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Tax Return Filing Extension…Why & When

When an Extension May Make Sense While you should try to file a tax return by April 17, sometimes delaying your filing date until Oct. 15 with a tax extension makes sense. When to file an extension       Missing or incorrect information. If one of the forms you need to file your return has an error on it, it is often better to receive a corrected form before filing. Recharacterizing Roth IRA rollover amounts. If you’ve rolled funds from a traditional IRA into a Roth IRA, you may want to reverse it later if the investments lose value. This so-called recharacterization process can be done up to the extended tax-filing date of Oct. 15, and in many cases it makes sense to wait until then. Note that 2017 is the last tax year you can use the recharacterization process, which was eliminated for future years by the Tax Cuts and Jobs Act.   Making self-employed retirement donations. The self-employed can use an extension to buy time to fund a SEP IRA. This extended time frame does not apply to traditional IRAs and Roth IRAs. Avoiding late-filing penalties. If you fail to file a tax return, two tax penalties come into play: a late-filing penalty and a late-payment penalty. By filing an extension, you can push out the potential late-filing penalty for another six months even if you cannot yet pay the tax. One thing to remember: an extension to file your return is NOT an extension to pay your taxes. If you owe any tax to the IRS, pay it by April 17 to avoid... read more

Organizing Your Tax Records

Staying Organized Before and After Tax Time Organizing your tax records not only makes filing your tax return easier, it also helps you find the financial documents you need through the year. Whether you’ve already filed your tax return or are about to, here are some ideas to get organized. Go with the flow (of your tax return) Try organizing your records in the same order as they are required to fill out your 1040 individual tax return. Here are common categories and items to be collected in each:   Income. Copies of W-2s, 1099s, Social Security statements, interest income and investment income.   Charitable donations. Charitable donation receipts, separated by cash and noncash contributions. Include a copy of your charitable activity mileage log, if you have one.   Medical and dental. All documents related to medical expenses. You may also include a note calculating your medical deduction threshold (which is 7.5 percent of your adjusted gross income during 2017 and 2018).     Other itemized deductions. All proof of other itemized deductions, including state and local tax statements, mortgage interest, casualty and theft losses, unreimbursed business expenses and other miscellaneous itemized deductions. Note that miscellaneous itemized deductions are eliminated after the 2017 tax year, but keep all records for this tax season on file. Business and hobby activity. Keep separate records for each hobby and business activity. Include records of related investments, expenses and mileage logs. Education. Records of all education expenses for tuition, fees and materials (such as books or music instruments).   Investments. Records of investments in tax-advantaged retirement accounts, as well as contributions to investable... read more

Social Media

Your Brain on Social Media How to make online interaction better for your health About three billion people use social media sites such as Facebook, Twitter, Instagram and Snapchat every day. The average user spends about two hours on these platforms, clicking, liking and replying to content sent from around the world. However, a growing body of research shows that too much or the wrong kind of social media use can have negative effects on mental health. This appears to be especially true for children and young adults. Here are some problems associated with misuse of social media and some ideas to deal with them. The problems   Anxious and depressed. Several studies have shown that high social media use is correlated with anxiety and depression. It’s not known why this is, but some theorize that it can inadvertently replace more positive activities that promote well-being or cause users to compare their lives negatively with others’.     Sleep deprived. High social media use is correlated with sleep deprivation, which is a trigger for poor mental health. Addicted. Many users report feelings of addiction to social media as well as psychological withdrawal symptoms when its use is restricted. High social media use can affect productivity and cause feelings of distracted attention for hours afterward. Bullied. Users are less inhibited and more hostile toward others online, particularly when they can hide their identities behind pseudonyms. “Cyberbullying” is a real problem, particularly among school-age children, and victims can suffer from mental health issues.   Misinformed. The old saying that “a lie can travel halfway around the world before the truth can... read more

