Should You Do Your Own Taxes Or Hire A Pro? Here's How To Know.

FROM www.huffpost.com

If you’re the handy, do-it-yourself type, you probably prefer to prepare your own taxes every year. You might even enjoy it. But considering the recent sweeping changes to our tax code and the fact that many taxpayers are missing refunds this year, you might be wondering if now is the time to consult a professional.

We don’t blame you for hesitating over the choice. After all, the cost to do your own taxes is relatively low: Expect to spend around $20 to $50 using basic software. If your tax situation is simple, it’s even possible to file for free using services such as TurboTax Free Edition and Credit Karma Tax.

On the other hand, hiring a professional tax preparer to fill out your basic 1040 form and corresponding state return costs $176 on average. That number jumps to an average of $273 if your tax situation is a bit more complicated. And you could spent up to $1,000 or more on tax preparation if your situation is particularly complex, according to Logan Allec, a certified financial planner and owner of the personal finance site Money Done Right.

Of course, if that means avoiding costly mistakes or an audit, it could be well worth it.

Not sure which option is right for you? Here’s how to decide.

When To DIY Your Taxes

For those who have fairly simple financial situations, preparing your own tax return is usually no problem. But how do you know if your situation counts as simple?

In general, if preparing your taxes simply requires a data dump, meaning you need to pull information from a handful of documents prepared by others, then you’re probably OK to do your own taxes, according to Allec.

If all you must do is input the info from your W-2 and maybe a couple of 1099 forms from your bank or broker, sticking with basic tax software is fine.

However, if you’re at all uncertain or uncomfortable handling a certain aspect of your taxes, it might be a good idea to work with a professional.

When To Hire An Accountant

You don’t necessarily need to hire an accountant in any of these scenarios, but it might help ease confusion and avoid mistakes.

1. Your marital status changed.

If you recently got married, you might need help determining which tax filing status to use. According to Allec, a tax filing status of “married filing jointly” is often the most advantageous ― but not always.

There are certain situations where it could make sense for a married couple to file separately, even if there are some potentially negative tax consequences.

One of those situations is when you’re in the process of getting a divorce. “Here’s the thing about filing taxes jointly as a married couple: You’re both on the hook for any taxes owed,” Allec said. It doesn’t matter if Spouse A earned $500,000 and Spouse B earned $50,000 for the year. When it comes to filing taxes, “both spouses are jointly and severally liable for all taxes owed on the return.”

Clearly, that can turn into a dicey situation for couples who are planning to end their marriages. Soon-to-be-divorced spouses may want to file separate tax returns so that each person is only responsible for their own taxes.

2. You experienced another major life change.

Other life milestones such as graduating from college, having a child, moving, getting a new job or losing a job could all impact your tax return and potential refund.

A tax professional can help you learn about any new benefits or strategies to minimize your tax liability, according to Kathy Pickering, the executive director of the Tax Institute at H&R Block. Then next year, if you don’t experience any other life changes and you feel more comfortable with your tax situation, you could go back to doing your own taxes.

3. You started a business.

If you started a business last year, which in the eyes of the Internal Revenue Service includes everything from launching a startup to mowing lawns on weekends, you should probably consider hiring a professional to prepare your tax return, Allec said.

One of the major concerns in this case is accuracy when it comes to reporting your income and expenses. “So is maximizing your tax deductions,” Allec said. “A qualified tax preparer will not only know about certain deductions that you may or may not have heard of before, but he or she will also know how to take them correctly on your tax return to reduce your chances of an IRS audit.”

4. You bought rental real estate.

If you bought a rental property during the year, it’s probably best for you to hire a professional tax preparer. Not only are there similar tax concerns related to purchasing real estate and starting a business ― namely, reporting tax items accurately and maximizing deductions ― but with rental property, there is also the issue of depreciation.

“In my experience as a CPA, I would say that over 60 percent of the DIY tax returns prepared by newbie real estate investors get depreciation wrong,” Allec said. “Depreciation calculations can be a costly mistake to fix down the line.” So you’ll want to get it right from the first tax return.

