7 Tax Tips to Save you Money This AprilPosted on June 28th, 2019
Even if you put off preparing your income taxes until April, there’s still time for you to save yourself thousands of dollars. Here are a few maneuvers that allow you to protect your money and have it work to your most significant advantage.
- You can donate to a qualified If you itemize your deductions, or you can give a monetary gift of up to $14,000 without it being taxed. You can also contribute tax-free to charities and give financial gifts each year or set up a donor-advised fund that spreads out your contributions over a few years while letting you take the entire deduction the current year.
- Invest in an IRA or a Roth IRA, which can give you an annual tax deduction or help you avoid paying taxes at the time of your retirement. Choosing the best IRA for you depends on your current and anticipated income levels.
- Deduct the interest paid on student loans. Up to $2,500 of student loan interest can be counted as tax-free income, so you do not need to itemize this deduction.
- Make sure to take advantage of flexible spending accounts (FSA) for medical expenses. This is non-taxed money that if left unused is permanently lost. Only withhold amounts that will be used or else you will be taxed on the remaining balance of funds in your FSA.
- Open a Health Savings Account (HSA) which you fund with pre-tax money. It can be used for healthcare expenses or accumulate over the years. At 65, you can withdraw the money and spend it any way you choose.
- Bunch medical or dental expenses into one year. If your costs are more than 10% of your Adjusted Gross Income (AGI), you can deduct that amount. See if you can accelerate future expenses into the current year to receive this write off or put-off your medical and dental expenses until the following year.
- Include home office expenses. The eligibility rules for claiming home office deductions still allows you to make a tax-free profit. You are entitled to write-off expenses associated with work done in a home office. The amount taxed is based on the square footage of the office about the total area of the house size.
Receive Expert Tax Advice at Legacy CPA & Financial Services
Another important tip to optimize your income taxes is to seek professional help. We at Legacy CPA & Financial Services ensure accuracy and maximize your tax savings. We help people in Greeley, CO with friendly and informative tax services and are always looking out for your best interest.
Why You Should Hire a Professional Business ConsultantPosted on February 22nd, 2019
Securing the success of a business requires extensive planning and making challenging decisions. A business consultant can help you with difficult choices and give you the pertinent and relevant data you need to get your business up and running. Whether by devising a solid business plan, determining an appropriate business structure, or developing marketing strategies, a business consultant can help set you up for success.
Do Your Homework with Market Research
Business plans must include market research that identifies your buyer persona, the person most likely to purchase your product. Familiarity with the types of buyers most likely to use your business helps you accommodate your product, brand, and services to their needs and preferences.
A prudent business planner can help ensure that your product rolls out with a lasting and favorable first impression. Before mass production and marketing, business consultants offer critical feedback you need to avoid missteps.
Make the Most of Every Dollar in Your Budget
Money certainly does not grow on trees, which is why you need budgets to help you make the most of every dollar. We implement proven strategies that boost productivity and expand leads and sales often while using the same amount of resources. Even if your company is growing, we can help you keep your costs to a minimum while increasing your revenues. Strategic plans help you cut down on operating and production costs without sacrificing the quality of your services.
Surround Yourself with Important Market Leaders and Employees
Finally, you shouldn’t underestimate the value of networking. There are powerful professionals who can help you get a foothold in a market. Market leaders who sell products and services similar to yours are key to you gaining access to potential buyers. A business consultant can help you establish a mutually beneficial relationship in networks even find experienced employees who can contribute to the success of your business.
Comprehensive Business Advice with Legacy CPA & Financial Services
To learn more about the countless ways a business consultant can help pave the way to your business’ success, contact Legacy CPA & Financial Services in Greeley, CO. We can help you prepare, execute, and maintain a healthy business with valuable input. Our team of experts meets the comprehensive needs that are foundational to the success of your business. Call today!
199A FOR PATRONS AND THRESHOLD RULES FOR 2018Posted on December 30th, 2018
In March, as part of the fix to the “grain glitch” caused by the badly worded, and hastily passed, Tax Cuts and Jobs Act, a transition rule regarding qualified payments made by a cooperative with a year that began in 2017 and ended in 2018 was passed. Based on this provision, any payments received by a patron farmer/rancher during 2018 that is also included in the cooperatives taxable year ending in 2018 is not allowed to be used in calculating Section 199A.
