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2019 End of Year Letter to Our Amazing Clients

2019 is barreling towards its completion and we can sit idly by and not tell you all we’ve learned this year.

But we won’t.

With the new Tax Cut and Jobs Act of 2017, deductions are not as beneficial as in the past.  There are more IRS proposed regulations in the pipeline and we will update you as soon as we get the information.

Brace yourselves.

End of Year To-Do’s:

  • Review your stock portfolio. It takes time for stock transactions to process, so get your portfolio tax-deduction optimized well before the end of the year.  Carefully structure your capital gains and losses to minimize your taxes.
    • Do you give money to your parents to assist them with their retirement or living expenses? How about children (specifically, children not subject to the kiddie tax)? If so, consider giving appreciated stock to your parents and your non-kiddie-tax children. Why? If the parents or children are in lower tax brackets than you are, you get a bigger bang for your buck by gifting them stock, having them sell the stock, and then having them pay taxes on the stock sale at their lower tax rates.
  • Don’t forget to take your 2019 RMD (Required Minimum Distribution – see our previous blog regarding these). You can use the Qualified Charitable Distribution (donation) process for more tax benefits.
  • This is a good time to:
    • Update your beneficiaries in your retirement plan
    • Contribute to your CHET 529 plan, and
    • If you have a flexible spending account at work, find out the last date that you can use this account. Pay attention or you could lose it!

Your tax refund may take longer to process this year.  The IRS has upwards of 200 fraud detection filters that every return goes through.  Patience is a virtue when it comes to the reduction of identity theft.  We, too, continue to upgrade our systems to protect our clients from identity theft and cyber thieves.  Also, *Windows 7 is obsolete, and we don’t just say this in an elitist, make way for Artificial Intelligence kind of way – we want to encourage you that your personal data is at risk when your operating system is antiquated.

A new W4 form will be available in 2020.  This is the form you fill out when you start a new job or want to change what’s going on with your paycheck in your current job.  We will have it on our site once it is finalized and be available to answer any questions you may have about filling it out.  This is much more complex than the current form.  When filling out said W4, it is recommended that you utilize a handy-dandy Tax Withholding Estimator tool the IRS developed.  We’ve added it to our site on the Helpful Links page.

EFTPS is the Electronic Federal Tax Payment System.  The IRS is encouraging us (and we in turn are encouraging you) to utilize this system to make your tax payments.  In the past we have advised you to use the IRS DirectPay site, but EFTPS allows you to see all payments made, which is helpful, especially considering the majority of notices our clients received were mostly about misapplied or forgotten payments.  To register for EFTPS, click here to enroll, accept the terms of agreement and enter all the information required.  You will then be mailed a PIN.  You need to be on the lookout for it and keep it in a safe, warm place so that you know exactly where it is in order to utilize this system.  We are asking our clients for printed back up for estimated payments this year specifically due to the number of notices we dealt with this year, so this is one stop shopping for you!

You can also request your federal tax transcript online.  Click here and click “Get Transcript Online.”  From there, you will have to create an account in order to gain access to your transcripts, but this is a secure and fast way to do so.

New Connecticut Provisions:

  • Social Security income can be 100% deducted if the Federal AGI (Adjusted Gross Income) is less than $75,000 (for taxpayers who are single and/or married filing separately) or $100,000 (for joint files and heads of household). If your income is equal to or greater than the above, you can potentially deduct 75% of your Social Security income.
  • You can deduct a portion of certain retirement income that is included in Federal gross income if your Federal AGI is below $75,000 for single filers, married taxpayers filing separately, and heads of households; or $100,000 for married taxpayers filing jointly. The deduction is equal to 14% of pension or annuity income for the 2019 taxable year and increases annually over the next 6 years.
  • Military and railroad retirement that is included in federal gross income is fully deductible.
  • An increase in the teacher retirement system income tax deduction from 25% to 50% remains delayed.

Under Federal Provisions:

  • We have been told that Connecticut residents have been included in the Federal IP PIN program, which allows residents to request an identity protection PIN and use that when filing Federal income taxes as an added layer of security. If you elect to sign up for this program, you will be mailed a new IP PIN each year and will need to keep track of it.  To sign up, visit IP PIN.  This link provides you with an overview of the IP PIN program.  At the bottom of the page is the button to request a PIN, but the program will not be available until January, 2020, so save this link and check back later.

Final tips and thoughts:  Have The Talk with your college student – the tax talk.  Your college student may make his/her own decision to file their own tax return to get a highly anticipated refund.  It is so important to discuss with them beforehand WHO will be claiming the dependency exemption; it most often is a greater benefit to the parent(s).  It is complex reversing the decision.  Before your college student files a tax return, know the ramifications.  Call our office!

The penalty on individuals who fail to carry health insurance, part of the ACA, has been eliminated for 2019.

The annual gift tax exclusion for 2019 and 2020 is $15,000 per donee.