5. You sold complicated investments or traded cryptocurrency.

Usually when you want to invest, you go to a brokerage such as Vanguard or Fidelity, or use an investment app such as Acorns or Robinhood, and buy some stock. Then, at the end of the year, both you and the IRS will receive a 1099 form showing all of the dividends you earned and any sales you made. This is the information you use to prepare your tax return.

But what if you sold assets and nobody is legally required to send you a tidy document detailing exactly what you should report to the IRS?

One example is if you traded cryptocurrency. “Although the IRS and one of the cryptocurrency exchanges, Coinbase, have worked out some kind of tax reporting system for cryptocurrency traders, it’s far from perfect,” Allec said. “If you traded cryptocurrency during the year, I definitely recommend hiring a tax preparer, and particularly one that has extensive experience working with cryptocurrency transactions.”

Another example is flipping property ― that is, buying a house, fixing it up and selling it quickly. “If you flip a house during the year, you will receive a Form 1099-S from the escrow company showing your proceeds from the sale of your house,” Allec said. “But beyond this number, you’re on your own to figure out how to report your home flip. ... There are a lot of moving parts to a flip transaction.”

In these situations, Allec said, you would probably be well-served by going to a professional tax preparer.

6. You’re on an income-driven repayment plan for your student loans.

If you have federal student loans, you might have enrolled in an income-driven repayment plan, which reduces your payments to a small percentage of your discretionary income.

Aside from smaller payments, another perk of IDR plans is that your remaining balance will be forgiven once you reach the end of the payment term (if there’s anything left to forgive, that is). However, forgiven debt will be considered taxable income for that year.

“Under this type of plan, your monthly payment is determined based on the income reported on your tax return,” Allec explained. “So naturally, if you want to reduce your monthly payment, and thereby increase your potential loan forgiveness amount, you would want to reduce the income reported on your tax return.”

A tax professional can help you figure out the best tax filing status for your situation, how to report your income most advantageously and how to plan for an eventual tax bill if you expect a portion of your loan to be forgiven.

7. You’re dealing with a tax problem.

Working with a qualified tax expert can come in handy even when it’s not tax season. Whether you’re responding to an IRS audit or notice, catching up on back taxes or making a payment agreement, an accountant can help you navigate a potentially confusing and time-consuming situation.

“Credentialed tax professionals such as enrolled agents can help taxpayers understand the issue, organize the documents needed to respond and represent the taxpayer before the IRS,” Pickering said. So if you feel like you might be in over your head when dealing with the IRS, don’t hesitate to enlist some professional help.

8. You just don’t have the time.

It’s estimated that the average taxpayer spends 13 hours on tax preparation, which includes gathering receipts, reviewing the rules and actually filling out tax forms.

For some, this might seem like a simple weekend project. For others, not so much.

“Taxpayers who don’t like doing their taxes might consider leaving it in the hands of a tax professional,” Pickering said. “Or taxpayers who don’t have time to prepare their own returns could also consider using a professional tax preparer.”

Sometimes it makes more financial sense to pay someone else to do a job when your time is better spent elsewhere. And if it means one less mind-numbing task off your plate, even better.

Should You Pay Your Tax Bill With a Credit Card?

FROM www.nasdaq.com

Most Americans end up getting a tax refund each year, but if you underpay your taxes, whether intentionally or not, you'll wind up in the opposite scenario -- owing the IRS money. This is especially likely to happen if you earned a lot of secondary income from a side job or investments.

Now if you have the money on hand to pay that tax bill, you're all set (even if you're not particularly happy about it). If you don't have the cash in savings, however, you'll need to find some way to cover that expense. Otherwise, the IRS will begin charging you interest on your outstanding tax bill to the tune of 0.5% per month, or partial month, that your debt remains unpaid, up to a total of 25%. That interest will begin accruing if you fail to pay your tax bill, or a portion thereof, by the tax deadline.

