation-skipping transfer taxes are not repealed; the House bill would have repealed estate and generation-skipping transfer taxes.

Deduction for Qualified Business Income of Pass-Thru Entities
The conference agreement permits an individual taxpayer, whether they choose to take the standard deduction or to itemize, to deduct 20-percent of their “combined qualified business income” from a partnership, S corporation, or sole proprietorship, subject to a wage limitation that is phased in for joint taxpayers with taxable income exceeding $315,000 and other taxpayers with taxable income exceeding $157,500.

“Combined qualified business income” includes the taxpayer’s qualified trade or business income, qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.

Specified service trades and businesses are generally not eligible for the deduction. However, there are exceptions to permit the deduction for engineering and architecture businesses, and small specified service trades and business. Small specified service trades and business begin to phase out of the deduction for joint taxpayers with taxable income exceeding $315,000 and other taxpayers with taxable income exceeding $157,500; joint taxpayers completely phase out of the deduction with $415,000 of taxable income, other taxpayers completely phase out at $207,500 of taxable income.

Estates and trusts are eligible for the 20-percent deduction. The previous Senate proposal would have excluded estates and trusts from eligibility.

Business Losses and Net Operating Losses
Business losses would only be permitted in the current year to the extent they don’t exceed the sum of taxpayer’s gross income and, for joint filers, $500,000 ($250,000 for all other taxpayers). Excess business losses would be disallowed and instead added to the taxpayer’s net operating loss (NOL) carryforward. Currently, suspended passive activity losses are allowed in full upon the taxable disposition of the passive activity.

The conference agreement amends the non-corporate NOL rules to limit deducible NOL carryforwards to the lesser of the carryforward amount or 90-percent (80-percent beginning in 2023) of taxable income determined without regard to the NOL deduction. Taxpayers would no longer be permitted to carryback their net operating losses to the previous two taxable years.

Insights
Senate budget reconciliation rules resulted in the expiration of most of the individual provisions, including the pass-thru deduction, after 2025 in order to ensure that the new 21-percent corporate rate could be made permanent.

The change to the C-CPI as the measure of inflation is a permanent change that will ultimately result in a tax increase once the individual provisions of the Tax Cuts and Jobs Act expire.

The pass-thru deduction attempts to make the tax rates of pass-thru entities not unusually disparate to the new lower corporate rate. As a result, businesses likely won’t rush to reorganize as corporations in the short-term. However, the anti-abuse provisions in the pass-thru deduction computation and the permanence of the lower corporate rate may prove to make corporations a more attractive form of entity long-term.

Notably, the conference agreement did not include the Senate proposal to require the basis of specified securities be determined on a first-in, first-out basis is not included in the conference report. The Senate had sought to prevent taxpayers from specifically identifying the lot sold in the sale of specified securities. Further, the compromise did not include any amendments to the current residence gain exclusion provisions. Both the House and Senate had proposed changing the use and ownership test to five of the previous eight years and the House had further proposed a phase out of the exclusion for high income taxpayers.

The increase in the estate and gift exemption ensures that fewer taxpayers will be subject to the estate tax. Moreover, the failure of the committee to agree to a repeal of the estate and GST taxes ensures that our traditional estate and gift planning techniques remain relevant for high-net-worth families.

What Can QuickBooks Do for You?

Posted on December 21, 2018 by - News

Intuit Quickbooks Graphic

How Can QuickBooks Help Your Business

QuickBooks is a software program designed to help businesses and individuals keep account of expenses, sales, and daily transactions. It also allows users to invoice clients, generate accounting reports, file taxes, pay bills, and more. The program was developed with business owners in mind, as well as independent contractors. However, as an individual, you may be wondering if QuickBooks is right for you. Keep reading to learn more about how QuickBooks can benefit independent workers and sole proprietors.

Paying and Managing Bills

If keeping track of your bills and expenses is a hassle, you may want to let QuickBooks do the hard work for you. The program automatically tracks all your bills and expenses by linking to a credit card or bank account. Using your account information, QuickBooks can categorize and download records of your expenses, and if you need to make a transaction using cash or a check, you can manually input the information.

