Not sure whether it’s worth your while to hire a tax professional to do your taxes? Thinking that maybe this year you’ll take a run at it yourself? You may want to think again after taking a look at a new graphic released by the Taxpayer Advocate Service (TAS). The organization, which is dedicated to helping taxpayers resolve tax problems, Puts out a map every year that’s designed to help us all understand the workings of the tax system. One quick look should tell you that if you’re feeling confused or overwhelmed, it’s not you — it’s them. To truly understand just how complicated America’s tax system is, take a look at the newest TAS chart: (click here for full view) Your next move after looking at this may be to go to Google and type “Why are taxes so complicated in the US?” Know what you would get for an answer? 35 million different options for pages and websites looking to give you an explanation. Reviewing the top results will make it clear that even though we were promised taxes so simple that we could send them in on a postcard, the Tax Cuts and Jobs Act of 2017 made the situation even more complicated. Even tax professionals are still scratching their heads and trying to figure the whole thing out. Though the leader of TAS, National Taxpayer Advocate (NTA) Nina Olson’s goal is to “recommend changes that will prevent problems,” her hopes for doing that are as dashed as the average taxpayer’s when she looks at this year’s chart. "Anyone looking at this map will understand that we have an incredibly complex tax system that is almost impossible for the average taxpayer to navigate," she said. In the face of increasing complexity, what’s a taxpayer to do to make sure that their taxes are prepared properly and in a way that minimizes their tax liability? The only good answer seems to be to seek professional help.

Article Highlights: Matching Season IRS Letters Fake Letters Demand for Immediate Payment Every year, the vast majority of taxpayers file their returns with the IRS between the end of January and the April due date. However, the IRS does not just take taxpayers’ word regarding the information on their returns. For this reason, tax season is followed by “matching season,” when the IRS attempts to match the information on each taxpayer’s return with the information from the various returns that other entities (employers, financial firms, educational institutions, the insurance marketplace, etc.) have filed. The goal is to identify possible accidental oversights and intentional omissions. When the IRS finds a discrepancy, it sends the taxpayer one of many form letters to detail the discrepancy and to describe the options for dealing with the issue. Receiving such a letter inevitably causes a person’s heart rate to jump a little; everyone dreads receiving correspondence from the IRS. Is the letter real? Thieves know that this is the time of year when the IRS sends correspondence to taxpayers, so they are sending fake letters to trick people into making payments on bogus tax liabilities. As a result, taxpayers need to be very careful to avoid being hoodwinked by these scammers. The best practice is to have a tax professional review any letter that you receive before you take any action. If the letter is real, it requires a timely response, but if it is fake, it should be ignored.

You probably didn’t expect you’d have to become an accounting expert when you started your business. You knew you’d have to deal with recording income and expenses – maybe track your inventory and process a payroll. But you may not have understood just how complex financial bookkeeping could be. That’s why you decided to use QuickBooks Online, or are at least considering it. The service is an expert on accounting, and it simplifies the process. It knows exactly how you have to document transactions to stay compliant with the rules that accountants and other businesses follow. This is good practice, and it’s absolutely necessary if, for example, you ever have to apply for financing. One of the features of accounting systems you should understand is the Chart of Accounts. You won’t have to alter it in any way—in fact, we strongly advise against it—but you’ll encounter it when you work with transactions. Here are five things you should know about it. What is it? These three columns from QuickBooks Online’s Chart of Accounts display account Names, Types, and Detail Types. QuickBooks Online’s Chart of Accounts is a list of financial categories that are used to classify your company’s transactions when you record them. If you were doing your accounting manually, you would have to create your own Chart of Accounts. But QuickBooks Online builds one for you based on the company type and industry you choose when you’re setting up the site. Why is the Chart of Accounts important? Some people refer to the Chart of Accounts as the “backbone” of your company file. All transactions flow to it. Its primary importance can be summed up in one word: reports. Your reports will not be accurate if your Chart of Accounts is poorly constructed or if you categorize transactions incorrectly. This becomes as issue when you want to: Prepare taxes. Your income tax return will not reflect your reportable income and deductible expenses if transactions are not assigned to the right classifications. Apply for financing, take on an investor, sell your company, etc. Monitor your finances. You won’t get a true picture of your income and expenses, which makes it difficult to analyze your company’s fiscal health and plan for the future. What’s in the Chart of Accounts? There are two types of accounts. One contains information that’s used in the

Article Highlights: Tax Reform Underpayment Penalties W-4 Modifications for 2020 Withholding Estimator Penalty Abatement Was your 2018 federal tax refund less than normal, or – worse yet – did you actually owe tax despite usually getting a refund? If so, this was primarily due to the last-minute passage of the Tax Cuts and Jobs Act at the end of 2017. Because the law was only passed late in the year, the IRS did not have adequate time to adjust its W-4 form and the related computation tables to account for all of the changes in the law. Thus, even if your taxes were lower for the year, the lack of adjustments to the W-4 and payroll-withholding tables meant that you likely had lower withholding and higher take-home pay for 2018. The bottom line is that, because your withholding was lower than it should have been, either your refund was lower than normal or you actually ended up owing money instead of getting a refund. This situation surprised many taxpayers, some of whom faced financial hardships because they depended on their federal refunds to cover other expenses, such as home property taxes. Throughout 2018, the IRS issued nearly weekly warnings that the W-4 form and its corresponding withholding tables did not properly account for the tax reform’s changes, which caused the 2018 withholding amounts to be, in many cases, inappropriate. The problem was so widespread that Congress asked the IRS to waive underpayment penalties for taxpayers who ended up with a balance due but who had prepaid at least 80% of their 2018 tax liabilities. (Normally, taxpayers need to prepay 90% of their tax liabilities to avoid this penalty.) Unfortunately, this problem will not be solved in time for the 2019 returns. Despite the problems in 2018, the IRS is waiting until 2020 to implement a new W-4 and to revise the accompanying computations so as to accommodate the tax reform’s changes. As a result, the problem of insufficient withholding will persist for many taxpayers in 2019. We are now over halfway through 2019, so it may be a good time to double-check your withholding and projected tax amounts in order to prevent another unpleasant surprise at tax time. If you are conversant with tax terminology, you can use the IRS’s newly updated

