Learning Center for Tax and Financial Insights

If you trade cryptocurrencies like Bitcoin you are required to report the transactions for tax purposes. The IRS wants its cut and you may not know it. Call our office for assistance. Learn more in the video below.

Continuing Education:Educational expenses are deductible under either of two conditions: (1) your employer requires the education in order for you to keep your job or rate of pay; or (2) the education maintains or improves your skills in the entertainment profession. The costs of courses that are taken to meet the minimum requirements of a job, or that qualify you for a new trade or business, are NOT deductible. Promotion Expenses and Supplies:Generally, to be deductible, items must be ordinary and necessary to your profession as an entertainer. Record separately items having a useful life of more than one year. These items must be reported differently on your tax return than other recurring, everyday business expenses. If you incur expenses while looking for a job in your entertainment field, they may be deductible. You do not actually have to obtain a new job in order to deduct the expenses. Out-of-town job-seeking expenses are deductible only if the main purpose of the trip is to job search, not pursue personal activities. Telephone Expenses: The basic local telephone service costs of the first telephone line provided in your home are not deductible. However, toll calls from that line are deductible if the calls are business-related. The costs (basic fee and toll calls) of a second line in your home are also deductible if the line is used exclusively for business. When communication equipment, such as a cell phone, is used part for business and part personally the cost of the equipment must be allocated to deductible business use and non-deductible personal use. Keep your bills for cellular phone use and mark all business calls. Auto Travel: Your auto expenses are based on the number of qualified business miles you drive. Expenses for travel between business locations are deductible; include them as business miles. Expenses for your trips between home and a permanent work location, or between one or more regular places of work, are COMMUTING expenses and are NOT deductible. Document business miles in a record book by the following: (1) give the date and business purpose of each trip; (2) note the place to which you traveled; (3) record the number of business miles; and (4) record your car’s odometer reading at both the beginning and end of the year. Keep receipts for all car operating expenses – gas, oil, repairs, insurance, etc. – and of any reimbursement you received for your expenses.

Article Highlights Filing status Adjusted gross income (AGI) Taxable income Marginal tax rate Alternative minimum tax (AMT) Tax Credits Underpayment of estimated tax penalty When discussing taxes, reading tax related articles or instructions one needs to understand the lingo and acronyms used by tax professionals and authors to be able to grasp what they are saying. It can be difficult to understand tax strategies if you are not familiar with the basic terminologies used in taxation. The following provides you with the basic details associated with the most frequently encountered tax terms. Filing Status - Generally, if you are married at the end of the tax year, you have three possible filing status options: married filing jointly, married filing separately, or, if you qualify, head of household. If you were unmarried at the end of the year, you would file as single, unless you qualify for the more beneficial head of household status. A special status applies for some widows and widowers. Head of household is the most complicated filing status to qualify for and is frequently overlooked as well as incorrectly claimed. Generally, the taxpayer must be unmarried AND: o pay more than one half of the cost of maintaining his or her home, a household that was the principal place of abode for more than one half of the year of a qualifying child or certain dependent relatives, or o pay more than half the cost of maintaining a separate household that was the main home for a dependent parent for the entire year. A married taxpayer may be considered unmarried for the purpose of qualifying for head of household status if the spouses were separated for at least the last six months of the year, provided the taxpayer maintained a home for a dependent child for over half the year. Surviving spouse (also referred to as qualifying widow or widower) is a rarely used status for a taxpayer whose spouse died in one of the prior two years and who has a dependent child at home. Joint rates are used. In the year the spouse passed away, the surviving spouse may file jointly with the deceased spouse if not remarried by the end of the year. In rare circumstances, for the year of a spouse’s death, the executor of the decedent’s estate may determine that it is better to use the married separate status on the decedent’s final return, which would then also require the surviving spouse to use the married separate status for that year. Adjusted Gross Income (AGI) - AGI is the acronym for adjusted gross income. AGI is generally the sum of a taxpayer’s income less specific subtractions called adjustments (but before the standard or itemized deductions). The most common adjustments are penalties paid for early withdrawal from a savings account, and deductions for contributing to a traditional IRA or self-employment retirement plan. Many tax benefits and allowances, such as credits, certain adjustments, and some deductions are limited by a taxpayer’s AGI. Modified AGI (MAGI) - Modified AGI is AGI (described above) adjusted (generally up) by tax-exempt and tax-excludable income. MAGI is a significant term when income thresholds apply to limit various deductions, adjustments, and credits. The definition of MAGI will