The 2019 IRA contribution can be made up until April 15, 2020.  The 2019 SEP contribution can be made through April 15, 2020 or until the date of tax filing extension.

If you are going to make a donation to a charity, how about an appreciated stock rather than a cash donation?  A donation of appreciated stock gives you more of a tax benefit:  The fair market value of the stock gets deducted as a charitable donation and you don’t pay any of the taxes you would have if you had sold the stock.  Example: You bought a publicly traded stock for $1,000, and it’s now worth $11,000. You give it to a 501(c)(3) charity.  You get a tax deduction for $11,000, and you pay no taxes on the $10,000 profit.

We know – it’s a lot to digest, especially after all that turkey and pie – but forewarned is forearmed.  As Sun Tzu said, “In the midst of chaos, there is also opportunity.”  We hope to provide you with many opportunities to be victorious in the chaos that is tax season.

 

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What’s the Use of the Use Tax?

Use tax is a sales tax on purchases made outside of one’s state of residence for taxable items that will be used, stored or consumed in your home state.  It is a tax you are required to pay when you purchase a taxable good or service for use in Connecticut on which you did not pay sales tax to a retailer.

A use tax is supposed to protect in-state retailers against unfair competition from out-of-state sellers that aren’t required to collect tax. It also ensures that all of a state’s residents help fund state and local programs and services, regardless of where they shop. As of 2018, 45 states have a use tax law.

What about online shopping?

If you’re a Connecticut resident, chances are you’ve been shortchanging the State Treasury each year when you file your state income tax return without even realizing it. With all that online shopping offers, many use the internet to buy all sorts of products. The fact that many online retailers do not charge sales tax on purchases is seen as an extra incentive to shop online. However, just because your go-to online store doesn’t charge you sales tax doesn’t mean that you don’t have to pay taxes. Connecticut law requires you to self-report the purchase and pay use tax in lieu of sales tax.  The use tax rate is the same as the resident’s local sales tax rate, which includes both state and local sales taxes. A resident who does not pay use tax may be subject to interest and penalties.

Amazon states that items purchased on their site may be subject to tax depending on the type of the item purchased and the delivery address of your order, among other factors.

Generally speaking, use tax is determined by where the buyer is located.  If an online retailer maintains a physical presence in a state that charges a sales tax on most purchases, then that online retailer must charge sales tax on any items that are sold to customers within the home state. However, if the online retailer is selling an item to a customer outside of its home state, then it is not required to collect sales tax from that customer.

Isn’t it the same as sales tax?

The sole difference between a sales tax and a use tax is the person who ends up giving the money to the state government. When it is a sales tax, the retailer is the one handing over the money, while a use tax is handed over directly by the consumer.   Other than that, it is functionally the same tax.  For more FAQs, click here.

And coming up, a way to avoid the use tax altogether!

From August 18th-24th, 2019, it’s the Annual One-Week Sales and Use Tax Exclusion
for Clothing and Footwear Costing Less Than $100 – it’s the Sales Tax Holiday!

This is a one-week period in August for clothing and footwear sales and use tax exclusion.  The “sales tax holiday” occurs the third Sunday in August through the following Saturday, and applies to clothing sales made by Connecticut and out-of-state retailers to Connecticut customers for purchases of clothing or footwear costing less than $100 per item.

The exclusion applies to each item of clothing or footwear sold, regardless of how many items are sold to a customer on the same invoice. However, for any item that costs $100 or more, sales tax applies to the entire price of that item.

This is just in time for back to school shopping or snapping up the end of summer sales for next year!

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2018 Year End Individual Tax Planning

2018 Year End Individual Tax Planning

Big changes went into effect in 2018 for both individual and business income taxes from both sides, federal and state. The new postcard format is smaller; but there are many accompanying forms and schedules.

To complicate it even further most individual tax provisions are temporary. They are set to expire after 2025. Here’s a broad brush summary:

  • Standard deductions nearly doubled.
  • Many deductions claimed by individuals have been axed.
  • Personal Exemptions are repealed.
  • Home mortgages have been nicked.
  • State and local tax deduction has been squeezed.
  • Several write offs have been removed
    • Job Related moves
    • Employee Business expenses
    • Hobby Expenses
    • Brokerage and financial fees
  • The phase-out of itemized deductions is removed
    There are still seven tax brackets but with different rates.
  • The child tax credit is doubled and the income phase-out thresholds are much higher.
  • The annual gift tax exclusion for 2018 is $15,000 per donee.
  • The kiddie tax is revamped.
  • The taxation of all business has been revamped.
  • There are enhanced write offs for business asset purchases. And there are limitations at the state level.
  • Many other business breaks have been eliminated or pared back: business entertainment, NOL’s and like kind exchanges,among many others.

This is just touching the surface. We are anticipating an interesting tax year!  Please be patient with us as we all work through this and we will be patient with you! We are doing our best to be abreast of the new tax laws, the new policies and procedures at both the federal and state level. We will continue to make you, our clients, our priority.