In this situation, the farmer/rancher will simply receive the DPAD passed through by the cooperative for that year, if any, and be allowed to deduct only that amount on their tax return. For QBI, none of the qualified payments made to the farmer/rancher during the cooperatives fiscal year ending in 2018 are allowed for the deduction calculation.
In December of 2017, as a reaction to the expected consequences of proposed (at the time) new tax legislation, many cooperatives issued an additional Section 199 DPAD deduction. This means that these cooperative patrons received a higher deduction on their 2017 tax returns. The good news…they received this deduction when tax rates were higher. The bad news…due to the transition rules, these cooperative patrons will perhaps not qualify for much, if any, Section 199A deduction in 2018 and also not receive any DPAD from the cooperative since it was issued in 2017.
To help simply the effect this could have on income taxes, lets look at an example:
• John sells all of his grain to a cooperative (for our example, let’s use CHS as they have a fiscal year-end of August 31st).
• John sells $2 million of grain in 2018. $1.6 million before August 31st, $400 thousand after August 31st.
• CHS issued a DPAD to John of $30,000 in December 2017.
• John’s QBI for 2018, before any cooperative adjustment, is $300,000.
• John pays wages of $50,000.
John will not be able to use the portion of QBI that relates to the $1.6 million of sales, which would be 80% of the $300,000 QBI, or $240,000, as these were sold to the cooperative during the cooperatives fiscal year that began before 2018. This results in a tentative QBI deduction of $12,000 ($60,000 times 20%). This tentative QBI, then has to be reduced by the lessor of 9% of $60,000 ($5,400) or 50% of 20% of wages ($5,000). The final QBID is $7,000 ($12,000 less $5,000). This can be increased by any DPAD from the cooperative, which may be zero since the excess DPAD was passed out in 2017.
Until final regulations are released, which is expected in January 2019, this example is partly speculation. However, what is known is that a farmer/rancher who sells to a cooperative may not receive the deduction they were planning on for this year due to the transition rule. In order to qualify for the Section 199A QBI, 20% deduction, the farmer/rancher has to have Qualified Business Income (QBI) and the Grain Glitch Fix specifically indicates that none of the payments received during 2018, before the cooperative fiscal year-end, will qualify for Section 199A. Not even if the farmer/rancher is under the threshold limit.
TAX PREPARERS MAY NEED ADDITIONAL INFORMATION FROM PATRONSPosted on December 30th, 2018
In prior years, before our tax world was flipped upside down with the passing of the Tax Cuts & Jobs Act, cooperative patrons simply had to provide us a copy of their Form 1099-PATR and that would generally provide enough information to accurately prepare the income tax return. However, for tax years beginning after 12/31/17, due to the elimination of the old Section 199 Domestic Production Activities Deduction (DPAD) and the creation of the new Section 199A Qualified Business Income Deduction (QBID) and the potential of both deductions being partially applicable, depending upon the fiscal year of the cooperative, more information will be required to complete the 2018 tax return.
The cooperative is only required to provide a written notice of allocation of DPAD to the patron and a Form 1099-PATR. The patron may receive two notices of DPAD from the cooperative for 2018. The first notice would be related to the old Section 199 DPAD, which will be reported on Form 8903 and is an “above the line” deduction on the tax return. The second notice relates to the new Section 199A DPAD which is part of the new Section 199A QBID. This new deduction is reported on the new 199A worksheet and is a “below the line” deduction. The Form 1099-PATR will indicate patronage dividends (one amount indicating both the paid and deferred portion), per unit retains, DPAD, etc. However, this form will not break down the allocation between the two deductions, Section 199 and Section 199A.
In order to complete the tax return, the preparer will not only need copies of the written notice of DPAD allocation and the Form 1099-PATR, but will also need a breakdown of the sales and patronage received from the cooperative from January 1, 2018 until the cooperative’s year-end. We will require this information for each cooperative that you are a patron of and receive payments from.
