Posts Tagged ‘tax planning’

Reduce Your Taxes to Zero!

Listening to an experienced accountant explain a tax situation sounds like easy work even when the words and numbers sound strange. It is rarely so easy connecting the dots, however.

The Tax Cuts and Jobs Act (TCJA) passed December 22, 2017 changed how you are taxed in ways we haven’t seen in over a generation. New opportunities to reduce your tax liability were opened, but the real advantages are hidden from plain view. It takes an experienced hand to ferret out the unexpected connections that can make or break your financial condition.

Today we are going to explore a thought experiment where we outline how the TCJA can super charge your tax savings. But first we have to tell a story.

A Chance Encounter

I spend my days researching the tax code for ways to help clients (that’s you, kind readers) reduce or even eliminate their tax liability. Some ideas are old and well-known. Others are somewhat unique in their application to the specifics of a client’s needs.

Our story starts with a longtime client and a real estate agent.

Wouldn't it be great to know all the tax reducing secrets of tax professionals? Now you can. Check out how accountants reduce their taxes to zero.

Wouldn’t it be great to know all the tax reducing secrets of tax professionals?

In my office there is a family limited partnership with several pieces of commercial property. One of their leases was coming up and I was unable to determine an accurate lease rate. Market rates are changing as real estate values climb.

Since it was my job to advise my client on an accurate lease rate I had my assistant call multiple sources around town to get an appraisal. My client was also interested in selling if the price was right.

After serious vetting we settled on a real estate agent with a history of success in the local commercial real estate market.

I was pleased the agent was wiling to provide a market analysis (a quasi appraisal) without fee. The agent provided the service and hoped to get the business if he did a good job.

My client also had a mini-mall with a vacancy. The current listing agent wasn’t able to sell or lease the unit in years. I convinced my client to get an assessment on this property as well.

The agent preparing the market analysis was fast, efficient and informative. The tenant of the first building we needed to update the lease with also wanted to buy. There was no need for the agent (or the fee) to sell or lease this property.




Good Luck

As luck would have it the tenant of the first building wanted to buy. My client was happy.

I felt it was fair to list the second property with the agent as a gesture of goodwill for his work assessing both properties. The agent did good work, followed up and was professional.

My client dragged his feet. The second building had one vacant unit with nobody working it now. I had to light a fire under my client.

After weeks (it was really a few months) of pleading my client finally relented and decided to let the agent offer the property for lease and sale.

The agent sent his assistant to pick up the paperwork the same day it was signed.

It Pays to Talk with People

It was getting to be 4:30 when the agent’s assistant showed up. I explained we sold the first building and didn’t need his services for that building. The assistant was good with that and understood our reasoning.

I then explained a unique tax strategy (a cost segregation study) that I shared with the buyer of said property. I mentioned to the assistant the buyer would save over $100,000 in taxes even though he was closing on the last business day of the year. These tax saving would be the result of a $300,000 first year deduction for owning the property a single day of the year!

People who know me understand how quiet I tend to be (dad, stop laughing). You can’t pry a word out of me.

Okay, I enjoy deep conversation that leads to massive results.

As I talked with the assistant I explained how the TCJA made it easier than ever to never pay income tax again. As we talked I kept building a bigger and bigger pyramid of tax savings strategies involving real estate. Many of these strategies would help the agent’s clients.

Needless to say, he took several of my cards. I reduced taxes for local businesses by several million dollars in less than one and a half hours. That short conversation opened a can of worms that will benefit this accountant’s communities for years to come.

And it was only possible because of the chance encounter with the agent. I knew all these things, but until that moment I hadn’t put the pieces together. Months of relentless research gave me the tools to excel at helping my clients in their tax matters as it pertained to the new tax laws.

And this is where you come in, kind readers.

The Gift that Keeps Giving

What I am about to share is merely a thought experiment. I will use large and round numbers because it is easier to understand that way. Many of these ideas will work for people with lower incomes. But in the end I will show you how you can have a million dollars in gains, pay no tax on said gain and end up with a $400,000 loss on your tax return you can use to offset other income.

Do I have your attention yet?

I hope so. This is new; this is novel, but it will work. The tax law is clear. What I am proposing can reduce your income tax to zero with extra deductions is case you have other income you need deductions against!

You will also seriously consider selling income properties you currently own to use this information. In fact, you may want to pass on like-kind exchanges (the old, and still usable, way to defer taxed on real estate) in the future. But I’m getting ahead of myself.




Step-by-Step Profits

The best way to understand my strategy is see it in action step-by-step. Because there are several ways to apply this strategy I will provide multiple solutions to the word problem.

Background:

Before we start I need share a few things that have changed in the tax code. Like-kind exchanges are a way to defer the gain on business or income property you sell by transferring the gain to a replacement property. While this tax strategy is still available for real estate, it is nixed in 2018 and after for business property. Capital gains from other investments are always taxable, until this year.

I sometimes get complaints that my tax strategies don’t apply to everyone. This is true. Not everyone can benefit from every strategy. The goal is to provide a framework that is understandable and modifiable for personal needs. While this works best for property owners with large gains, it can be tailored to lower incomes as well. It also assumes you have capital gains as that is our starting point. Wages and business income are not the driver of this strategy. If you want to reduce business income taxes you can read this. Wage earners should probably focus on retirement plan first as these provide significant deductions.

Starting Point:

We start with capital gains since real estate and the stock market have been climbing for a good decade now. The gains in these investments are huge and a real problem to diversify without incurring a large tax bill.

Real estate might seem easier since like-kind exchanges (sometimes known as 1031 exchanges) are still available. But a like-kind exchange requires a replacement property be identified within 45 days and closed within 180 days. And all your money stays in the replacement property to receive the tax benefit. (You can borrow against the equity of the replacement property after closing, but this costs you interest.)

It is easier than ever to reduce your income taxes to zero. Read how the wealthy and tax professionals pay no income taxes.

It is easier than ever to reduce your income taxes to zero.

With this in mind we need to deal with either large unrealized stock market gains or a piece of real estate with a large gain over basis (purchase price plus improvements minus depreciation).

For our example we will consider a stock investment (mutual fund, ETF, index fund, individual stock or other asset with an unrealized gain) with a $1 million unrealized gain and/or a piece of real estate with a large gain if sold.