In the meantime, have a joyous and peaceful holiday season.  We look forward to seeing you soon!

Mary Jo

REMINDERS and other Hints and Tips:

  1. The 2018 IRA contribution can be made up until April 15, 2019.
  2. The 2018 SEP contribution can be made through April 15 or until the date of tax filing extension.
  3. Consider making 2018 distributions from trusts.  The 663(b) election, also known as the “65 Day Rule” enables a trust to make a distribution within the first 65 days of the year, and have it count as a distribution for the previous tax year.
  4. If you are 70 ½ or older you can satisfy your RMD (required minimum distribution) from retirement accounts by making a charitable contribution directly to the charity from your IRA. (This has the potential to affect how much Social Security is taxed and how much you will pay for Medicare B and D).
  5. If your income is too high to claim education credits for your children, you may have some opportunity in the last year of college. If your child lands that new job and provides more than half of his own support in the same year tuition is paid (for or by himself), he/she can be eligible for the $2,500 American Opportunity Tax Credit (and you can ask him/her or her to give it back.) Some colleges require payment for the spring semester in December of the prior year. If you opt for a tuition payment plan,you should be able to pay some of that in the current year.

TIP: Your college student may make his/her own decision to file his/her own tax return to get a highly anticipated refund. It is so important to discuss with them beforehand WHO will be claiming the dependency exemption; it most often is a greater benefit to the parent(s). It is complex reversing that decision.

Bottom line – before your college student files a tax return, know the ramifications.Call our office!

  • If you are in a low tax bracket in a particular year, consider converting any traditional IRA to a Roth IRA. You will have to pay the tax on it now, but it will grow tax-free and you won’t be taxed when you take distributions in retirement. It is also a great way to reduce those required minimum distributions.
  • Don’t forget to use any money you have contributed to a flexible spending account. These accounts are “use it or lose it” accounts. Some employers have grace periods or the option to roll over$500 to the following year. Check with your employer.

TIP: Don’t wait until 1099s and W-2s start arriving to begin gathering your data for filing. The top priority and most important tax-planning advice is to file as early as possible to avoid tax-return identity theft. Have all backup data possible in early January so that when your documents do arrive, you are ready to file.

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Third Quarter Estimated Taxes

Third Quarter Estimated Taxes

    As the Third Quarter of 2018 winds to a close, we wanted to remind you that estimated taxes are due on or before September 17th. If you are required to pay estimates, we prepared and included pre-addressed envelopes and vouchers with the amounts due in the tax return packet we provided. If we keep your envelopes and vouchers here in our office, please make sure you come in with your checks prior to September 17th so we can mail your estimates out before the third quarter estimated tax deadline. You also have the option to use IRS directPay for Federal estimated tax payments and TSC Website for the State estimated tax payments. If you prefer to send your payments by mail:

Federal estimates should be sent to:
Internal Revenue Service
P.O. Box 37007
Hartford, CT 06176-0007

CT Estimates should be sent to:
Department of Revenue Services
P.O. Box 5053
Hartford, CT 06102-5053
As always, we are here to answer any questions you may have.

https://maryjowalker.com/contact-us/

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IRA owners be aware!

IRA owners need to ensure they are taking appropriate measures to avoid having their IRAs treated as inactive under an unclaimed property statute! New IRS ruling regarding tax treatment of IRAs that become unclaimed property.

In light of the recent change to federal tax law limiting the income tax deduction for state and local taxes, many states are searching for revenue. One increasingly important non-tax source of revenue for states is unclaimed property, which is turned over to the states under a process referred to as escheatment. Over the past few years, state unclaimed property administrators have initiated numerous IRA-focused, multi-state audits of banks, broker-dealers, life insurers and other financial institutions. Under the statutes of most states, traditional IRAs are presumed abandoned—and therefore due for escheat to the states—if there is no owner-generated activity in the account for three to five years after the date for required minimum distributions, i.e., age 70½. These standards are non-uniform by state, and several states purport to count the period backwards, presuming that an account is abandoned at age 70½ if there has been no activity within the prior three to five years. The treatment of Roth IRAs is also non-uniform, and state laws vary on whether age 70½ is a potential trigger for escheat.
The death of the IRA account owner is also a potential trigger for escheat.

To ensure that the state does not get your IRA account as unclaimed property be sure that you have listed beneficiaries on all IRA accounts!

Bottomline: If you are an IRA owner you will need to be extra vigilant to ensure that you are taking steps to avoid having your IRAs treated as inactive under an unclaimed property statute. To avoid escheating an IRA you should take steps such as logging into your IRA account (if you have access online) or contacting the IRA custodian at least every few months.

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Office Closing

As another holiday season tuckers itself out, we want to wish you a safe and happy New Year’s and a great start to 2020! In observance of the New Year’s Day holiday, our office will be closed Wednesday, January 1st, 2020.

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