Social Security: Note the Key Changes for 2020

The Social Security Administration has released new changes and numbers for those paying Social Security and those collecting it in 2020.

Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.

What Hasn't Changed for Social Security

First, the basic percentages have not changed:

  • Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
  • The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
  • The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount — and that’s what’s changing.

What's Changing for Social Security

social security

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Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.

Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholding $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)

Cost-of-Living Adjustments

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Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.

An SSA detailed fact sheet about the changes is available on their site.

©2019

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Latest Release of IRS Crypto Tax Information – Interview with Brad Kimes on XRP

We’ve just had the biggest release of IRS crypto tax information in the past five years. Here’s what to know and how to be prepared as a crypto trader.

This week has been the biggest release of IRS crypto tax information in the past five years. What is going on and what does this mean for you as a crypto trader?

I discuss this big news, and answer important questions it brings up, in my latest interview with Brad Kimes of XRP. If you haven’t already, watch the interview now. 

What Comes Next?

Over the next month, I’ll be writing more in-depth about this latest IRS crypto tax information and what you can do to be prepared as a crypto trader. 

In the meantime, subscribe to my newsletter to be notified of that and other important information regarding US crypto taxes. 

And get a 50% discount code for signing up. 

Beyond IRS Crypto Tax Information

Dealing with crypto taxes requires more than a regular tax accountant. It requires legal expertise about the US tax regulations. That’s why I have a law degree specializing in the international laws of financial regulation including taxation. I’m also an Enrolled Agent

With this background, I’ve written several books that can help you with your crypto taxes.

Strategic Tax Planning and Itemizing

Why use good tax planning? The changes made by the Tax Cuts and Jobs Act of 2017 continue to make itemizing deductions out of reach for most taxpayers.

The Tax Cuts and Jobs Act of 2017 (TCJA) made major changes that affect how individual taxpayers can claim deductions. For individual taxpayers, the biggest changes were (1) the increase in the standard deduction, which significantly raised the threshold for claiming itemized deductions; (2) the elimination of some itemized deductions (e.g., moving expenses) and the higher cap on others (e.g., the jump to 10 percent threshold for medical expenses to be deductible); (3) the $10,000 cap for state and local taxes; and (4) the much higher estate tax exemption.

Changes to Tax Planning

The result is that only about 10 percent of American households can itemize their deductions. This may change in 2025 when some of the changes made by the TCJA are scheduled to sunset, if they aren’t made permanent before then.

Despite these changes, good tax planning may make it possible to itemize deductions in some areas. There is a caveat: it may be possible to itemize only in alternate years or if there is an exceptional life event.

The following four deductions may make it possible for taxpayers to exceed the standard deduction and itemize:

Medical Expenses

Medical expenses are deductible to the extent they exceed 10 percent of adjusted gross income (AGI). For most people, health insurance covers most of the expense and their out-of-pocket expenses won’t meet the threshold. Some exceptions, however, may make it possible to exceed it:

  • Long-term care is expensive, and it usually isn’t covered by insurance.
  • Dental and orthodontic costs are allowed. Many people either don’t have dental insurance or the insurance doesn’t cover the entire expense.
  • Major health events with noncovered expenses. Noncovered drugs and other unforeseen expenses can be deducted.

Depending on your particular situation, expenses like these may put you over the threshold, either annually or in intermittent years. Keep in mind that even with this, you must still exceed the standard deduction ($12,200 for individuals and $24,400 for married individuals filing jointly in 2019) to be able to itemize.

tax planning

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State and Local Taxes (SALT)

The $10,000 cap on the SALT deduction applies to both individual and joint filers. Consequently, all taxpayers who reach that cap are $10,000 closer to the standard deduction — which means that for 2019 single taxpayers are nearly to their $12,200 standard deduction and joint filers are almost halfway to their $24,400 standard deduction threshold. These taxpayers should pay close attention to their other deductions. When they are all “bundled” together, the threshold may be met.

Charitable Giving

Depending on income and level of giving, it may be possible to take this deduction annually. Donors who don’t give enough to meet the standard deduction threshold still have options: they can make their donations every second or third year (depending on their budget), or they can contribute to donor-advised trusts, which allow donors to take a deduction in the year of the gift and designate charities as recipients later. These trusts generally have fees.

Other Deductions

It may be possible to itemize other deductions as well, including miscellaneous deductions not subject to the 2 percent AGI floor (e.g., gambling losses), interest paid for investment purposes and Ponzi scheme losses.

Most taxpayers don’t have enough in itemized deductions to claim them annually. With good tax planning, however, it may be possible to claim them in intermittent years. Schedule a consultation today for other tax-planning strategies.

©2019

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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

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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

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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 crypto tax health check now. 

Featured Image Photo by Kelly Sikkema on Unsplash

IRS Publishes Final and Proposed Regs on 100% Depreciation

Learn the latest about depreciation, the TCJA (passed two years ago), and how it’s affected by the latest regulatory changes by the IRS.

The IRS has issued final regulations in September to finalize the proposed regulations issued in August 2018, which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The proposed regulations contain new provisions not addressed previously.

Depreciation According to the IRS

  • The 100% additional first year depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
  • The deduction applies to qualifying property acquired and placed in service after September 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property. The final regulations also provide rules for qualified film, television and live theatrical productions.
  • In the proposed regulations, the Treasury Department and IRS propose rules regarding (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations.
  • The proposed regulations also withdraw and repropose rules regarding application of the used property acquisition requirements (i) to consolidated groups, and (ii) to a series of related transactions.

Learn More About the IRS and Depreciation

More information is available on the IRS site. To see how these regulations may affect you, contact a qualified professional.

©2019

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