It’s Never Too Early for Tax Planning

Good tax planning is a year-round activity that requires knowing your options and keeping good records. Easily stay on top of it with these great tips.

Benjamin Franklin once said “to fail to plan is to plan to fail.” This adage certainly applies to tax planning.

Although the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated many deductions outright, there are exceptions. Certain deductions still exist but are being phased out, whereas others will expire after a set time. This means good tax planning remains an important aspect of good financial health.

Following are six steps you can take right now to prepare for your future taxes:

1. Adjust Withholdings

Determine whether you are someone who takes out more taxes every pay period so that you get a tax return, or whether you want the benefit of having the cash on hand right now. Adjust your withholding accordingly by filing a new Form W-4.

2. Organize Receipts

Start organizing your receipts now so you don’t accidently miss a deductible expense or a tax credit. Check the standard deduction for your situation, and consider whether you might need to itemize.

Having your receipts ready eases the tax preparation process. You should have the following categories of receipts and other documents handy:

  • Last year’s federal, state and local tax returns
  • Receipts/statements/cancelled checks for medical and drug costs, health savings account contributions, charitable contributions, contributions to retirement plans
  • Business travel and meal expenses (including a mileage log)
  • Childcare expenses
  • Receipts related to your home, including mortgage and line-of-credit expenses, repair and renovation expenses, real estate and school taxes (not all of these will be deductible, but they may help reduce your basis when you sell your home)
  • Any receipts related to a home purchase or sale
  • Receipts related to life events like marriages, divorces, births and deaths
tax planning

3. Review Your Investment Strategy

Short-term investments (those held 12 months or less) don’t get special treatment, but long-term investments (those held longer than one year) are typically taxed less.

4. Review Your Charitable Contribution Strategy

If you make large contributions, it may make sense to alternate the years in which you make the contribution so you can exceed the threshold for the standard deduction.

5. Evaluate Tax Credits

Consider whether you’re eligible for any tax credits so you can take full advantage of them. Tax credits are important because they are dollar-for-dollar reductions in the amount of taxes you owe. These credits may be refundable or nonrefundable. Refundable tax credits can reduce your tax liability below zero, while a nonrefundable credit cannot.

6. Review Your Estate Plan

No one knows what is going to happen in the future. TCJA changed many deductions related to gifts and estates; take this time to review the changes and make sure your estate plan reflects your wishes and is current. Keep in mind that some of the provisions now in effect are due to sunset in 2025.

If you need help preparing for your future taxes, schedule a consultation with us today.

©2019

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New Regulations for Global Intangible Low-Taxed Income

Learn about the new final and proposed regulations that will affect U.S. shareholders eligible for global intangible low-taxed income.

A key component of the Tax Cuts and Jobs Act of 2017 (TCJA) was the implementation of global intangible low-taxed income foreign tax credits (GILTI) for controlled foreign corporations. GILTI taxes U.S. shareholders currently on income earned through their controlled foreign corporations (CFC) even though their profits are not repatriated.

Affect of Global Intangible Low-Taxed Income (GILTI)

According to the recently issued final GILTI regulations, partners are treated as they would be for any foreign partnership. Consequently, any partner who indirectly owns less than 10% of a CFC (by voting or value) will not have a GILTI inclusion. The final GILTI regulations are retroactive for any CFC tax year after December 31, 2017.

Application of the Regulations

This created a problem, however, because treating income at the partnership level is inconsistent with the treatment of Subpart F Income, which traditionally has been determined at the partnership level. The Internal Revenue Service issued proposed regulations to resolve this. The proposed regulations extend the aggregate treatment of domestic partnerships to Subpart F and Section 956 inclusions — which is a fundamental change to the treatment of Subpart F income. These proposed regulations are effective for tax years beginning after December 31, 2017.

The proposed regulations also address the high-tax exclusion from GILTI by allowing CFCs to elect to exclude certain income that is subject to a foreign effective tax rate of at least 18.9% if that income is also excluded under Subpart F. (CFCs that don’t have Subpart F income still may be subject to GILTI.) This exclusion will become effective once the proposed regulations are final and effective.

Opportunities and Challenges

Global Intangible Low-Taxed Income

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These new rules pose potential opportunities and challenges for taxpayers:

  • Partners who don’t meet the 10% threshold are not considered a U.S. shareholder for purposes of these rules. These partners, however, still may be subject to the passive foreign investment company rules.
  • If the high-tax exclusion is elected, it applies to all CFCs owned by the controlling U.S. shareholder group.
  • Once the high-tax exclusion is elected, it applies to subsequent tax years unless it is revoked. If revoked, the election would not be available to that CFC for 60 months. Any subsequent elections cannot be revoked for 60 months.
  • U.S. companies that have a high-taxed CFC and a low-taxed CFC may face unfavorable consequences if they elect the high-taxed exclusion.
  • Coordinating the GILTI rules with the Subpart F rules may have tax consequences for CFCs with de minimis income as defined by Subpart F. Under the new regulations, Subpart F income is taxed solely under the Subpart F rules, whereas de minimis Subpart F incomes falls solely under the GILTI rules.