For a farmer or rancher who sells raised crops or livestock to a cooperative, there will be at least two, and possibly three, additional calculations to consider related to these sales for 2018. First, because the sales to a cooperative between January 1, 2018 and the cooperative’s 2018 year-end can not be used in calculating the Section 199A deduction, the sales to the cooperative after the cooperative’s 2018 year-end and those sales to non-cooperatives will need to be separated from the cooperative sales in 2018 up to the cooperative’s 2018 year-end. Secondly, they need to reduce the regular Section 199A deduction by the lesser of: (1) 9% of QBI related to cooperative payments, or (2) 50% of wages allocated to cooperative net income. The potential third calculation is related to the ability to deduct the DPAD (either Section 199 or Section 199A) passed through from the cooperative (limited to 100% of taxable income, including capital gains).
Thanks to the passage of the new tax law, there is plenty of confusion regarding these deductions and we have been warned to expect to spend an additional 20% of time preparing tax returns in which the new Section 199A applies. Our advice is to start gathering your information now and, when in doubt, provide us more information that you might normally. If you receive a notice from your cooperative, please bring it in to us with your other tax paperwork.
IDENTITY THEFT IS A SIGNIFICANT THREATPosted on December 17th, 2018
Our firm takes security very seriously. We want to begin with a reminder that tax identity theft is a growing problem. With fraudsters becoming much more sophisticated and large breaches happening so frequently — such as the 2017 Equifax incident, which affected 143 million American consumers — tax identity theft remains a concern. Unfortunately, it can take many forms, so beware if you:
• Receive a notice or letter from the Internal Revenue Service regarding a tax return, tax bill or income that doesn’t apply to you — It’s possible someone has filed a false return using your employer identification information or Social Security number to claim a refund or get a job.
• Get an unsolicited email or another form of communication asking for either your personal financial details or business information such as payroll or employee data — The IRS doesn’t contact taxpayers using email, text or social media channels, so it’s likely a scammer is trying to steal your confidential information.
• Receive a robocall insisting you must call back and settle your tax bill — The IRS doesn’t initiate contact by phone (they do so by mail), demand immediate payment over the phone, threaten to arrest you or demand your credit or debit card number or that you use a certain payment method — such as a gift card — to pay your taxes.
If you receive any suspicious communications from the IRS, report the contact by filling out this IRS Impersonation Scam Reporting form or calling 800.366.4484. We also urge you to contact our office for advice whenever you receive any communication from the IRS or believe you might be a victim of identity theft.
Make sure you’re taking steps to keep your personal financial information safe. Check out these Identity Protection Tips on how to protect yourself from identity theft. Also, filing your return early can sometimes help prevent tax refund fraud. Contact us so we can help you gather your tax information to file as early as possible.
2018 TAX CHANGES FOR BUSINESSPosted on December 15th, 2018
Last week I addressed the highlights of the new tax law as it affects individuals. This week I will address the major changes that will affect business owners, specifically, small business owners, sole proprietors, partnerships & S-corps.
Tax credits and deductions highlights for businesses
• Domestic production activity deduction (DPAD) — The new tax act repeals the DPAD effective for tax years beginning after Dec. 31, 2017.
• Qualified Business Income Deduction (QBID) — There is a potential 20% deduction for individuals who have qualified business income (QBI) from a partnership, S corporation or sole proprietorship. There can be phase-outs and limitations apply, depending upon your circumstances.
• Entertainment and transportation expenses — The tax act modifies the provision to disallow any deduction for activities generally considered to be entertainment, leisure, amusement or recreation; membership dues with respect to any club organized for business, pleasure, recreation or social purposes; and facilities used regarding the previous two items. IRS Notice 2018-76 provides transitional guidance on the deductibility of business meals. Based on recent guidance, taxpayers may deduct 50% of an otherwise allowable business meal as long as certain criteria are met, such as the expense is ordinary, and the meal is necessary (not lavish and extravagant). Review IRS Notice 2018-76 for additional information on the deductibility of business meals.
