Equifax Data Breach – 7 Ways to Protect Yourself

4 10 2017

There has been quite a bit written about the Equifax data breach – why it happened; how it happened; and what you can do about it.

 

The most important thing for our clients is the what you can do about it. We’ve listed several steps you can take to help protect your credit report, as well as put some measures into place that may protect it in the future.

Read more … 





Do I need a tax extension?

4 04 2019

I’ve heard people talk about getting a tax extension, but I’m unsure why. What are the benefits? And, will I be audited if I do extend?

Here are the frequently asked questions about filing a tax extension and its answers.

Tax extension FAQ cover

Click to enlarge.

What does filing an extension do?

  • An extension is a form filed with the IRS to request additional time to file your federal tax return. The extension period is six months, which extends the due date for submitting your final returns from April 15 to Oct. 15.** In some states, filing an extension with the IRS will automatically extend the time to complete a state income tax return.
  • Filing an extension grants you additional time to submit your complete and accurate return, but you still need to estimate whether you will owe any taxes and pay that estimated balance by April 15.**
  • Extending your return allows you and your CPA more time to prepare your tax return to ensure filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedule K-1, corrected 1099s, etc.) to complete your return.

Why does my CPA suggest we extend my tax return?

  • If your CPA has recommended that you file an extension, it may be due to many reasons, such as:
  • The volume of data or complexity of certain transactions (e.g., sale of a rental property) on your return requires additional time.
  • The amount of time remaining in filing season is limited for the CPA to complete client returns by April 15** due to late arriving information.
  • Many CPAs have a “cutoff” or deadline for clients submitting their tax information so they can plan their workload to ensure all client returns and extensions are completed by April 15.**
  • Your CPA may suggest filing an extension if there are aspects of your return affected by pending guidance due to tax reform.

Am I more likely to be audited if I extend?

Extending will NOT increase your likelihood of being audited by the IRS. It is better to file an extension rather than to file a return that is incomplete or that you have not had time to review carefully before signing.

What are the primary benefits of extending my tax return?

  • It provides for additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected 1099s). Just remember that an extension provides additional time to file, but not additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension.
  • You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA).
  • It is often less expensive (and easier) to file an extension rather than rushing now, then possibly needing to amend your return later.

Should I do anything differently if I am filing an extension or “going on an extension”?

No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available.

  • Expect to pay any anticipated taxes owed by April 15.** You still need to submit all available tax information to your CPA promptly so they can determine if you will have a balance due or if you can expect a refund.
  • If you are required to make quarterly estimated tax payments, your first quarter estimated tax payment is due April 15.* Your CPA may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with your extension.
  • If you are anticipating a large refund, your CPA will likely try to get your extended return completed as soon as possible once all tax information is available. Your CPA may also want to discuss tax planning opportunities with you so that in future years, you don’t give the IRS an interest-free loan!

Is there anything I can do to avoid filing an extension if I know I am missing some information now?

If you know you will be waiting until the last minute for one or two documents, you may be able to minimize the chance of having to file an extension by providing all other available documents to your CPA as soon as you receive them. By doing so, your CPA can prepare a draft return for you to review and discuss in advance. And they may be able to add the missing piece of data or last-minute information and complete your returns by April 15.**

I heard there were changes to due dates for some tax returns. Will that effect me this year?

The due dates for certain business tax returns were changed for 2017. There have been no changes to the due dates for the 2018 tax year. The earlier due date of March 15 for partnerships/LLCs may increase the likelihood of filing your individual return by the original deadline.

Due dates and extension periods for other returns have been revised and may be discussed with us to determine if you will be affected by the changes. Give us a call at one of our five locations for an appointment.

** The federal filing deadline for 2018 returns will be April 15, 2019.




Are You a Member of the Sandwich Generation?

