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Brad Huss & Associates8010 E. Morgan Trail, Suite 10Scottsdale, AZ 85258(480) 998-1060taxes@ Year End Tax PlanningAs usual we present you with a list of year-end tax savings tips plus information on how the new tax laws introduced in 2018 affect business meals and entertainment and purchasing autos. Follow this link to the 2019 Tax Resource Guide. contact us with any questions. ENJOY!Take advantage of the 0% tax rate for Qualified Dividends and Long Term Capital Gains.There is a 0% tax rate that applies to long term capital gains and qualified dividends for those that fall in the 12% or lower tax bracket. That means those with taxable income under $39,475 for singles and $78,950 for married filing jointly can use smart tax planning to pay very little tax on their investment gains.AZ allows for a 25% exclusion of long-term capital gains for investments purchased after 12/31/2011.Take capital losses – If you own stocks that have gone down in value; consider selling them before the end of the year in order to generate a capital loss. Capital losses can offset capital gains and excess losses of up to $3,000 can be deducted against any other income. Any remaining capital losses are carried forward to the next tax year.Rollover to a ROTH IRA – In the past your income needed to be under $100,000 to be able to convert your traditional IRA or other retirement account to a ROTH IRA. The IRS rules have changed and there is no longer an income cap in place. You must pay the appropriate tax on conversion. There is no 10% early withdrawal penalty if the funds are transferred within a 60-day window.Give to charity – The year end is a great time to do some house cleaning. Clothes, furniture, toys, books, etc. may be donated to charity and you are entitled to a deduction for the fair market value of these items. Check the valuation guide at must now have proof of cash donations of $1 and above so it is always advisable to write checks.Gift appreciated assets to charity - Gifting appreciated stock or other assets to charity can provide significant tax savings. Instead of selling stocks at a profit, which are subject to capital gains taxes, and then giving the proceeds to charity - just give the stock to charity and you will be entitled to a deduction equal to the fair market value. You must have owned the appreciated stock for more than one year to qualify.Donate to charity directly from your IRA - Taxpayers who are age 70-1/2 or older can make a charitable donation of up to $100,000 tax free each year from their IRA. This can cover a taxpayer’s annual "Required Minimum Distribution" and avoids tax while helping a worthwhile charity. Electric Car Credits- You may be eligible for a credit for the purchase of an electric vehicle.Check this link: for details.Prepay 2020 business expenses in 2019– IRS Regulation 1.263 (a)-4(f) allows cash basis taxpayers to prepay and deduct qualifying business expenses up to 12 months in advance. Qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice/liability insurance.Delay invoices to January 2020 for payments typically received in December. De minimus election- This allows you to deduct up to $2,500 per item for tangible property as an expense instead of capitalizing the expense. You make the election with your tax return. Also applies to rentals.Establish a Defined Benefit pension plan – A defined benefit plan can generate a much larger pension contribution deduction (up to $225,000) than most conventional plans. You will need the help of a pension actuary and the plan must be established by 12/31/19.Set up an individual 401-K plan – Establish an individual 401-K plan by 12/31/19.You can contribute up to $19,000 ($25,000 if over age 50) plus 20% of the net profit from your business. The maximum contribution is $56,000 ($61,000 if over age 50). The contribution is tax deductible and the account is tax-free until you start making withdrawals. If you file extensions, your 20% contribution would not be due until 10/15/20. Hire your children – If you have an unincorporated business or rental property – you can pay your children up to $12,200 each which is fully tax deductible for you and completely tax free to them. This earned income would also allow your children to contribute to a ROTH IRA account. Make sure that you keep time cards and that the pay is reasonable for the work that they perform. You will also have to issue a W-2 to the child who must be under age 18. MEALS & ENTERTAINMENT EXPENSESIn Notice 2018-76, the IRS states that client and prospect business meals continue as tax deductions under the