Tax Preparation Services for Blue Springs and Surrounding Areas

 

In our age of technology, most of us have become do-it-yourselfers. This usually makes sense, but not regarding individual or business tax preparation. Entering a few numbers into the latest tax software might be quick and easy, but it could cost you hundreds or even thousands of dollars if you make a mistake. Don’t take chances with your tax return; trust a real person to prepare your taxes. Contact the Blue Springs, Missouri tax accountants at Alliance Financial & Income Tax. now.

We’re your best choice for tax preparation in the Kansas City, Missouri area because we keep up on all the latest revisions and updates to the State and Federal tax regulations. We’re constantly searching for new tax breaks and deductions we can use to save our clients money on taxes. From personal income tax returns to business tax preparation services, we work hard to minimize tax liabilities for all our clients.

Individual and Business Tax Services

When you turn to us for tax services, you’ll receive top-notch customer service from our friendly staff of knowledgeable accountants and financial professionals. We’ll happily answer your questions and always promptly respond to your emails and phone calls. Request a consultation through our website today or give us a call at 816-323-6561 to get started.

• Business tax preparation - corporate, LLC, etc.
• Tax returns for individuals
• Estate tax returns
• Non-profit tax preparation services
• Expatriate tax preparation and FBAR filing
• Quicker tax refunds with E-file

Use the Tax Code to Make Business Losses Less Painful

 

Whether you're operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations.

Qualifying for a Deduction

The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly.

Eligibility for the NOL deduction depends on having deductions for the tax year that exceed your income. The loss generally must be caused by deductions related to your:

• Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
• Casualty and theft losses from a federally declared disaster, or
• Rental property (Schedule E).

The following generally aren't part of the NOL determination:

• Capital losses that exceed capital gains,
• The exclusion for gains from the sale or exchange of qualified small business stock,
• Nonbusiness deductions that exceed nonbusiness income,
• The NOL deduction itself, and
• The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren't eligible, but partners and shareholders can calculate individual NOLs using their separate shares of business income and deductions.

Limitations

Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could carry back NOLs for two years and carry them forward 20 years. They also could apply NOLs against 100% of their taxable income.

The TCJA limits NOL deductions to 80% of taxable income for the year and eliminates the carryback of NOLs (except for certain farming losses). However, it does allow NOLs to be carried forward indefinitely.

If your NOL carryforward is more than your taxable income for the year you carry it to, you may have an NOL carryover. That's the excess of the NOL deduction over your modified taxable income for the carryforward year. If your NOL deduction includes multiple NOLs, you must apply them against your modified taxable income in the same order you incurred them, beginning with the earliest.

A Limit on Excess Business Losses

The TCJA also established an “excess business loss” limitation, effective beginning in 2021. For partnerships or S corporations, this limitation applies at the partner or shareholder level, after applying the outside basis, at-risk and passive activity loss limitations. Under the rule, noncorporate taxpayers' business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2023, that threshold is $289,000, or $578,000 if married filing jointly. For 2024, the thresholds are $305,000 and $610,000, respectively. Remaining losses are treated as an NOL carryforward to the next tax year. That is, you can't fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years beginning before January 1, 2029. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Planning Ahead

The tax rules regarding business losses are complex, especially the interaction between NOLs and other potential tax breaks. Contact the office for help charting the best course forward.

Choosing a reputable tax preparer is vital to tax security

 

As people get ready for tax filing season, they must select tax return preparers with the skills, education and expertise to prepare tax forms correctly. Taxpayers are ultimately responsible for all the information on their tax return, regardless of who prepares it.

Tax preparers include certified public accountants (CPAs), enrolled agents, attorneys, and others. Taxpayer should choose a tax preparer that works best for their needs.

Here are some tips to help people choose a preparer.

Check the IRS Directory of Preparers
Taxpayers can find an enrolled agent, CPA, attorney or participant in Annual Filing Season Program with the IRS Directory of Preparers

Checklist for choosing a tax pro
Before hiring a tax preparer:

• Check the preparer's history with the Better Business Bureau. Taxpayers can also verify an enrolled agent's status on IRS.gov.
  
• Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts. Taxpayers should be suspicious of preparers claiming they can get larger refunds than other tax preparers.
• Ask if the preparer plans to use e-file. The fastest way to get a tax refund is by e-filing and choosing direct deposit.
  