Answers to Commonly Asked Tax Questions

Answers to Commonly Asked Tax Questions With all of the headlines about the changes in the Tax Cuts and Jobs Act (TCJA), you probably have lots of questions. Here are answers to some of the most common questions taxpayers have this year.   I’m hearing a lot about changes to 2018 taxes. What should I do? The simple answer to the question “What should I do?” is to not make any major changes until you finish filing your 2017 taxes. Once you understand your 2017 tax obligation, you are in a better position to plan for 2018. However, there are a few things you can start thinking about now. Depending on where you fall in the new income tax brackets, you may want to consider ways to lower your taxable income. This could include increasing your contributions to 401(k) retirement accounts or health savings accounts (HSAs). You’ll also want to make sure your employer has adjusted your federal tax withholding so that you don’t have a large refund (or tax bill) next year. You can review your pay stub withholdings using the IRS withholding calculator (just be aware the calculator may not be accurate for every person’s situation).   What is the penalty if I didn’t have health insurance in 2017?   The penalty per adult is calculated as the greater of either $695 or 2.5 percent of your yearly household income, up to a maximum of $3,264 for individuals or $16,320 for a family of five or more. Note that the penalty is still in place for tax years 2017 and 2018. The TCJA eliminates the penalty for... read more

Crowdfunding, Anyone?

How to Navigate the World of Crowdfunding Crowdfunding is a phenomenon in which entrepreneurs raise money to fund their projects through the Internet, typically by obtaining small donations from a large number of people. An estimated $34 billion was collected using crowdfunding campaigns globally in 2015, and it’s expected to overtake the total amount of venture capital funding within the next several years. Why crowdfunding? In the past, an entrepreneur would pitch a creative idea to investors who put up the money. These investors could be a bank or venture capitalist providing a loan. Ultimately, it was a limited pool of people willing to take on financial risk to support an entrepreneur’s idea. Crowdfunding goes directly to consumers over the Internet, asking them to donate a small amount of money to support a business or a creative project. The financial risk to each person is low, so the barrier to find funding for a project is also low. Popular crowdfunding sites for business ideas and creative projects include Kickstarter, Indiegogo and GoFundMe. The good, the odd and the silly   One of the additional benefits of crowdfunding is that a creator can measure the strength of their idea merely based on the number of people who agree to contribute. One of the most successful crowdfunding projects so far is by Chris Roberts, creator of the popular 1990 video game Wing Commander. He took to Kickstarter to promote his plans to create an ambitious successor to his first game, called Star Citizen. To date he’s raised more than $175 million. The game is still under development. Then there’s the Coolest... read more

There’s Been a Lot of Talk About Bitcoin…

Taxes and Virtual Currencies What you need to know Virtual currencies are all the rage lately. Here are some tax consequences you must know if you decide to dip your toe in that world. The IRS is paying close attention The first thing to know is that the IRS is scrutinizing virtual currency transactions, so if you live in the U.S. you’ll have to report your transactions in Bitcoins and the like. Despite some early misconceptions, virtual currency transactions can be traced back to their owners by governments and other cyber sleuths. If you decide to use or hold virtual currencies, carefully report and pay tax on your transactions. Act as if you are going to be audited, because if you don’t, you just might be! It’s property, not money   Note that the IRS doesn’t treat Bitcoin or other virtual currencies as money. Instead, they are considered property. That means that if you are paid in Bitcoin, you will have to report it as income based on its fair market value on the date you received it. And, if you sell Bitcoin, you have to pay tax on your gain using the cost (basis) of when you received it. The IRS has said that if Bitcoin is held as a capital asset, like a stock or a bond, then you would pay capital gains tax. Otherwise, if it is not held as a capital asset (for example if it is treated as inventory that you intend to sell to customers), it would be taxed as ordinary income. Example: Craig Crypto bought a single Bitcoin on Dec. 29, 2016... read more

Pass-Through Entities

Your New Life as a Pass-Through Entity Owner An initial look at the new business deduction If you are a small business owner, your planning could get a lot trickier after the passage of the Tax Cuts and Jobs Act (TCJA). That’s because most small businesses have legal structures that are treated as pass-through entities for tax purposes, meaning they “pass through” their income to be taxed on owners’ Form 1040 individual tax returns. These entities include S corporations, partnerships and sole proprietorships. On one hand, these kinds of businesses will benefit from the TCJA’s 20 percent reduction to the taxation of business income. On the other, the rules used to determine how much of that reduction each business gets are complex. Here are some tips to help find out where your business falls in the new structure:   Know your businesses’ QBI QBI stands for qualified business income, which is generally your business net income other than income in the way of wage compensation. QBI is the basic figure you need to determine how much of the 20 percent reduction you get. It excludes business losses, as well as factoring in amortization and capitalized expenditures. QBI is determined separately for each business activity, not per taxpayer. The first simple threshold rule is:   If your taxable income is less than $157,500 as an individual filer, or $315,000 as a married couple filing jointly, you can take the 20 percent deduction from your QBI. If your taxable income is higher than those levels, several other factors come into play. Buckle up and hold on, here is where it gets... read more