Tax Cuts and Jobs Act. Entertainment expenses are no longer deductible.Under this new IRS guidance, you may deduct 50 percent of your client and prospect business meals ifthe expense is an ordinary and necessary expense under Internal Revenue Code (IRC) Section 162(a) that is paid or incurred during the taxable year in carrying on any trade or business;the expense is not lavish or extravagant under the circumstances;the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages; the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.To prove your business meals:Keep the receipt that shows the name of the restaurant, the number of people at the table, and an itemized list of food and drinks consumed.On the receipt, record the name or names of the person or persons with whom you had the meal and also record the business reason for the meal.In the event that the receipt is not available, such as with the purchase of hot dogs and drinks at a baseball game while sitting in the stands, make sure to make a written note of the expenditures immediately after the game.If you charge a business meal to a credit card, the credit card statement provides your proof of payment. When possible, always pay by credit card or write a check so that you have clear proof of payment.Proof of payment is not proof of what you purchased, so in addition to proof of payment, keep the receipt with the notations as described earlier. The chart below shows you how the Tax Cuts and Jobs Act treats twelve types of meal and/or entertainment events:Amount Deductible for Tax Year 2019Description100%50%ZeroMeals with clients and prospectsXEntertainment with clients and prospectsXEmployee meals for convenience of employerXEmployee meals for required business meetingXMeal served at Chamber of Commerce meetingXMeals while traveling away from home overnightXYear-end party for employees and spousesXGolf outing for all employees and spousesXYear-end party for customersXMeals for general public at marketing presentationXTeam-building recreational event for all employeesXGolf, theater, or football game with your best customerX2019 Last-Minute Vehicle Purchases to save on taxesDo you need a replacement business car, SUV, van, or pickup truck?Do you need tax deductions this year?1. Buy a New or Used SUV, Crossover Vehicle, or Van with a GVWR Greater than 6,001 PoundsLet’s say that on or before December 31, 2019, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four big benefits: Bonus depreciation of 100 percent Section 179 expensing of up to $25,000MACRS depreciation using the five-year tableNo luxury limits on vehicle depreciation deductions2. Buy a New or Used Pickup with a GVWR Greater than 6,001 PoundsIf you or your corporation buys and places in service a qualifying pickup truck on or before December 31, 2019, then this newly purchased vehicle gives you four big benefits: Bonus depreciation of 100 percentSection 179 expensing of up to $1,000,000 MACRS depreciation using the five-year tableNo luxury limits on vehicle depreciation deductionsTo qualify for full Section 179 expensing, the pickup truck must havea GVWR of more than 6,001 pounds, anda cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.3. Buy a New or Used Qualifying Cargo or Passenger Van with a GVWR Greater than 6,001 PoundsA new or used cargo or passenger van bought and placed in service on or before December 31, 2019, can qualify for four big tax benefits:Bonus depreciation of 100 percentSection 179 expensing of up to $1,000,000 MACRS depreciation using the five-year tableNo luxury limits on vehicle depreciation deductionsIf the van passes the GVWR test but fails one of the other qualifying tests listed above, the law deems it an SUV. Passenger van. If the van has a GVWR of greater than 6,001 pounds and seats more than nine people behind the driver’s seat, it is a tax law–defined passenger van, not an SUV, and it qualifies for full Section 179 expensing of up to $1,000,000 and 100 percent bonus depreciation.4. Buy a Depreciation-Limited New or Used Car, SUV, Truck, or VanFor passenger automobiles to which the additional (bonus) first-year depreciation deduction applies and that were acquired before Sept. 28, 2017, and placed in service during calendar year 2019, the depreciation limit is $14,900 for the first tax year; $16,100 for the second tax year; $9,700 for the third tax year; and $5,760 for each succeeding year.For passenger automobiles to which the additional (bonus) first-year depreciation deduction applies and that are acquired after Sept. 27, 2017, and placed in service during calendar year 2019, the depreciation limit is $18,100 for the first