1 10 2018
woman and girl using tablet computer

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If you’re currently taking care of your children and elderly parents, count yourself among those in the “Sandwich Generation.” Although it may be personally gratifying to help your parents, it can be a financial burden and affect your own estate plan. Here are some critical steps to take to better manage the situation.

Identify Key Contacts

Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents, and physicians.

List and Value Their Assets

If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.

Open the Lines of Communication

Before going any further, have a frank and honest discussion with your elderly relatives, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish. Understandably, they may be hesitant or too proud to accept your help initially.

Execute the Proper Documents

Assuming you can agree on how to move forward, develop a plan incorporating several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some elements commonly included in an estate plan are:

Wills. Your parents’ will control the disposition of their possessions, such as cars, and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically pass to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.

Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate; so, it might save time and money while avoiding public disclosure.

Powers of attorney for health and finances. These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.

Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies; so, they can act according to their wishes.

Beneficiary designations. Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.

Spread the Wealth

If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $15,000 (for 2018) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts; so, you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.

Mind your Needs

If you’re part of the Sandwich Generation, you already have a lot on your plate. But don’t overlook your own financial needs. Contact us to discuss the matter further.





Fourth Quarter Tax Calendar

1 10 2018
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Photo by Tim Mossholder on Pexels.com

October 15 — Personal federal income tax returns that received an automatic six-month extension must be filed today and any tax, interest and penalties due must be paid.

  • The Financial Crimes Enforcement Network (FinCEN) Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR), must be filed by today, if not filed already, for offshore bank account reporting. (This report received an automatic extension to today if not filed by the original due date of April 17.)
  • If a six-month extension was obtained, calendar-year C corporations should file their 2017 Form 1120 by this date.
  • If the monthly deposit rule applies, employers must deposit the tax for payments in September for Social Security, Medicare, withheld income tax and nonpayroll withholding.

October 31 — The third quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is due today and any undeposited tax must be deposited. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 13 to file the return.

  • If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through September exceeds $500.

November 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in October for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

December 17 — Calendar-year corporations must deposit the fourth installment of estimated income tax for 2018.

  • If the monthly deposit rule applies, employers must deposit the tax for payments in November for Social Security, Medicare, withheld income tax, and nonpayroll withholding.




Sales Tax and Remote Sellers

1 10 2018
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The U.S. Supreme Court’s June 21, 2018, ruling in Wayfair concluded that states can impose sales tax-collecting requirements on out-of-state retailers, even those that do NOT have a physical presence in the state.  The court addressed South Dakota’s direct challenge to Quill, the 1992 decision that established the physical presence test for sales and use tax nexus.  That decision predated the surge of online sales, and since then states have been looking to find constitutional ways to collect tax revenue from remote sellers.

It should be noted that physical presence nexus has not gone away.  It still applies regardless of any new thresholds.  What has changed is that physical presence is no longer required for the collection of sales tax as long as certain thresholds are met.

Indiana’s existing “economic nexus” law, effective July 1, 2017, is found at IC 6-2.5-2-1(c), and provides that a retail merchant that does not have a physical presence in Indiana shall collect the gross retail tax on a retail transaction made in Indiana if certain threshold requirements are met.  Because of the ruling in Wayfair, the Indiana Department of Revenue will begin enforcing Indiana’s nexus law on October 1, 2018 on a prospective basis.

Indiana law requires a seller without a physical presence in Indiana to obtain a registered retail merchant’s certificate and to collect and remit applicable sales tax if it meets either or both of the following conditions in the previous calendar year or the current calendar year:

  • Gross revenue from sales into Indiana exceeds $100,000 or
  • There are 200 or more separate transactions into Indiana (probably measured by invoices).

Indiana remote sellers may also be responsible for sales tax collection in other states as well, even though they may have no physical presence in that state. Each state could have different thresholds as well which would need to be researched if this applies to you.

Remote sellers seeking to comply with the laws of multiple states (including Indiana) should register with the Streamlined Sales Tax Registration system.  Remote sellers seeking to comply with only Indiana’s economic nexus law should register through the online portal, INBiz.

