Here’s how the new tax law revised family tax credits

More families will be able to get more money under the newly-revised Child Tax Credit, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act (TCJA), the tax reform legislation passed in December 2017, doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years. The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.

Here are some important things taxpayers need to know as they plan for the Blue Springs tax-filing season in early 2019:

Child Tax Credit increased

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.

Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid Social Security Number issued before the due date of the tax return, including extensions.

Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.

New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.

The IRS offer an Interactive Tax Assistant to see if you qualify for either of these credits.

Tax Time is Ahead

WARNING: IRS Audits Rapidly Increasing…
How Confident Are You That
Your Return is Accurate?

Could You be Missing Potential Deductions?

Your tax preparation needs are as individual as you are.  Alliance Financial & Income Tax takes an active approach to our tax planning and tax preparation services, giving you the personalized guidance you need.  Today's tax laws are so complicated that filing taxes, no matter how simple, can quickly become confusing.

10 million tax payers missed out on a chance to receive a bigger refund last year simply because they neglected to fill out one line on their tax return.  Will you miss a similar opportunity this year?

Today's tax laws are increasingly complicated and the rules for deductions and credits change year by year.  Are you aware of all the deductions and credits that might be available to you this year, even on the most basic of tax returns?  Perhaps you feel secure in your do-it-yourself tax preparation software, but lets face it...There is not substitute for an experienced Enrolled Agent who can answer your questions and ask you the questions that might be key to saving you hundreds or even thousands in tax dollars. 

Tax Preparation in Blue Springs and Surrounding Area

Our Tax Preparation Services Include:

• Assurance that your return has been checked and double-checked for mathematical accuracy and errors that are commonly flagged by the IRS, resulting in fewer chances for contact by the IRS.
• Tips for better managing your payroll withholding so that you can have the advantage of greater income all year long, rather than loaning that money to the government and waiting for it to come back in the form of your yearly tax return.
• A list of common deductions that may benefit you in the coming year, and tips for limiting your future tax liability.
• Electronic filing for a quicker refund.

We  can help you get your paperwork organized with our tax preparation checklist of materials needed for individuals and small businesses.

If  you own a small business and haven't kept up your bookkeeping, don't worry; we can help.  We'll prepare your small business bookkeeping for the year, prepare your business tax return, as well as your personal income tax return.  Then we'll help you set up an easy system that allows you keep your books in great shape for next year.

If you'd like to receive more information about our Blue Springs Tax Preparation Services, please contact us today. If you are ready to schedule a time for us to visit you may schedule a time online that is convenient for you.  

 

Related Links

Income Tax Organizer

Individual Tax Preparation Checklist

Business Tax Preparation Checklist

What Is a 1035 Exchange?

What Is a 1035 Exchange?

Dear Friend,

I hope you’ll forgive me for being blunt.

I realize that you may not be used to seeing a tax professional talk like this. It’s not my intention to offend (I’m actually being very careful with my words–I am a tax professional, after all).

But I think you’ll agree that the times we’re currently facing require a little straight talk.

Here’s a certain truth: the State and Federal Government would love to have more of your hard-earned money in their accounts. Sure, even though it’s painful, none of us begrudge paying our legal and fair share of taxes. But the problem is that regular taxpayers, like you, are missing out on legal and safe deductions, to the tune of hundreds of millions of dollars in unclaimed refunds every year!

As a tax professional, it truly breaks my heart, knowing that just a few thousand, or even a few hundred bucks for us “regular guys” out of that vast pool of overcharging could make a world of difference–and they are just sitting there, unclaimed! And with the economy we’re facing now…it’s essential that the “right” professional handles your taxes and other financial matters.

You see, all tax professionals are not the same. From the “discount” chains (notice the quotes) to classic accounting firms, most fly through tax season in a disorganized mess–bleary-eyed and hopped-up on caffeine. It’s no wonder that they treat you like a number and lapse into excuses and tax-talk. (I told you that I would be blunt.)

I’ve put more of my thoughts on these matters in a Free Report for Individuals: “The New Tax Code: 9 Simple Tax Secrets Easily Overlooked by Taxpayers.”

Feel free to poke around our site and discover why I’ve been called “The Most Trusted Tax Professional in the Jackson county, MO Area.”