Companies will need to consider carefully how all these issues affect them. For help evaluating these considerations, contact us today.

©2019

Featured image by Sean Pollock on Unsplash.

Not Filing Anti-Money Laundering Forms Could Cost You $10,000 or More

Filing anti-money laundering forms may be applicable to you. To not be penalized, learn more about what forms are involved and how to file them.

Without realizing it, each U.S. taxpayer provides anti-money laundering information to the IRS each year.

How?

At the bottom of Schedule B, there is a question asking if you have a financial interest in or signature authority over a financial account in a foreign country – yes or no. This question explores whether the taxpayer has an anti-money laundering obligation.

Even an account at a non-U.S. crypto exchange is considered a foreign financial account that must be reported.

READ MORE: Do I Need My Crypto Taxes Fixed?

Reporting Your Anti-Money Laundering Forms

Foreign financial accounts are reported on two forms. The first is called FinCEN Form 114 (nicknamed FBAR). The second is IRS Form 8938. Also reported on Form 8938 are all financial transactions like buying or selling/exchanging cryptos.

TAX TIP: I usually aggregate the totals of all transactions instead of itemizing them.

The FBAR form is technically not an IRS form, but the IRS is responsible for administering the collection of the form. Click here for the latest version of the FBAR form and the system for filing and submitting it.

Click here to access Form 8938 if it is not supported by your tax software. This form is filed with the 1040 tax return form.

anti-money laundering

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Both of these forms are usually due on tax day, April 15th, or on October 15th if you properly filed an extension. Failure to file these forms on time is an automatic $10,000 penalty per form.

The only way to avoid this penalty if you haven’t filed these for past tax years is to file using tax amnesty.

Learn about how to do the tax amnesty process with our Crypto Tax Fixer Package.

Not Sure If Your Taxes Need Fixed?

Take our FREE take health check now. 

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9 Important Things to Know About Blockchain

Blockchain is to bitcoin what the Internet is to e-mail. Even if you’re not ready to use digital currency, you can benefit from understanding this new technology.

Technology is changing at such a fast pace that it can be difficult to keep track of everything in the news. Some of those technologies will survive, others will be reconfigured and still others will fail.

Some Background On Blockchain

Blockchain is one technology that will continue to thrive. It has been around since 2008, when it was first introduced along with bitcoin, a digital currency (aka a cryptocurrency).

Despite some glitches along the way, both blockchain and bitcoin have flourished since they were first introduced, and both have become relevant to many industries, including health care, insurance and transportation.

Unlike Bitcoin, however, which has been joined by a number of other alternative currencies, blockchain remains the main underpinning of all of them as well as of other applications.

How Blockchain Works

At a time in which data management and security has become a primary concern of all business sectors, blockchain has emerged as a safe way to digitally record and memorialize financial transactions without needing centralized third-party authentication.

Bitcoin still is the leading digital currency. Like the paper money and coins, bitcoin’s value stems from the fact that it can be used to buy goods and services. Bitcoin (or any other digital currency) and blockchain work together. Here are nine things you need to know:

  1. A digital file called a “ledger” is used to keep track of your bitcoin.
  2. Your ledger is distributed across a network of private computers (called “nodes”).
  3. Every time you initiate a transaction, every node in the network is notified so it can update the balance in your ledger using your public key.
  4. Blockchain does not keep track of your balance; it only tracks the transactions you make.
  5. Your bitcoins are kept in a “wallet” that is encrypted with a specific public key as well as an encrypted private key. Only you can use your private key to encrypt and decrypt your transactions.
  6. You can have as many wallets as you wish. Each has its own private and public keys.
  7. Every time you use your private key you generate a digital signature, and blockchain uses that signature to verify your transaction. This signature changes every time you initiate or change a transaction. This makes it impossible to change a recorded transaction.
  8. Transactions are grouped into blocks. Each block contains a set number of transactions and a link to the previous block.
  9. The blocks are organized in a time-related chain and connected through cryptography that relies on special mathematical functions and codes. Every transaction in each unique block is considered to have happened at the same time.

Benefits Of Blockchain

Blockchain has many benefits, including the following:

  • Value (bitcoin or another cryptocurrency) can be transferred within a few minutes and secure within a few hours.
  • Transactions are transparent because anyone can verify any transaction at any time by following its trail along the blockchain.
  • Transactions are private: only you have the private key to your wallet.

Also consider the following:

  • No centralized entity oversees the transactions, so there is no help desk to call if you need help. You alone control your account. Transactions are not secured by an entity like the Federal Deposit Insurance Corporation. If something goes wrong and your digital currency is somehow diverted from your account, you have no recourse.
  • The value of bitcoin and other digital currencies is volatile. Their value isn’t controlled by an entity like the Federal Reserve or the World Bank, which means their value is not as stable as traditional currency.

The growth and evolution of blockchain technology over the past 11 years or so is impressive. To discuss how it may continue to evolve, contact us today.

©2019

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