The Indiana Department of Revenue will continue to be a resource for both out-of-state and in-state merchants.  In addition, the department will continue to provide further updates online.  Interested parties may subscribe to receive email updates as more information is provided on the website.

You can also call us at 812-663-7567 or 800-676-7567 for assistance.





Time to Plan for the New Tax Reform Law

12 09 2018

The new tax reform law which was enacted on December 22, 2017, and commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years.  Nearly everything in the TCJA went into effect on January 1, 2018.  It has both good and bad news for taxpayers.

Now, many months later, we are just beginning to get guidance from the IRS regarding various aspects of the new law.  Hopefully this will continue. Some technical corrections from Congress are also needed.

Attached below are highlights of some of the most significant changes affecting individual and businesses taxpayers.  Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Remember that this is just a brief overview of some of the most significant provisions of the TCJA.  There are additional rules and limits that apply as well as additional provisions.

If you have any questions regarding how this new tax law may affect you and/or your business, please do not hesitate to contact us.  Or, better yet, we could prepare a tax projection for you for 2018 using the tax law changes and new tax rates.  This would be an opportunity for you to do some tax planning for 2018 and future years.

It would also be a good time to look into whether federal tax withholdings should be adjusted on your paychecks. There is a Withholding Calculator on the IRS website that can be used to do a “paycheck checkup” to see if too little or too much tax is being withheld from your wages. We can also assist you with that computation. Any changes to be made would require submitting a new Form W-4 to your employer.

We can be reached at 812-663-7567 or 800-676-7567.  We look forward to hearing from you.

 

Highlights of the Tax Cuts and Jobs Act

 

Individuals

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% – through 2025
  • Near doubling the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) – through 2025
  • Elimination of personal exemptions – through 2025
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit – through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty – effective for months beginning after December 31, 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes – for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) – through 2025
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions – through 2025
  • Elimination of the deduction for interest on home equity debt – through 2025
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) – through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor ( such as certain investment expenses, professional fees and unreimbursed employee business expenses) – through 2025
  • Elimination of the AGI-based reduction of certain itemized deductions – through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) – through 2025
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers – through 2025
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) – through 2025
  • For children who have unearned income and are subject to the kiddie tax, they must file their own tax return and income will be taxed at trust rates.

Businesses

  • Replacement of graduated corporate tax rates ranging from15% to 35% with a flat corporate rate of 21%
  • Repeal of the 20% corporate AMT
  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships – through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets – effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Other enhancements to depreciation-related deductions
  • New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction – effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018 for C corporation taxpayers.
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New tax credit for employer-paid family and medical leave – through 2019
  • New limitations on excessive employee compensation
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation
  • Taxpayers whose average annual gross receipts for the three prior years are less than $25million may now use the cash method of accounting
  • The uniform capitalization rules of Section 263A for inventory are no longer required for businesses under the $25 million threshold referred to above.




Assessing Your Exposure to the Estate Tax and Gift Tax

29 08 2018

When Congress was debating tax law reform last year, there was talk of repealing the federal estate and gift taxes. As it turned out, rumors of their demise were highly exaggerated. Both still exist and every taxpayer with a high degree of wealth shouldn’t let either take their heirs by surprise.

Exclusions and Exemptions

For 2018, the lifetime gift and estate tax exemption is $11.18 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, no federal estate tax will be due.

Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But not every gift you make will use up part of your lifetime exemption. For example:

  • Gifts to your U.S. citizen spouse are tax-free under the marital deduction, as are transfers at death (bequests).
  • Gifts and bequests to qualified charities aren’t subject to gift and estate taxes.
  • Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider.
  • Each year you can make gifts up to the annual exclusion amount ($15,000 per recipient for 2018) tax-free without using up any of your lifetime exemption.