• Deductibility of interest expense — The deduction for business interest is limited to the sum of the following: business interest income, 30% of the adjusted taxable income (as defined in the new law), and the floor plan financing interest. (Note that certain caveats apply to this new rule and calculations can be tricky, especially regarding tiered structures.)
• Bonus depreciation — Taxpayers can claim a 100% first-year deprecation deduction on qualified property. In 2023, there will be a phase out of 20% per year until 2027, when the first-year depreciation will be 0%. In addition, used property now is considered qualified property.
• Sec. 179 expensing — The tax law increased the maximum Sec. 179 deduction to $1 million with the phase-out threshold for acquired property being $2.5 million. These amounts are indexed for inflation beginning after 2018. The provision also expanded the definition of eligible Sec. 179 property.
• Auto depreciation limits — The limitations on depreciation for listed property is changed to:
$10,000 first year, $16,000 second year, $9,600 third year and $5,760 for subsequent years.
Other changes for businesses:
• Like-kind exchanges (LKEs) — The new law restricts the non-recognition of gain in an LKE to exchanges of real property effective for exchanges completed by Dec. 31, 2017.
• Net operating losses (NOLs) — The carryback of NOLs is repealed effective for tax years ending after Dec. 31, 2017. NOLs generated for years beginning after 2017 cannot reduce taxable income by more than 80%. NOLs carryforward indefinitely. Special rules apply for farm NOLs.
• Corporate alternative minimum tax (AMT) — The corporate AMT is repealed effective for tax years beginning after Dec. 31, 2017.
• Partnership technical terminations — The new tax law repeals the Sec. 708(b)(1)(B) rule regarding technical terminations of partnerships effective Dec. 31, 2017.
• Expansion of eligibility for more favorable accounting methods — Taxpayers subject to Sec. 448 (other than tax shelters) with three-year average annual gross receipts of $25 million or less are eligible for the cash basis of accounting.
2018 TAX CHANGES FOR INDIVIDUALSPosted on November 29th, 2018
The recurring theme we heard from Washington this past year regarding tax reform is how this new “postcard” return will make income tax preparation easier. Don’t believe it! As we have read numerous articles, IRS proposed regulations, and multiple continuing education classes this year, the one constant we have heard is that we can expect a 20% increase in time to property complete a return. Here is a summary of some of the major changes that have occurred.
Tax Rates – 2018 ordinary tax rates are generally lower than those for 2017. For example, the top rate has been reduced from 39.6% to 37%. The graduated rates are now 10%, 12%, 22%, 24%, 32%, 35%, & 37%. Also, the top rate now applies to joint filers whose taxable income is over $600,000 compared to $470,700 in 2017.
Standard deduction and exemptions
There are no personal or dependent exemptions under the new tax law. The repeal of these exemptions is effective through Dec. 31, 2025.
• Effective Jan. 1, 2018, the standard deduction is:
$24,000 for Married Filing Joint filers
$18,000 for Head of Household filers
$12,000 for all other filers
• The increased standard deduction is effective through Dec. 31, 2025.
• Additional standard deductions are also available for the aged or the blind.
New deduction for individuals who have qualified business income (QBI) — Effective Jan. 1, 2018, through Dec. 31, 2025, there is a potential 20% deduction for individuals who have qualified business income (QBI) from a partnership, S corporation or sole proprietorship. This deduction also applies to REIT dividends, qualified cooperative dividends and qualified publicly traded partnership income.
• Child tax credit — The new tax law increases the credit to $2,000 per qualifying child; the threshold at which the credit begins to phase out is increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers. The new rules include a $1,400 refundable child tax credit.
• State and local taxes deduction — Under the new rules, individuals can deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income or property taxes.
• Mortgage interest deduction — The new law reduces the ceiling of acquisition indebtedness to $750,000, unless the indebtedness was incurred before Dec. 15, 2017, where the limitation is still $1 million. This reduced ceiling is in effect from Jan. 1, 2018, to Dec. 31, 2025.
• Home equity interest deduction — The home equity loan interest deduction was repealed through Dec. 31, 2025. Home equity interest that qualifies as acquisition debt (secured by the principal residence and incurred in acquiring, constructing or substantially improving the home) and is less than the $750,000 limit noted previously would still be deductible.
