TAX TIPS FOR INDIVIDUALS

Tax Gifts for Self-Employed

December 26, 2019 by Pamela Avraham

Tis the Season – Now is the time for business owners to review potential tax saving possibilities. People who are self-employed have many opportunities to cut taxes that regular employees don’t have.

Health Insurance– Self-employed individuals can deduct health-insurance costs above-the-line. That’s better than deducting them on Schedule A, ( Itemized Deductions) where they are limited.

If the spouse of the owner is an employee and the insured person on the medical insurance, then the medical insurance premiums can be deducted directly on Schedule C as a business expense.

Health insurance premiums paid for long-term care insurance may also be deducted (with some limitations) above-the-line for self-employed business owners.

Qualified Business Income (QBI) Deduction– The 2017 tax overhaul added a QBI deduction of 20% of the net income of self-employed people. Depending upon the type of business, the 20% deduction may be limited when taxable income is $160,700 for single filers and $321,400 for married couples filing jointly. Self-employed workers whose incomes will exceed the limits may get below them by making tax-deductible donations to charity before year-end or contributing more to tax-deductible retirement plans.

Self- employed business owners whose taxable incomes are over the limits, may still receive the QBI deduction depending upon the type of business and subject to additional limits. The amount of the tax deduction will vary depending on the specific taxpayer circumstances.

Office in the Home Deduction– Many self-employed individuals operate their businesses from their home. If you qualify for the home office deduction, you can deduct all direct expenses and part of your indirect expenses involved in working from home. Indirect expenses are costs that benefit your entire home, such as rent, deductible mortgage interest, real estate taxes, and homeowner’s insurance. You can deduct only the business portion of your indirect expenses.

More people are taking the now higher standard deduction or their real estate tax deduction is limited as a result of the state and local income tax limitation. By deducting office in the home expenses, one can deduct a portion of the mortgage interest and real estate taxes that otherwise may be not be deductible.

Retirement Plan Contributions- Self-employed individuals can often make larger tax-deductible contributions to retirement plans than employees. The 2019 contribution to a traditional IRA is a maximum of $7,000. The 2019 limits are over $50,000 for SEP IRAs and Solo 401(k)s.

Retirement Plan Deadlines– For 2019, traditional IRAs can be set up and funded until April 15, 2020. The deadline for a SEP-IRA maybe as late as Oct. 15, 2020 if a valid extension is filed. It is important to remember that requesting a filing extension does not provide an extension on paying the taxes that will eventually be due. The Solo 401(k)s have a catch: for 2019, the contribution deadline can be as late as Oct. 15, 2020. However, the plan must be set up by Dec. 31, 2019.

Review Estimated Taxes– Self-employed workers usually owe estimated taxes. There is a penalty for underpayment. For self-employed who also have W-2 wage income earned either by them or their spouses one can avoid quarterly taxes by increasing their withholding on wages. If the wage-earner doesn’t increase his withholdings until late in the year, that is fine- as long as the IRS receives about 90% of the total tax due by year-end.

Everyone’s tax and financial situation is different. Please contact a tax professional at Urbach & Avraham, CPAs about your business tax options.

Volunteering? Let Uncle Sam Reward You in a Deduction

December 11, 2019 by Pamela Avraham

If your contributions to charity begin and end with check writing, you may be missing out on some satisfying volunteer opportunities — and a few tax deductions. Many people volunteer for the Salvation Army, your church or temple and other charitable organizations. IRS rules allow you a number of tax breaks for contributions other than cash that you make to qualified organizations.

Traveling There and Back

You may deduct the costs of going to and from a location where you volunteer your services. You may also deduct the costs of driving for the organization — for example, to pick up or deliver items. To compute your deduction for charitable driving, use the standard mileage rate of 14 cents per mile for 2019, per the IRS, or deduct the actual cost of your gas and oil. Either way, parking fees and tolls are also deductible.

Recoup Your Expenses

Out-of-pocket expenses you pay in giving services to a qualified organization may count as a charitable donation if you’re not reimbursed for them. You cannot deduct your personal expenses, such as child care costs, even if they are necessary for you to volunteer. You may, however, deduct the costs of buying and cleaning a uniform you’re required to wear while volunteering if it is not suitable for everyday use.

No Time to Volunteer? Gift of Appreciated Securities

Many charities accept non-cash donations. Giving investments that have increased in value can be a smart tax move. Instead of selling the investment and paying capital gains tax, donate it to a qualified organization. If you held the investment for more than one year, you generally can deduct its fair market value at the time of the donation. Remember that you’ll need a receipt from the organization to claim a tax deduction, and other records also may be required.

Some Restrictions

Contributions must be made to qualified organizations that meet IRS guidelines. Not sure? The IRS has an online tool, the Exempt Organizations Select Check, that can help. Or call IRS Tax Exempt and Government Entities Customer Account Services at 1-877-829-5500.

You can’t deduct contributions to a specific individual; the value of your time or services; personal expenses incurred while volunteering, such as the cost of meals (unless you must be away from home overnight); and appraisal fees to determine the value of donated property.

Everyone’s volunteer pattern is different. Consult with a tax professional at Urbach & Avraham, CPAs for more information on charitable donations.

Substantiating Charitable Donations for Tax Purposes

December 11, 2019 by Pamela Avraham

To claim a deduction for a charitable donation, you must have certain documentation. The current tax law requirements are summarized below.