Independent contractors can also use QuickBooks to pay bills on time. By creating an Accounts Payable Report, you can keep track of any current or past due bills easily. Ensuring you get paid is no problem either. You can use the program to draft and send invoices to customers and keep track of what is owed to you (this is known as your accounts receivable balance). Use QuickBooks to generate an Accounts Receivable Aging Report to access details about current and past due invoices.

Financial Reports

Managing your professional and personal finances is no simple task, but with QuickBooks, you can greatly simplify your finances without having to deal with dozens of complicated spreadsheets. As mentioned above, the program allows you to create and view real-time financial reports and transaction information. You can use the following reports to assess the overall health of your finances:

  • Statement of Cash Flows
  • Profit and Loss Report
  • Balance Sheet Report

Such information can be immensely helpful if you need to apply for a loan to expand your operations.

Payroll

Even though you are an independent contractor or sole proprietor, you may need to hire another freelancer or temporary worker. If you do this, you will have to run payroll at some point in time. Simple mistakes can result in major tax penalties and frustrated employees, but fortunately, you can avoid both by taking advantage of QuickBooks’ payroll function. The payroll function is automatically linked to your financial statements, so when the time to do payroll arrives, the program will already have access to your latest financial information.

The payroll feature, however, is not free, and you will need to purchase a QuickBooks payroll subscription. Fortunately, such a small investment can pay off over time, especially when you consider QuickBooks allows you to:

  • Pay employees via direct deposit or with a check.
  • Automatically fill payroll tax forms.
  • E-pay directly from the program.
  • Instantly calculate federal and state payroll taxes.

By using your payroll subscription, you can reduce or eliminate all your payday and tax headaches at once.

Taxes

Very few sole proprietors and independent contractors enjoy tax season, but luckily, QuickBooks can help lower your tax-time anxiety. Instead of relying on a shoebox full of unorganized receipts and account statements, you can use QuickBooks to handle your tax and accounting needs. QuickBooks gives you access to a real tax professional (via a user ID and password), and the program stores everything you need to file your tax returns. All your income, expenses, receipts, and statements will be accessible in one place.

Inventory Tracking

Keeping track of inventory is easy with QuickBooks. The program can automatically track and update your inventory after each transaction, and you will have the option to upload your data to an Excel spreadsheet. It also calculates the on-hand quantity, total value of your inventory, and the average cost of each unit.

Electronic Payments

Cashing checks and accepting cash payments can be tedious, but with QuickBooks, you will finally have the option to accept electronic payments. Once your account is activated, you can send invoices to clients and give them the option to “Pay Now” using a credit card or bank account. There is, however, a small charge for each electronic payment. The amount you are charged will depend on your payment entry method.

Upload and Store Receipts

As stated above, wrestling with a box of receipts during tax time can be frustrating, but luckily QuickBooks can store your receipts. All users, regardless of which subscription they choose, can use a mobile device to take a picture of their receipt and upload it to QuickBooks in just a few minutes. There is no need to look for lost receipts or attempt to match up receipts with banking transactions (Quickbooks attaches receipts to corresponding transactions). There is no limit to how many receipts you can upload and store to cloud with your other financial data. This is a great feature for anyone who uses receipts for accounting and tax purposes.

Your Choice of QuickBooks Products

Individuals will have their choice of the following products to subscribe to:

  • QuickBooks Online
  • QuickBooks Self-employed
  • QuickBooks Mac
  • QuickBooks Desktop

As an independent contractor or sole proprietor, Quickbooks Self-Employed may be right of your alley. In addition to having many of the previously mentioned features, QuickBooks Self-Employed also allows you to pay your quarterly taxes.

Contact Us

Overall, QuickBooks can make your life as a freelancer, independent contractor, or sole proprietor a lot easier, especially if you dread handling your finances alone. Contact the tax and accounting professionals at KMA  to learn more about our QuickBooks hosting services today.

What You Should Consider for This Tax Season

Posted on December 6, 2018 by - News

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

Posted on November 21, 2018 by - News

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

Posted on November 8, 2018 by - News

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?

Posted on October 3, 2018 by - News

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

Posted on October 3, 2018 by - News

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?

Posted on January 25, 2018 by - News

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

Posted on December 19, 2017 by - News

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.

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