Mike Mead, EA, CTC
Alliance Financial & Income Tax 
807 NW Vesper Street
Blue Springs, MO. 64015 
P - 816-220-2001 x201  
F - 816-220-2012 
AFITOnline.com

Who is Alliance Financial & Income Tax

Schedule a Consult

Surprise! The Mutual Fund Tax Trap

Too often taxpayers receive tax surprises at year-end due to actions taken by mutual funds they own. What can add insult to injury is the unsuspecting taxpayer who recently purchases the shares in a mutual fund only to be taxed on their recent investment. How does this happen and what can you do about it?

Tax surprises

Towards the end of each year, many mutual funds pay a dividend to the holders on record as of a set date. The fund might also distribute funds deemed as capital gains based upon buying and selling activity that takes place in the fund throughout the year. This can create many problems:

• Taxable paybacks. If you purchase shares in a mutual fund just before a distribution of dividends, part of your purchase includes the dividends that are effectively paid right back to you. Not only will the asset value of your recently purchased shares in the mutual fund go down after the distribution, but you will owe tax on a distribution that is effectively your own money!
• Kiddie tax surprise. Many taxpayers purchase mutual funds in their children's names to take advantage of their lower-tax rates. By keeping their child’s unearned income below $2,100 the tax is low or non-existent. A surprise dividend or capital gain could expose much of this unearned income to higher tax rates.
• The $3,000 loss strategy. Each year, you may take a net of up to $3,000 in investment losses. Your losses can offset high rates of income tax with correct tax planning. But first, these losses need to offset capital gains. If you receive a surprise capital gain, you could be reducing the effectiveness of this tax strategy.

What to do

Here are some ideas to help reduce this mutual fund tax surprise provided by your Blue Springs financial advisers office of Alliance Financial & Income Tax.

• Limit year-end activity. Plan your mutual fund moves with this year-end surprise in mind. Consider reviewing and re-balancing your funds at the beginning of the year to avoid fund purchases just prior to dividend distributions.
• Research your mutual funds. If you wish to avoid a year-end surprise, do a little research on your mutual funds to anticipate what will happen with the fund. Check out the historic trends of your funds to determine which are most likely to issue a surprise Form 1099 DIV or Form 1099 B (capital gain/loss).
• Use the knowledge to your benefit. If you like a fund and it has a practice of creating taxable events each year, consider investing in these funds within a retirement account. That way the tax implications can be part of your retirement planning.

No one likes a surprise at tax time. The best course of action regarding your mutual funds is to consult with an tax expert who can help you navigate the options that are best for you.

Five Reasons Why the IRS Will Audit You

Each year, the IRS audits over 1 million tax returns. With agency resources shrinking, the IRS is more selective when choosing tax returns to audit. Knowing what the IRS is looking for can help you understand and reduce your audit risk. Here are five of the biggest reasons the IRS may choose to audit your return, provided by your Blue Springs income tax services firm of Alliance Financial & Income Tax.

1. Your income is high or low. The reasoning is simple – higher earnings may lead to bigger errors and lower earnings may mean incorrect deductions. The adjusted gross income (AGI) range with the least audit risk is $25,000 - $200,000. As your income moves toward the extremes in either direction, the chance of audit increases.
   
2. You fail to report all your income. The IRS Automated Underreporter Program matches W-2 and 1099 information with the information you report on your tax return. When a mismatch occurs, expect to receive an automated CP2000 notice from the IRS notifying you of the additional amount due.
3. You own a business. Rules regarding business deductions are confusing and constantly changing. The IRS knows this. Incorrectly deducting personal expenses or having your business classified as a hobby, thereby eliminating deductions, can get you in trouble with the IRS. Cash heavy businesses are under increased scrutiny due to higher fraud rates. Solid tracking processes and good records are necessities for income and expense substantiation.
4. You make a math error. The IRS identified over 2.5 million math errors on 2016 returns. The biggest culprits are tax and credit calculations. Math errors can create a two-fold problem for you – additional tax owed and more scrutiny applied to other parts of your tax return.
5. You claim the Earned Income Tax Credit. According to a report by the U.S. Treasury Department, 24 percent or $16.8 billion in EITC payments were issued improperly in Fiscal Year 2016. Numbers that large are sure to get the IRS’s attention. Eligibility confusion and calculation errors are mostly to blame.

While some of the risk factors are out of your control, many can be minimized. If you are chosen for an audit, don’t deal with the IRS alone – please call for help.

Tax reform brings changes to qualified moving expenses

For businesses that have employees, there are changes to fringe benefits that can affect a business’s bottom line and their employee’s tax liabilities. One of these changes is to qualified moving expenses.

Under previous law, payment or reimbursement of an employee’s qualified moving expenses were not subject to income or employment taxes.

Under last year’s tax reform legislation, employers must include all moving expenses, in employees’ wages, subject to income and employment taxes.

Exception
Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if:

• They are on active duty
• They move pursuant to a military order and incident to a permanent change of station
• The moving expenses would qualify as a deduction if the employee didn’t get a reimbursement

Transition rule
There is a transition rule under the new law. Under this rule, certain payments or reimbursements aren’t subject to federal income or employment taxes. This includes amounts that:

• An employer pays a third party in 2018 for qualified moving services provided to an employee prior to 2018.
• An employer reimburses an employee in 2018 for qualified moving expenses incurred prior to 2018.

To qualify for the transition rule, the payments or reimbursements must be for qualified expenses which would have been deductible by the employee if the employee had directly paid them before Jan. 1, 2018. The employee must not have deducted them in 2017.

Corrections
Employers who have included amounts covered by the exception or the transition rule in individuals’ wages or compensation can take steps to correct taxable wages and employment taxes.

6 Last-Second Money-Saving Tax Moves

As 2018 winds down, there is still time to reduce your potential tax obligation. Here are some ideas to make your 2018 tax return less of a burden on your wallet from your Blue Springs income tax services firm Alliance Financial & Income Tax.

1. Accelerate expenses. Individual taxpayers are on the cash basis for income tax purposes. This means your income is taxable when you receive it and expenses count when you pay them. Depending on your situation, shifting deductions between years can make a big difference on your tax bill. With this knowledge, making additional deductible payments prior to the end of the year may be a good idea. Examples include property tax payments, mortgage interest payments and charitable donations.
2. Make effective use of capital losses. Up to $3,000 in capital losses can be claimed each year to reduce your ordinary income. This loss limitation is calculated after netting all your capital losses against any capital gains. When you have more losses than gains, up to $3,000 can be used to reduce your other income. With careful planning you can take advantage of this loss amount each year.
3. Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
4. Take advantage of the annual gift exclusion. For 2018, you may provide gifts up to $15,000 to as many individuals as you wish without tax consequences. This could include gifts of cash or property, including investments. Taking advantage of the annual exclusion is a great way to lower your taxable estate.
5. Give to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much to donate. Pulling some donations planned for 2019 into 2018 may be a good strategy.
6. Donate appreciated stock. By donating appreciated stock owned one year or longer to a favorite charity, you receive two benefits. First, you will not have to claim the capital gain on the appreciation of your investment. Second, you can claim the higher market value of the stock as your contribution amount. The procedure you need to follow to qualify your donation of appreciated stock is fairly strict. Ask for help from your broker and the charitable organization to ensure it is done correctly.

This is a short list of some of the ideas you can use to lower your tax obligation in 2018. If interested, please call for help with reviewing your situation.

It’s that time of year...

It’s that time of year, advertising by the big box tax franchises, trying to convince you to spend your hard earned dollars with them. They “offer” gimmicks, deals, etc. The millions of dollars spent in advertising has to be recouped somehow, and that’s exorbitant prices and suspect “customer service”.

Alliance Financial & Income Tax has been in business since 2002, we offer no gimmicks, “deals”, etc. We don’t have to recoup millions in advertising dollars and we offer true customer service. If you’re tired of just being a number and want to be truly taken care of, call us at 816-220-2001 or schedule online.

We provide income tax services and financial services in Blue Springs and surrounding areas.

America's Tax Experts; The Enrolled Agent

An Enrolled Agent (EA) is a federally-authorized tax preparer who has technical taxation expertise and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for IRS audit help, collections, and appeals.

What does the term "Enrolled Agent" mean?

"Enrolled" means to be licensed to practice by the federal government, and "Agent" means authorized to appear in the place of the taxpayer at the IRS. Only enrolled agents, attorneys, and CPAs may represent taxpayers before the IRS but Alliance Financial & Income Tax represents tax payers with enrolled agent certification. The profession of an enrolled agent began around 1884 after questionable claims had been presented for Civil War losses. Back then, Congress acted to regulate the profession that represented citizens in their dealings with the U.S. Treasury Department.

How do you become an enrolled agent?

 The enrolled agent license is earned in one of two ways, by passing a comprehensive examination which covers all aspects of the tax code to receive an enrolled agent certificate, or having worked at the IRS for five years in a position which regularly interpreted and applied the tax code and its regulations. All candidates must pass a rigorous background check conducted by the IRS.

How can an Enrolled Agent help me?

Enrolled agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. An enrolled tax agent maintains expertise in the continually changing field of taxation, enabling them to effectively represent taxpayers audited by the IRS.

Privilege and the Enrolled Agent

The IRS Restructuring and Reform Act of 1998 allow federally authorized tax preparers, defined as those bound by the Department of Treasury’s Circular 230 regulations, a limited client privilege. This means that confidentiality is required between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state taxes, although a number of states have an accountant-client privilege.

Are Enrolled Agents required to take

continuing professional education?

In addition to the stringent testing and application process, the IRS requires enrolled agents to complete 72 hours of continuing professional education, reported every three years, to maintain their enrolled agent designation. NAEA members are obligated to complete 90 hours per three year reporting period. Because of the knowledge necessary to become a tax enrolled agent and the requirements to maintain the license, there are only about 46,000 practicing enrolled agents.

What are the differences between Enrolled Agents

and other tax professionals?

Only enrolled agents are required to demonstrate to the IRS competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all enrolled agents specialize in taxation. Enrolled agents are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by the states).

Are Enrolled Agents bound by any ethical standards?

Enrolled agents are required to abide by the provisions of the Department of Treasury’s Circular 230, which provides the regulations governing the practice of enrolled agents before the IRS. NAEA members are also bound by a Code of Ethics and Rules of Professional Conduct of the Association.

Why should I choose an Enrolled Agent who is a member of the

National Association of Enrolled Agents (NAEA)?

The principal concern of the National Association of Enrolled Agents and its members is honest, intelligent and ethical representation of the financial position of taxpayers before the governmental agencies. Members of the enrolled agent association must fulfill continuing professional education requirements for tax planning that exceed the IRS’ required minimum. In addition, NAEA members adhere to a stringent Code of Ethics and Rules of Professional Conduct of the Association, as well as the Treasury Department’s Circular 230 regulations. NAEA members belong to a strong network of experienced, well-trained tax professionals who effectively represent their clients and work to make the tax code fair and reasonably enforced.

What the New Tax Bill Means for You

As we have said for years, on January 1^st we will
become historians regarding the tax and financial decisions you made in
2018.  Look at this article to learn more
about tax law changes that may affect your situation.  We still have time to adjust if necessary.  Have questions?  Call us at 816-220-2001  What the New Tax Bill Means for You: What does the Tax Reform and Jobs Act mean for you?

How Is the Gift Tax Calculated?

Technically, the federal gift tax applies to most gifts you make during your lifetime—from that $5 bill you might give a homeless person on the street to a substantial down payment on a house for your child. You're supposed to keep track of all of it. Does that sound intimidating? Take a deep breath and relax. It's not as bad as it sounds. 

The following is a break down of the Gift Tax rules provided by your Blue Springs income tax preparation office of Alliance Financial & Income Tax.

You Have Two Options 

Every taxpayer has two options for dodging the gift tax. The first is an annual exclusion, and you're also allowed a lifetime exemption.

You'd have to give away a considerable amount of money or property before you'd owe this tax. Gifts are only taxed when their value exceeds the lifetime exemption—the amount you're permitted to give away during the course of your entire life, which is $11.18 million as of 2018. 

What Counts As a Gift?

The Internal Revenue Service considers a gift to be virtually any transfer of cash or property in which the donor doesn't receive something of equal value in return. If you give someone cash with the understanding that he does not have to pay you back, that's a gift. If you sell someone a $300,000 home for $150,000, you've made her a gift of $150,000. 

This is all based on the IRS definition of "fair market value." Cash is what it is, so there's rarely any doubt there. As for that house, the IRS says its fair market value is what someone could be expected to pay for it if neither the buyer nor the seller were under any sort of duress to commit to the transaction.

The IRS definition of a gift can even hide in places you might not expect. If you make a loan to a friend without charging him interest, the IRS says that's a gift—particularly if you later forgive the debt. And if you put your adult child on your bank account as a joint owner, perhaps so she can help you take care of your financial business, guess what? She's just given you a taxable gift.

Another important consideration is that not all gifts are taxable. Dad could pay his son's tuition bills or medical expenses in any amount without incurring a gift tax, provided he gives the money directly to the learning institution or the medical facility, not to his son.

Note: Gifts to spouses who are U.S. citizens are tax-free as well.

