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Capital Gains Tax on Sale of Stocks

Apps like Robinhood make it easy for everyone to play the stock market. If you're a retail investor who made money last year buying and selling stocks, you may owe capital gains tax when you file your tax return this year. If you lost money, you may be able to deduct that loss and reduce your income.

Here's what you need to know about capital gains tax:

Capital Gains and Losses Defined

A capital gain or loss is the difference between your basis - the amount you paid for the asset - and the amount you receive when you sell an asset. All capital gains (or losses) must be reported on your tax return.

Losses Limited to $3,000

If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return to reduce other income, such as wages. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

Carryover of Losses Allowed

If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.

Long and Short Term Gains and Losses

Capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

Net Capital Gain

If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain. Subtract any short-term losses from the net capital gain to calculate the amount of net capital gain you must report.

Capital Gains Tax Rates

The tax rates that apply to net capital gain depend on your income, but are generally lower than tax rates that apply to other income such as wages. The maximum tax rate on a net capital gain is 20 percent; however, for most taxpayers a zero or 15 percent rate will apply. If your income is above a certain amount you may be subject to the 3.8 percent Net Investment Income Tax (NIIT) on these capital gains.

Reporting Capital Gains and Losses

Report capital gains or losses using Form 8949, Sales and Other Dispositions of Capital Assets and Schedule D (Form 1040), Capital Gains and Losses to summarize capital gains and losses.

Please contact the office if you need more information about reporting capital gains and losses.

 For More Information Visit:  http://www.sknaperville.com/taxservices.php

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Small Business Tax Roundup

Tax changes due to recent legislation such as the Tax Cuts and Jobs Act and the CARES Act affect both individual taxpayers and small businesses. In 2020, the IRS issued several guidance documents and final rules and regulations that clarified several tax provisions affecting businesses. Here are five of them:

PPP Expenses Now Deductible

 Deductions for the payments of eligible expenses are now allowed when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP). Previous IRS guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.

The COVID-related Tax Relief Act of 2020 amended the Corona virus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied and no tax attribute is reduced. Furthermore, no basis increase is denied because of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan. This change applies to taxable years ending after March 27, 2020.

Meals and Entertainment

 The Tax Cuts and Jobs Act (TCJA) eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation for tax years after 2017. While taxpayers may still deduct business expenses related to food and beverages as long as certain requirements are met, certain questions remained.

Recent IRS regulations provided clarification for several of these issues: disallowance of the deduction for expenditures related to entertainment, amusement, or recreation activities, and including the applicability of certain exceptions to this disallowance. The regulations also provide guidance to determine whether an activity is considered entertainment. The final regulations also address the limitation on the deduction of food and beverage expenses.

Like-kind Exchanges of Real Property

 The 2017 Tax Cuts and Jobs Act (TCJA) limited like-kind exchange treatment to exchanges of real property. As such, effective January 1, 2018, exchanges of personal or intangible property such as vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for any recognition of gain as like-kind exchanges.

Furthermore, like-kind exchange treatment applies only to exchanges of real property held for use in a trade or business or for investment. An exchange of real property held primarily for sale does not qualify as a like-kind exchange.

Under the IRS's final regulations, real property includes land and generally anything permanently built on or attached to land. In general, it also includes property that is characterized as real property under applicable State or local law. Certain intangible properties, such as leaseholds or easements, also qualify as real property under section 1031.

Property not eligible for like-kind exchange treatment prior to the enactment of the TCJA remains ineligible. Neither the TCJA nor the final regulations change whether the properties exchanged are of like kind.

Qualified Transportation Fringe and Commuting Expenses

 The 2017 TCJA generally disallows deductions for qualified transportation fringe (QTF) expenses and does not allow deductions for certain expenses of transportation and commuting between an employee's residence and place of employment.

Final regulations address the disallowance of the deduction for expenses related to QTFs provided to an employee of the taxpayer, including providing guidance and methodologies to determine the amount of QTF parking expenses that is nondeductible. The final regulations also address the disallowance of the deduction for expenses of transportation and commuting between an employee's residence and place of employment.

Relief for Developers of Offshore Renewable Energy Projects

 Renewable energy projects constructed offshore or on federal land are ordinarily subject to significant delays that can result in project completion times of up to twice as long as other renewable energy projects. These delays threaten taxpayers' ability to satisfy requirements to claim the production tax credit and the investment tax credit.

To address this hurdle, the Treasury Department and the IRS have determined that it is necessary to extend the safe harbor period to up to 10 calendar years after the year in which construction of the project began.

The extension of the safe harbor for these projects provides flexibility for taxpayers constructing renewable energy projects offshore or on federal land to satisfy the beginning of construction requirements despite ordinary course delays that threaten their ability to claim tax credits.

  Questions?

 For more information about small business tax updates under tax reform, the CARES Act, or the COVID-related Tax Relief Act of 2020, please call.

For More Information Visit:  http://www.sknaperville.com/taxservices.php

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Tax Breaks for Families With Children

If you have children, one or more of these tax credits and deductions could help your family reduce the amount of tax owed when you file your 2020 tax return. Let's take a look:

1. Child Tax Credit

Generally, taxpayers can claim the Child Tax Credit for each qualifying child under the age of 17. The maximum credit is $2,000 per child. Taxpayers who get less than the full amount of the credit may qualify for the Additional Child Tax Credit (see below). The refundable portion of the credit is $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).

2. Child and Dependent Care Credit

If you pay someone to take care of your dependent to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. The credit percentage is reduced for higher-income earners but not below 20 percent, regardless of the amount of adjusted gross income. This tax credit is nonrefundable.

Even if you don't have dependent children if you care for an elderly relative and can claim them as a dependent, you might be able to take the Child and Dependent Care Credit. Please call for details.

3. Earned Income Tax Credit

Taxpayers who worked but earned less than $56,844 in 2020 could qualify for this credit, which is worth up to $$6,660 in 2020. Taxpayers may qualify with or without children.

Due to the pandemic, taxpayers can use their 2019 earned income to figure your EITC, if their 2019 earned income was more than their 2020 earned income.

4. Additional Child Tax Credit

This refundable tax credit is for certain individual taxpayers for whom the Child Tax Credit exceeds the amount of income tax owed. The credit is worth $1,400 and may give you a refund even if you do not owe any tax.

Due to the pandemic, taxpayers may be able to use their 2019 earned income to figure this credit if their 2019 earned income is more than your 2020 earned income.

5. Adoption Credit.

It is possible to claim a tax credit for certain costs paid to adopt a child. For details, see Form 8839, Qualified Adoption Expenses.

6. Education Tax Credits

An education credit can help with higher education costs. Two credits are available: the American Opportunity Tax Credit and the Lifetime Learning Credit. These credits may reduce the amount of tax owed. If the credit cuts a taxpayer's tax to less than zero, it could mean a refund. Taxpayers may qualify even if they owe no tax. Complete Form 8863, Education Credits, and file a return to claim these credits.

7. Student Loan Interest

Taxpayers may be able to deduct interest paid on a qualified student loan. They can claim this benefit even if they do not itemize deductions. If you're not sure if the interest you paid on a student or educational loan is deductible, don't hesitate to call.