• Choose a firm or individual with a track record. Preparers may need to answer questions about the tax return months or even years later.
  
• Ensure the preparer signs the tax return and includes their Preparer Tax Identification Number. Paid tax return preparers must have a PTIN and include it on any tax return they prepare.
  
• Consider the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Watch out for tax preparer scams.
Tax return preparer fraud is a common tax scam. Here are tips on avoiding unscrupulous tax preparers.

The IRS is committed to investigating paid tax return preparers who act improperly. Taxpayers can file a complaint if they have been financially impacted by a tax return preparer's misconduct or improper tax preparation practices.

How Women Can Prepare For Retirement

 

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration (SSA) estimates that today's average 67-year-old woman will live to age 88. Given these projections, it appears that a retirement of 20 years or longer might be in your future.¹

Are You Prepared For a 20-Year Retirement?

How about a 30-year or even 40-year retirement? Don't laugh; it could happen. The Society of Actuaries predicts that an average healthy woman that reaches age 65 has a 48% chance of living past 90, and a 26% chance of living to be older than 95.²

Start with Good Questions

How can you draw retirement income from what you've saved? How might you create other income streams to complement Social Security? And what are some ways you can protect your retirement savings and other financial assets?

Enlist a Financial Professional

The right person can give you some good ideas, especially one who understands the challenges women face in saving for retirement. These may include income inequality or time out of the workforce due to childcare or eldercare. It could also mean helping you maintain financial equilibrium in the wake of divorce or the death of a spouse.

Invest Strategically

If you are in your fifties, you have less time to make back any big investment losses than you once did. Protecting what you have may be a priority. At the same time, the possibility of a retirement lasting up to 30 or 40 years will require a good understanding of your risk tolerance and overall goals.

Consider Extended Care Coverage

Women have longer average life expectancies than men and may require significant periods of eldercare. Medicare is no substitute for extended care insurance; it only covers a few weeks of nursing home care, and that may only apply under special circumstances. Extended care coverage can provide financial relief if the need arises.³

Claim Social Security Benefits Carefully

If your career and health permit, delaying Social Security can be a wise move. If you wait until full retirement age to claim your benefits, you could receive larger Social Security payments as a result. For every year you wait to claim Social Security past your full retirement age up until age 70, your monthly payments get about 8% larger.⁴

Retire With a Strategy

As you face retirement, a financial professional who understands your unique goals can help you design an approach that can serve you well for years to come.

Aspects of your financial life to review as the year closes.

 

The end of the year can remind us of last-minute things we need to address and the goals we want to pursue. Here are some aspects of your financial life to consider as this year leads into the next. 

Remember that this article is for informational purposes and is not a replacement for real-life advice. Contact a tax or legal professional before modifying your tax strategy. The ideas presented are not intended to provide specific advice. Also, tax rules are constantly changing, and there can be no guarantee that the rules will stay the same for any period. 

Investments: If you still need to, consider contributing the maximum to your retirement accounts and review any existing retirement accounts from work. If you are eligible to make any catch-up contributions, consider making that decision.  

Retirement strategy: If you still need to, consider contributing the maximum to your retirement accounts and review any existing retirement accounts from work. If you are eligible to make any catch-up contributions, consider making that decision. 

Taxes: It's a good idea to consider checking in with your tax or legal professional before the year ends, especially if you have questions about an expense or deduction from this year. Also, it may be prudent to review any sales of property as well as both realized and unrealized losses and gains. Look back at last year's loss carried forward. If you've sold securities, gather up cost-basis information. As always, bringing all this information to your financial professional is wise.  

Charitable gifting: Plan charitable contributions or contributions to education accounts and make any desired cash gifts to family members. The annual federal gift tax exclusion allows you to give away up to $17,000 in 2023, meaning you can gift as much as $17,000 to as many individuals as you like this year. Such gifts do not count against the lifetime estate tax exemption amount as long as they stay beneath the annual federal gift tax exclusion threshold. Besides outright gifts, you can explore creating and funding trusts on behalf of your family. The end of the year is also an excellent time to review any trusts. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, could you work with a professional familiar with the rules and regulations? ¹ 

Life insurance: The end of the year is an excellent time to double-check that your policies and beneficiaries are up to date. Review premium costs and beneficiaries and consider whether your insurance needs have changed. Several factors could impact the cost and availability of life insurance, such as age, health, the type of insurance purchased, and the amount purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, you may pay surrender charges, which could have income tax implications. Before implementing a life insurance strategy, consider whether you are insurable. Finally, please remember that any guarantees associated with a policy depend on the ability of the issuing insurance company to continue making claim payments. 