It’s important to be aware of these exceptions as you pass along wealth to your loved ones.

A Simple Projection

Here’s a simplified way to help project your estate tax exposure. Take the value of your estate, net of any debts. Also, subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. (But keep in mind that there could be estate tax exposure on your surviving spouse’s death, depending on the size of his or her estate.) The net number represents your taxable estate.

You can then apply the exemption amount you expect to have available at death. Remember, any gift tax exemption amount you use during your life must be subtracted. But if your spouse predeceases you, then his or her unused estate tax exemption, if any, may be added to yours (provided the applicable requirements are met).

If your taxable estate is equal to or less than your available estate tax exemption, no federal estate tax will be due at your death. But if your taxable estate exceeds this amount, the excess will be subject to federal estate tax.

Be aware that many states impose estate tax at a lower threshold than the federal government does. So, you could have state estate tax exposure even if you don’t need to worry about federal estate tax.

Strategies to Consider

If you’re not sure whether you’re at risk for the estate tax, or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.





Take Note of the Distinctive Features of Roth IRAs

29 08 2018

For some people, Roth IRAs can offer income and estate tax benefits that are preferable to those offered by traditional IRAs. However, it’s important to take note of just what the distinctive features of a Roth IRA are before making the choice.

Traditional vs. Roth

The biggest difference between traditional and Roth IRAs is how taxes affect contributions and distributions. Contributions to traditional IRAs generally are made with pretax dollars, reducing your current taxable income and lowering your current tax bill. You pay taxes on the funds when you make withdrawals. As a result, if your current tax bracket is higher than what you expect it will be after you retire, a traditional IRA can be advantageous.

In contrast, contributions to Roth IRAs are made with after-tax funds. You pay taxes on the funds now, and your withdrawals won’t be taxed (provided you meet certain requirements). This can be advantageous if you expect to be in a higher tax bracket in retirement or if tax rates increase.

Roth distributions differ from traditional IRA distributions in yet another way. Withdrawals aren’t counted when calculating the taxable portion of your Social Security benefits.

TCJA eliminated option to recharacterize Roth IRAs.

The passage of the Tax Cuts and Jobs Act late last year had a marked impact on Roth IRAs: to wit, taxpayers who wish to convert a pretax traditional IRA into a post-tax Roth IRA can no longer “recharacterize” (that is, reverse) the conversion for 2018 and later years.

The IRS recently clarified in FAQs on its website that, if you converted a traditional IRA into a Roth account in 2017, you can still reverse the conversion as long as it’s done by October 15, 2018. (This deadline applies regardless of whether you extend the deadline for filing your 2017 federal income tax return to October 15.)

Also, recharacterization is still an option for other types of contributions. For example, you can still make a contribution to a Roth IRA and subsequently recharacterize it as a contribution to a traditional IRA (before the applicable deadline).

Additional Advantages

A Roth IRA may offer a greater opportunity to build up tax-advantaged funds. Your contributions can continue after you reach age 70½ as long as you’re earning income, and the entire balance can remain in the account until your death. In contrast, beginning with the year you reach age 70½, you can’t contribute to a traditional IRA — even if you do have earned income. Further, you must start taking required minimum distributions (RMDs) from a traditional IRA no later than April 1 of the year following the year you reach age 70½.

Avoiding RMDs can be a valuable benefit if you don’t need your IRA funds to live on during retirement. Your Roth IRA can continue to grow tax-free over your lifetime. When your heirs inherit the account, they’ll be required to take distributions — but spread out over their own lifetimes, allowing a continued opportunity for tax-free growth on assets remaining in the account. Further, the distributions they receive from the Roth IRA won’t be subject to income tax.

Many Vehicles

As you begin planning for retirement (or reviewing your current plans), it’s important to consider all retirement planning vehicles. A Roth IRA may or may not be one of them.

Please contact our firm for individualized help in determining whether it’s a beneficial choice.