Questions?

If you have any questions about tax credits and deductions that could benefit your tax situation, please contact the office.

For More Information Visit:  http://www.sknaperville.com/firmprofile.php

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Renting Out a Second Home

In general, income from renting a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a "vacation home" is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS. Tax rules on rental income from second homes can be confusing, especially if you rent the home out for several months of the year and use the home yourself.

Minimal Rental Use

 However,

There is one provision that is not complicated; homeowners who rent out their property for 14 or fewer days a year can pocket the rental income tax-free. In other words, if you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation as long as it's two weeks or less. Although you can't take depreciation or deduct for maintenance, you can deduct mortgage interest, property taxes, and casualty losses on Schedule A (1040), Itemized Deductions.

Dividing Expenses Between Rental and Personal Use

 A vacation home is considered a residence if personal use exceeds 14 days or more than 10 percent of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it out to others, you must divide the expenses between rental use and personal use. You may not deduct the rental portion of the expenses that are more than the rental income.

Let's say you own a beach house (your "second home") and rent it out during the summer between mid-June and mid-September. You and your family also vacation at the house for one week in October and two weeks in December. The rest of the time, the house is unused.

The family uses the house for 21 days, and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario, 85 percent of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income listed on Schedule E. As for the remaining 15 percent of expenses, only the owner's mortgage interest and property taxes are deductible on Schedule A.

Tax Reform and Vacation Rentals

 Under tax reform, the amount of interest a homeowner can write off is limited to mortgage loan amounts of $750,000 or less for tax years 2018-2025. If you own a second home as well, the two mortgages combined could exceed the $750,000 cap. In addition, property tax deductions (combined with state income taxes) are capped at $10,000.

If you do not rent out your second home, you could be losing out on deductions (taxes and mortgage interest) that lower your taxable income. Therefore, it is prudent to consider renting out your second home as a vacation rental since you would then be able to deduct these expenses and possibly others such as Homeowners Association fees, maintenance expenses, and utilities. Furthermore, you can still use the home 14 days a year (more if you stay there for home maintenance-related activities) and deduct these expenses. Even if you use it more than 14 days a year, you can still deduct these expenses proportional to the amount of rental use.

Net Investment Tax

 If you have a rental income, you may be subject to the Net Investment Income Tax (NIIT), a 3.8 percent tax that applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.

Questions?

 Tax laws are complicated. If you have any questions about renting out your second home or any other tax matters, please call.

For More Information Visit:  http://www.sknaperville.com/firmprofile.php

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Avoiding an IRS Tax Audit

Just 0.45 percent of taxpayers were audited in fiscal year 2019. Still, with taxes becoming more complicated every year, there is an even greater possibility of confusion turning into a tax mistake and an IRS audit. Avoiding "red flags" like the ones listed below could help.

Red Flags That Trigger IRS Audits

Claiming Business Losses Year After Year

When you operate a business and file Schedule C, the IRS assumes you operate that business to make a profit. Claiming losses year after year without any profit raises a red flag with the IRS.

Failing to Report Form 1099 Income

Resist the temptation to underreport your income if you are self-employed or have a second job. The IRS receives the same 1099 forms that you do, and even if you didn’t receive a Form 1099 when you think you should have, you can't be sure the IRS didn't either. If the IRS finds a mismatch, you are sure to hear about it.

Early Withdrawals From a Retirement     Account

In general, if you withdraw money from a retirement account before age 59 1/2, you will need to pay a 10 percent penalty. You will also owe income tax on the amount withdrawn unless you qualify for an exception. Sometimes - but not always - these types of early withdrawals trigger an audit, typically a correspondence audit where the IRS sends you a letter.

Hobby Losses

Income derived from a hobby such as operating a vineyard or breeding horses must be reported on your return. Expenses are deductible up to the amount of that income. On the other hand, you can only deduct losses if you run your hobby like a business, i.e., with a reasonable expectation of making a profit. Most hobbies that make a profit in three years out of five are considered a business.

Excessive Business Expense Deductions

Too many deductions for your income and type of business, claiming 100 percent use of a car for business, and inflating business meals, travel, and entertainment expenses are examples of excessive business expenses that could raise a red flag. Always save receipts and document your mileage and expenses.

Overestimating Charitable Deductions

Taxpayers that don't itemize can take an above-the-line deduction for charitable contributions made in tax year 2020 on their tax returns of up to $300 for qualified charitable cash donations that reduce taxable income. The maximum amount for 2020 tax returns is $300 (i.e., not $600), even if you are married filing jointly.

For taxpayers that do itemize, taking disproportionately large deductions as compared to your income could raise a red flag. The IRS keeps records of average charitable donation at various income levels, and even if you inherited a large sum of money and want to donate it to charity, there's a chance you could get audited.

Failing to Report Winnings or Claiming     Big Losses

Professional gamblers report winnings/losses on Schedule C, Profit or Loss from Business (Sole Proprietorship). They can also deduct costs related to their profession, such as lodging and meals, for example. Gambling winnings are reported on Form W-2G, which is sent to the IRS. As such, you must report this income. You may deduct gambling losses, but you must itemize your deductions on Schedule A (Form 1040) and keep a record of your winnings and losses. Ordinary taxpayers (recreational gamblers) report income/losses as "Other Income" on Schedule 1 of their Form 1040 tax return.

What To Do if You Are Audited

If you've received correspondence from the IRS in the U.S. mail that indicates that you are being audited, don't try to handle it yourself. Instead, contact the office immediately for assistance.

Taxpayers who have been audited or otherwise interacted with the IRS should know that they have the right to know when the IRS has finished the audit. The right to finality is one of ten basic taxpayer rights - known collectively as the Taxpayer Bill of Rights. All taxpayers dealing with the IRS are entitled to these rights.

For More Information Visit:  http://www.sknaperville.com/firmprofile.php

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Social Security Benefits and Taxes: The Facts

Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable.

Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits. Examples include wages, self-employment, interest, dividends, and other taxable income that must be reported on your tax return.

Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.

If you receive Social Security benefits you should receive Form SSA-1099, Social Security Benefit Statement, showing the amount.

Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. In 2020, the three base amounts are:

$25,000 - for single, head of household,     qualifying widow or widower with a dependent child or married individuals     filing separate returns who did not live with their spouse at any time     during the year

$32,000 - for married couples filing     jointly

$0 - for married persons filing     separately who lived together at any time during the year

Taxpayers filing an individual federal tax return:

If your combined income (adjusted gross     income + nontaxable interest + 1/2 of your Social Security benefits) is     between $25,000 and $34,000, you may have to pay income tax on up to 50     percent of your benefits.

If it is more than $34,000, up to 85     percent of your benefits may be taxable.

Taxpayers filing a joint federal tax return:

If you and your spouse have a combined income     ((adjusted gross income + nontaxable interest + 1/2 of your Social     Security benefits) that is between $32,000 and $44,000, you may have to     pay income tax on up to 50 percent of your benefits.