The Annual Gift Tax Exclusion

It all starts with the annual exclusion, which lets you make gifts of up to $15,000 per year per person tax-free as of 2018. These gifts don't count against your $11.18 million lifetime exemption.

Note: The lifetime exemption only kicks in when you exceed this annual amount in a given year. 

The key words here are "per person." If your son and his spouse want to buy a house and you want to give them $30,000 for a down payment, you can do that without paying a gift tax. You can attribute $15,000 for that year to each of them. The IRS doesn't care whether they both spend the money on the same thing. 

And here's another bonus if you're married. You and your spouse are each entitled to a $15,000 annual exclusion. Technically, you could give your son and his spouse $60,000 toward that house—$15,000 to each of them from both you and your spouse.

When and Why You Must File a Gift Tax Return

You must report gifts over the annual exclusion to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This records how much you've gone over the annual exemption each year—the amounts that count against your lifetime exemption.

Of course, you can go ahead and pay the tax on these gifts when you file the gift tax return. You don't have to let them count against your lifetime exemption. 

The Lifetime Exemption Is a "Unified" Credit 

The Internal Revenue Service lumps together all gifts you make during your lifetime with gifts you make as bequests from your estate when you die. The gift tax and the estate tax share this same $11.18 million exemption under the umbrella of something called a unified tax credit.

Eventually, at the end of your life when your estate settles, all these annual overages are added up and applied to your lifetime exemption. If your excess gifts plus the value of your estate exceed the lifetime exemption of $11.18 million, the tax rate tops out at a whopping 40 percent for estates as of 2018. 

If you exceed your annual exclusions to the tune of $1 million during your lifetime, you'll have $10.18 million left to shelter your estate from estate taxes when you die.

Note: The value of your lifetime gifts comes off the lifetime exemption first; then any exemption that is left over is applied to your estate's value.

Of course, $11.18 million is a lot of money. Only two out of every 1,000 estates owed any estate tax in 2017—and the annual exemption that year was roughly half the 2018 exemption, just $5.49 million. 

A Gift Tax Example

If a father makes a gift of $115,000 to his son for the purchase of a home, $15,000 of that gift is free and clear of the federal gift tax, thanks to the annual exclusion. The remaining $100,000 is a taxable gift and would be applied to his lifetime exemption if he chose not to pay the tax in the year he made the gift. 

But if the father gifts his son $15,000 on Dec. 31, and then gives him an additional $100,000 on Jan. 1, the December gift is free and clear and only $85,000 of the subsequent $100,000 counts against his lifetime exclusion—$100,000 less that year's annual $15,000 exclusion. Remember, the annual gift exemption is per person per year. 

You can give the annual exclusion amount to any one person every single year and never dip into your lifetime exemption. If the father doesn't want to pay the gift tax on the $85,000 in the year the gift is made, he can reduce his lifetime gift tax exemption by this amount. Despite his significant generosity, Dad would still have $11,095,000 of the unified tax credit left to shelter his estate. 

Another Option for Payment 

The IRS isn't entirely without a heart, and it encourages generosity to some extent, giving you yet a third option. If you give gifts in excess of the annual exclusion, a special rule lets you spread their value out over five years, another way of effectively paying the tax now so that you don't have to dip into your lifetime exemption. 

Let's go back to that $115,000 Dad gave his son. The first $15,000 is tax-free, thanks to the annual exclusion. The second $15,000 is tax-free, thanks to the following year's annual exclusion. Now Dad can shave an additional $60,000 off his taxable gift, stretching that extra $100,000 over a total of five years: $15,000 for the Jan. 1 gift and $15,000 in each of the next four years.

He's whittled his taxable gift down to just $25,000, on which he can either go ahead and pay the gift tax or let it count against his lifetime exemption. 

Of course, this means he can't give his son any more tax-free gifts, at least for five years. And he must still file a gift tax return in this case to let the IRS know that he's electing this option. 

Exemptions Increase Periodically 

The lifetime exemption increases periodically to keep pace with inflation and due to changes in legislation. The 2017 lifetime exemption of $5.49 million increased from $5.45 million in 2016 with inflation adjustments, then it went from $5.49 million to $11.18 million in 2018, thanks to the Tax Cuts and Jobs Act and another inflation adjustment. 

The annual exclusion was stuck at $14,000 from 2013 through 2017 before it increased to $15,000 in 2018. It can only change in $1,000 increments, and it does not have to do so every year. 

Note: The bottom line is that the great majority of us can give to our heart's content with no tax issues to worry about.