The good news is that ALL capital gains are now super easy to avoid with a Qualified Opportunity Fund. I will not get into all the details of Opportunity Funds since I published recently on the topic in detail, available through the link.

For our thought experiment we can realize a capital gain from a real estate or investment sale and avoid reporting of the income currently. A million dollar gain can be deferred to 2026 and only 85% is taxed at that time with deflated dollars.

But Opportunity Funds are more than deferred taxes with a small tax reduction enhancer! All the gains within the Opportunity Fund (not the original gain, but gains on the capital gains invested in the Fund) are tax-free if held for 10 years or more.

Another benefit of Opportunity Funds over a like-kind exchange is how much needs to be reinvested. With the like-kind you need to buy a replacement property of equal or greater value to defer tax on all gains. Under the new rules only the GAIN needs to be reinvested in the Opportunity Fund within 180 days. The basis you can do whatever you want with.

Example: You have a duplex you bought for $200,000 and depreciated $50,000. You sell the property for $500,000. You can pocket your remaining basis ($150,000) and invest the taxable gain of $350,000 in an Opportunity Fund, avoiding any tax on the gain until 2026. (We will disregard depreciation recapture in this discussion so the examples don’t get muddy.)

Example: You bought $100,000 of Apple stock and now want to diversify without tax implication. Your Apple stock is now worth $1,000,000. You sell the stock, invest the capital gains in an Opportunity Fund and use the original $100,000 for whatever you want. Only 85% of the $900,000 capital gain will be taxed after 7 years and all the profit the $900,000 generates is tax-free after 10 years in the Opportunity Fund.

A Better Idea:

Selling your appreciated assets (investments or real estate) is only the starting point on your journey to tax-free freedom. Remember, you only deferred most of the gain. And if you have other income (business income, wages, dividends, interest or rental income) in need of deductions to avoid income taxes currently, you need another step.

Enter, real estate.

I assume you are not adverse to income property ownership in this stage of our game.

In our above examples we have large capital gains we deferred gains on and either $100,000 or $150,000 of basis we could do whatever we want with. I suggest buying a good piece of income property.

By good income property I mean a property that cash flows. You may need to buy something further from home base and utilize a property manager. This is probably a good thing regardless.

Without the necessity of replacing a property with an equal or greater value you have more choices. A half million dollar property doesn’t need to be replaced. Instead, with your basis from the sale, you can buy an income property that cash flows right out the gate and get more tax benefits.

Let’s jump to the cost segregation study again. You can read more with the link, including who I refer my clients to for a cost segregation study.

For a cost segregation study to work the property involved needs to have an original basis (generally the purchase price) of $300,000 without considering the value of the land.

The basis from the original sale in your pocket is perfect for a down payment on the property we are eyeing.

Example: Assume we buy a new income property (or properties) for $700,000. Under current tax rules a cost segregation study will turn approximately $300,000 of the purchase price of the building into a deduction the first year!

What this means: Think about this for a second. You sold a stock or rental property with a massive gain. You deferred/avoided tax on the complete capital gain by investing said gains in an Opportunity Fund. Then you decide to use the basis from the original investments as a down payment on an income property and conduct a cost segregation study. This equates to a $300,000 deduction on your tax return while avoiding tax on the capital gains! If you are a real estate professional or use grouping you can use this deduction against other income still being taxed.

But wait!!!

If you buy right now we will include this free pocket calculator. Keep it even if you return the product. It’s our way of saying. . .

Okay, I got carried away.

But I’m not done. there is even more!




Why You Want to Sell NOW!

Up till this point we played with big numbers with a focus on real estate. Deferring capital gains from any source is simple under current tax rules. A $30,000 mutual fund gain is easily deferred/avoided just as easily.

But what about landlords. If you own real estate now you might want to consider selling!

Remember our thought experiment above where we defer gains and apply cost segregation studies on new properties? If you already own real estate with gains you have an additional tax planning tip.

Cost segregation studies are possible on properties you held for years. The tax benefits are still tremendous.

However, unleashing gains on existing properties is a powerful way to spike cash flow!

More isn’t always better so I always recommend property managers for the day-today tasks of property management. Your job is to buy the right properties at the right price. Rinse and repeat. The manager/s should handle the rest.

Example: In this example we will start with three income properties you owned for 10 years. We’ll assume you have a combined basis of $500,000 on these properties with a market value of $1 million. A cost segregation study on each of these properties is inadvisable (each property is less than $300,000).

They say taxes are for the poor. No more. Keep your hard earned money where it belongs: your pocket. The rich have many ways to avoid taxes. Here are three you can use.

They say taxes are for the poor. No more. Keep your hard earned money where it belongs: your pocket.

If you keep the properties your cash flow grows only as fast as market rates for the three properties. You pay tax on all the profits after expenses.

Unless you sell!

That’s right. Sell the three properties. Invest the capital gains in a Qualified Opportunity Fund and use the $500,000 basis as the down payment for a larger value property where a cost segregation study will work well.

Assume we find a multi-unit complex for $1,000,000. The half million capital gain is in Qualified Opportunity Funds avoiding tax while the other half million is available for any use you want. Whether you use all the excess money from the previous sale or borrow more funds to purchase the complex, you will realize around a $400,000 deduction under current tax rules due to the cost segregation study. This massive deduction is available to reduce your other income property profits or income from other sources in many cases.

If the three income properties were throwing off $4,000 a month, the complex should be doing the same or more and the cost segregation study will generate a deduction to eliminate the tax on these profits. (Your taxes would be low or zero in this example if you had no other reportable income so other factors must be considered before you proceed.)

Example: Here is another example worth considering. Let’s say you’ve owned a property for decades and depreciated the property to the land only. The property is throwing off oodles of cash flow, but it is all taxed because there are few deductions (mortgage is paid off,too) and no remaining depreciation.

Capital gains from the sale would go to a Qualified Opportunity Fund to defer/avoid taxes once again. Buying another property to replace the lost cash flow opens the opportunity for a cost segregation study.

I didn’t use numbers in the last example for a reason. The idea is to provide a framework you can tweak to your personal needs. The idea is to keep cash flow pouring in while reducing or eliminating income taxes from any and all sources. The only way to do that is with a new piece of property.

Coda

Taxes are complicated and getting worse. Today’s thought experiment is not meant as a definitive guide to eliminate taxes. Rather, my goal was to help you think differently about taxes and strategy.

The tax code may seem straight forward, but the real benefits come from putting the pieces together. I asked my Facebook followers if they would like a program to reduce their taxes to zero. The response was overwhelming. I asked the same group what taxes they wished they could avoid taxes on this year. Capital gains came up often.

We didn’t cover every type of income or every income level. The idea is to plant a seed in your brain so it can grow.

The TCJA is a massive piece of legislation. The advantages are hard to grasp in the basics and putting the pieces of the jigsaw puzzle together in a way that benefits you is even more difficult.

What I provided above should have been a pleasant exercise. You can see how the new puzzle pieces have increased the opportunities to reduce your tax liabilities.

It might be a good idea to read this a few times and even save it. Share it with friends (enemies don’t deserve this level of tax savings). You might even want to use a highlighter on key points:

  • Sell with no current capital gains tax using Qualified Opportunity Funds and
  • Buy quality real estate where a cost segregation study works well to eliminate all other income taxes.

Below I include the regular list of additional Wealth Building Resources I attach at the end of posts over the last half year or so. You can find cost segregation links easily there from all current posts.

Finally, don’t be afraid to think outside the box when it comes to taxes. Now is the easiest time to reduce your tax liability in over 100 years. Use this opportunity to fuel your net worth.

These good times are unlikely to last forever.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 



Hacking Itemized Deductions

The Tax Cuts and Jobs Act enacted late last year opened a variety of opportunities for average people to reduce their tax burden. The biggest advantage of the tax cuts for individuals is the reduced tax rates and extension of income in the lower brackets. Itemized deductions also pay a serious role in how the changes in the code will affect your final results next spring.

Gaming the standard deduction was less of an issue in the past. Now, with the standard deduction at $24,000 for joint returns ($12,000 for single filers and $18,000 for head of household) there is ample opportunity to reduce your tax bill. Exemptions are gone so many will face higher taxes in this area. State and local taxes (SALT) are limited to $10,000 in 2018 – 2025. With the standard deduction so high and SALT limited to such a low level, most people will no longer need to itemize.

For every problem there is a solution. Today we will cover each deduction on Schedule A and look for alternatives. Pulling deductions from Schedule A (even if you don’t itemize) and deducting them elsewhere on the return is akin to legally double dipping. That is our mission. We want to have our cake and eat it too. If we play this right you should manage a big juicy standard deduction while deducting a large portion of each expense as well.




Medical and Dental Expenses

Medical expenses were always a high hurdle to overcome with the 7 ½% (10% in some cases in the past) of AGI reduction of qualified medical expenses. There are several ways to remove numbers from this section and deduct them elsewhere.

If you have a qualified medical plan you can contribute to a health savings account (HSA).

Your employer may offer a Health Reimbursement Arrangement (HRA). The employer sets the amount available to employees. Unused portions can be rolled into the following year if the employer allows. If unused funds are not allowed to roll to the next year it becomes a “use it or lose it” plan.

Certain restrictions exist for self-employed persons. People with a side gig/side hustle or small business can use a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). QSEHRAs require administration. The cost is minimal, but the rules complex enough that you will want professional help. My office recommends Take Command Health for administration. The tax savings are well worth it.

Employers may cover annual physicals and other medical expenses as an employment requirement. The cost is born by the employer and the employer also gets the deduction.

Investment property owners and those with self-employment income can also shift some medical expenses from Schedule A. Small business owners can deduct most medical insurance premiums on the front page of Form 1040 as an adjustment to income. A landlord who is hurt while working on an investment property will have a medical expenses related to the investment property and are therefore deductible against the rental income. A self-employed semi driver can shift medical expenses required to drive a commercial vehicle from Schedule A to the business part of the tax return.




State and Local Taxes (SALT)

This is the issue that started all the problems. There is a cap on SALT deductions of $10,000 from 2018 – 2025 unless Congress changes the code. Several high tax states have devised plans to work around the issue, shifting the expense to the charitable contributions line of Schedule A. The IRS nixed the idea and at least two states have sued. Because the IRS allowed similar schemes in the past when it involves college funding the court will have a serious consideration on its hands. When the issue clears up I’ll let you know.

The problem affects all states. The higher your income, the more likely this becomes an issue. Texas, a state with a reputation for low taxes is really a high tax state. The sales tax and property taxes more than offset the income tax free part of the Texas tax code.

We don’t have to wait for the courts to decide the outcome before we skin this cat. (My apologies to all the cat lovers of the world. For the record, my cat, Pinky, just clawed me in protest as I wrote this.) Property taxes can be partially shifted to an office in the home if you have a business or investment properties. The office in the home must be “regular and exclusive” and it is worth the effort to meet the tax code requirements.

Be sure to report personal property taxes related to a business or investment property on the appropriate form and not on Schedule A where it has limited value.

Interest You Paid

There is more incentive than ever to pay off the mortgage early. You can shift some of the mortgage interest to an office in the home as proffered above.

Investment interest has significantly reduced value under the new tax rules. Margin accounts should be avoided. They’re a bad idea to start with (buying investments with borrowed funds) and the deductibility of the expense is now also limited.




Gifts to Charity

There is some minor good news on charitable deductions. Cash donations were limited to 50% of AGI in the past with the remainder carried forward for up to five years. The deduction limit for cash is now increased to 60% of AGI.

Still, the goal is to reduce Schedule A to a nonevent on your tax return. If we reduce deductions to less than the new higher standard deduction we can, in effect, double dip.

I’ve published on this strategy in the past. The strategy is more powerful than ever under the new rules. Taxpayers with business income or investment properties can shift normal contributions to charity into promotional/advertizing expenses for the business.

It works like this. Instead of donating to the charity of your choice, ask the charity about any upcoming events and sponsor said events. Your business or rental properties get a nice plug in the brochures handed out at the event and probably a prominent display of your company logo and contact information. While this may not be the best way to grow a business, it is a powerful way to build community goodwill for your company! It’s also a business deduction. You can support your favorite charities and get a deduction, too.

Landlords need caution when applying this strategy. Deducting a $20,000 sponsorship when you only have one small duplex in the low rent side of town is unlikely to pass the sniff test! On the other hand, if you have five duplexes around town and you sponsor an event for $1,000, it probably falls within acceptable parameters. Landlords should have a business name: ABC Rental, LLC, for example. By having all your properties under one umbrella it allows the sponsorship to promote all your properties.

Casualty and Theft Losses

The Tax Cuts and Jobs Act eliminated casualty and theft loss deductions except for casualty losses in federally declared disaster areas. Even if you are in a federally declared disaster area, the first $100, plus 10% of AGI, doesn’t count. Example: If your AGI is $100,000, the first $10,100 of casualty losses in federally declared disaster areas doesn’t count.

There are few options if you suffer one of these losses. Business owners can deduct the loss as a business expense.

The loss/theft might qualify as a capital loss. This is a stretch for most situations, but you should be aware of the possibility in case it happens. Capital losses are reported on Schedule D where there are no restrictions like Schedule A. Schedule D losses are limited to $3,000 per year, plus all capital gains.

Casualty and theft losses are reduced by insurance coverage. If all or most of the loss is covered by insurance there is little or no opportunity to deduct expenses. More than ever, adequate insurance of assets is indicated.




Miscellaneous Expenses, Subject to 2%

Miscellaneous expenses, subject to 2% of AGI are eliminated for 2018 – 2025 under the current code. There are still a few planning opportunities for those who plan.

Unreimbursed employee expenses is the biggest issue in this section. It is important to have a serious discussion with your employer on your out-of-pocket work expenses. Your employer gets a full deduction on most of these expenses while you get nothing if they are not reimbursed! It might be worth a salary adjustment to make room for reimbursed expenses. Example: If you typically have $5,000 per year of work expenses, any salary reduction less than $5,000 with full reimbursement of work related expenses is a win for you and a nice tax deduction for the employer. Employers: this can be a valuable employee perk that pays both you and the employee. A true win/win.

Tax preparation fees are only deductible as they apply to the business or rental property portion of the return. A lot of accountants miss this. If your tax preparation fee is $500, a portion is for the personal part of your return (no longer deductible) and a portion is for the business (Schedule C and other related business forms) and rental property part of the return (Schedule E). Ask your accountant to break out the prep fee (required by the IRS to deduct). Your accountant can list $250, for example, as the portion of the prep fee attributed to the business portion of your personal tax return. This $250 can be deducted on the appropriate forms (Schedule C for small business, Schedule F for farms and Schedule E for income properties).

A safe deposit box used for business or income properties is deducted on their respective area of the return instead of Schedule A.

This section of Schedule A catches a lot of minor deductions. Think the deduction through before writing it off (pun intended). On Schedule A it is now worthless. But, if it is an expense related to a business or rental property . . .

Union dues are the remaining big item. I wish I had an answer. If any of you kind readers have a suggestion, let me know. Union dues are no longer deductible until the tax code changes or I figure out a work around. Don’t hold your breath.




Other Miscellaneous Deductions

This is the last section of deductions on Schedule A. These deductions are not reduced by 2% of AGI.

We will focus on the two most common items reported in this section: gambling losses and claim repayments.

Gambling losses are reportable on Schedule A up to gambling winnings. The best way to avoid tax problems is to stop gambling! The odds are against you. As budding accountants you know better. There, I said it. Now on with the show.

If you insist on gambling, at least keep a daily log of your results/sessions. You can use gambling sessions to remove losses attributable to gains in the same session on the front page of Form 1040. Most states follow federal on gambling sessions so the tax advantage stretches to the state return for most taxpayers.

Gambling sessions don’t remove all the losses from Schedule A, but it should shift a serious portion of the losses from Schedule A to the front page of 1040 where they have value. You can read more about gambling sessions here.

The other big item in this section of Schedule A is claim repayments. We are not talking about business or investment property repayment issues. Those are reported on their respective forms.

A common repayment is unemployment benefits. The claim repayments reported on this section of Schedule A are taxable items of income on a previous tax return. Repayments of items not reported as income on a prior return are not deductible.

We’ll use unemployment benefits as our example. Repayments made in the year the income was received is adjusted where the income is reported. Example: You receive $2,800 of unemployment benefits and are later required to repay $200 of the benefits. You repaid in the same year you received benefits. You adjust the reported $2,800 to $2,600. No itemizing required.

All claim repayments reported as income in a prior year under $3,000 must be reported on Schedule A. Repayments over $3,000 can also be reported on Schedule A, but you want to use an alternative method. There is a planning opportunity here.

For repayments over $3,000 you can calculate a credit for the repayment, reporting the credit on page 2 of Form 1040 (line 73 on the 2017 return). In the margin write 1341, to inform the IRS of the code section you are using for your right of claim.

You calculate the credit by going back to the return the income was reported on. Calculate the prior return without the income repaid in the current year. The reduction in tax is the credit.

Final Notes

I covered what I feel will be over 90% of the issues surrounding Schedule A and the available solutions for moving the deduction to another area of the return. This, in effect, allows a bit of double dipping. You still get the new, outsized standard deduction while still claiming a serious portion of the actual expenses.

Unfortunately, not everyone will benefit from these strategies. However, with the volume of options provided there should be at a least a few options available to most readers.

If you have any creative ideas to divert deductions from Schedule A to areas of the tax return where they have value I’d be happy to hear them.

Remember, an expense is worthless until you get a write-off.



Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you.

Stalking the Accountant: Tax Plan Now or Forever Hold Your Peace

Stalking humans.

A new tax guide arrived late last week: The Complete Analysis of the Tax Cuts and Jobs Act. It’s what I consider light reading on a Sunday afternoon.

Tax season is over, but tax planning is more important than ever with the new tax laws and changes. Consulting and planning with clients started May 1st and continues strong. I’m booked out until mid-July. If you own a business or investment properties you need to consider consulting with a tax professional to take full advantage of the new Qualified Business Income deduction.

One problem from earlier in the year has probably corrected itself. Withholding tables were adjusted in early February to account for the elimination of exemptions and the new tax brackets. The new tax tables overcompensated by under withholding. This meant people would pay less tax while getting a smaller refund or even owing! It was a timing issue of when you would actually pay your tax liability.

Mid-April brought revised updated withholding tables correcting the issues. Preliminary analysis of client files show the new tables handle around 60% of withholding correctly. The reason for the 40% error rate is the elimination of exemptions. The good news is that the withholding tends to err on the conservative side, creating slightly higher refunds than the original withholding tables.

It might pay to review your tax situation this year. The last decade or so had modest annual changes to the tax code. This year is radically different. New deductions, expanded tax credits and extended tax brackets created opportunities to reduce your tax liability if you plan properly. This extra money funneled into an index fund or reducing debt should have long-term positive affects to your wealth creation. You have a window of opportunity to reach financial independence and early retirement funded by the tax reductions.

All is not rosy. The limits placed on state and local tax deductions (SALT) coupled with the elimination of itemized deductions, subject to 2%, means some taxpayers will see a tax increase.

Contact me if you are interested in a consultation. Be sure to review Working with the Wealthy Accountant before hitting send.

I’ll need a copy of your 2017 tax return and a list of questions prior to our meeting so I can adequately prepare. Sometimes I can do more than just cut taxes. Several clients were able to reduce their expected larger refund and funnel it into a Capital One 360 or similar savings account where the interest on the lowered withholding will exceed my fee. Each situation is different so I need your information to provide the best advice. Keep in mind I consult on Tuesdays and Thursdays each week only. I sometimes open another day, but I do have other obligations consuming my time.

Winner’s Circle

We have three winners since the last Stalking installment. Gretchen D of Birmingham, Terry C of Dallas and Cindy M of Rapid City, SD saw some Amazon gift card love slide their way.




What I’m Reading

Bill Gates contacted me the other day to share a book he found interesting. He is well aware of my love for good books and was excited to share another gem. The conversation went something like this:

Bill: Hey, Accountant guy! I have an awesome novel you must read.

Accountant Guy: Bill, you know I don’t read many novels anymore. It better be darn good to break me away from my regular science and financial planning books.

Bill: Trust me! You’re going to love this book.

So I dragged my feet for a year before I decided I needed a comfortable summer novel to disappear into. Enter Neal Stephenson’s Seveneves.

Anyone for some light reading. The book only cost your favorite accountant $85.

Seveneves starts with the moon blowing up. The book alludes that it might have been a micro black hole racing through our neck of the galaxy. Regardless, people didn’t know what caused the catastrophe. The event split the moon into several large pieces. A few days later the first two large pieces smashed as gravity brought the pieces back together, creating smaller pieces. Scientists realized the collisions would continue breaking the moon into smaller debris. It also meant a large amount of moon debris would eventually hit the Earth.

Mankind has two years to get to space if it wanted to survive. The International Space Station was the beginning building block of a larger space habitat. A few thousand people were brought to space to wait out the Hard Rain that would turn Earth into a boiling inferno where no life could survive. To keep the Ark manageable, DNA and DNA data were transported to the Ark.

Space is unforgiving. The Hard Rain came and the Earth was destroyed. A safe haven was finally achieved by the Ark with one problem: only eight women were left alive. One woman had reached menopause. The seven Eves were all that remained of the human race and its hope for a future. The human race was all but extinct. These seven women would use technology brought from Old Earth to bring humanity back from the abyss.

The novel picks up 5,000 years later when Earth is ready for life again. I don’t want to spoil it for you so I’ll stop here.

Seveneves is hard to put down. It isn’t light reading either, as I teased at the open of this section. It is classified as hard science fiction, something I do enjoy. If you want a solid novel to fill a few sunny afternoons or early evenings, consider Seveneves. It’s worth your time.



Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you.

SPECIAL SALES TAX REBATE ALERT! for Wisconsin Taxpayers

Wisconsin announced a special one-time $100 (per child) sales tax rebate. It seems the state treasury is overflowing so the legislature decided to get the money divested as soon as possible. This rebate applies to 2017 tax returns!

It is unlikely tax preparers will notify clients since the cost of doing so will exceed the income derived from the work brought in. This article will outline the simple steps necessary to claim your sales tax rebate.

If you have dependent children you probably qualify for the rebate. But, you can only claim the refund from May 15th through July 2nd! After July 2nd the rebate is lost if you haven’t applied by then. You can’t apply before May 15th either as the website only contains program details prior to May 15th.

Who Qualifies?

The sales tax rebate is for sales and use tax paid in 2017 for raising a dependent child. Only one person can claim the rebate! No recordkeeping of actual sales taxes paid is required.

If you claimed a dependent on your 2017 Wisconsin tax return, the dependent was under age 18 on December 31, 2017, is a Wisconsin resident and U.S. citizen, you meet the eligibility requirements for the rebate.

The rebate is $100 per qualified child.

There are two ways to claim your rebate from May 15th through July 2nd:

  • You can call 608-266-5437 Monday – Friday (excluding holidays) from 7:45 a.m. to 4:30 p.m. or,
  • Apply via the internet at https://childtaxrebate.wi.gov.

Note the website only has program details until May 15th when they go live. I’ll add screen shots and a step-by-step guide to this post if it looks like people are having problems claiming their rebate.

When applying for the rebate, have your 2017 tax return handy. Verify you claimed/are able to claim the child/children on your 2017 tax return.

Wisconsin did not provide a timeline for release of funds, but in the past Wisconsin has issued refunds in 8 weeks or less.

Please share this with Wisconsin friends and family. If you have a blog, share with your readers if any are from Wisconsin. Share this page (or the information thereon) on your social media pages.




Final Note

My office will handle rebate requests for clients if they contact my office. Non-clients can also call my office to have us handle the request for rebate as time permits. Since the rebate amount is small I will only ask a donation amount of your choice. All proceeds will go to charity. I’ll update the charities supported on a future Saturday edition of “Stalking the Accountant”.

Stay tuned.

 

Wealth Building Resources

Personal Finance is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Finance is free?

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to skyrocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon good way to control costs and comparison shop. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you.

 



Filing Status When You Can’t Find Your Spouse

Determining your tax filing status can be tricky at times. I see the same questions on social media and a few times per year in my office where people are confused on what filing status to use when they are estranged from their spouse. On the tax subgroup in Reddit the question popped up a few times this tax season already and with two new clients in the past week.

I included a decision tree to help you determine your filing status. However, there are details that didn’t fit within the decision tree neatly so it is important to read the text of this post to assure you are using the correct filing status.

There are several reasons when you may want to consider filing a separate return from your spouse. In rare instances your combined tax liability is smaller. Example: spouses have widely different incomes and one spouse has a very large uninsured medical expense.

A more important reason to file a separate from your spouse is if you suspect malfeasance. If you file a joint return and your spouse under reports income and/or overstates deductions and/or credits you are liable for the tax debt if the IRS discovers the irregularities.  The only way to sever liability on a joint return is if you signed under threat or duress. Threat or duress is very hard to prove and the IRS has a history of denying relief when there are no reports of abuse to law enforcement.




The final reason to file a separate return is because you have no choice because you don’t know where your spouse is. This is more common than you think. The Reddit subgroup above has similar questions every tax season. As mentioned, two new clients had this issue in my office in the past week.

If you can’t find your spouse or she/he refuses to file a joint return, you have limited options. The decision tree in this post is an easy way to visualize your choices. In short, if you lived with your spouse at any time in the last six months of the year you must file either a joint or married filling separate return. If you lived apart the last six months of the year and provide more than half the support for yourself and child you can file as head of household. Where no children are involved you are limited to MFJ or MFS. If you are legally separated or the divorce is final you can file as single. You will need the services of a competent attorney if you can’t find your spouse to facilitate a legal separation or divorce proceedings.

There are tremendous negatives to filing a MFS return. Many credit are lost (earned income credit, adoption credit and child and dependent care credit are a few). Education credits and the student loan interest deduction are unavailable on a MFS return. If you own income property the passive activity loss limit is reduced to $12,500 ($0 if you lived with your spouse at any time during the year).

If your spouse itemizes on a MFS return you MUST also itemize, regardless if you have any Schedule A deductions or not. If you can’t find your spouse or he refuses to communicate with you, you will not know if he itemizes so you may have no choice other than to itemize.

You report only your income and deductions on a MFS return unless you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA and WI). In community property states you report half the community property income and deductions. If income and deductions are not reported to the other spouse the benefits of community property law can be lost. Community property laws can be circumvented fairly easy if the taxpayers live apart.

Let’s review the decision tree and review the notes that follow.

Use the decision tree to determine your filing status. Use the notes below for further explanation of special situations.

Notes to the decision tree: If your spouse died during the year you can still file a joint return for the current year. If you paid over half the costs of keeping a home with dependent child you can file as a qualifying widow/er for the two years following the death of your spouse. A qualifying widow/er enjoys the same advantages of a MFJ return.

Temporary absences for education or military service do not count as living apart.

If you sign a release of exemption as a custodial parent and would otherwise be allowed the dependent exemption you can file as head of household if you lived apart from your spouse the last six months of the year.

A parent does not have to live with you to claim the exemption if you provided more than half the cost of keeping the parent’s home for the entire year.

 

The simplest part of the tax return can become a confused mess when unique situations make an appearance. The raw number of requests involving a missing spouse required me to publish on the subject.

If you have additional questions leave a note in the comments. I’ll try my best to answer questions promptly. During tax season and when on vacation I’ll need more time to respond.



Problem Discovered in Tax Bill Will Leave Many Owing the IRS Big Next Year

It’s going to be a cold winter next tax season if people don’t prepare for the antics of Congress and the IRS.

A major tax bill late in the year followed by a bill of extenders February 9th and we have the perfect recipe for problems.

My initial reaction to the tax bill in December was that most of my clients would see some benefit since my clients tend towards the upper end of the income scale. I also have lower income and older clients who are not benefiting as I expected. Certain taxpayers are even seeing a tax increase, most notably, those with large unreimbursed employee business expenses like on-the-road sales people and rock band members.

The tax software used in my office estimates what the new tax rules will mean for clients if the rules applied to their 2017 return. This has been a powerful planning tool early in the tax season. But as an accountant I always look under the hood and when I did found a disturbing problem.




From Joy to Tears

Taxes cause pain in two ways. First, the actual tax dings the household budget. Second, if not properly prepared for the changes, the timing of when the remaining taxes are paid can cause exquisite pain.

Adding to the mess, the IRS didn’t have time to update withholding tables until the end of January. Most clients didn’t see a change in their paycheck reflecting the new tax law until their first paycheck in February.

Also problematic is the issue of exemptions. For this calendar year personal exemptions are eliminated while the standard deduction is increased. As expected, this change was a big yawn for most clients. A few were able to capitalize on this particular change.

Without exemptions it is harder for the IRS to estimate the tax liability of household size. Yes, the child tax credit has been increased and the phase-out level pushed higher, but the age of the child and if they attend college now plays a bigger role than in the past.

Late January and early February tax returns delivered in my office presented our estimate of how the tax change will affect the client. A few people saw a tax increase, but most had either a small change or a larger refund.

One thing bothered me as we shared the news. I worried how the updated withholding tables would affect my results. I warned clients my estimate assumed everything was exactly the same as their 2017 return when we know the updated withholding tables would mess with my estimate.

Now that we are on the backside of February and most clients picking up in the last week have seen a paycheck with the new withholding, I can ask an additional question: How much did your paycheck change with the new withholding?

I expected a modest adjustment to my software’s estimate. What I got made me light-headed.

Every single client I met in the last week or so with a new withholding amount is under withholding by a large margin! People expecting a $3,000 reduction in their tax bill are seeing a $4,000 or more reduction in withholding. Clients who already owe money or like to keep it close to breakeven are in for a rude surprise if I don’t intervene.




An Imperfect Solution

I have a solution to fix the problem, but it entails a lot of screwing around. You can either reduce your exemptions on your W-4 or fill in an extra amount to be withheld each pay period above the withholding table amounts.

Unfortunately, most people don’t have a clue what is about to hit them. If their accountant doesn’t figure this out fast they will be steamrolled next tax season when the miscalculation bites. DIYers are at greatest risk as they tend to believe what the computer tells them. Computers are great for grunt level computing in preparing a tax return, but ill equipped to fix this new problem.

Here is what I consider the only appropriate option. When tax season is over you need to speak with a tax professional that is willing to crunch the numbers by hand to adjust for the tax and withholding changes. There is no other way.

My guess is online programs will become available as the year goes on. It still requires taxpayers to understand they even have a problem.

A Busy Off Tax Season

Tax professionals will be busy this year. I can’t imagine 140 million people are going to show up at the tax office this summer. First, many tax offices close or have reduced staff over the summer, and second, tax offices will focus on their regular clients if they address the issue at all. About half of taxpayers prepare their own return. Next spring, after the mid-term elections, taxpayer will have a hangover from the antics of Congress and the IRS. The reduced refunds and increased balance dues could chill the economy. (At least the guys who created the mess got re-elected. Man, if they lost their cushy government jobs they’d be unemployable, except as lobbyists.)

Prepare your own taxes and support your favorite blog at the same time. What could be better?

Your favorite accountant already has a plan. Originally I planned on reviewing all returns in my office with a business or income property. If we find an issue we’d give the client call to set up a meeting. This has been expanded to all clients! I estimate I’ll communicate with 600-700 clients over the summer out of a book approaching 1,000.

Readers of this blog will also feel uneasy as my discovery is copied by other news outlets. (Note to news outlets: Let your readers know where you learned this nugget of information as a gift to a wayward accountant from Backwoods, Wisconsin.) My regular clients have preference. Openings in my schedule are available to non-clients. That means most of you, kind readers.

It’s nothing personal. I have to focus my time as it will be at a premium this year. The amount of tax planning necessary this year will trump (pun intended) anything I’ve experienced in my 36 year career. The business income deduction alone would be enough for a comfortably busy summer. All these extra issues will overwhelm any tax office brave enough to remain open after April 17th.

I’m not bailing on you guys! Normally I block one day per week for consulting. This year I will open two days per week with the option some weeks for a third day. Keep in mind consulting takes prep work before we speak. I need to see your 2017 return and any expected changes.

To make this work will require specialized training in my office so I’m not a lone soldier. As a lone wolf I’d never make it through my client list, not even considering even one non-client from my list of awesome readers.

Late April will be a recovery period as I train and take some time with family. Clients reading this can set a summer appointment already. Some have. Clients picking up from now to the end of tax season will be reviewed for a summer appointment.

From May 1st on it will be full speed forward with consulting and tax planning. Clients with a business and landlords really need to make it a priority to see me this summer or fall.




How Much of My Tax Savings are Going to You, Mister Accountant?

And then we get to fees. In my office I will charge a flat $50 for clients to have their withholding reviewed. Before you pay me a cent (or I do a stitch of work) I’ll pull up your file to determine if a review is warranted. If it makes sense for me to review your records I will. If it is obvious you don’t have a tax issue I’ll inform you so you can save fifty bucks. Retired persons and those with low income generally fall into this group.

Businesses and landlords all require a review this year no matter what! There are too many additional moving parts to abscond a detailed review. My hourly fee will apply. I doubt anyone will lose on the deal as the advantages this year will far exceed anything you pay me (or most other accountants).

All non-client reviews are based on my hourly rate of $275 per hour. Regular clients have an advantage since I already know their tax situation and have their return on file. I need more review time with non-clients to acquaint myself with their tax situation.

I encourage you to begin a dialog with a tax professional early this year due to higher demand on their services. Your withholding is almost certainly wrong and to the government’s benefit. If you never consulted with a tax pro this is the one year you might want to consider it anyway.

I can see all your hands up. Yes, I will handle as many as humanly possible. However, I have a strong feeling my larger public presence will crimp the percentage of non-clients I can accept compared to demand.

The forum on this blog and Mr. Money Mustache are a great resource if you don’t have a tax professional on speed dial. I also expect many local accounting firms to add hours to handle the extra consulting this year.

Finally, you are welcome to contact me for consulting, a review and/or to prepare your return. I recommend you read the Working with the Wealthy Accountant page before hitting the Contact button.



How and When to File a Superseding Tax Return

There is no question the tax code is massive. No matter how knowledgeable or experienced you are, mistakes will happen. The consequences of such mistakes can be minor or they can cost serious amounts of additional tax, interest and penalties.

Filing an amended return is your only option after the due date, including extensions. An amended return solves most problems. Interest and penalties may apply. In some cases even an amended return can’t fix an error; you could lose entire deductions forever.

The number of elections available is large. Some are irrevocable. Making, or failing to make, an election is set in stone in some cases with the original return. Failure to check one little box can cost you a large deduction permanently.

A superseding return may be the only option if you file it on time.




Amended or Superseding Return

A superseding tax return incorporates the new information into the original tax return if filed by the due date, including extensions. 

A superseding return is filed after a subsequent return and before the due date, plus extensions. (That was worth repeating.) The second return is a superseding return. A superseding return it generally treated as the original return, incorporating the new information and modifying (superseding) the earlier return.

Here is a small example where a superseding return is valuable tool.

A common error involves the Section 1.263(a)-1(f) de minimis safe harbor election. Most tax professionals (and readers of this blog) know they can deduct assets up to $2,500 rather than depreciate these expenses over a number of years if they make the appropriate election. The election is required every year. (The IRS says the election must be made “timely”. I take this to mean the election must be made on an original return filed by the due date, plus extensions. A late filed return may not allow the election.) The election is irrevocable.

In my office we automatically make this election for all returns with rental properties or a small business. (All corporate and partnerships returns also automatically get the election.)

Making the safe harbor election covers items a client may have neglected to inform the tax preparer of. If the election is made and not necessary, no harm done. If the election is necessary and forgotten, serious potential harm exists.

 

The IRS is less than clear when it comes to superseding returns. Corporations (S-corps, too) have a nifty box to check when e-filing a superseding return. Only corporations can electronically file a superseding return. Be sure to check the appropriate box or the IRS will probably reject the return as duplicate.

There are IRS instructions on when a superseding return must be filed on an individual income tax return. Unfortunately there are no instructions how to do it!

Superseding personal returns MUST be paper filed. Some tax professionals prefer filing a superseding personal return in the format of an original return and writing “SUPERSEDING RETURN” across the top of the first page. Because this will probably be flagged as a duplicate return another method is advised.

A superseding personal return should be prepared as an amended return on Form 1040X. (There is no superseding box to check.) All amended personal returns filed before the due date, including extensions, are automatically treated as superseding, incorporating the new data and modifying the original return. This means a forgotten irrevocable election CAN be made and is treated as if made on the originally filed return.

If a superseding return is filed before the due date (without consideration for extensions) interest and penalties are also avoided.

Amended returns filed after the due date, including extensions, are not incorporated into the original return. A required “timely” election is not allowed at this point.




In English, What Does This Mean?

The concept is short and simple, but often forgotten. A business owner may discover forgotten deductions for her business return when filing her personal return. The superseding return is a simple and fast solution for a previously filed corporate return. Add the new data, check the box marking the return as superseding and electronically file.

Individuals file an amended return for the same result, which must be mailed.

It sounds like a minor issue. When I review returns from outside my firm I need a powerful tool to make changes, especially when elections are involved. The tax code doesn’t automatically grant you preferred treatment. Special treatment must be requested in writing. Many elections are irrevocable. Many elections are required on an originally return filed by the due date, including extensions.

In English, filing an amended return before the due date (including extensions) on a personal return supersedes the originally filed return and solves most election issues. You can add a forgotten election if you catch it in time. Waiting for the IRS letter is too late. Consider the superseding return an amended return with a really tight due date, allowing you full sway in how the original return looks. It also eliminates or reduces interest and penalties.



Stalking the Accountant for Sport

It’s been an exciting week in the accounting world. The first full week of the traditional tax season is in the books with nine more left to go. As far as I can tell there have been no casualties.

Your favorite accountant is happy to report this is the smoothest tax season in years in his office. Three or four years ago I met Mr. Money Mustache and he put me on the map (Thank you, Pete!) it created a deluge of demand I was ill prepared to handle. The problem was I had no idea what I was getting into. Those problems seem to be fully resolved.

The added challenges nearly killed my practice. I had to learn new skills PDQ if I wanted to survive. Hiring more employees was a problem since nobody local had experience in what I was going through.

But, I am proud to say after several mental cramps I turned the corner. New policies and massive increases in technology have the office humming like a well oiled machine with stress reduced to a minimum. I’ll let you know if the psychosis returns.

Until then . . . I’m feeling much better now.

The smooth operation of our tax functions means I am still accepting new clients selectively. The bottleneck now is in processing the requests. To that end I hired a new team member to help with the follow-up of requests.

If you sent a request in the last few months without a response you should resend the request. Please include your phone number. Most do not. Amy will send an email with a follow-up phone call if we feel it’s a good fit.

The reason for the additional screening is to make sure it works for all parties involved. Sometimes expectations are different from what we can handle with our current structure. I’d rather discover early if there is a conflict or issues before we start. This is easier on both of us.

Don’t feel bad if you don’t get in. My team has managed to get things running smooth again after I overwhelmed the machinery. To keep it smooth we have to make sure we can do the job right.




Another Tax Bill

When you were looking the other way Congress passed another tax bill Friday. Yes, as in yesterday if you’re reading this the day I published.

The hoopla about the latest government shutdown was resolved with a major spending bill with lots of tax nuggets.

Here is why the spending bill is so important. The tax part of the bill retroactively renewed many expired tax provisions! This means many of the returns filed early are wrong!

The IRS is busting heinie to implement the changes. My software provider will update as soon as the IRS has their end fixed and ready to accept returns with the updates.

Here are some of the more common changes:

  • Mortgage insurance premiums are back and will be the number one reason we will need to amend.
  • Discharged mortgage debt is excluded from income again.
  • The provision to deduct education expenses (qualified tuition and related expenses) up to $4,000 above-the-line is restored.

The remainder of the thirty or so renewed provisions generally affect businesses.

Because the IRS will need time to implement these changes you either have to wait to file (including possible filing an extension) or filing now and amending later. It’s your call.

 

I kindly ask readers to spread the word on the DIY tax software offered by 1040.com. This is the same software I use in my office. If you use the link on this page it supports your favorite blog.

This is a project close to my heart and means a lot. Thank you for considering the option. Many returns also qualify for free-file.

 

Remember we have a drawing for two cash giveaways next week Wednesday. Details are available on the Where Am I page. Be sure to open those emails with the latest TWA post to win!

 

Now let’s have some fun!




What I’m Reading

Every year at this time I make myself a promise as I head to the office each day that I will take an hour or two to read. This year, as in past years, the promise is unfulfilled.

I still read some early in the morning and at night after writing if I can keep my eyes open. The weekends are nirvana!

This week I worked on a book in progress, but mostly read from The Daily Stoic by Ryan Holiday.

When I need to perform at my best I always look to my Stoic literature. If you don’t keep a copy of The Daily Stoic next to your bed you don’t know what you’re missing.



What I’m Watching

Just as time is tight for reading, time spent watching videos is also curtailed. As important as learning and relaxation are, tax season is a time when accountants sacrifice some of these hedonic pleasures.

SpaceX launched their Falcon Heavy Rocket this week and I watched it live from my desk. It was the coolest thing ever! Enjoy if you haven’t already.

 

I also watched a few videos in the vein of the selection provided here. Mysteries intrigue me even if they are somewhat contrived. Old stuff grabs my attention hard. Here we see mysterious monuments from around the world.




What I’m Listening To

My listening tastes turn unique during these intense times. I think you’ll enjoy Beethoven’s Symphony 7 selection. The calming sound emanated from my office more than once this week.

 

When the coffee started to wear off I got silly. Something to break up the classical sounds.

 

Finally, as you read this your favorite accountant is probably sleeping it off or reading voraciously with drool running from the left side of his mouth.

I’m also planning a special post for Monday. We have enjoyed p/e ratios in the upper teens, 20s and higher on the broad indexes for so long people forget it wasn’t that long ago when the S&P sported a single digit p/e ratio and the average stock in the index threw off over a 6% dividend yield with many sporting even higher payouts!

Monday we will discuss what would need to happen to go back to those days of the late 1970s and early 1980s and the late 1940s and early 1950s. It’s been a while since we enjoyed such a market. I promise an engaging read.

Won’t you join me.