Article Highlights: IRS Focus About Cryptocurrency Tax Treatment IRS Compliance Program Letters Being Sent If you own cryptocurrency, you need to know that the IRS has owners of cryptocurrency in its sights because many cryptocurrency owners are not reporting or paying taxes on their cryptocurrency transactions. In fact, the IRS is so focused on this issue that it recently issued warning letters to over 10,000 taxpayers it suspects might have an under-reporting problem. About Cryptocurrency – If you are unfamiliar with the term cryptocurrency, the short definition is a form of digital money that is not controlled by any central authority. The first cryptocurrency created was Bitcoin, back in 2009. Since then, over 4,000 other cryptocurrencies have been created. Cryptocurrency can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, euros, and other real or virtual currencies. Tax Treatment – One of the big issues of cryptocurrency is how it is treated for tax purposes. The IRS says that it is property, so that every time it is traded, sold or used as money in a transaction, it is treated much the same way as a stock transaction would be, meaning the gain or loss over the amount of its original purchase cost must be determined and reported on the owner’s income tax return. That treatment applies for each transaction every time it is sold or used as money in a transaction. Example A: Taxpayer buys Bitcoin (BTC) so he can make online purchases without the need for a credit card. He buys one BTC for $2,425 and later uses it to buy goods worth $500 (let’s say BTC was trading at $2,500 at the time he made his purchase). He has a $75 ($2,500 – $2,425) reportable capital gain. This is the same result that would have occurred if he had sold the BTC at the time of the purchase and used cash to purchase the goods. This example points to the complicated record-keeping requirement for tracking BTC’s basis. Since this transaction was personal in nature, no loss would be allowed if the value of BTC had been less than $2,425 at the time the goods were purchased. Of course, if the taxpayer in this example only sold a fraction of a Bitcoin – enough to cover the $500 purchase – the gain would only be $15: $500/$2500 = .2 x 2425 = 485; 500 – 485 = 15 On the bright side, for most, cryptocurrency is generally treated as a capital asset, so any gain is a capital gain, and if the gain is held for more than year and a day, any gain will be taxed at the more favorable long-term capital gains rates. If the cryptocurrency is being held as an investment and the sale results in a loss, then the loss may be deductible. Capital losses first offset capital gains during the year, and if a loss remains, taxpayers are allowed a $3,000-per-year loss deduction against other income, with a carryover to the succeeding year(s) if the net loss exceeds $3,000. When cryptocurrency is used as payment to an employee, the usual payroll withholding and reporting still apply, and if used to make payments to an independent contractor, 1099 form reporting is still required. If the individual receiving payment in cryptocurrency is subject to backup withholding, the payer is required to withhold the required amount. In all reporting and withholding instances, the amounts must be in U.S. dollars.

Article Highlights: Purchase Costs Points Mortgage Payments Property Taxes Inflation Gain Exclusion Renting Versus Owning Housing is a big expense for everyone. The choice generally involves either renting or purchasing – and financing that purchase with a home loan. This article explores the tax benefits and drawbacks that individuals should consider when deciding whether to buy a home. Purchase Costs – Purchasing a home includes costs related to escrow, title insurance, and other fees. None of these costs are deductible at the time of the purchase, but all of them add to the home’s cost (its “basis” in tax lingo) and are deductible when the home is sold. Purchase costs can also include loan points and property-tax adjustments, but these are not part of the home’s basis because they may be deductible at the time of the purchase. Points – Points are essentially prepaid interest. Under normal circumstances, points must be amortized (ratably deducted) over the life of a loan. However, per a special tax rule, points that are paid in the purchase of a home to be deducted in the year of the home’s purchase (provided that the homebuyer uses itemized deductions). However, this rules does not apply to points on VA and FHA loans, as those points are considered fees and are not deductible at the time of purchase. Property Taxes – The property-tax payments for an escrow can result in either a credit or a debit, depending upon whether the seller has prepaid the property taxes and on the amount of the buyer’s prorated tax share (which is based upon the period of ownership). In some cases, the buyer is required to prepay the taxes for a bill that comes due shortly after the purchase. Mortgage Payments – Mortgage payments include both principal and interest. The principal payments pay down the mortgage balance and are not deductible. However, the interest paid on the loan is deductible for taxpayers who itemize their deductions. Almost all of the loan payments for recently purchased homes consist of deductible interest. There is a limit to the amount of deductible interest, however; it is based on the amount of the loan and on when the loan took effect. If a loan is for $750,000 or less and the owner has no other home loans, then all of the interest is deductible. This may not be the case if a home loan exceeds $750,000 or if the owner has more than one home loan, however. If you have any questions, please contact this office for details. Property Taxes – Property taxes can represent a sizable portion of housing expenses, particularly in states with no income tax. Lenders may require an impound or escrow account; the payments for such an account combine prorated property taxes and homeowner’s insurance costs with monthly mortgage payments. The goal is to prevent substantial lump-sum tax and insurance payments by defraying the costs throughout the year. However, keep in mind that recent tax reforms include a $10,000 annual limit on itemized deductions for costs related to local property taxes and state property, income, and sales taxes.