vary depending on the item that is being limited. Taxable Income - Taxable income is AGI less deductions (either standard or itemized). Your taxable income is what your regular tax is based upon using a tax rate schedule specific to your filing status. The IRS publishes tax tables that are based on the tax rate schedules and that simplify the tax calculation, but the tables can only be used to look up the tax on taxable income up to $99,999. Marginal Tax Rate (Tax Bracket) - Not all of your income is taxed at the same rate. The amount equal to your standard or itemized deductions is not taxed at all. The next increment is taxed at 10%, then 12%, 22%, etc., until you reach the maximum tax rate, which is currently 37%. When you hear people discussing tax brackets, they are referring to the marginal tax rate. Knowing your marginal rate is important because any increase or decrease in your taxable income will affect your tax at the marginal rate. For example, suppose your marginal rate is 24% and you are able to reduce your income $1,000 by contributing to a deductible retirement plan. You would save $240 in federal tax ($1,000 x 24%). Your marginal tax bracket depends upon your filing status and taxable income. You can find your marginal tax rate using the table below. Keep in mind when using this table that the marginal rates are step functions and that the taxable incomes shown in the filing-status column are the top value for that marginal rate range. 2018 Marginal Tax RatesTaxable Income by Filing Status Marginal Tax Rate Single Head of Household Joint* Married Filed Separately 10% 9,525 13,600 19,050 9,525 12% 38,700 51,800 77,400 38,700 22% 82,500 82,500 165,000 82,500 24% 157,500 157,500 315,000 157,500 32% 200,000 200,000 400,000 200,000 35% 500,000 500,000 600,000 500,000 37% Over 500,000 Over 500,000 Over 600,000 Over 500,000 * Also used by taxpayers filing as surviving spouse Taxpayer & Dependent Exemptions - Prior to the changes made by tax reform you were allowed to claim a personal exemption for yourself, your spouse (if filing jointly), and each individual who qualifies as your dependent. The deductible exemption amount was adjusted for inflation annually; the amount for 2018 was supposed to be $4,150. However, the tax reform that became law in late 2017 didn’t quite repeal the exemption deduction – it just suspended the deduction for exemptions for 2018 through 2025. Dependents - To qualify as a dependent, an individual must be the taxpayer’s qualified child or pass all five dependency qualifications: the (1) member of the household or relationship test, (2) gross income test, (3) joint return test, (4) citizenship or residency test, and (5) support test. The gross income test limits the amount a dependent can make if he or she is over 18 and does not qualify for an exception for certain full-time students. The support test generally requires that you pay over half of the dependent’s support, although there are special rules for divorced parents and situations where several individuals together provide over half of the support. Qualified Child - A qualified child is one who meets the following tests: (1) Has the same principal place of abode as the taxpayer for more than half of the tax year except for temporary absences; (2) Is the taxpayer’s son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendant of any such individual; (3) Is younger than the taxpayer; (4) Did not provide over half of his or her own support for the tax year; (5) Is under age 19, or under age 24 in the case of a full-time student, or is permanently and totally disabled (at any age); and (6) Was unmarried (or if married, either did not file a joint return or filed jointly only as a claim for refund). Deductions - A taxpayer generally can choose to itemize deductions or use the standard deduction. The standard deductions, which are adjusted for inflation annually, are illustrated below for 2018. Filing Status Standard Deduction Single $12,000 Head of Household $18,000 Married Filing Jointly $24,000 Married Filing Separately $12,000 The standard deduction is increased by multiples of $1,600 for unmarried taxpayers who are over age 64 and/or blind. For married taxpayers, the additional amount is $1,300. The extra standard deduction amount is not allowed for elderly or blind dependents. Those with large deductible expenses can itemize their deductions in lieu of claiming the standard deduction. The standard deduction of a dependent filing his or her own return will oftentimes be less than the single amount shown above. Itemized deductions generally include: (1) Medical expenses, limited to those that exceed 7.5% of your AGI for 2018. The reduction percentage will increase to 10% after 2018. (2) Taxes consisting primarily of real property taxes, state income (or sales) tax, and personal property taxes, but limited to a total of $10,000 for the year. (3) Interest on qualified home acquisition debt and investments; the latter is limited to net investment income (i.e., the deductible interest cannot exceed your investment income after deducting investment expenses). (4) Charitable contributions, generally limited to 60% of your AGI, but in certain circumstances the limit can be as little as 20% or 30% of AGI. (5) Gambling losses to the extent of gambling income, and certain other rarely encountered deductions. Alternative Minimum Tax (AMT) - The Alternative Minimum Tax is another way of being taxed that has often taken taxpayers by surprise, even though prior to the 2017 tax reform legislation an ever-increasing number of taxpayers were being hit with AMT. The Alternative Minimum Tax (AMT) is a tax that was originally intended to ensure that wealthier taxpayers with large write-offs and tax-sheltered investments pay at least a minimum tax. However, even taxpayers whose only “tax shelter” is having a large number of dependents or paying high state income or property taxes were being affected by the AMT. Your tax must be computed by the regular method and also by the alternative method. The tax that is higher must be paid. The following are some of the more frequently encountered factors and differences that contribute to making the AMT greater than the regular tax. o The standard deduction is not allowed for the AMT, and a person subject to the AMT cannot itemize for AMT purposes unless he or she also itemizes for regular tax purposes. Therefore, it is important to make every effort to itemize if subject to the AMT. o Itemized deductions:

As of 2014, the Affordable Care Act imposed the new requirement that all people in the United States, with certain exceptions, have minimum essential health care insurance or they will be subject to a penalty. How this affects your family will depend upon a number of issues. Penalty ends after 2018. Already InsuredIf you have insurance through Medicare, Medicaid, or the Veterans Administration, then you will not be subject to the pre-2019 penalty. You will also avoid the penalty if you are insured through an employer plan or a private insurance plan that provides minimum essential care. US individuals and those claimed as their dependents who reside outside the US are deemed to have adequate coverage and are not subject to the penalty. Some are Exempt from the PenaltyCertain individuals are exempt from the health insurance mandate and are therefore not subject to the pre-2019 penalty. Included are: Those unlawfully present in the US Those whose income is below the federal tax filing requirement (the sum of the standard deduction and exemption amounts for the filer and spouse, if any) Those who cannot afford coverage based on formulas contained in the law – generally when the cost of the insurance coverage exceeds 8.05% (the rate for 2018, the last year the penalty applies). Members of American Indian tribes Incarcerated individuals, certain religious objectors, and those meeting hardship requirements Household IncomeThe term “household income” is used as a measure of who qualifies for a premium assistance subsidy or tax credit and is used extensively in calculations related to the mandatory insurance requirements. Household income includes the modified adjusted gross incomes (MAGIs) of an individual, the individual’s joint filing spouse, if any, and all of the individual’s dependents that are required to file a tax return (1). MAGI is an individual’s regular adjusted gross income plus non-taxable social security and railroad retirement benefits, excluded foreign earned income, and non-taxable interest and dividends. (1) An individual is required to file a tax return if their income exceeds the sum of their standard deduction and for years other than 2018 through 2025, allowable exemptions. Thus, for example, a single person who only made $1,000 for the year would not be required to file a return and their income would not be included in the household income even if they did file to claim a refund. Can't Afford Coverage?Families with household incomes below 400% of the federal poverty guideline may receive help to pay all, or a portion of, the cost of the premiums for health insurance. Where the household income is below 100% (133% in some states) of the federal poverty level, the family qualifies for Medicaid. There are no premiums for Medicaid. If the household income is between 100% and 400% of the federal poverty level (FPL), the family qualifies for an insurance premium subsidy, also known as a premium tax credit, provided the insurance is purchased through a government marketplace (exchange). The actual credit is based upon the current year’s household income but can be estimated and allowed in advance as a subsidy. When it is used in advance as a subsidy and the subsidy turns out to be greater than the allowable credit, the excess subsidy may have to be paid back. On the other hand, if the subsidy was not used or the subsidy was less than the credit, the difference becomes a refundable credit on the tax return. The maximum credit is available at 100% of the poverty level and becomes less as the percentage increases and is totally phased out at 400% of the poverty level. In actual practice, the taxpayer’s percent of the federal poverty level is determined by dividing the 100% of federal poverty level income into the taxpayer’s household income and multiplying by 100. The chart above is for the continental U.S. For Alaska use $15,060 for the first family member and $5,230 for each additional family member. Use $13,860 and $4,810 for Hawaii. Credit/Subsidy QualificationsTo qualify for the credit, an individual must: Have household income for the year of at least 100% but not more than 400% of the federal poverty level Purchase the insurance through a government marketplace (exchange) Not be claimed as a dependent of another Not be eligible for minimum essential care through Medicaid If married, file a joint tax return Not be offered minimum essential insurance under an employer-sponsored plan How Much Will the Subsidy Be? The amount of the subsidy is based on need and therefore those in the lowest percentage of the poverty level will receive the greatest subsidy. The government has predetermined how much each family must pay toward their own insurance in the form of a percentage of the family’s household income. To determine how much a family must pay toward their own insurance, first determine where their income falls within the poverty table above and then determine their percentage from the table below. That percentage represents the portion of their household income that they should pay toward their own insurance. > Note: the table is condensed for this brochure and the actual percentage of household income that must be paid toward one’s own insurance will need to be extrapolated for poverty levels between those shown.