Tax Planning, Now More Than Ever

New Legislation Requires Tax Planning Though many taxpayers appreciate the income tax cuts in the Tax Cuts and Jobs Act (TCJA) passed late last year, others are skeptical that it will simplify their tax planning. With every simplification, there are many more tax issues that still require planning to realize extra tax benefits. Here are seven of them:   Planning for all the moving parts In many ways, the TCJA gives with one hand and takes away with the other. The “giving hand” provides a lower income tax rate structure and a higher standard deduction, while the “taking hand” gets rid of personal exemptions, suspends many itemized deductions and limits deductions that remain. There are many variables that determine whether you come out ahead or behind, and a tax planning session can help you figure it all out.   Getting creative and flexible about itemizing Many itemized deductions remain the same, others were eliminated completely, and some have new limits. For example, while charitable contributions are still a qualified deduction, there is now a $10,000 combined cap on state, local and property tax deductions. The new constraints mean considering creative solutions to maximize these deductions. One idea is to make better use of the donation of appreciated stock as part of your charitable giving.   Dealing with new complexity in small business ownership Small business owners and sole proprietors will have to do a complicated calculation to see how much of the 20 percent reduction to pass-through qualified business income they can take. It depends on your profession and your expenditures on capital and wages. This calculation can get... read more

Lost Retirement Benefits

Where Did My Retirement Go? How to locate lost benefits For one reason or another, you may find yourself in a situation where you’ve lost track of a retirement account like a 401(k) or pension. There are several ways this can happen:     Job change. People change jobs in today’s economy much faster than they did in the past, and that means that retirement accounts like 401(k)s or pensions from a brief job tenure may easily be forgotten.   A death in the family. Deceased loved ones may have overlooked some retirement assets in their wills, especially if they didn’t organize their estate well before they died.   Lost access. Records or access to retirement accounts may be compromised by accidents, theft or data losses.     Luckily, there are several handy but little-known ways to retrieve retirement account information:   Contact employers. Getting in touch with employers who administered a 401(k) or pension plan is one of the easiest ways to retrieve lost retirement benefits. If the account was active from 2009 or later, you can search the Department of Labor’s Form 5500 database, which collects the annual information submitted by plan administrators. Often the exact person you would need to get in touch with is listed on the form.   Use the National Registry of Unclaimed Retirement Benefits. The registry is created by a nonprofit organization that offers a free service to link up employees with their lost retirement benefits. Visit www.unclaimedretirementbenefits.com and enter the Social Security number of the employee. It will locate any unclaimed accounts and then provide information about getting in contact with... read more

IRS Audit Avoidance

Best Way to Avoid an Audit: Preparation Getting chosen for an audit by the IRS is no fun. Some taxpayers are selected for random audits every year, but the chances of that happening to you are very small. You are much more likely to fall under the IRS’s gaze if you make one of several common mistakes. That means your best chance of avoiding an audit is by doing things right before you file your return this year. Here are some suggestions:   Don’t leave anything out. Missing or incomplete information on your return will trigger an audit letter automatically, since the IRS gets copies of the same tax forms (such as W-2s and 1099s) that you do.   Double-check your numbers. Bad math will get you audited. People often make calculation errors when they do their returns, especially if they do them without assistance. In 2016, the IRS sent out more than 1.6 million examination letters correcting math errors. The most frequent errors occurred in people’s calculation of their amount of tax due, as well as the number of exemptions and deductions they claimed.     Don’t stand out. The IRS takes a closer look at business expenses, charitable donations and high-value itemized deductions. IRS computers reference statistical data on which amounts of these items are typical for various professions and income levels. If what you are claiming is significantly different from what is typical, it may be flagged for review.   Have your documentation in order. Be meticulous about your recordkeeping. Items that will support the tax breaks you take include: cancelled checks, receipts, credit card and... read more

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