Cash contributions under $250 require a bank record and date and amount of contribution. Cash contributions of $250 or more require written acknowledgement stating whether charity provided goods/services in exchange for gift. Contributions withheld from payroll require the pay stub or Form W-2 that shows amount withheld for charity.

Property contributions less than $250 require receipt or letter from charity stating: name of organization, date and location of contribution and property description. Property contributions from $250 to $500 require written acknowledgement whether goods/services were provided in exchange for gift. Property contributions from $500 to $5,000 require Form 8283 filed with tax return stating: how and when property was acquired and cost or basis of property. Property contributions of $5,000 or more require a qualified appraisal (exceptions apply) filed with Form 8283.

Additional Tips- Here are some other points to keep in mind.

Multiple contributions. If you make multiple contributions of less than $250 to the same charity during the year, you generally should treat each contribution separately in determining the amount of the contribution and the supporting records you should have.

Donations of clothing and household items. To be deductible, these donations must be in “good used” condition or better unless you are claiming a deduction of over $500 and include a qualified appraisal of the item with your return. If you can’t get a receipt from the charity because you left items at a charity’s unattended drop site, note the charity’s name, the contribution date, and a description of the items you donated and keep it on file. Also note the donated items’ fair market values and how you determined the values.

Text message donations. If you donate money by sending a text message — to a disaster relief charity, for example — the donation will be routed through the cell phone company you use. The company forwards the amount you donate to the charity, and the charge appears on your bill. Therefore, the telephone bill showing the date and amount of your donation to the organization will serve as the proof you need to substantiate your contribution.

Everyone’s charitable gifting is different. Consult with a tax professional at Urbach & Avraham, CPAs about your charitable donation documentation.

Friendly Strategies for Charitable Giving

December 10, 2019 by Pamela Avraham

Obtaining a significant tax benefit

for charitable contributions may be a little harder after the Tax Cuts and Jobs Act of 2017 (TCJA), but it’s not impossible. Here’s a look at how the TCJA has altered the tax landscape for charitable giving and three strategies that could help taxpayers get better tax mileage from their donations going forward.

What Has Changed?

Because the deduction for charitable contributions is an itemized deduction, taxpayers who claim the standard deduction receive no deduction for their contributions. That much hasn’t changed. What has changed is that standard deductions for every filing status are significantly higher under the TCJA. And since there are new limits on some itemized deductions — e.g., the deduction for state and local taxes — and others have been outright eliminated, taxpayers are less likely to benefit from itemizing.

Timing Donations With a Donor-Advised Fund

With a donor-advised fund, you make a contribution (or series of contributions) to the fund and recommend how you would like your gifts to be disbursed. Generally, the donor’s recommendations will be followed, but the sponsoring organization has the final say as to how the money is actually distributed.

Contributions to a donor-advised fund are generally tax deductible in the year they are made. So funding a donor-advised fund in a year you expect to itemize your deductions could provide a tax advantage. If desired, you could then put those dollars to use over several years by supporting your favorite charities through your donor-advised fund.

Donating Appreciated Securities

Many donor-advised funds and other public charities accept contributions of publicly traded stock or other securities. A donation of highly appreciated securities held more than one year provides a potential tax deduction for the securities’ fair market value while also avoiding the capital gains tax that would be due if the securities were sold. Note that itemized deductions for contributions of appreciated securities are generally limited to 30% of AGI.

Making Qualified Charitable Distributions After Age 70½

A qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD).

To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. (Contributions to donor-advised funds are not eligible.) Up to $100,000 may be transferred annually.

Each individual’s tax situation is different. Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact on your personal situation.

Retirement Savings Credit- Who Can Benefit?

December 3, 2019 by Pamela Avraham

It’s not always easy to keep contributing to your employer-provided retirement plan. Bills and unexpected expenses can eat up most of your salary, leaving little for retirement savings. You might be tempted to forget about it until you start earning more money.
But before you stop or cut back (or never start) contributing to your plan, understand that you could be entitled to a federal tax credit called the Retirement Savings Contributions Credit, or Saver’s Credit, if you meet certain income requirements. In effect, the credit repays a percentage of the contributions you make to your 401(k) or other retirement savings plan by reducing your income tax liability for the year. It may be just the thing that enables you to keep participating in your retirement plan or increase your contributions.
What It Is?
The credit is a percentage — 50%, 20%, or 10% — of up to $2,000 in qualified retirement savings contributions for a maximum credit of $1,000 (or twice that amount for a married couple filing jointly who each contribute $2,000). The percentage depends on adjusted gross income (AGI) and filing status. The credit is available for contributions to a 401(k), 403(b), governmental 457(b), SIMPLE IRA, or salary reduction SEP as well as for traditional and Roth IRA contributions.

Who Qualifies? To claim the credit, you must be at least age 18, not claimed as a dependent on another person’s return, and not a full-time student. You will not be able to claim the credit if your AGI exceeds the top of the range for the 10% credit.

2019 Tax Credit
Percentage of Contribution: 50% 20% 10% 0%
Tax Filing Status Adjusted Gross Income
Married Filing Jointly $38,500 or less $38,501-$41,500 $41,501-$64,000 > $64K
Head of Household $28,875 or less $28,876-$31,125 $31,126-$48,000 > $48K
All other filers* $19,250 or less $19,251-$20,750 $20,751-$32,000 > $32K
*Single, married filing separately, or qualifying widow(er)

This is an excellent saving tool for those who just entered the workforce or those with a lower than usual income year. Everyone’s tax situation is different. Contact one of our tax professionals at Urbach & Avraham, CPAs to discuss your circumstances.