Life events: Evaluating any significant life changes in the last year:

 

• Marital status
• Moving
• Changing jobs
• Buying a home
• Starting a business
• Inheritance
• Gifts
• Additions to the family.

 

All these circumstances can financially impact your life and how you invest and plan for retirement and wind down your career or business. While it's likely that you have already discussed these matters with your financial professional this year, bring them up in your review.

 

Citations

1. IRS.gov, September 15, 2023

Navigating the Maze: How Living and Working in Different States Affects Your Taxes

 

In an increasingly interconnected world, it's not uncommon for individuals to live in one state while working in another. This lifestyle choice can come with various benefits, such as better job opportunities, a lower cost of living, or proximity to family.

However, the complexity of the U.S. tax system can make this arrangement more intricate than it initially seems. Understanding how living and working in different states affect your taxes is crucial to avoiding potential pitfalls and optimizing your financial situation.

Residency vs. Domicile

Before delving into the tax implications, it's essential to distinguish between two key concepts: residency and domicile. Residency typically refers to where you physically live, while domicile is your permanent legal home. For tax purposes, your domicile is usually where you have the closest connections and intend to return, even if you temporarily live and work elsewhere.

State Income Tax

One of the most significant impacts of living and working in different states is the variation in state income taxes. While some states have no income tax (e.g., Texas, Florida), others impose significant income tax rates (e.g., California, New York). If you live in a state with an income tax but work in a state without one (or with a lower rate), you might be subject to non-resident or part-year resident taxation in the state where you work.

Double Taxation

The prospect of being taxed by two states—your resident state and the state where you work—can be daunting. Fortunately, most states have agreements in place to prevent double taxation. These agreements, known as reciprocity agreements, allow you to pay taxes only to your resident state, even if you're working across state lines. However, these agreements vary, and it's essential to check the specifics of the states involved.

Credits and Deductions

In situations with no reciprocity agreement, you might be eligible for tax credits or deductions to mitigate double taxation. The resident state might offer a credit for taxes paid to another state, reducing your overall tax liability. Additionally, the federal tax return allows you to deduct any state income taxes paid, softening the impact of dual taxation.

Filing Considerations

Living and working in different states often means filing tax returns in both states. You'll likely need to file a non-resident or part-year resident return in the state where you work and a resident return in your home state. Filing requirements, deadlines, and forms can vary significantly, so seeking professional tax advice is advisable to ensure compliance and maximize deductions.

Impact on Other Taxes

Aside from state income tax, living and working in different states can also influence other taxes. Sales, property, and local taxes can differ between states and impact your overall financial situation. Additionally, your domicile state might have specific estate and inheritance tax laws that apply to your situation.

Living and working in different states can offer numerous benefits, but the intricate web of state tax laws can complicate financial matters. To navigate this complex landscape, it's essential to understand your residency status, potential tax treaties, and available credits and deductions.

Seeking advice from tax professionals or financial advisors with expertise in cross-state taxation can help you make informed decisions, optimize your tax situation, and ensure compliance with tax laws. As you live and work across state lines, remember that staying informed is your best tool for financial success.

A Taxing Story: Capital Gains and Losses

 

Chris Rock once remarked, “You don’t pay taxes – they take taxes.” That applies not only to income but also to capital gains.

Capital gains result when an individual sells an investment for an amount greater than their purchase price. Capital gains are categorized as short-term gains (a gain realized on an asset held one year or less) or as long-term gains (a gain realized on an asset held longer than one year).

Keep in mind that the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Long-Term vs. Short-Term Gains

Short-term capital gains are taxed at ordinary income tax rates. Long-term capital gains are taxed according to different ranges (shown below).¹

Long Term Capital Gains Tax Brackets (for 2023)

Tax Bracket/Rate	Single	Married Filing Jointly	Head of Household
0%	$0 - $44,625	$0 - $89,250	$0 - $59,750
15%	$44,626 - $492,300	$89,251- $553,850	$59,751 - $523,050
20%	$492,300+	$553,850+	$523,0500+

It should also be noted that taxpayers whose adjusted gross income is in excess of $200,000 (single filers or heads of household) or $250,000 (joint filers) may be subject to an additional 3.8% tax as a net investment income tax.²

Also, keep in mind that the long-term capital gains rate for collectibles and precious metals remains at a maximum of 28%.³

Rules for Capital Losses

Capital losses may be used to offset capital gains. If the losses exceed the gains, up to $3,000 of those losses may be used to offset the taxes on other kinds of income. Should you have more than $3,000 in such capital losses, you may be able to carry the losses forward. You can continue to carry forward these losses until such time that future realized gains exhaust them. Under current law, the ability to carry these losses forward is lost only on death.⁴

Finally, for some assets, the calculation of a capital gain or loss may not be as simple and straightforward as it sounds. As with any matter dealing with taxes, individuals are encouraged to seek the counsel of a tax professional before making any tax-related decisions.

1. Investopedia.com, July 19, 2022
2. IRS.gov, 2023
3. Investopedia.com, May 4, 2022
4. Investopedia.com, February 24, 2023

Tips for When You Can't Pay Your Taxes

Tax season can be stressful for anyone, especially if you face financial difficulties and cannot fully pay your taxes. While it's essential to fulfill your tax obligations, there are steps you can take to manage the situation and ease the burden on your finances.

In this blog, we'll explore some practical tips to help you navigate the challenging scenario of being unable to pay your taxes on time.

1. Stay Calm and Communicate:
   The first step when facing a tax payment challenge is to remain calm. Remember that you're not alone – many individuals and businesses encounter this situation. Instead of ignoring the issue, immediately communicate with the IRS or your relevant tax authority. Ignoring the problem will only lead to increased penalties and interest. You might be surprised at their willingness to work with you to find a solution.
2. Explore Payment Options:
   Government tax agencies understand that unexpected financial setbacks can happen. They often offer various payment options to help taxpayers manage their obligations. These options include setting up an installment plan or negotiating a temporary delay in payment. Assess your financial situation and discuss the available payment plans with the tax authorities to find one that best fits your circumstances.
3. File Your Tax Return on Time:
   Even if you can't afford to pay your taxes immediately, filing your tax return on time is crucial. Filing your return by the deadline helps you avoid additional penalties for failure to file. If you cannot pay, the penalties for not filing are much steeper than those for not paying on time.
4. Consider an Extension:
   Consider filing for an extension if you need more time to gather funds. While this won't excuse you from paying any taxes owed, it can give you an extra six months to make the payment without facing failure-to-file penalties. Remember that you'll still be subject to interest and late payment penalties on your owed amount.
5. Explore Available Tax Credits and Deductions:
   Ensure you're taking full advantage of all available tax credits and deductions. Research tax breaks that apply to your situation, as they lower your tax liability. While these won't solve the issue, they can help reduce your debt.
6. Avoid Using High-Interest Credit Cards:
   While using a credit card to pay your taxes might be tempting, it's generally not advisable, especially if you cannot pay off the card immediately. High-interest rates on credit card balances can exacerbate your financial situation in the long run. Explore other options before resorting to credit cards.
7. Seek Professional Advice:
   If your financial situation is complex or you are unsure about the best course of action, it's wise to seek advice from a tax professional. A certified public accountant (CPA) or tax attorney can provide guidance tailored to your circumstances and help you navigate the complexities of tax payments.
8. Adjust Your Withholding or Estimated Payments:
   If your inability to pay taxes stems from a recurring issue, such as insufficient tax withholding from your paycheck or inconsistent estimated tax payments (for self-employed individuals), consider adjusting these amounts moving forward. This can prevent future tax payment problems.

While facing the inability to pay taxes can be stressful, taking proactive steps to address the situation is essential. By staying calm, communicating with tax authorities, and exploring available options, you can find a way to manage your tax obligations without further damaging your financial well-being.

Remember, you're not alone in this; resources and professionals can help you navigate these challenges.

A Practical Guide Through Divorce and Taxes

 If you’ve gone through a divorce, you know your world gets turned upside down. Put together divorce and taxes and the complexity can feel overwhelming. 

There are a lot of challenges you're facing – the confusion, the uncertainty, and the worry about making the right decisions. 

In the midst of this upheaval, having someone in your corner to help you navigate your finances and tax standing with confidence is breath to your lungs. 

That’s one of the goals of this guide — but I’m here to sit down with you at any time to discuss the tax logistics of your divorce as well.

www.afitonline.com/appointments

Here’s a practical, 6-step guide to help you navigate things with greater ease and understanding.

1. Filing status: Your first step

Your filing status depends on your marital status as of December 31. If divorced by that date, you cannot file jointly. If still married, you have the option to file jointly or separately. For 2023, the standard deductions are $27,700 for joint filers, $13,850 for singles and married filing separately, and $20,800 for heads of households.

2. Update your W-4

Once you're divorced, it's crucial to update your W-4 form with your employer. This form determines your tax withholding based on your marital status. After a divorce, your tax situation changes, and updating your W-4 ensures that the correct amount of tax is withheld from your paychecks.

3. Child support and dependency

Child support payments are neither taxable income nor tax-deductible. However, determining which parent claims the child as a dependent is crucial for tax benefits, such as the Child Tax Credit. The primary custodial parent typically has the right to claim the child, but this can be adjusted based on your divorce agreement.

4. Asset division

The division of assets during a divorce can have significant tax implications. Transferring properties and splitting retirement accounts can trigger capital gains taxes or penalties. Understand the tax basis of each asset and plan accordingly.

5. Legal and professional fees

The cost of legal advice specifically related to tax issues in your divorce can be deductible. However, general legal expenses for divorce proceedings are not.

6. State taxes

Each state has its own set of rules regarding divorce and taxes. This is particularly important for issues like alimony, which can be treated differently for state tax purposes.

Bonus tip: Get expert guidance

Talking to your professional (whether it’s us or someone else) can be invaluable. We can help you make informed decisions and do them in the right way at the right time. This is what we do every day, and we’re happy to do it for you.

Every decision you make at the end of a marriage is also a step towards a new beginning. Finding your footing in a changed landscape, moving forward with confidence and clarity — these can be difficult. 

So, getting the right support and guidance on divorce and taxes as you navigate the transition is the difference-maker. We’re here for you… to help you build a strong foundation for the next chapter of your life.

www.afitonline.com/appointments

 

Your financial well-being matters., 

Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 
F - 816-220-2012

www.AFITonline.com
https://www.facebook.com/AFITonline

Strategies for Using the Home Office Tax Deduction

 

Recently, the concept of the traditional workplace has undergone a significant transformation. The rise of remote work has led many individuals to establish their home offices, blurring the lines between personal and professional spaces.

Fortunately, this shift has brought new opportunities to save money through the home office tax deduction. If you utilize a home office for work purposes, understanding the intricacies of this deduction and employing intelligent strategies can help you make the most of it.

Understanding the Home Office Tax Deduction:

The home office tax deduction allows eligible taxpayers to claim a portion of their home-related expenses as business expenses, thereby reducing their taxable income. To qualify for this deduction, the IRS (or your country's relevant tax authority) typically requires your home office space to be used regularly and exclusively for conducting business. Your home office should be your primary workspace solely for work-related tasks.

Strategies for Maximizing Your Savings:

1. Keep Accurate Records:
   Maintaining meticulous records is crucial when claiming the home office tax deduction. Keep track of all relevant expenses, including rent or mortgage payments, utilities, internet, and office supplies. Digital tools like spreadsheets or expense-tracking apps can help you efficiently organize and document these expenses.
2. Calculate Your Deduction Methods:
   There are two methods for calculating the home office deduction: the Simplified Option and the Regular Method. The Simplified Option offers a flat deduction per square foot of your home office space. At the same time, the Regular Method involves more detailed calculations but could potentially result in a higher deduction. Evaluate which method suits your situation better to maximize your savings.
3. Measure Your Space Correctly:
   Accuracy matters when determining the square footage of your home office. Measure the space used for business purposes and calculate the ratio of your office's square footage to the total square footage of your home. This ratio will determine the portion of expenses you can claim.
4. Document Your Workspace:
   Visual evidence of your home office can substantiate your claim in case of an audit. Take clear photos or videos of your office setup, highlighting its exclusivity for work. These visuals can serve as valuable proof of your compliance with the regular and exclusive use requirements.
5. Know What's Deductible:
   While expenses directly related to your home office, such as office supplies, furniture, and technology, are generally deductible, other expenses like personal mortgage interest, insurance, and general home repairs are not eligible. Familiarize yourself with the IRS guidelines or consult a tax professional to understand what expenses can be included.
6. Consider the Future Impact:
   Before claiming the home office deduction, think about potential implications down the road. For instance, taking the deduction might affect your capital gains tax if you plan to sell your home. Balancing short-term tax savings with long-term financial plans is essential.
7. Consult a Tax Professional:
   Tax regulations can be complex and subject to change. Seeking advice from a tax professional can help you navigate the intricacies of the home office tax deduction and ensure you're taking full advantage of the benefits without inadvertently triggering any red flags.

The home office tax deduction is a valuable tool that can significantly reduce your tax liability if used wisely. By maintaining accurate records, understanding the different calculation methods, and adhering to the IRS guidelines, you can successfully leverage this deduction to maximize your savings.

Remember that every individual's situation is unique, so it's important to tailor these strategies to your circumstances. Whether a freelancer, remote worker, or entrepreneur, taking advantage of the home office tax deduction can help you save money and boost your financial well-being.

Recognizing Red Flags: Signs That Could Trigger an IRS Audit

 Dealing with taxes can often be a complex and confusing process, and the last thing anyone wants is to face an audit from the Internal Revenue Service (IRS). While audits are relatively rare, it's essential to be aware of potential red flags that increase the likelihood of being selected for closer scrutiny.

In this article, we'll discuss some common red flags that could trigger an IRS audit and steps you can take to minimize your risk.

1. Discrepancies and Mismatches:
   One of the most significant red flags for an IRS audit is discrepancies or mismatches in your tax return. The IRS receives copies of various tax-related forms, such as W-2s, 1099s, and 1098s, from employers, financial institutions, and other sources. Failing to report income that the IRS has on record can raise suspicions and trigger an audit. It's crucial to double-check your return for accuracy and ensure that all reported income matches the forms the IRS receives.
2. High Income:
   Individuals with high incomes are more likely to be audited simply because their potential tax liability is higher. However, this doesn't mean that high earners are automatically targeted. The IRS uses a computerized scoring system to determine audit potential, and while a high income might raise your score, other factors also come into play.
3. Excessive Deductions:
   Claiming an unusually high number of deductions, especially in comparison to your income level, can attract the IRS's attention. While you're entitled to claim deductions you're eligible for, be prepared to provide proper documentation to support your claims. If your deductions seem out of proportion, you might face an audit.
4. Home Office Deductions:
   Home office deduction can be a legitimate way to reduce taxable income for self-employed individuals or those with a home-based business. However, it's also a red flag for the IRS due to the potential for abuse. Ensure you meet the specific criteria for claiming a home office deduction and maintain accurate records of your expenses.
5. Business Losses:
   Consistently reporting business losses on Schedule C might raise concerns for the IRS. While many legitimate businesses incur losses, excessive or continuous losses without a clear improvement plan could lead the IRS to question the legitimacy of your business activities.
6. Cash Transactions:
   Large cash transactions, particularly those exceeding $10,000, can trigger an IRS audit. The IRS is concerned about money laundering and unreported income from cash transactions. Financial institutions must report such transactions, so it is essential to ensure that your reported income matches your financial activities.
7. Cryptocurrency Transactions:
   With the rise of cryptocurrencies, the IRS has increased its focus on ensuring accurate reporting of cryptocurrency transactions. Failure to report cryptocurrency gains can lead to an audit, so keeping accurate records of all crypto-related activities is crucial.

While these red flags can increase the likelihood of an IRS audit, it's essential to remember that being flagged doesn't necessarily mean you've done something wrong. The IRS uses a complex scoring system that considers multiple factors before selecting returns for audit.

To minimize your risk, ensure accuracy in your tax return, keep meticulous records, and be prepared to provide documentation to support your claims. If you're ever faced with an audit, it's advisable to consult a tax professional who can guide you through the process and help you navigate the situation with confidence.

Have questions?  Contact Alliance Financial & Income Tax for assistance.

 

Veteran Tickets Foundation

Veteran Tickets Foundation: FREE event tickets for Currently Serving Military, Veterans and their Families

Moving Out of State? Learn All the Tax Implications First

 

With so many people working remotely these days, thinking about moving to another state has become common — perhaps for better weather or to be closer to family. Business owners might contemplate selling their business as part of an out-of-state move. Many retirees also consider moving to a state with a lower cost of living to stretch their retirement savings. Consider taxes before packing up your things if you're harboring such notions.

What Taxes Apply?

Moving to a state with no personal income tax may seem like a no-brainer, but you must consider all taxes that can potentially apply to state residents. In addition to income taxes, these may include property taxes, sales taxes, and estate or inheritance taxes.

If the states you're considering have an income tax, look at what types of income they tax. Some states, for example, don't tax wages but do tax interest and dividends. Some states offer tax breaks for pension payments, retirement plan distributions, and Social Security payments.

What Are the Domicile Requirements?

If you move permanently to a new state and want to escape taxes in the state you came from, it's crucial to establish a legal domicile in the new location. Generally, your domicile is a fixed and permanent home location where you plan to return, even after periods of residing elsewhere.

Each state has its own rules regarding domicile. You don't want to wind up in a worst-case scenario: Two states could claim you owe state income taxes if you established a domicile in the new state but didn't successfully terminate the domicile in the old one. Additionally, if you die without clearly establishing domicile in just one state, the old and new states may claim that your estate owes income taxes and any state estate tax due.

The first step to establishing domicile is to buy or lease a home in the new state and, generally, to sell your previous home (or rent it out at market rates to an unrelated party). Then, change your mailing address on bank and investment accounts, insurance policies and other essential documents. Getting a driver's license in the new state and registering your vehicle there also helps. So does registering to vote there and becoming involved with local organizations and activities. Take these and other steps as soon as possible after moving.

Remember that there may be rules about the number of days spent in the state. You may have to do more than take the steps above to show you're domiciled in the new state.

How Might State Taxes Affect a Business Sale?

Business owners tend to focus on the federal tax implications of a sale, while they may ignore state taxes. Now that federal tax rates are lower than they've been in the past, state taxes may take on added significance. Suppose you're contemplating relocating or retiring to another state. In that case, it may make sense to consider moving before you sell the business — especially if the new state has low, or even no, income tax.

To successfully negotiate the sale of a business, it's critical to understand all the tax implications. Armed with this knowledge, you can assess the impact of moving to another state on your net proceeds from the sale and whether it would be better to sell the business before or after you move.

Need Help?

When looking into whether the grass is greener in another state, research and contact the office for help, avoiding unpleasant tax surprises.

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

Tax Implications to Be Aware of After a Job Loss

Despite the generally robust job market, some people are still losing their jobs. If you’re laid off or terminated from employment, taxes are probably the last thing on your mind. However, you may face tax implications due to your changed personal and professional circumstances. Depending on your situation, these can be complex and require you to make decisions that may affect your tax picture this year and in the future.

Unemployment and Severance Pay

Unemployment compensation, as are payments for any accumulated vacation or sick time, is taxable for federal tax purposes. Although severance pay is also taxable and subject to federal income tax withholding, some elements of a severance package may be specially treated. For example:

• If you sell stock acquired by way of an incentive stock option, part or all of your gain may be taxed at lower long-term capital gains rates rather than at ordinary income tax rates, depending on whether you meet a special dual holding period.
• If you received (or will receive) what’s commonly referred to as a “golden parachute payment,” you may be subject to an excise tax equal to 20% of the portion of the payment that’s treated as an “excess parachute payment” under complex rules. In addition, the excess parachute payment also is subject to ordinary income tax.
• The value of job placement assistance you receive from your former employer usually is tax-free. However, the assistance is taxable if you had a choice between receiving cash or outplacement help.

Health Insurance

Under the COBRA rules, employers offering group health coverage must provide continuation coverage to most terminated employees and their families. While the cost of COBRA coverage may be expensive, the cost of any premium you pay for insurance that covers medical care is a medical expense, which is deductible if you itemize deductions and to the extent that your total medical expenses exceed 7.5 percent of your adjusted gross income.

If your ex-employer pays for some of your medical coverage for a period of time following termination, you won't be taxed on the value of this benefit.

Retirement Plans

Employees whose employment is terminated may also need tax planning help to determine the best option for amounts they’ve accumulated in retirement plans sponsored by their former employers. For most employees, a tax-free rollover to an IRA is the best move if the terms of the plan allow a pre-retirement payout.

Suppose the distribution from the retirement plan includes employer securities in a lump sum. In that case, the distribution is taxed under the lump-sum rules except that “net unrealized appreciation” in the value of the stock isn’t taxed until the securities are sold or otherwise disposed of in a later transaction.

Suppose you’re under the age of 59½ and must make withdrawals from your company plan or IRA to supplement your income. In that case, there may be an additional 10% penalty tax (on top of an ordinary income tax due), unless you qualify for an exception.

Further, any loans you’ve taken from your employer’s retirement plan, such as a 401(k)-plan loan, may be required to be repaid immediately or within a specified period. If such a loan isn’t repaid, it may be treated as if the loan is in default. If the balance of the loan isn’t repaid within the required period, it typically will be treated as a taxable deemed distribution.

Next Steps

While taxes aren’t the most critical concern after a job loss, they are still important to consider. Contact the office for help charting the best tax course for you during this transition period.

MY BRUTALLY HONEST REVIEW OF 401(K) PLANS

 

Investment accounts like the 401(k) plan often take center stage when securing our financial future. But just like any financial tool, a spectrum of features can make them a hit or a miss for different individuals. In this brutally honest review, we'll delve into the pros and cons of 401(k) plans, highlighting their potential benefits and the pitfalls that might leave you rethinking your retirement strategy.

Pros: Ease of Investment, Tax Advantages, and Employer Match Programs

One of the most appealing aspects of a 401(k) plan is its ease of investment. You can contribute a portion of your income through automatic payroll deductions before seeing it. This "set it and forget it" approach allows your retirement savings to grow without constant intervention.

Beyond the convenience, 401(k) plans offer significant tax benefits. Contributions are made pre-tax, which means you reduce your taxable income by the amount you contribute. This lowers your current tax liability and allows your investments to grow tax-deferred until you withdraw the funds in retirement.

Employer match programs further heightened the allure of 401(k) plans. Many companies incentivize their employees to save for retirement by matching a percentage of their contributions. This essentially equates to "free money" that can significantly boost your retirement savings over the long term.

Cons: Limited Investment Options, Potential for Higher Fees, and Tax Risks

While 401(k) plans have their merits, they are not without their downsides. One notable drawback is the limited investment options they offer. Typically, these plans provide a selection of mutual funds and a few other investment choices. This lack of diversity could limit your ability to create a well-rounded and personalized investment portfolio.

Another concern is the potential for higher fees. Some 401(k) plans come with administrative and management fees that can affect your returns over time. While these fees may seem small initially, they can add up significantly over decades of saving and investing.

Tax implications also rear their head regarding 401(k) plans. While contributions are tax-deferred, withdrawals in retirement are subject to income tax. Additionally, if you need to make early withdrawals (before the age of 59½), you might face penalties and taxes on top of the regular income tax.

Furthermore, there's the looming tax risk. Tax rates could be substantially higher when you retire, potentially eroding the benefits of your pre-tax contributions. This uncertainty about future tax rates adds an element of unpredictability to your retirement planning.

My Take: A Balancing Act for Your Retirement Strategy

In conclusion, 401(k) plans can be pivotal in your retirement planning, especially if your employer offers a matching program. They provide an accessible and efficient way to save for your golden years while reducing your tax burden. The convenience and potential for employer contributions should be considered.

However, it's crucial to approach 401(k) plans with a balanced perspective. There might be better decisions than just relying on a 401(k) due to the limited investment options and the potential for higher fees. Diversification across various retirement accounts and investment vehicles can mitigate these limitations and create a more comprehensive financial strategy.

Furthermore, the tax implications and potential future tax rate uncertainties are important factors to consider. While the allure of tax-deferred growth is strong, it's essential to recognize that tax rates can change over time, potentially affecting the value of your investments.

401(k) plans should be considered a foundational piece of your retirement puzzle, not the sole solution. By understanding the benefits and drawbacks, you can make informed decisions about allocating your retirement savings to create a robust and adaptable financial plan.

Ready to build your free retirement plan? Book an appointment using the link below:

https://www.afitonline.com/appointments

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.