Article Highlights: Reasons to Keep Records Statute of Limitations Maintaining Record of Asset Basis Even though the 2017 tax due date has come and gone, and even though you have filed your 2017 tax return, you may still need to keep your 2017 tax records. Generally, tax records are retained for two reasons: (1) in case the IRS or a state agency decides to question the information on your tax returns or (2) to keep track of the tax basis of your capital assets so that you can minimize your tax liability when you dispose of those assets. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. With certain exceptions, the statute for assessing additional taxes is three years from the return’s due date or its filling date, whichever is later. However, the statute of limitations in many states is one year longer than that of federal law. In addition, the federal assessment period is extended to six years if more than 25% of a taxpayer’s gross income is omitted from a tax return. In addition, of course, the three-year period doesn’t begin elapsing until a return has been filed. There is no statute of limitations for the filing of false or fraudulent returns to evade tax payments. If none of the above exceptions applies to you, then for federal purposes, you can probably discard most of your tax records that are more than three years old; you will want to add a year to that time period if you live in a state with a longer statute. Examples – Sue filed her 2014 tax return before the due date of April 15, 2015. She will be able to safely dispose of most of her 2014 records after April 15, 2018. On the other hand, Don filed his 2014 return on June 2, 2015. He needs to keep his records at least until June 2, 2018. In both cases, the taxpayers should keep their records for a year or two longer if their states have statutes of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday, or holiday, the actual due date is the next business day. The problem with discarding all the records for a particular year once the statute of limitations has expired is that many taxpayers combine their normal tax records with the records that substantiate the basis of their capital assets. The basis records need to be separated and should not be discarded until after the statute has expired for the year when a given asset was disposed of. Thus, it makes more sense to keep separate records for each asset. The following are examples of records that fall into the basis category: Stock-acquisition data – If you own stock in a corporation, keep the purchase records until at least four years after the year when you sell the stock. This data is necessary for proving the amount of profit (or loss) from the sale. If your sales for a given year result in a net loss of more than $3,000, you may need to keep your purchase and sale records for an even longer period. This is because $3,000 is the maximum capital loss that can be deducted in any one year, so the excess loss must be carried over to the following year(s) until it is used up. If the IRS audits a return that includes a carryover loss, it will ask to see the records from the original purchase even if it was more than three years in the past. Thus, don’t dispose of such records until the statute of limitations has passed for the last year when you claimed a carryover loss. Stock and mutual fund statements (if you reinvest dividends) – Many taxpayers use the dividends that they receive from stocks or mutual funds to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep all such dividend statements for at least four years after the final sale. Tangible property purchase and improvement records – Keep records of home, investment, rental-property, or business-property acquisitions, of the related capital improvements, and of the final settlement statements from the sale for at least four years after the underlying property is sold.

Keeping a Good Tip Record: If you are a waiter or waitress, the IRS requires you to keep a record of your tips. The record needs to include tips you receive from: your customers in cash; other tipped employees because of a “tip-sharing” arrangement; and your customers who pay by credit card. When you receive a tip but pay part of it to someone else (for example, a bartender), you should note the name of that person in your tip record along with the amount you paid him/her. You should keep your record updated on a day-to-day basis to make sure of its accuracy. Reporting Tips to Your Employer: In order to comply with IRS rules, you need to let your employer know the total amount of tips you receive. This reporting should be done in writing within the 10-day period following the end of the month in which you receive the tips (sometimes the due date is extended a day or so if the last day of the 10-day period is on a weekend or legal holiday). Once you make the report to your employer, he/she adds the amount to your regular wages and uses the total to figure how much income tax, Social Security tax and Medicare tax to withhold from your regular paycheck. Tips Not Reported to Your Employer: