Getting the W-4 Right Is Important

Article Highlights: 

• W-4 Complications 
• Working Spouse 
• Adjusting Refund 
• Other Income and Tax Issues 

As they do at the beginning of every year, employers will be requesting employees to complete the IRS Form W-4. Its purpose is to provide employers with the information they need to determine the amount of federal income taxes to withhold from an employee’s paycheck. So, it is very important that the form be completed correctly. 

The problem is that as simple as the form looks, getting those entries on the form to produce the desired withholding amount can be tricky. The passage of the tax reform added additional complications, and the IRS has delayed a major revision of the W-4 until the 2020 tax year. In the meantime, taxpayers must get along as best they can using the old version of the W-4. 

Even though the W-4 form itself appears to be simple, the instructions come with an extensive worksheet, which may or may not produce the desired results. In addition, there are other issues to consider, such as: 

• Perhaps you desire to have a substantial refund when your taxes are completed next year. This generally requires custom W-4 adjustments, to produce excessive withholding. Keep in mind: when you have a large refund, you have provided Uncle Sam with an interest-free loan.
  
• Your spouse may also work, and your combined incomes may put you in a higher tax bracket. Although the IRS provides a special worksheet for married taxpayers if both spouses work, it may not always provide the desired results.
  
• In addition to payroll income, you may also have self-employment income, which is subject to both income tax and self-employment, and so you may require a combination of payroll withholding and estimated tax payments, adding additional complications to the W-4.
  
• These are just the tip of the iceberg, as there may be investment income or losses, business losses, tax credits, special deductions and loss carryovers, just to name a few more situations that could impact your tax prepayments and withholding for the year. 

If you are concerned about getting your withholding correct, please contact the Blue Springs income tax and financial services firm of Alliance Financial & Income Tax. We can project your 2019 tax liability and complete your W-4 after taking into account multiple employments, a working spouse, self-employment income and other tax issues unique to your specific tax situation.

When You Buy Local

It is that time of year again, Tax Time.  Every tax payer has a multitude of options when it comes to how to file their tax returns each year.  They have the DIY software, they have the family member or friend, the BIG corporations or they may elect to file with a local family owned business.  For those that choose to hire a professional to handle filing their taxes this year, may I suggest using the local family owned business method.  Blue Springs has several experienced and affordable family owned business to choose from.  T&T Tax and Accounting, Norma’s Tax Service, Fullerton CPAs, PCA Services and Alliance Financial & Income Tax.

Local business owners know that you have chose to where you do business.  Speaking for myself, thank you for choosing local. 

Turbo Tax and the DIY Tax Software

I had a new client come in with an insurmountable problem. His off-the-shelf tax software would not and could not handle the problem. 

The new client thought that I probably also would find it an insurmountable problem. 

I just chuckled and said "No, this is an easy problem to fix when you know how."

I suppose the greatest part about being a Grain Valley tax professional is getting to be a hero to people who have been banging their heads on the wall. 

Hire an Enrolled Agent, the antidote for your headache. No problem too big.

7 Ways Small Business Owners Can Save On Taxes

Everybody wants to lower the amount they pay in taxes, but it is an especially important goal for small business owners. Every penny in taxes avoided are a double victory: you avoid overpaying and add to your bottom line. Here are seven tips to use to spot potential savings provided by the Grain Valley Income Tax Preparation firm of Alliance Financial & Income Tax

Big Tax Changes for Divorce Decrees after 2018

Article Highlights: 

• Pre-2019 Alimony 
• Post-2018 Alimony 
• Definition of Alimony 
• Alimony and IRA Contributions 
• State Treatment of Alimony

Welcome to 2019 and a delayed provision of the tax reform, also known as the Tax Cuts and Jobs Act (TCJA). For divorce agreements entered into after December 31, 2018, or pre-existing agreements that are modified after that date to expressly provide that alimony received is not included in the recipient’s income, alimony will no longer be deductible by the payer and won’t be income to the recipient. 

This is in stark contrast to the treatment of alimony payments under decrees entered into and finalized before the end of 2018, for which alimony will continue to be deductible by the payer and income to the recipient. 

Having the alimony treated one way for one segment of the population and the exact opposite for another group of individuals seems unfair and may ultimately make its way into the court system. But in the meantime, parties to a divorce action need to be aware of the change and compensate for it in their divorce negotiations, for a decree entered into after 2018. 