Seeing as how 40% of Americans don't have the cash to cover a $400 emergency, it's likely that many who end up owing taxes will find themselves unable to pay. If that happens to you, you might be inclined to charge your tax bill on a credit card and pay it off when you can. That's a mistake that you'll find could cost you big time.

 A better way to pay off your tax debt

The problem with charging your tax debt on a credit card is many-fold. First, the IRS will automatically charge you a hefty processing fee for using a credit card to pay your taxes, which is wasted money on your part. Second, if you're unable to pay that credit card bill when it comes due, you'll accrue interest -- and probably a lot more interest than what the IRS would charge you. Furthermore, carrying that credit card balance for a long time could negatively impact your credit score , thereby making it more difficult and expensive for you to borrow in the future.

It's a better idea to apply for an IRS installment plan. If you sign up for a short-term plan of 120 days or less, you won't pay a fee to set one up. Otherwise, you're looking at $52 to set up a direct debit agreement with the IRS, or $105 for a standard or payroll deduction agreement. If you're a low earner, however, you might pay just $43.

Furthermore, while you will pay interest under an IRS installment plan, it may pale in comparison to what even a low-interest credit card might charge you. If you're thinking that charging your tax bill on a credit card will at least score you some reward points , remember that 2% cash back isn't worth the 18% interest you'll likely pay for the privilege of carrying that balance.

Plan smarter for next year

If you wind up in the minority of filers who owe money to the IRS, take it as a sign to do better on the tax-planning front going forward. That could mean making estimated tax payments on your side income to avoid a large bill at the end of the day, or taking gains on your investments more carefully.

At the same time, be sure to build a decent emergency fund so that you have money in the bank to deal with any sort of unplanned expense, whether it's a tax bill, a home repair, or a health issue. Having at least three months' worth of living expenses on hand will help you avoid costly credit card debt, not to mention help keep your credit score intact.

7 Easy Tax Saving Strategies You May Be Missing Out On

FROM FORBES.COM

Income taxes are often one of our largest expenses and a source of deadline-induced stress and confusion. While we cannot avoid paying taxes without getting some unwanted attention from the IRS, we can at least try to minimize the total amount of income taxes that we owe. The good news is that by paying less in taxes, you’ll have more money available to save for your financial goals and use for more fulfilling life pursuits. The new tax code may have eliminated many seldom used deductions and significantly changed some others, but there are still several easy ways for you to reduce your taxable income – even things you may be doing already. Here are 7 easy tax saving strategies that can lower your 2018 or 2019 tax bill:

Make deductible contributions to a Traditional IRA. 
This is an option if you are working but not covered by a qualified plan at work (e.g., 401k or 403b) or if you are participating in a plan and have income below certain limits. You can contribute up to $5,500 (or $6,500 if you turned 50 or older last year) to an IRA for 2018. If you don’t have a retirement plan through work or do but meet the income limits, you can deduct your contributions to a traditional IRA and invest them to grow tax-deferred until withdrawn.
A Roth IRA is an alternative to deductible contributions (or if you don’t qualify). In fact, the Roth IRA may be a better alternative if you do not need the last-minute tax savings or anticipate being in a higher tax bracket during your financial independence years. Contributions to a Roth IRA aren’t deductible, but the account can grow to be tax-free after 5 years and age 59 ½. Unlike a traditional IRA, you also have the flexibility to withdraw your contributions (but not any earnings) at any time without tax or penalty.


Max out your health savings account (HSA) contribution.
A frequently overlooked last minute tax saving strategy is to contribute more to your HSA for the previous tax year. First, you must be covered by a high deductible health insurance plan to qualify. Then, if you didn’t contribute up to the maximum annual limit of $3,450 for individual coverage or $6,900 for family coverage during 2018, you may have some extra tax savings available.
Just be sure to notify your HSA provider that you want your contribution to be coded for the 2018 tax year. Your contributions will be included as an adjustment to gross income, which will work to lower your taxes. As a best practice, you should also use this tax season as an opportunity to review your HSA contribution plans for the remainder of 2019.