• Miscellaneous itemized deductions — The new law suspends all deductions that were subject to the 2% adjusted gross income (AGI) limitation (e.g., tax preparation fees, safe deposit box, etc.).
• Pease limitations for high-income taxpayers who itemize their deductions — The phase-out also goes away through Dec. 31, 2025, under the new law.
• Charitable contributions — The new law increases the income-based percentage limit for charitable contributions of cash to public charities to 60%.
• Shared responsibility payment (that is, the penalty on individuals who do not have health insurance) — The new law reduces the penalty to zero for tax years starting Jan. 1, 2019. However, note that the penalty still is in effect for the 2018 calendar year, and even when the penalty goes away, other aspects of the Affordable Care Act are still in place.
• 529 plans — 529 savings plans allow for annual tax-free distributions per beneficiary (regardless of the number of contributing plans) for qualifying expenses. Beginning in 2018, the federal rules allow these plans to fund the educational costs to cover students in grades K-12 who are enrolled in religious and other private schools. However, distributions for grades K-12 cannot exceed $10,000 per beneficiary and not all state-sponsored plans have adopted the expanded use of these funds.
• Net operating losses (NOLs) — The carryback of NOLs is repealed effective for tax years ending after Dec. 31, 2017. NOLs generated for years beginning after 2017 cannot reduce taxable income by more than 80%. NOLs carryforward indefinitely. Special rules apply for farm NOLs.
• Alternative minimum tax (AMT) — For tax years starting Jan. 1, 2018, through Dec. 31, 2025, the AMT exemption amount has been increased to $109,400 for married filing jointly taxpayers, $54,700 for married filing separately taxpayers and $70,300 for other taxpayers. The exemption phases out if AGI exceeds $1 million for married taxpayers and $500,000 for all other taxpayers. The exemption will be indexed for inflation.
• Kiddie tax — The tax calculations will now be based on the tax brackets applicable to estates and trusts.
• Family tax credit — A new $500 nonrefundable credit is available for qualifying dependents. Guidance from the IRS states that this credit applies to two categories of dependents: qualifying children who do not qualify for child tax credit and qualifying relatives as defined in Sec. 152(d).
Hopefully this post will get you thinking about tax planning moves for the rest of the year. 2018 is definitely unique given the numerous tax law changes brought by the Tax Cuts & Jobs Act. Even with the uncertainty about some of the provisions, there are things you can do to improve your situation. Please don’t hesitate to contact us if you want more details or would like to schedule a tax planning session.
Colorado Sales Tax ChangesPosted on November 18th, 2018
Starting December 1, 2018, Colorado is making an important change to the way state, city and county sales tax should be collected. If you are a business owner in the State of Colorado, and you have retail sales of taxable goods, the sales tax must be collected based on the location where the goods change ownership (also called the destination address). If your customers come to your store location, use the combined rate of your local jurisdiction. If you ship to the customer, use the combined rate of the state-administered sales taxes of the customer’s address where they accept ownership.
Sound confusing? Well, it is!
To help clear the confusion, we have to understand the different ways in which sales taxes are collected and remitted in Colorado. For example, some jurisdictions collect their own sales tax. These are called home-rule jurisdictions. Retailers pay the appropriate sales tax directly to these jurisdictions. Other’s let the State collect the sales tax for them. These are called state-administered jurisdictions. Retailers pay these sales taxes along with their Colorado sales tax to the State. From there, Colorado reimburses the jurisdiction.
But what does this have to do with the new sales tax rules? Good question. The new rules apply only to state-administered jurisdictions. What about home-ruled jurisdictions? As of right now, we have talked with some of the larger home-rule jurisdictions (Denver, Boulder, Fort Collins, Greeley….) and they have each said that they are not following these rules.
So what does this mean? Lets use an example where your physical location is in Denver and you ship to a customer in Fort Collins. A retail sale in Fort Collins is subject to sales tax from Colorado, Larimer County and City of Fort Collins. Fort Collins is a home-rule jurisdiction; Larimer County is state-administered. Thus the sales taxes that would be required to be collected, under the new rules, are Colorado and Larimer. Both would be paid on your sales tax return to the State.