This is not the first time Congress has tinkered with alimony. Way back in the mid-1980s, the definition of alimony was altered to prevent property settlements and child support from being deducted as alimony. Under the definition of alimony since then, payments: 

(1) Must be in cash, paid to the spouse, the ex-spouse, or a third party on behalf of a spouse or ex-spouse, and the payments must be made after the divorce decree. If made under a separation agreement, the payment must be made after execution of that agreement. 

(2) Must be required by a decree or instrument incident to divorce, a written separation agreement, or a support decree that does not designate payments as non-deductible by the payer or excludable by the payee. Voluntary payments to an ex-spouse do not count as alimony payments. 

(3) Cannot be designated as child support. Child support is not alimony. 

(4) Are valid alimony only if the taxpayers live apart after the decree. Spouses who share the same household can’t qualify for alimony deductions. This is true even if the spouses live separately within a dwelling unit. 

(5) Must end on the death of the payee (recipient) spouse. If the divorce decree is silent, courts will generally consider state law, and where state law is vague, judges may make their own decision based on the facts and circumstances of the case. 

(6) Cannot be contingent on the status of a child. That is, any amount that is discontinued when a child reaches 18, moves away, etc., is not alimony. 

Taxable alimony payments under pre-2019 decrees and agreements are treated as earned income for IRA contribution purposes, allowing the spouse receiving the alimony to make IRA contributions based upon the alimony. The ability to make IRA contributions under pre-2019 decrees and agreements remains unchanged. However, for alimony received as a result of a post-2018 decree or agreement, the alimony can no longer be used as a basis for making an IRA contribution. 

To summarize: 

Pre-2019 Decrees – For decrees entered into before 2019 and unmodified after 2018: 

• Alimony continues to be deductible by the payer spouse/ex-spouse. 
• Alimony is includable in the income of the recipient spouse/ex-spouse. 
• The recipient spouse/ex-spouse can make IRA contributions based upon the alimony received. 

Post-2018 Decrees– For decrees entered into after 2018 (and pre-2019 decrees that are modified and include the TCJA alimony rules): Alimony is not deductible by the payer-spouse/ex-spouse. 

• Alimony is not includable in the income of the recipient spouse/ex-spouse. 
• The recipient spouse/ex-spouse cannot make IRA contributions based upon the alimony received. 

One additional complication is if state tax treatment is different than that at the federal level. Some states, such as California, have not conformed to the TCJA; as a result, the state treatment of alimony paid under both pre-2019 and post-2018 decrees in these states will continue to follow pre-2019 law, with alimony payments continuing to be deductible and alimony received being taxable. 

If you have questions related to alimony or about how your state will tax alimony beginning in 2019, please give the office a call.

How Tax Reform Effects Business Entertainment

If you entertain for your business, change is here. With the new tax law, your ability to deduct 50% of the cost of recreation, entertainment or amusement expenses disappeared. Watch the video to learn more.


  If you have questions please contact your Grain Valley Income Tax Preparation firm of Alliance Financial & Income Tax.

The Tax Consequences of Losing your Job

If you've lost your job you may have questions surrounding unemployment compensation, severance, and other issues that could affect your tax situation. 

Here are some answers provided by your Blue Springs tax professionals at Alliance Financial & Income Tax.

Q: What if I receive unemployment compensation?

A: Unemployment compensation you receive under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you received unemployment compensation, you will receive Form 1099-G, Certain Government Payments (Info Copy Only), showing the amount you were paid and any federal income tax you elected to have withheld.

Types of unemployment benefits include:

• Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability payments from a government program paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act

You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

Q: Can I have federal income tax withheld?

Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year and you may owe tax when you file your tax return in April.

Q: What if I lost my job?

A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and SNAP (formerly known as food stamps) are not taxable.

Q: What if I searched for a job?

A: Under tax reform, many miscellaneous deductions were eliminated. As such, for tax years 2018-2025, you are no longer able to deduct certain expenses such as travel, resume preparation, and outplacement agency fees incurred while looking for a new job. In prior years, job-seekers were able to deduct these expense-even if they did not get a new job. Moving costs for a new job at least 50 miles away from your home were also deductible; but again, under tax reform, and for tax years 2018-2025, job-related moving expenses are not deductible.

Q: What if my employer went out of business or into bankruptcy?

A: Your employer must provide you with a W-2 Form showing your wages and withholdings by January 31. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over into another qualified retirement plan or IRA.

If you've experienced a job loss and have questions about how it affects your tax situation, help is just a phone call away. 816-220-2001