Set aside education funds in a 529 plan.
This strategy particularly makes sense if you live in a state that offers state tax incentives for 529 plan contributions. SavingforCollege.com provides a guide that shows which states offer residents state tax deductions or credits for 529 plan contributions. Contributions to 529 college savings plans may not give you as significant tax savings as you will likely get from a 401(k), deductible IRA, HSA, or FSAs, but you can still realize some tax savings for money dedicated to education-related expenses. 529 plan assets grow tax-free when used for qualified education related expenses. In addition to using a 529 when paying out of pocket college costs, you may also be able to use 529 plan assets for K-12 private education costs.

If you are still itemizing deductions, don’t miss any potential deductions or tax credits!
The number of households itemizing deductions for the 2018 tax year will go down significantly from previous years. This is because you are allowed a standard deduction of $12,000 for single filers ($12,200 in 2019) and $24,000 ($24,400 in 2019) for married couples filing joint returns. Homeowners can still deduct their mortgage interest on Schedule A of their 1040 form, but the amount is subject to mortgage limits. A significant change is that now you may only deduct up to $10,000 of state, local and property taxes (or sales and property taxes if you don’t live in a state that has income taxes). Medical expenses can be deducted for 2018 if they exceed 7.5% of your adjusted gross income (increasing to 10% for this year).
There are also deductions available for cash and household items donated to charities. One strategy related to charitable contributions is to consider bunching contributions to occur every other year if you are close to the standard deduction limit. In any case, be sure to keep receipts for those donations.

Contribute to an employer-sponsored retirement plan.
Making pre-tax contributions to a retirement plan at work is one of the best ways to boost your retirement savings and reduce your taxable income. 401(k) and 403(b) contribution limits increased slightly to $19,000 per year in 2019. If you are covered by a retirement plan at work, you can use tax planning season to proactively review your contributions for the rest of the year. At a minimum, verify you are at least contributing enough to capture your employer’s match (if provided). On a similar note, if you are fortunate to work for an employer offering bonus or incentive income, you may be able to defer income to a lower tax year.

Take advantage of a flexible spending account (FSA) at work for medical and/or childcare expenses.
If you already know that you will have ongoing expenses related to childcare or out of pocket health care expenses, why not receive some tax breaks for these types of expenses? Healthcare flexible spending account limits increased to $2,700 in 2019. The contribution increase is also applicable to limited-purpose FSAs that are restricted to dental and vision care services and can be used along with health savings accounts (HSAs). In either case, don’t overfund it since it’s “use it or lose it.” (If you have extra funds at the end of the year, you may want to stock up on things like prescription drugs or contact lenses.)
The Dependent Care FSA (DCFSA for short) is another tax saving account where you choose to automatically have money deducted from each of your paychecks BEFORE TAX is taken out, which you can then use to pay for child care expenses that year. The IRS allows you to set aside up to $5,000 each year, regardless of how many kids you have. Just be aware that this is a family, not individual, limit and that it’s also “use it or lose it.”

Create a personal spending plan to create bigger tax savings.
Your personal spending plan (a.k.a. “the budget”) plays an important role in your income tax planning. (Yeah, I get it. You’re probably getting tired of hearing the “you need a budget” message, but the awareness of your current and future spending plans will allow you to identify the resources you dedicate to these tax saving strategies.)
Coming up with a list of potential ways to save money on taxes is easy. Following through with putting those plans into action is the real challenge. That is where the personal spending plan becomes so important. By identifying exactly how much you can afford to redirect to tax advantaged accounts and purposes that will help you reach your life goals, you will be able to proactively prepare for future tax seasons with confidence.
Paying taxes isn’t always the most exciting item on our to-do lists. Taking a more proactive approach to the tax planning process can help you focus your time and energy on the things that matter the most to you and minimize the taxes you pay along this journey. (If you want to see some of these tax saving alternatives in action, you can use this Pre-Tax Savings Calculator to estimate how much these financial moves could lower your income taxes.)

15 tax deductions for the self-employed

FROM www.foxbusiness.com

As a self-employed person, you probably watched the development of the Tax Cuts and Jobs ActOpens a New Window. with some trepidation. The taxOpens a New Window. code is not often kind to the self-employed, nor are most of the changes to the code.