Still confused? You’re not alone. But all you need to do is add these two steps to your normal process:
- When you know the delivery address for the product, look up the sales tax for that address by using SOVOS. This will provide a detailed list of the specific sales taxes for that address: Here is the link: https://portal.taxify.co/Web/Public/CO.aspx
- Now that the sales tax details for the delivery address are known, use this link: https://www.colorado.gov/pacific/sites/default/files/DR1002.pdf to determine which of the jurisdictions are home-rule and which are state-administered. Only charge the combined rates of the state-administered jurisdictions. Page 4-6 lists the State-Administered Cities; Page 7 lists the State-Administered Counties; Page 8-10 lists the Home-Rule jurisdictions.
You will need to file online each month for any additional jurisdictions you have collected tax for. These are called “Non-physical locations” and they must be set up for each and every location to which a taxable sale was made. If you add a Non-physical location in the current month, but do not have any sales there the next month, a zero tax return would be filed by simply checking a box. Here are two links to instructional videos regarding the sales tax changes and how to complete the sales tax return going forward: https://www.colorado.gov/tax/education and https://www.youtube.com/watch?v=npqg8aBX6-k#action=share.
Based on answers to some specific questions we have asked the State ourselves, the sales tax jurisdiction is determined at the time of the transfer of title or ownership. If you are involved in a manufacturing business and ship most of your goods out to customers “Free on Board” or FOB, then title and risk of ownership transfers at the pickup point. This is usually the seller’s location, and the sales tax of the seller’s jurisdiction should be collected. If you are primarily a service oriented business, and goods are first shipped to your location and you perform services to alter or modify those goods prior to the customer physically receiving them, again the sales tax of the seller’s jurisdiction should be collected. This is because ownership constructively transfers to the customer at the seller’s location before services can be performed.
If you have additional questions about any of this, please contact us for further clarification.
Three Ways Professional Accounting Saves Time and MoneyPosted on October 26th, 2018
Businesses often fail because they cannot maintain a healthy flow of cash or manage the demands of burdensome governmental regulations. These are real struggles, and many proprietors view the added expense of hiring a professional accountant as a luxury they cannot afford.
You may need to discard a few fallacies to understand how the money you pay for accounting services actually reduces your costs in the long run. When you have an efficient financial system in place that supports your everyday success, you’re less likely to overlook tax credits, make costly accounting errors, or base decisions on insufficient or faulty reports. You will also remain compliant with state and federal tax requirements.
Accurate Books for Valuable Reports
Business owners have multiple responsibilities that make them extraordinarily busy. Keeping track of profits, losses, and accounts receivable and payable can be overwhelming. A CPA can dedicate the time necessary to manage your books and analyze your monthly reports.
As the adage goes, “if you don’t measure it, you can’t manage it.” Details about your business are essential information and critical to your success. When you understand your finances down to the most minute details, you can create plans that set measurable goals.
Meet Tax Regulations with Supportive Systems
Most businesses must adhere to tax regulations that require multiple filing deadlines each month. Each time a deadline is not met, or you provide inaccurate information, you are penalized with costly fines. A good accountant can set you up with an automated system that keeps you compliant with local, state and federal tax requirements. A professional accountant takes this tedious burden off your shoulders, so you are free to spend your valuable time focused on improving your business.
Manage Your Cash Flow with Comprehensive Plans
The flow of cash in your company must be carefully managed to ensure the long-term health of your business. Even an excess of money can signal poor investment decisions that cost businesses by losing out on profitable opportunities.
Comprehensive budget plans also consider customer behaviors, tax liabilities, and debt management. A wise accountant takes advantage of hidden deductions and tax incentives that may be unique to your industry, so you save every penny possible.
Legacy CPA & Financial Services Provides Quality Accounting Services for Increased Profits and Peace of Mind
Contact Legacy CPA & Financial Services to learn more about how we can save you time and money and keep your business running on a solid foundation. We provide friendly, discreet, and personalized service to clients in Greely, CO, and surrounding communities.