If it is more than $44,000, up to 85     percent of your benefits may be taxable.

Married taxpayers filing separate tax returns generally pay taxes on benefits.

State Taxes

 Thirteen states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Retiring Abroad?

 Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income but may not be liable for tax in the country where you're spending your retirement years.

If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits - the same as if you were still living in the U.S.

You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional specializing in expatriate tax services.

Even if you retire abroad, you may still owe state taxes--unless you established residency in a no-tax state before you moved overseas. Also, some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore, it is prudent to consult a tax professional.

If you receive Social Security, a tax professional can help you determine if some - or all - of your benefits are taxable.

For More Information Visit:  http://www.sknaperville.com/about.php

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Employer Tax Credit Extended for Payroll Workers

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made several changes to employee retention tax credits. These tax credits were previously made available under the Corona virus Aid, Relief, and Economic Security Act (CARES Act). The most notable change was the modification of the Employee Retention Credit (ERC). Several of the changes apply only to 2021, while others apply to both 2020 and 2021. As such, employers can take advantage of the newly-extended employee retention credit, designed to make it easier for businesses that choose to keep their employees on the payroll - despite challenges posed by COVID-19.

Claiming the Refundable Tax Credit

 Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.

Employers can access the ERC for the 1st and 2nd quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers (i.e., employers with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. In 2021, advances are not available for employers larger than this.

Effective January 1, 2021:

Employers are eligible if they operate a trade or business during January 1, 2021, through June 30, 2021, and experience either:

1.    A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or

2.    A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).

Employers that did not exist in 2019 can use the corresponding quarter in 2020 to measure the decline in their gross receipts.

For the first and second calendar quarters in 2021, employers may elect to measure the decline in their gross receipts using the immediately preceding calendar quarter (i.e., the fourth calendar quarter of 2020 and first calendar quarter of 2021, respectively) compared to the same calendar quarter in 2019.

The manner in which this is carried out is not yet available but will be provided in future IRS guidance.

The definition of qualified wages was also changed:

For an employer that averaged more than     500 full-time employees in 2019, qualified wages are generally those wages     paid to employees that are not providing services because operations were     fully or partially suspended or due to the decline in gross receipts.

For an employer that averaged 500 or     fewer full-time employees in 2019, qualified wages are generally those     paid to employees during a period that operations were fully or partially     suspended or during the quarter that the employer had a decline in gross     receipts regardless of whether the employees are providing services.

Retroactive to March 27, 2020:

With the enactment of the CARES Act, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

Help is Just a Phone Call Away

 For more information about these and other pandemic-related tax changes, please call the office.

For More Information Visit:  http://www.sknaperville.com/about.php

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What's New for 2020 Tax Returns

As always, taxpayers should be aware of several key items involving credits, deductions, and refunds when filing their tax returns. Let's take a look:

1. Recovery Rebate Credit/Economic Impact Payment. In January, the Treasury Department and the IRS began sending the second round of Economic Impact Payments (EIP2) to millions of Americans as part of the implementation of the Coronavirus Response and Relief Supplemental Appropriations Act. As with the first round of Economic Impact Payments (EIP1), taxpayers don't need to take any action to receive these payments.

Taxpayers who didn't receive an advance payment should review the eligibility criteria when they file their 2020 taxes because many people, including recent college graduates, may be eligible for a credit.

Taxpayers who received an Economic Impact Payment should have received Notice 1444, Your Economic Impact Payment, and should keep it with their 2020 tax records.

Individuals who received the full amount for both Economic Impact Payments do not need to complete information about the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR because they've already received the full amount of the Recovery Rebate Credit as advance payments.

Eligible individuals who did not receive an Economic Impact Payment – either the first or the second payment – can claim a Recovery Rebate Credit when filing their 2020 Form 1040 or 1040-SR this year. They may be eligible to claim the Recovery Rebate Credit on their tax year 2020 federal income tax return if:

they     didn't receive an Economic Impact Payment, or

their     Economic Impact Payment was less than the full amount of the Economic     Impact Payment for which they were eligible.

2. Option to Use Prior Year Income Amounts. Also new this year is the option to use prior year income amounts (2019) when computing the Earned Income Tax Credit and the Additional Child Tax Credit.

3. Interest on Refunds is Taxable. Taxpayers who received a federal tax refund in 2020 may have been paid interest. Refund interest payments are taxable and must be reported on federal income tax returns. In January 2021, the IRS will send Form 1099-INT, Interest Income to anyone who received interest totaling $10 or more.

4. Charitable Deductions. In 2020, taxpayers who don't itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. Please note that this amount applies whether filing individual or joint returns. In 2021, this amount increases to $600 for joint filers ($300 for single filers).

5. Virtual Currency. If in 2020, you engaged in a transaction involving virtual currency, you will need to answer the question on page 1 of Form 1040 or 1040-SR. In 2019, this question was on Schedule 1.

6. Form 1099-NEC. Individuals may receive Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if they performed certain services for and received payments from a business in 2020.

Don't hesitate to contact the office with any questions or concerns about these and other tax changes related to the pandemic.

For More Information Visit:  http://www.sknaperville.com/about.php

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Tax Filing Season Starts February 12

Although tax season usually starts in late January, this year, the tax filing season is delayed until February 12, 2021. The delayed start date for individual tax return filers allowed the IRS time to do additional programming and testing of IRS systems following the December 27, 2020, tax law changes that provided a second round of Economic Impact Payments and other benefits to many taxpayers. This programming work is critical to ensuring IRS systems run smoothly to minimize refund delays and ensure that eligible people will receive any remaining stimulus money as a Recovery Rebate Credit when they file their 2020 tax return.

File Electronically for Faster Refunds

 Last year's average tax refund was more than $2,500. Once again, the IRS anticipates that nine out of 10 taxpayers will receive their refund within 21 days when filing electronically with direct deposit - and there are no issues with their tax return.

More than 150 million tax returns are expected to be filed this year - the majority before the Thursday, April 15 deadline. To speed refunds during the pandemic, the IRS urges taxpayers to file electronically with direct deposit as soon as they have the information they need. To avoid delays in processing, people should avoid filing paper returns wherever possible.

Taxpayers eligible for IRS Free File were able to begin submitting tax returns on January 15, 2021, although the returns will not be transmitted to the IRS until February 12, 2021.

Reminders

 Under the PATH Act, the IRS cannot issue a refund involving the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law provides this additional time to help the IRS stop fraudulent refunds and claims from being issued, including to identity thieves.

The IRS anticipates a first week of March refund for many EITC and ACTC taxpayers if they file electronically with direct deposit and there are no issues with their tax returns. This would be the same experience for taxpayers if the filing season opened in late January. Taxpayers will need to check Where's My Refund for their personalized refund date.

Key Dates for Taxpayers Filing a Return

 Important dates that taxpayers should keep in mind for this year's filing season include:

January 2021

January 15. IRS Free     File opens. Taxpayers can begin filing returns through Free File partners;     tax returns will be transmitted to the IRS starting Feb. 12. Tax software     companies also are accepting tax filings in advance.

January 29. Earned Income     Tax Credit Awareness Day to raise awareness of valuable tax credits     available to many people – including the option to use prior-year income     to qualify.

February 2021

February 12. IRS begins 2021     tax season. Individual tax returns begin being accepted and processing     begins.

February 22. Projected     date for the IRS.gov Where's     My Refund tool being updated for those claiming EITC and     ACTC, also referred to as PATH Act returns.

March 2021

First week of March. Tax refunds     begin reaching those claiming EITC and ACTC (PATH Act returns) for those     who file electronically with direct deposit and there are no issues with     their tax returns.

April 2021

April 15. Deadline for     filing 2020 tax returns.

October 2021

October 15. Deadline     to file for those requesting an extension on their 2020 tax returns.

  Help is Just a Phone Call Away

 Taxes are more complicated than ever. If you have any questions or concerns regarding tax filing this year, don't hesitate to contact the office.

For More Information Visit:  http://www.sknaperville.com/about.php

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Identity Protection PIN Available To All Taxpayers

Starting in January 2021, the IRS Identity Protection PIN Opt-In Program will be expanded to all taxpayers who can properly verify their identity. Previously, IP PINs were only available to identity theft victims.

What is an Identity Protection PIN?

 An identity protection personal identification number (IP PIN) is a six-digit number assigned to eligible taxpayers to help prevent their Social Security number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's identity and accept their tax return. Taxpayers with either a Social Security Number or Individual Tax Identification Number who can verify their identity are eligible for the program and the number is valid for one year. Each January, the taxpayer must get a new one.

How to get an IP PIN

 The preferred method of obtaining an IP PIN - and the only one that immediately reveals the PIN to the taxpayer - is the Get an IP PIN tool located on the IRS website. The tool is available starting mid-January 2021 and uses Secure Access authentication to verify a person's identity. If someone is unable to pass the Secure Access authentication, there are two alternate ways to get an IP PIN.

Taxpayers with income of $72,000 or less should complete Form 15227,Application for an Identity Protection Personal Identification Number, and mail or fax it to the IRS. An IRS employee will call the taxpayer to verify their identity using a series of questions. Those who pass authentication will receive an IP PIN the following tax year.

Taxpayers who cannot verify their identities remotely or who are ineligible to file Form 15277 should make an appointment for in-person identity verification at an IRS Taxpayer Assistance Center and bring two forms of picture identification. After the taxpayer passes authentication, an IP PIN will be mailed to them within three weeks.

What else taxpayers need to know before applying:

The IP PIN must be entered correctly on     electronic and paper tax returns to avoid rejections and delays.

Any primary or secondary taxpayer or     dependent can get an IP PIN if they can prove their identity.

Taxpayers who want to voluntarily opt     into the IP PIN program don't need to file a Form 14039, Identity Theft Affidavit.

The IRS plans to offer an opt-out     feature to the IP PIN program in 2022.

Confirmed victims of tax-related identity theft

 For confirmed victims of tax-related identity theft, there is no change in the IP PIN Program. These taxpayers should still file a Form 14039,Identity Theft Affidavit if their e-filed tax return is rejected because of a duplicate SSN filing. The IRS will investigate their case and once the fraudulent tax return is removed from their account, they will automatically receive an IP PIN by mail at the start of the next calendar year.

IP PINs will be mailed annually to confirmed victims and participants enrolled before 2019. For security reasons, confirmed identity theft victims can't opt-out of the IP PIN program. Confirmed victims also can use the IRS Get an IP PIN tool to retrieve lost IP PINs assigned to them.

As a reminder, taxpayers should never share their IP PIN with anyone but their tax provider. The IRS will never call to request the taxpayer's IP PIN, and taxpayers must be alert to potential IP PIN scams. If you have any questions about the IP PIN, don't hesitate to call.

For More Information Visit:  http://www.sknaperville.com/about.php

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Important Tax Changes for Individuals and Businesses

Every year, it's a sure bet that there will be changes to current tax law and this year is no different. From standard deductions to health savings accounts and tax rate schedules, here's a checklist of tax changes to help you plan the year ahead.

Individuals

 In 2021, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2020; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through tax year 2025.

Standard Deduction

In 2021, the standard deduction increases to $12,550 for individuals (up from $12,400 in 2020) and to $25,100 for married couples (up from $24,800 in 2020).

Alternative Minimum Tax (AMT)

In 2021, AMT exemption amounts increase to $73,600 for individuals (up from $72,900 in 2020) and $114,600 for married couples filing jointly (up from $113,400 in 2020). Also, the phase out threshold increases to $523,600 ($1,047,200 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation.

"Kiddie Tax"

For taxable years beginning in 2021, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,100. The same $1,100 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2021 must be more than $1,100 but less than $11,000.

Health Savings Accounts (HSAs)

Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2021, a qualifying HDHP must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $7,000 for self-only coverage and $14,000 for family coverage.

Medical Savings Accounts (MSAs)

There are two types of Medical Savings Accounts (MSAs): The Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2021, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,400 ($2,350 in 2020) and not more than $3,600 (up $50 from 2020), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,800 (up $50 from 2020).

Family coverage. For taxable years beginning in 2021, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,800 and not more than $7,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,750.

AGI Limit for Deductible Medical Expenses

In 2021, the deduction threshold for deductible medical expenses is 7.5 percent of adjusted gross income (AGI), made permanent by the Consolidated Appropriations Act, 2021.

Eligible Long-Term Care Premiums

Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2021, the limitation is $450. Persons more than 40 but not more than 50 can deduct $850. Those more than 50 but not more than 60 can deduct $1,690 while individuals more than 60 but not more than 70 can deduct $4,520. The maximum deduction is $5,640 and applies to anyone more than 70 years of age.

Medicare Taxes

The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2021, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the tax.

Foreign Earned Income Exclusion

For 2021, the foreign earned income exclusion amount is $108,700 up from $107,600 in 2020.

Long-Term Capital Gains and Dividends

In 2021 tax rates on capital gains and dividends remain the same as 2020 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have increased: the maximum zero percent rate amounts are $40,400 for individuals and $80,800 for married filing jointly. For an individual taxpayer whose income is at or above $445,850 ($501,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $40,400 and below $445,850 for single filers).

Estate and Gift Taxes

For an estate of any decedent during calendar year 2021, the basic exclusion amount is $11.70 million, indexed for inflation (up from $11.58 million in 2020). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $15,000.

  Individuals - Tax Credits

 Adoption Credit

In 2021, a non-refundable (only those individuals with tax liability will benefit) credit of up to $14,440 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit

For tax year 2021, the maximum Earned Income Tax Credit (EITC) for low and moderate-income workers and working families rises to $6,728 up from $6,660 in 2020. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credit

For tax years 2020 through 2025, the child tax credit is $2,000 per child. The refundable portion of the credit is $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).

Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2021. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. This tax credit is nonrefundable.

Individuals – Education

 American Opportunity Tax Credit and Lifetime Learning Credit

The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). Prior to the passage of the Consolidated Appropriations Act, 2021, taxpayers with MAGI of $139,000 (joint filers) or $69,500 (single filers) were not able to claim the Lifetime Learning Credit.

While the phase-out limits for Lifetime Learning Credit increased, taxpayers should note that the qualified tuition and expenses deduction has been repealed starting in 2021.

Interest on Educational Loans

In 2021, the maximum deduction for interest paid on student loans is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $70,000 ($140,000 for joint filers) and is completely eliminated for taxpayers with modified adjusted gross income of $85,000 ($170,000 joint filers).

Individuals – Retirement

 Contribution Limits

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains at $19,500. Contribution limits for SIMPLE plans also remain at $13,500. The maximum compensation used to determine contributions increases to $290,000 (up from $285,000 in 2020).

Income Phase-out Ranges

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $66,000 and $76,000.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $105,000 to $125,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $198,000 and $208,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $13999,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver's Credit

In 2021, the AGI limit for the Saver's Credit (also known as the Retirement Savings Contribution Credit) for low and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000 in 2020; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500 in 2020.

Businesses

 Standard Mileage Rates

In 2021, the rate for business miles driven is 56 cents per mile, down one half of a cent from the rate for 2020.

Section 179 Expensing

In 2021, the Section 179 expense deduction increases to a maximum deduction of $1,050,000 of the first $2,620,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $26,200.

Bonus Depreciation

Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.

Qualified Business Income Deduction

Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2021, these threshold amounts are $164,900 for single and head of household filers and $329,800 for married taxpayers filing joint returns.

Research & Development Tax Credit

Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

Work Opportunity Tax Credit (WOTC)

Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Employee Health Insurance Expenses

For taxable years beginning in 2021, the dollar amount of average wages is $27,800 ($27,600 in 2020). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.

Business Meals and Entertainment Expenses

Taxpayers who incur food and beverage expenses associated with operating a trade or business are able to deduct 100 percent (50 percent for tax years 2018-2020) of these expenses for tax years 2021 and 2022 (The Consolidated Appropriations Act, 2021) as long as the meal is provided by a restaurant.

Employer-provided Transportation Fringe Benefits

If you provide transportation fringe benefits to your employees in 2021, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $270. The monthly limitation for qualified parking is $270.

While this checklist outlines important tax changes for 2021, additional changes in tax law are likely to arise during the year ahead. Don't hesitate to call if you have any questions or want to get a head start on tax planning for the year ahead.

For More Information Visit:  http://www.sknaperville.com/about.php

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Small Business: Deductions for Charitable Giving

Tax breaks for charitable giving aren't limited to individuals, your small business can benefit as well. If you own a small to medium-size business and are committed to giving back to the community through charitable giving, here's what you should know.

1. Verify that the Organization is a Qualified Charity

 Once you've identified a charity, you'll need to make sure it is a qualified charitable organization under the IRS. Qualified organizations must meet specific requirements as well as IRS criteria and are often referred to as 501(c)(3) organizations. Note that not all tax-exempt organizations are 501(c)(3) status, however.

There are two ways to verify whether a charity is qualified:

Use the IRS online search tool; or

Ask the charity to send you a copy of their     IRS determination letter confirming their exempt status.

2. Make Sure the Deduction is Eligible

 Not all deductions are created equal. In order to take the deduction on a tax return, you need to make sure it qualifies. Charitable giving includes the following: cash donations, sponsorship of local charity events, in-kind contributions such as property such as inventory or equipment.

Lobbying. A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks the loss of its tax-exempt status. As such, you cannot claim a charitable deduction (or business expense) for amounts paid to an organization if both of the following apply:

The organization conducts lobbying     activities on matters of direct financial interest to your business.

A principal purpose of your contribution     is to avoid the rules discussed earlier that prohibit a business deduction     for lobbying expenses.

Further, if a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues.

3. Understand the Limitations

 Sole proprietors, partners in a partnership, or shareholders in an S-corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Corporations (other than S-corporations) can deduct charitable contributions on their income tax returns, subject to limitations.

Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Likewise, if the payments are charitable contributions or gifts, you cannot deduct them as business expenses.

Sole Proprietorships. As a sole proprietor (or single-member LLC), you file your business taxes using Schedule C of individual tax form 1040. Your business does not make charitable contributions separately. Charitable contributions are deducted using Schedule A, and you must itemize in order to take the deductions.

Partnerships. Partnerships do not pay income taxes. Rather, the income and expenses (including deductions for charitable contributions) are passed on to the partners on each partner's individual Schedule K-1. If the partnership makes a charitable contribution, then each partner takes a percentage share of the deduction on his or her personal tax return. For example, if the partnership has four equal partners and donates a total of $2,000 to a qualified charitable organization in 2020, each partner can claim a $500 charitable deduction on their 2020 tax return.

A donation of cash or property reduces the value of the partnership. For example, if a partnership donates office equipment to a qualified charity, the office equipment is no longer owned by the partnership, and the total value of the partnership is reduced. Therefore, each partner's share of the total value of the partnership is reduced accordingly.

S-Corporations. S-Corporations are similar to Partnerships, with each shareholder receiving a Schedule K-1 showing the amount of charitable contribution.

C-Corporations. Unlike sole proprietors, partnerships, and S-corporations, C-Corporations are separate entities from their owners. As such, a corporation can make charitable contributions and take deductions for those contributions.

4. Categorize Donations

 Each category of donation has its own criteria with regard to whether it's deductible and to what extent. For example, mileage and travel expenses related to services performed for the charitable organization are deductible but the time spent on volunteering your services is not.

Here's another example: As a board member, your duties may include hosting fundraising events. While the time you spend as a board member is not deductible, expenses related to hosting the fundraiser such as stationery for invitations and telephone costs related to the event are deductible.

Generally, you can deduct up to 50 percent of adjusted gross income. Non-cash donations of more than $500 require completion of Form 8283, which is attached to your tax return. In addition, contributions are only deductible in the tax year in which they're made.

5. Keep Good Records

 The types of records you must keep vary according to the type of donation (cash, non-cash, out of pocket expenses when donating your services) and the importance of keeping good records cannot be overstated.

Ask for - and make sure you receive - a letter from any organizations stating that said organization received a contribution from your business. You should also keep canceled checks, bank and credit card statements, and payroll deduction records as proof or your donation. Furthermore, the IRS requires proof of payment and an acknowledgment letter for donations of $250 or more.

Questions about charitable donations? Help is just a phone call away.

For More Information Visit: http://www.sknaperville.com/

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Working Remotely Could Affect Your Taxes

When COVID-19 struck last March, employers quickly switched to a work-from-home model for their employees, many of whom began working in a state other than the one in which their office was located. While some workers have returned to their offices, many have not. If you're working remotely from a location in a different state (or country) from that of your office, then you may be wondering if you will have to pay income tax in multiple jurisdictions or whether you will need to file income tax returns in both states.

Generally, states can tax income whether you live there or work there. Whether a taxpayer must include taxable income while living or working in a particular jurisdiction depends on several factors, including nexus, domicile, and residency.

Many states - especially those with large metro areas where much of the workforce resides in surrounding states - have agreements in place that allow credits for tax due in another state so that you aren't taxed twice. In metro Washington, DC, for example, payroll tax withholding is based on the state of residency allowing people to work in another state without causing a tax headache. Other states such as Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania tax workers based on job location even if they reside in a different state.

Remote Working in Multiple Locations

Let's say you live in Florida. During the pandemic a mandatory office closure allows you to work remotely from your vacation home in North Carolina - a state that is not your domicile (i.e., your home). Next spring, you will need to file a nonresident income tax return on income earned in North Carolina (your remote work location, but not your domicile) in addition to your usual tax returns.

However, in all the pandemic confusion, it's likely that your employer may not have known you were working remotely from NC and did not withhold tax from your pay (income earned). If that's the case, then you may owe money.

Here's why:

If the tax rate in the remote location is higher than the taxpayer's home state or the home state doesn't impose income tax but the state they are working from does, the tax credit in the worker's home state may not be enough to offset all - or any - tax owed.

During the pandemic, 13 states have agreed not to tax workers who temporarily moved there because of the pandemic including Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina.

Keep in mind, however, that these waivers are temporary and in some cases may only in effect during a mandated government shutdown. South Carolina's waiver, for instance, expired on September 30, 2020, but was extended through December 31, 2020.

Necessity or Convenience

Another important factor to consider is whether a worker's remote work location is due to necessity or convenience. If there is a mandatory government shutdown, then it is a necessity. If the option to go back to the office exists, but the worker chooses not to because of health concerns, then the state could view it as convenience.

Keeping Good Records

Keeping good records is always important when it comes to your taxes, but even more so when there are so many unknowns. As such, it's a good idea to keep track of how many days were worked in each state and how much money was earned.

Help is Just a Phone Call Away

Tax laws are complex even during the best of times. If you've been working remotely during the pandemic in a different location than your office, then it pays to consult with a tax and accounting professional to figure out your tax liability and recommend a course of action to lower your tax bill such as changing your withholding.

For More Information Visit: http://www.sknaperville.com/

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Business Tax Provisions: The Year in Review

Here's what business owners need to know about tax changes for 2020.

Standard Mileage Rates

The standard mileage rate in 2020 is 57.5 cents per business mile driven.

Health Care Tax Credit for Small Businesses

Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). This amount is $55,200 for 2020 returns.

In 2020 (as in 2014-2018), the tax credit is worth up to 50 percent of your contribution toward employees' premium costs (up to 35 percent for tax-exempt employers.

Section 179 Expensing and Depreciation

Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1.04 million of the first $2.59 million of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation for tax years after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.

Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 27 cents per mile (up from 26 cents per mile in 2019).

Please call if you have any questions about Section 179 expensing and the bonus depreciation.

Work Opportunity Tax Credit (WOTC)

Extended through 2020 under the Further Consolidated Appropriations Act, 2020, the Work Opportunity Tax Credit can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.

SIMPLE IRA Plan Contributions

Contribution limits for SIMPLE IRA plans increased to $13,500 for persons under age 50 and $16,500 for persons age 50 or older in 2020. The maximum compensation used to determine contributions is $285,000.

Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.

For More Information Visit: http://www.sknaperville.com/

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Individual Taxpayers: Recap for 2020

As we close out the year and get ready for tax season, here's what individuals and families need to know about tax provisions for 2020.

Personal Exemptions

Personal exemptions are eliminated for tax years 2018 through 2025.

Standard Deductions

The standard deduction for married couples filing a joint return in 2020 is $24,800. For singles and married individuals filing separately, it is $12,400, and for heads of household, the deduction is $18,650.

The additional standard deduction for blind people and senior citizens in 2020 is $1,300 for married individuals and $1,650 for singles and heads of household.

Income Tax Rates

In 2020 the top tax rate of 37 percent affects individuals whose income exceeds $523,600 ($628,300 for married taxpayers filing a joint return). Marginal tax rates for 2020 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.

Estate and Gift Taxes

In 2020 there is an exemption of $11.58 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.

Alternative Minimum Tax (AMT)

For 2020, exemption amounts increased to $72,900 for single and head of household filers, $113,400 for married people filing jointly and for qualifying widows or widowers, and $56,700 for married taxpayers filing separately.

Pease and PEP (Personal Exemption Phaseout)

Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.

Flexible Spending Account (FSA)

A Flexible Spending Account (FSA) is limited to $2,750 per year in 2020 (up from $2,700 in 2019) and applies only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Long-Term Capital Gains

In 2020 tax rates on capital gains and dividends remain the same as 2019 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don't correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $40,000 for single filers and $80,000 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $441,450 ($496,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Miscellaneous Deductions

Miscellaneous deductions that exceed 2 percent of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage.

Business owners are not affected and can still deduct business-related expenses on Schedule C.

 Individuals - Tax Credits

 Adoption Credit

In 2020 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $14,300 is available for qualified adoption expenses for each eligible child.

Child and Dependent Care Credit

The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit and Credit for Other Dependents

For tax years 2018 through 2025, the Child Tax Credit increases to $2,000 per child. The refundable portion of the credit increases from $1,000 to $1,400 - 15 percent of earned income above $2,500, up to a maximum of $1,400 - so that even if taxpayers do not owe any tax, they can still claim the credit. Please note, however, that the refundable portion of the credit (also known as the additional child tax credit) applies higher-income when the taxpayer isn't able to fully use the $2,000 nonrefundable credit to offset their tax liability.

Under TCJA, a new tax credit - Credit for Other Dependents - is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit is nonrefundable and covers children older than age 17 as well as parents or other qualifying relatives supported by a taxpayer.

Earned Income Tax Credit (EITC)

For tax year 2020, the maximum earned income tax credit (EITC) for low and moderate-income workers and working families increased to $6,660 (up from $6,557 in 2019). The maximum income limit for the EITC increased to $56,844 (up from $55,952 in 2019) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals - Education Expenses

 Coverdell Education Savings Account

You can contribute up to $2,000 a year to Coverdell savings accounts in 2020. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.

American Opportunity Tax Credit

For 2020, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.

Lifetime Learning Credit

A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2020, the modified adjusted gross income (MAGI) threshold at which the Lifetime Learning Credit begins to phase out is $114,000 for joint filers and $57,000 for singles and heads of household. The credit cannot be claimed if your MAGI is $67,000 or more ($134,000 for joint returns)

Employer-Provided Educational Assistance

As an employee in 2020, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer.

Student Loan Interest

In 2020, you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels.

Individuals – Retirement

 Contribution Limits

For 2020, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $19,500 ($19,000 in 2019). For persons age 50 or older in 2020, the limit is $26,000 ($6,500 catch-up contribution).

Retirement Savings Contributions Credit (Saver's Credit)

In 2020, the adjusted gross income limit for the saver's credit for low and moderate-income workers is $65,000 for married couples filing jointly, $48,750 for heads of household, and $32,500 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). As a reminder, starting in 2018, the Saver's Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you're the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.

If you have any questions about these and other tax provisions that could affect your tax situation, don't hesitate to call.

For More Information Visit: http://www.sknaperville.com/

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Individual Taxpayers: Year-End Tax Planning Strategies

With the end of the year fast approaching, now is the time to take a closer look at tax planning strategies you can use to minimize your tax burden for 2020.

General Tax Planning Strategies

General tax planning strategies for individuals include accelerating or deferring income and deductions, as well as careful consideration of timing-related tax planning strategies concerning investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following strategies:

Investments. Selling any investments on which you have a gain (or loss) this year. For more on this, see Investment Gains and Losses, below.

Year-end bonus. If you anticipate an increase in taxable income this year, in 2020, and are expecting a bonus at year-end, try to get it before December 31.

Contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2021 tax return in 2022. Don't hesitate to call the office if you have any questions about this.

Charitable deductions. Bunching charitable deductions (scroll down to read more about charitable deductions) every other year is also a good strategy if it enables the taxpayer to get over the higher standard deduction threshold under the Tax Cuts and Jobs Act of 2017 (TCJA). Another option is to put money into a donor-advised fund that enables donors to make a charitable contribution and receive an immediate tax deduction. The fund is managed by a public charity on behalf of the donor, who then recommends how the money is distributed over time. Please call if you would like more information about donor-advised funds.

Under the CARES Act of 2020, this year (2020) eligible individuals may take an above-the-line deduction of up to $300 in cash for charitable contributions made to qualified charitable organizations. Cash contributions are those that are paid with cash, check, electronic fund transfer, or payroll deduction. Taxpayers can claim the deduction even if they do not itemize on their 2020 taxes.

Medical expenses. Medical expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI), therefore, you might pay medical bills in whichever year they would do you the most tax good. To deduct medical and dental expenses in 2020, these amounts must exceed 7.5 percent of AGI. By bunching medical expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing the deduction.

Deductible expenses such as medical expenses and charitable contributions can be prepaid this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid. Likewise, with checks. For example, if you charge a medical expense in December but pay the bill in January, assuming it's an eligible medical expense, it can be taken as a deduction on your 2020 tax return.

Stock options. If your company grants stock options, then you may want to exercise the option or sell stock acquired by exercising an option this year. Use this strategy if you think your tax bracket will be higher in 2021. Generally, exercising this option is a taxable event; the sale of the stock is almost always a taxable event.

Invoices. If you're self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December; however, make sure you keep an eye on estimated tax requirements. Conversely, if you anticipate a lower income next year, consider deferring sending invoices to next year.

Withholding. If you know you have a set amount of income coming in this year that is not covered by withholding taxes, there is still time to increase your withholding before year-end and avoid or reduce any estimated tax penalty that might otherwise be due.

Avoid the penalty by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

 Accelerating or Deferring Income and Deductions

 Strategies that are commonly used to help taxpayers minimize their tax liability include accelerating or deferring income and deductions. Which strategy you use depends on your current tax situation.

Most taxpayers anticipate increased earnings from year to year, whether it's from a job or investments, so this strategy works well. On the flip side, however, if you anticipate a lower income next year or know you will have significant medical bills, you might want to consider deferring income and expenses to the following year.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2020, depending on your situation. Roth IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest are examples of these types of tax benefits.

Accelerating income into 2020 is also a good idea if you anticipate being in a higher tax bracket next year. This is especially true for taxpayers whose earnings are close to threshold amounts that make them liable for the Additional Medicare Tax or Net Investment Income Tax ($200,000 for single filers and $250,000 for married filing jointly). See more about these two topics, below.

Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8 percent of net investment income) should pay close attention to "one-time" income spikes such as those associated with Roth conversions, sale of a home or any other large asset that may be subject to tax.

Examples of accelerating income include:

·         Paying an estimated state tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.

·         Paying your entire property tax bill, including installments due in 2021, by year-end. This does not apply to mortgage escrow accounts.

A prepayment of anticipated real property taxes that have not been assessed prior to 2021 is not deductible in 2020.

Under TCJA, the deduction for state and local taxes (SALT) was capped at $10,000. Once a taxpayer reaches this limit the two strategies above are not effective for federal returns.

·         Paying 2021 tuition in 2020 to take full advantage of the American Opportunity Tax Credit, an above-the-line tax credit worth up to $2,500 per student that helps cover the cost of tuition, fees, and course materials paid during the taxable year. Forty percent of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

Additional Medicare Tax

Taxpayers whose income exceeds certain threshold amounts ($200,000 single filers and $250,000 married filing jointly) are liable for an additional Medicare tax of 0.9 percent on their tax returns but may request that their employers withhold additional income tax from their pay to be applied against their tax liability when filing their 2020 tax return next April.

As such, high net worth individuals should consider contributing to Roth IRAs and 401(k) because distributions are not subject to the Medicare Tax. Also, if you're a taxpayer who is close to the threshold for the Medicare Tax, it might make sense to switch Roth retirement contributions to a traditional IRA plan, thereby avoiding the 3.8 percent Net Investment Income Tax (NIIT) as well (more about the NIIT below).

Alternate Minimum Tax

 The alternative minimum tax (AMT) applies to high-income taxpayers that take advantage of deductions and credits to reduce their taxable income. The AMT ensures that those taxpayers pay at least a minimum amount of tax and was made permanent under the American Taxpayer Relief Act (ATRA) of 2012. Furthermore, the exemption amounts increased significantly under the Tax Cuts and Jobs Act of 2017 (TCJA), and the AMT is not expected to affect as many taxpayers. Also, in 2020 the phase-out threshold increased to $518,400 ($1,036,800 for married filing jointly). Both the exemption and threshold amounts are indexed for inflation.

AMT exemption amounts for 2020 are as follows:

·         $72,900 for single and head of household filers,

·         $113,400 for married people filing jointly and for qualifying widows or widowers,

·         $56,700 for married people filing separately.

  Charitable Contributions

 Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

Keep in mind that a written record of your charitable contributions - including travel expenses such as mileage - is required to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check, or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a canceled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

In addition to the $300 above the line deduction for taxpayers that don't itemize (see above), taxpayers who do itemize deductions can take advantage of another provision in the CARES Act that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI) - but only for tax year 2020. In 2019, the limit for the deduction for cash contributions was 60% of AGI.

Qualified charitable distributions (QCDs). Taxpayers who are age 70 1/2 and older can reduce income tax owed on required minimum distributions (RMDs) - a maximum of $100,000 or $200,000 for married couples - from IRA accounts by donating them to a charitable organization(s) instead. Eligible taxpayers can take advantage of QCDs even though the CARES Act eliminated the requirement for required minimum distributions for 2020.

Starting in 2020, the age at which taxpayers are required to take minimum distributions from IRAs, SIMPLE IRAs, SEP IRAs, or other retirement plan accounts was raised to age 72. In prior years, the age was 70 1/2.

Investment Gains and Losses

Investment decisions are often more about managing capital gains than about minimizing taxes. For example, taxpayers below threshold amounts in 2020 might want to take gains; whereas taxpayers above threshold amounts might want to take losses.

Fluctuations in the stock market are commonplace; don't assume that a down market means investment losses as your cost basis may be low if you've held the stock for a long time.

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term capital gains, which are taxed as ordinary income (i.e., the rate is the same as your tax bracket).

In 2020 tax rates on capital gains and dividends remain the same as 2019 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have been adjusted for inflation as follows:

0% - Maximum capital gains tax rate for     taxpayers with income up to $40,000 for single filers, $80,000 for married     filing jointly.

15% - Capital gains tax rate for     taxpayers with income above $40,000 for single filers, $80,000 for married     filing jointly.

20% - Capital gains tax rate for     taxpayers with income above $441,450 for single filers, $496,600 for     married filing jointly.

Where feasible, reduce all capital gains and generate short-term capital losses up to $3,000. As a general rule, if you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) can be claimed as a deduction against income.

Wash Sale Rule. After selling securities investment to generate a capital loss, you can repurchase it after 30 days. This is known as the "Wash Rule Sale." If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., and ETF or another mutual fund with the same objectives as the one you sold.

If you have losses, you might consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free; your original investment is restored, and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Net Investment Income Tax (NIIT)

The Net Investment Income Tax, which went into effect in 2013, is a 3.8 percent tax that is applied to investment income such as long-term capital gains for earners above a certain threshold amount ($200,000 for single filers and $250,000 for married taxpayers filing jointly). Short-term capital gains are subject to ordinary income tax rates as well as the 3.8 percent NIIT. This information is something to think about as you plan your long-term investments. Business income is not considered subject to the NIIT provided the individual business owner materially participates in the business.

Mutual Fund Investments

Before investing in a mutual fund, ask whether a dividend is paid at the end of the year or whether a dividend will be paid early in the following year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Action: You invest $20,000 in a mutual fund in 2019. You opt for automatic reinvestment of dividends, and in late December of 2019, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested.

Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund's long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period.

The mutual fund's distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these will be reported to you as "ordinary dividends" that don't qualify for relief.

Depending on your financial circumstances, it may or may not be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date. To find out a fund's ex-dividend date, call the fund directly.

Please call if you'd like more information on how dividends paid out by mutual funds affect your taxes this year and next.

Year-End Giving To Reduce Your Potential Estate Tax

The federal gift and estate tax exemption is currently set at $11.58 million but increases to $11.70 million in 2021. The maximum estate tax rate is set at 40 percent.

Gift Tax. Sound estate planning often begins with lifetime gifts to family members. In other words, gifts that reduce the donor's assets subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax.

Gifts to a done are exempt from the gift tax for amounts up to $15,000 a year per done in 2020 and remain the same for 2021.

An unused annual exemption doesn't carry over to later years. To make use of the exemption for 2020, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $30,000 ($15,000 each). Though what's given may come from either you or your spouse or both of you, both of you must consent to such "split gifts."

Gifts of "future interests," assets that the done can only enjoy at some future period such as certain gifts in trust, generally don't qualify for exemption; however, gifts for the benefit of a minor child can be made to qualify.

If you're considering adopting a plan of lifetime giving to reduce future estate tax, don't hesitate to call the office for assistance.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.

You may choose to give property that has already appreciated. The idea here is that the done, not you, will realize and pay income tax on future earnings and built-in gain on the sale.

Gift tax returns for 2020 are due the same date as your income tax return (April 15, 2021). Returns are required for gifts over $15,000 (including husband-wife split gifts totaling more than $15,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $15,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed." Please call the office if you're considering making a gift of property whose value isn't unquestionably less than $15,000.

Tax Rate Structure for the Kiddie Tax

The kiddie tax rules changed under the TCJA. For tax years 2018 through 2025, unearned income exceeding $2,200 is taxed at the rates paid by trusts and estates instead of the parent’s tax rate. For ordinary income (amounts over $12,950), the maximum rate is 37 percent. For long-term capital gains and qualified dividends, the maximum rate is 20 percent.

Exception. If the child is under age 19 or under age 24 and a full-time student and both the parent and child meet certain qualifications, then the parent can include the child's income on the parent's tax return.

Other Year-End Moves

Roth Conversions. Converting to a Roth IRA from a traditional IRA would make sense if you've experienced a loss of income (lowering your tax bracket) or your retirement accounts have decreased in value. Please call if you would like more information about Roth conversions.

Maximize Retirement Plan Contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. It doesn't need to be funded until you pay your taxes, but allowable contributions will be deductible on this year's return.

If you are an employee and your employer has a 401(k), contribute the maximum amount ($19,500 for 2020), plus an additional catch-up contribution of $6,500 if age 50 or over, assuming the plan allows this, and income restrictions don't apply.

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $6,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over.

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the amount of excess over 10 percent of AGI). For amounts withdrawn at age 65 or later not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and you must not be enrolled in Medicare. For 2020, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,400 for self-only coverage or $2,800 for family coverage.

529 Education Plans. Maximize contributions to 529 plans, which can now be used for elementary and secondary school tuition as well as college or vocational school.

Don't Miss Out.

Implementing these strategies before the end of the year could save you money. If you are ready to save money on your tax bill, please contact the office today.

For More Information Visit: http://www.sknaperville.com/

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Tax Preparation vs. Tax Planning

Many people assume tax planning is the same as tax preparation, but the two are quite different. Let's take a closer look:

What is Tax Preparation?

 Tax preparation is the process of preparing and filing a tax return. Generally, it is a one-time event that culminates in signing your return and finding out whether you owe the IRS money or will be receiving a refund.

For most people, tax preparation involves one or two trips to your accountant (CPA), generally around tax time (i.e., between January and April), to hand over any financial documents necessary to prepare your return and then to sign your return. They will also make sure any tax reporting on your return complies with federal and state tax law.

Alternately, Individual taxpayers might use an enrolled agent, attorney, or a tax preparer who doesn't necessarily have a professional credential. For simple returns, some individuals prepare tax returns themselves and file them with the IRS. No matter who prepares your tax return, however, you expect them to be trustworthy (you will be entrusting them with your personal financial details), skilled in tax preparation, and to accurately file your income tax return in a timely manner.

What is Tax Planning?

 Tax planning is a year-round process (as opposed to a seasonal event) and is a separate service from tax preparation. Both individuals and business owners can take advantage of tax planning services, which are typically performed by a CPA and accounting firm or an Enrolled Agent (EA) with in-depth experience and knowledge of tax law, rather than a tax preparer.

Examples of tax planning include the following: Bunching expenses (e.g., medical) to maximize deductions, tax-loss harvesting to offset investment gains, increasing retirement plan contributions to defer income, and determining the best timing for capital expenditures to reap the tax benefits. Good recordkeeping is also an important part of tax planning and makes it easier to pay quarterly estimated taxes, for example, or prepare tax returns the following year.

Tax planning is something that most taxpayers do not take advantage of - but should - because it can help minimize their tax liability on next year's tax return by planning ahead. While it may mean spending more time with an accountant, say quarterly - or even monthly - the tax benefit is usually worth it. By reviewing past returns, an accountant will have a more clear picture of what you can do this year to save money on next year's tax return.

If you're ready to learn more about what strategies you can use to reduce your tax bill next year, please call the office.

For More Information Visit: http://www.sknaperville.com/