However, the new tax law retains most self-employment deductions and offers a few new forms of relief – even if you don't have billions of dollars parked offshore waiting to be repatriated. Consider these 15 tax deductions that can help you pump more of your proceeds into your business instead of the public coffers.

Self-employment tax deduction 

Unfortunately, in the eyes of the IRSOpens a New Window., you are both an employer and an employee. Thus, you are responsible for both the employer and employee tax contributions to MedicareOpens a New Window. and Social SecurityOpens a New Window.. Fortunately, 50 percent of your employment tax payment (effectively your "employer" contribution) is tax deductible.

Qualified business income (QBI) deduction

To level the playing field of corporate tax breaks, self-employed taxpayers now have a new deduction that assists small businessesOpens a New Window. with pass-through income (where individual tax rates apply). Sole proprietorships, partnerships, or S corporations may deduct up to 20 percent of QBI – although limitations can apply and some term definitions in the code are unclear.

This deduction took effect from January 1, 2018, so you will be able to claim it for the first time on your return you file this spring for the 2018 tax year.

Home office deduction

You can still deduct a home office as long as it is your principal place of business, used on a regular basis, and used for nothing other than business. IRS Publication 587, "Business Use of Your HomeOpens a New Window." gives details on eligibility and how to calculate your deduction.

Retirement 

If you use a 401(k), a simplified employee pension (SEP), or some other suitable qualified retirement plan, you can deduct your contributions to that plan. Not only will you score valuable tax deductions, you will also save responsibly for retirement by growing a tax-deferred nest egg.

The IRS provides details on calculating contributions and deductionsOpens a New Window. based on your choice of plan.

Office supplies

As long as office supplies (non-capital expenses) are purchased and used only for your business, they may be considered as standard business expenses and deducted.

Depreciation

Capital expenses (that have a lifespan greater than one year) may also be deducted through depreciation if they are used to generate income for your business. Depreciation may apply to equipment used for both home and business. For details, see IRS Publication 946, "How to Depreciate PropertyOpens a New Window.".

The new tax law raised the depreciation limit to $1 million and the depreciation rate from 50 percent to 100 percent on equipment bought and placed into service after September 27, 2017.

Educational expenses

Do you attend seminars related to your business? Do you take continuing education classes or maintain subscriptions and dues in relevant professional societies? If these expenses relate to your profession, they may be deducted.

Health insurance

Health insurance is frequently challenging for the self-employed. You may be able to reduce the burden by deducting premiums for you and your family if you meet the criteria outlined in IRS Publication 535, "Business Expenses."

Note: The new tax law eliminates the penalty for not having health insurance (aka the "ObamaCare mandate") from 2019 onwards – but health insurance was still required for tax year 2018, for which you are filing a return this season. Although there is no penalty going forward, we don't recommend forgoing health-care insurance as a cost-savings exercise.

Communication expenses

Expenses such as Internet and data services may be deducted in whatever proportion relates to your business. Basic local telephone services are not deductible for the first phone line in your home, even if you have a home office. Long-distance business calls on that line are deductible, as are the costs of a separate line used exclusively for business.

Other travel expenses

Some business travel expenses may be 100 percent deductible if they occur away from your tax home and are considered "ordinary and necessary". The new tax law has eliminated certain entertainment expenses, but the 50 percent deduction on food and beverage expenses still applies.

Promotional expenses 

Business-related advertising costs from full media promotions all the way down to simple business cards are deductible. Promotional gifts may be deductible as long as they are branded to your business.

Bank fees

If you are careful to separate your business bank account from your personal accounts and maintain a clear line between transactions, you may be able to deduct some bank fees related to your business account.

Business-related interest charges

Similarly to bank fees, interest on credit card balances and loans that are strictly related to your business may be deducted. Be sure to keep excellent and thorough records to prove the distinction. The new tax law creates limitations on interest deductions for larger businesses (gross receipts greater than $25 million), but, as a small business, your interest deductions should be unaffected.

Mileage

Do you use your car for business purposes? You can either take a standard mileage deduction (54.5 cents per business-related mile for tax year 2018 and 58 cents per mile for 2019) or take a deduction based on actual costs such as fuel, maintenance, licensing and depreciation.

Some public transportation expenses may also be deducted. Be sure to keep the personal and business-related mileage expenses separate, retain all necessary receipts, and keep good records as proof of business use. (See the pattern here?)

Contract labor costs

You may employ other independent contractors on a contract basis to provide services – for example, contracting with a web developer to create your website. Those expenses are generally deductible. You may also deduct the cost of tax preparation services used for the business-related part of your return.

Many ramifications of the Tax Cuts and Jobs Act only took effect in tax year 2018 for the first time. When setting up your tax plan and estimated payments, we suggest consulting with a qualified financial professional who is up-to-date on all of the law's implications. The goal of tax simplicity and postcard-sized tax returns is still far away for most of us – and, frankly, that day will probably never arrive for the self-employed.

Do you need to file a tax return this year?

  Whether or not you are required to file a federal income tax return this year actually depends on several factors: how much you earned last year (in 2018); the source of that income; your age; and your filing status.

Here’s a rundown of this tax season’s IRS tax filing requirement thresholds. For most people, this is pretty straightforward. If your 2018 gross income — which includes all taxable income, not counting your Social Security benefits, unless you are married and filing separately — was below the threshold for your filing status and age, you may not have to file. But if it’s over, you will.

• Single: $12,000 ($13,600 if you’re 65 or older by Jan. 1, 2019).

• Married filing jointly: $24,000 ($25,300 if you or your spouse is 65 or older; or $26,600 if you’re both over 65).

• Married filing separately: $5 at any age.

• Head of household: $18,000 ($19,600 if age 65 or older).

• Qualifying widow(er) with dependent child: $24,000 ($25,300 if age 65 or older).

To get a detailed breakdown on federal filing requirements, along with information on taxable and nontaxable income, call the IRS at 800-829-3676 and ask them to mail you a free copy of the “Tax Guide for Seniors” (publication 554) or see IRS.gov/pub/irs-pdf/p554.pdf.

There are, however, some other financial situations that can require you to file a tax return, even if your gross income falls below the IRS filing requirements. For example, if you earned more than $400 from self-employment in 2018, owe any special taxes like an alternative minimum tax, or get premium tax credits because you, your spouse or a dependent is enrolled in a Health Insurance Marketplace (Obamacare) plan, you’ll need to file.

You’ll also need to file if you’re receiving Social Security benefits, and one-half of your benefits plus your other gross income and any tax-exempt interest exceeds $25,000, or $32,000 if you’re married and filing jointly.

To figure all this out, the IRS offers an interactive tax assistant tool on their website that asks a series of questions that will help you determine if you’re required to file, or if you should file because you’re due a refund.

It takes less than 15 minutes to complete.

You can access this tool at IRS.gov/filing – click on “Do I Need to File?” Or, you can get assistance over the phone by calling the IRS helpline at 800-829-1040. You can also get face-to-face help at a Taxpayer Assistance Center. See IRS.gov/localcontacts or call 800-829-1040 to locate a center near you.

Check your state

Even if you’re not required to file a federal tax return this year, don’t assume that you’re also excused from filing state income taxes.

The rules for your state might be very different. Check with your state tax agency before concluding that you’re entirely in the clear. For links to state tax agencies see Taxadmin.org/state-tax-agencies.

How the Wealthy Avoid Paying Taxes

FROM globegazette.com

It is rumored that some of the wealthiest Americans manage to pay less in taxes than some of their employees. They achieve this by one of two methods: doing their own financial and tax planning or paying someone to do it for them. Simple, isn't it?

The point is that the rich are able to avoid taxes through legal processes. Some mega-rich may use sketchy methods to avoid taxes, and everyone's definition of sketchy is different. However, most of the mega-rich use superior understanding of the tax laws to take advantage of all of the legal methods available to reduce their taxes. Here are just a few of those methods.

• Capital Gains Management – Assets that are considered long-term capital gains (held for more than a year) are taxed at a 15% rate, or for the wealthiest Americans, a 20% rate that was introduced last year. Short-term capital gains are taxed at the ordinary income tax rate. The Tax Cuts and Jobs Act of 2017 (TCJA) lowered the top tax bracket to 37% for tax year 2018. Still, long-term gains enjoy significant tax savings.
  
  Any monetary stream that can be classified as a capital gain will be classified that way in order to take advantage of the rates. Gains will be timed to bring the greatest tax advantage.
  
  Losing ventures that result in capital losses can be used to offset capital gains. Tax-loss harvesting, or the strategy of selling off poorly performing investments at strategic times and using the losses to offset capital gains, optimizes the positive tax effects.


• Income Modification – The mega-rich are adept at keeping their taxable income and applicable tax rates as low as possible.
  
  By incorporating and paying themselves a reasonable, smaller salary, the mega-rich can take a higher portion of their income as dividends. Dividend income is generally taxed at the same 15% to 20% capital gains rate. Another tactic is to take a portion of compensation as stock options, which are generally taxed only when the options are exercised.
  
  Once you reach the mega-rich status, it is possible to take a significant portion of your income in dividends and receive a much smaller portion in traditional income taxed at normal rates. In a new wrinkle, the TCJA allows certain qualifying pass-through entities (where profits are "passed through" directly to the owners) such as limited liability companies, S-corporations and partnerships to be eligible for a 20 percent deduction of pass-through income. If you have qualified income, you can take this deduction for the first time on your 2018 tax return this season.
• Tax Deferral – The mega-rich enjoy the same tax-deferred benefits of retirement programs such as IRAs and 401(k)s as you do. Because of their wealth, they are in the position to max them out annually and take full advantage of the limits allowed by law.
  
  There are other methods of tax deferral, such as with the stock option path listed above or deferred compensation plans that allow earnings to grow tax-free.


• Borrowing Tactics – Strategic borrowing methods can actually earn money. Because of the leverage the mega-rich hold, they are able to borrow money in ways that can literally make money for them when they spot an opportunity.
  
  One example is to purchase stock options at a fixed rate, then use those options as collateral to borrow money, which is used to make money off other opportunities. The loan is then paid off with those proceeds or by handing over the shares, thus avoiding capital gains.


• Taxes Upon Death – The TCJA helps the wealthy avoid estate taxes by doubling the tax-exempt portion of an estate from under $5.6 million per individual or $11.2 million per married couple, to $11.18 million per individual or $22.36 million per married couple for tax year 2018, and $11.4 million per single filer or $22.8 million per married couple for tax year 2019. For those who have even more assets, estate taxes can be dealt with by establishing an irrevocable trust where certain assets are no longer owned by the taxpayer. The trusts provide income while shielding the assets from taxes, and upon death, heirs will inherit the assets tax-free.
  
  The "step-up" in basis is another method where capital gains taxes are avoided upon inheritance. The step-up refers to the value, or basis, of an asset. Consider a home you purchase for $200,000 that is worth $500,000 twenty years later upon your death. The $300,000 in extra value is not subject to capital gains because the basis is "stepped-up" or raised to its current market value for your heirs.
  
  Otherwise, heirs would be stuck with a massive tax bill just to inherit the home, and those at lower incomes might not be able to keep the home. However, for the mega-rich, the step-up just becomes another nice tax break (albeit one that requires another's death).

Perhaps someday you will be among the mega-rich and incorporate these and other tax-limiting methods in your financial strategy. If so, all we ask is that you keep the methods legal — and please do not forget about us if our advice helped you gain your mega-rich status.

Understand your W-2 this tax season

FROM http://www.lillienews.com

Let’s get this out of the way: Taxes are complicated.

Just as you might get used to one set of rules or processes, even the smallest of changes can affect how you proceed in the coming year — that is, of course, if you planned at all.

With the Tax Cuts and Jobs Act of 2017 (TCJA), the current filing year is a challenge for taxpayers and certified public accountants alike. There are many new changes. Chief among them? What must be included as taxable income on the W-2 Form, which is a year-end tax statement from your employer stating where your income and related taxes were allocated throughout the year.

It’s imperative to review your W-2 for accuracy because it impacts your annual taxes and potentially your future Social Security earnings. For many, this is where your tax-filing season begins.

What to check on your W-2

1. Verify that your name, address and Social Security number are correct. This will affect your tax history and, subsequently, Social Security payments upon retirement. Talk to your employer if any of this information is incorrect.

2. Review the income numbers on the form. You will notice that there are three income amounts reported:

• Box 1. The amount that is reported in this box is the amount that is reported as your W-2 income on your Form 1040, which tells the IRS about your taxes. Box 1 is your income including fringe benefits, such as group term life insurance, parking, etc. Box 1 does not include any pretax benefits, such as employer-sponsored retirement plan contributions (such as 401(k) or 403(b) plans), flexible spending account contributions you made, dependent care flexible spending account contributions, and health insurance premiums.

Unlike Box 1, the next income boxes include all your pretax benefits. Here is what to expect in these boxes:

• Box 3. This is your Social Security earnings, less pretax deductions permitted as opposed to the items in Box 1. Social Security wages are usually higher than your taxable wages. The Social Security wages include pretax benefits such as your 401(k) deferrals.

• For most taxpayers, the difference between Box 1 and Box 3 is your retirement plan contributions paid into your employer’s plan (Box 12, Code D). However, to further complicate matters, this income is capped at $128,400 as of 2018, so the figure shown in Box 3 should be no more than $128,400. The related tax is 6.2 percent, meaning the amount in Box 4 should be no more than $7,960.80. (This is a tax that your employer has been paying for you throughout the year with each paycheck.)

• Box 5. This is your Medicare earnings. It is calculated the same as Social Security items, except it does not have a cap on income; it is a flat tax of 1.45 percent. Accordingly, Box 5 multiplied by 1.45 percent gives you the amount reported in Box 6. However, if you earn more than $200,000, there is an extra .90 percent tax withheld. This is a tax that your employer has been paying for you throughout the year with each paycheck.

• Box 16. This is your state income, which is typically the same as the amount in Box 1. These amounts can be different if you had newly taxed fringe benefits in 2018, like parking, bicycle benefits and certain employee prizes, that may not be taxed in your state, or if you worked in more than one state during the year.

3. Confirm your eligibility to participate (or not) in your employer’s retirement plan.

• If you can participate, verify the amount reported on Box 12, Code D by comparing it to the amounts you withheld from your checks for your retirement plan and the amounts noted as participant contributions on your retirement plan statement.

• If you are not eligible to participate in a retirement plan, make sure that Box 13 for retirement plan is not marked. If this box is marked, it will impact your ability to make certain IRA contributions for the tax year.

4. Review your last paycheck stub for the year from your employer.

• The amount noted as federal withholding on your pay stub should be the same as your W-2’s Box 2.

• The amount noted as state withholding on your pay stub should equal the amount in your W-2’s Box 17. If you worked in more than one state, each state should be listed with related income and tax withheld.

Isn’t a W-4 a thing, too?

A W-4 form is the document you give your employer to determine the amount of tax to withhold on your behalf and send to the government. Tax planning aids in figuring out the best withholding number for your situation because it’s based on a variety of factors, including your income level, frequency of payments and the number of exemptions noted (based on filing status).

The withholding tables changed in 2018, meaning you may experience an unexpected outcome on your tax return this year if you didn’t check your withholding. In fact, you should periodically review this form and update it as your financial situation changes. The IRS has a withholding calculator available online that walks you through a series of questions to assist you in deciding the number of allowances you should claim so you have the proper amount of taxes withheld.

Check in with a certified public accountant

CPAs are a great resource. They can help you plan throughout the year so there are few surprises when it comes to filing a return, especially as it relates to properly withholding the federal income tax on your paycheck, reviewing your W-2 and helping you file your tax return.