tax year; $16,100 for the second tax year; $9,700 for the third tax year; and $5,760 for each succeeding year.For passenger automobiles for which no additional (bonus) first-year depreciation deduction applies, the depreciation limit under Sec. 280F(d)(7) is $10,100 for the first tax year; $16,100 for the second tax year; $9,700 for the third tax year; and $5,760 for each succeeding year.2019 Last-Minute Year-End Tax Deductions for Existing VehiclesTake Your Child’s Car and Sell ItWhat did you do with your old business car? Do you still have it? Is your child driving it? Or perhaps your spouse has it as a personal car.We ask because that old business vehicle could have a big tax loss embedded in it. If that loss is inside that old business vehicle, your strategy is easy. Take the vehicle and sell it to a third party before December 31 so that you have a tax-deductible loss this year.Your loss deduction depends on your percentage of business use. That’s one reason to sell this vehicle now--the longer you let your spouse or teenager use it, the smaller your business percentage becomes and the less tax benefit you receive.Self-Employed? Use the Buy-and-Sell StrategyAll business vehicles have gain or loss on sale or trade-in.Here’s how the strategy works: The sale to a third party or the “trade-in sale” of your existing business vehicle produces a gain or loss that does not increase or decrease your self-employment taxes.The purchase of the replacement vehicle creates depreciation and, if elected, Section 179 expensing deductions. These deductions reduce your self-employment taxes. (Note: This is also true with IRS mileage rates because such rates include depreciation as a component.)Put Your Personal Vehicle in Business Service This creates an effective strategy that costs you nothing but can produce solid deductions. Are you (or your spouse) driving a personal vehicle? If so, you can convert this vehicle to business use before December 31 2019 and qualify it for some hefty depreciation deductions. Health Insurance MandateThe mandate is eliminated for 2019 and future years.Arizona Issues:Beginning in 2020, Arizona individual income tax returns for tax year 2019 will include the following adjustments:Match the federal standard deduction amount ($12,200 single/married filing separate, $18,350 head of household, $24,400 married filing joint).Remove Arizona personal and dependent exemption amounts.Provide $100 child tax credit per dependent under 17 years of age and $25 for dependents 17 and older. The Credit is phased out for federal adjusted gross income (FAGI) greater than $200,000 single/married filing separate and head of household, $400,000 married filed joint.Allow taxpayers to increase standard deduction by 25 percent of the charitable donations that would have been claimed as an itemized deduction.The exemption for taxpayers over 65 remains unchanged at $2,300.?The changes also establish four tax brackets from the previous five tax brackets:Tax Rate Schedule for Tax Year 2018SingleRateMarriedRate$0 - $10,6022.59%$0 – $21,2022.59%$10,602 - $26,5012.88%$21,202 - $53,0002.88%$26,501 - $53,0003.36%$53,000 - $105,9983.36%$53,000 - $158,9964.24%$105,998 - $317,9904.24%$158,996 and over4.54%$317,990 and over4.54%Tax Rate Schedule for Tax Year 2019 and going forwardSingleRateMarriedRate$0 - $26,5002.59%$0 - $53,0002.59%$26,501 - $53,0003.34%$53,001 - $106,0003.34%$53,001 - $159,0004.17%$106,001 - $318,0004.17%$159,001 and over4.50%$318,001 and over4.50%AZ Tax Credits: You can get information about the charities which qualify for the state tax credit and make a donation at the same time at this link: will send a copy of the donation receipt to BHA which we will apply to your tax return.The exception is donations to public schools which are listed on the site but contributions must be made directly to the school or school district.Charitable donations which qualify for the AZ tax credit can no longer be deducted on the Federal Tax Return under final rules issued by the IRS. There is however a safe harbor available that allows individual tax payers who itemize deductions to treat payments made in exchange for state tax credits as payments of state and local taxes for federal income taxes purposes, subject to the $10,000 deduction limitation for these taxes.Example #1State income taxes: $4,000Real Estate taxes: $2,000Auto Tags:$500AZ Tax credits: $3,500 available for deduction.Total: $10,000Example#2State Income taxes: $5000Real Estate taxes: $3,000Auto Tags: $2,000$10,000 limit reachedAZ tax credits: Zero deduction ................
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