Many amounts will increase in inflation in 2020. The standard deduction will increase to $24,800 for married individuals filing joint returns or surviving spouses. The $18,650 for heads of household, and $12,400 for unmarried individuals (other than surviving spouses). And the married individuals filing separate returns.

The maximum amount of the earned income tax credit (for taxpayers with three or more children) will increase in 2019.

The maximum amount of the adoption credit will increase to $14,300 up from $14,080 in 2019. That is also the maximum amount that will be excludable from an employee’s gross income for qualified amounts paid. Or expenses incurred by an employer under an adoption assistance program.

The 2020 exemption amounts for the alternative minimum tax will be $113,400 for married individuals filing joint returns and surviving spouses, $72,900 for unmarried individuals (other than surviving spouses), $56,700 for married individuals filing separate returns, and $25,400 for estates and trusts, all increased from 2019.

The Sec. 179 amount for tax years beginning in 2020 will be $1,040,000 with a phaseout threshold of $2,590,000, slight increases from 2019.

The qualified business income threshold under Sec. 199A(e)(2) will increase to $326,600 for married individuals filing joint returns. And $163,300 for married individuals filing separate returns, single individuals, and heads of household, all increased from 2019.

The Sec. 911 foreign earned income exclusion amount will increase to $107,600 from $105,900 in 2019.

The basic exclusion amount for determining the unified credit against the estate tax will be $11,580,000 for decedents dying in the calendar year 2020, up from $11,400,000 in 2019. The annual gift tax exclusion amount remains at $15,000. But the gift tax annual exclusion for gifts of a present interest to a spouse who is not a U.S. citizen will increase to $157,000 in 2020 from $155,000 in 2019.

Various penalty amounts for failure to file tax and information returns or furnish payee statements are also being adjusted for inflation for 2020.

The post IRS posts 2020 inflation adjustments and tax tables appeared first on Flex Tax and Consulting Group (FTCG).

Compare standard versus itemized deductions — Your current or planned 2019 itemized deductions might be more than your standard deduction. If so, you’ll save tax dollars by itemizing.

If your itemized deductions are close to your standard deduction in 2019, consider shifting some of your deductions to 2020. At that time, you might be able to itemize more. Conversely, you might know you won’t have as many itemized deductions in 2020 as you do in 2019. If so, consider shifting some deductions from next year to this year. Here are some examples of how shifting deductions can work in your favor:

• You can’t itemize in 2019 but can in 2020. So, consider making your annual charitable donation in January instead of December.
• You’re itemizing in 2019 and can pay real-estate tax in two installments. So, consider making the payment in 2019 that would normally be due in early 2020.

Remember your miscellaneous itemized deductions — Your total miscellaneous itemized deductions subject to 2% of your adjusted gross income (AGI) might be close to or more than 2% of your AGI. If so, consider if you need any items in this category.

Then, buy those items before the end of the year.

However, the total of these expenses might not be close to or more than 2% of your AGI. If so, postpone these expenses until 2019, if possible.

To learn which items are in this category, see Publication 529: Miscellaneous Deductions at www.irs.gov.

Make flexible spending work for you — Make sure you have enough medical expenses in 2019 to meet the amount you set aside in your flexible spending account. If you don’t, you’ll lose the money. If you have extra money in the flexible spending account to spend, you might want to:

• Schedule end-of-year appointments
• New prescription glasses and contact lenses
• Hearing aids
• Medicines you need in 2020

Submit your receipts for eligible expenses within the time required by the plan. Some plans allow you an extra 2 1/2 months after the end of the year to use the unspent amount. Check with your plan administrator.

Review your medical costs — Keep track of your unreimbursed medical expenses all year long. You can deduct them if they’re more than7.5% of your AGI if you’re under 65 (7.5% if you’re over 65). If so, you might consider having an elective or necessary procedure before year-end.

Check that the procedure is among the qualifying deductible expenses. Many elective procedures don’t qualify for this deduction.

Get serious about retirement — One way to lower your taxable income for the year is to contribute to a retirement plan, like a:

• 401(k)
• 403(b)
• Deductible IRA
• SIMPLE IRA
• SEP

You have until Dec. 31 to make contributions to 401(k)s and 403(b)s for 2018. You have until April 16 to make contributions to IRAs and some other plans.

Adopt a charitable attitude — Donate clothing and household goods to charities before Jan. 1, 2020. It’s also deductible on your 2019 return. Get a receipt from the organization you’re donating to. The deduction is limited to the item’s current fair market value (FMV) — what you could sell it for at a garage sale.

Sell off securities — If you have a large net capital gain so far this year, you might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax you pay this year. However, if you sell stock to generate a loss, you’re prohibited from purchasing substantially similar stock. This is 30 days before or after the sale that generated the loss.

However, if the securities you sell are mutual-fund shares, you might be able to:

• Reinvest the proceeds in a similar — but not identical — fund
• Maintain your investment strategy,
• Deduct the loss

Whatever you do, don’t let possible tax savings cause you to make a decision contrary to your investment interests.

Investigate before buying mutual funds — If you’re planning to invest a large amount in a mutual fund, find out when the fund declares its dividend. Confirm that the fund isn’t declaring a large amount of dividends in December. If you buy shares before the dividend is declared, you’ll increase your income by the amount of the dividend. This is true even if you reinvest the dividend in new shares. You can get this information at the fund company’s website.

Give the gift of cash –You can give a gift up to $14,000 to any one person free of gift tax. If you’re married, you each can give a person up to $14,000 tax free — $28,000 in total.

In most cases, the gift isn’t complete until the recipient of a check cashes or deposits it. So, confirm the recipient does this by the end of the year.

Don’t let extra money sit around — Consider investing in a short-term CD or a U.S. Treasury bill that matures in 2020 if you:

• Have a large amount of cash to invest
• Want to shift some of your income to 2020

It is not too late to talk to your tax planner to plan about the tax saving plan in 2019. If you would like to schedule a time to talk, feel free to reach out to us.

The post Year-End Tax Tips appeared first on Flex Tax and Consulting Group (FTCG).

File Away Your Tax Return and All Related Records

Once you’ve filed your return, it’s a good idea to create a single location to keep all the information related to the tax year for which you just submitted. If you keep physical records, this means printing off your return. Including all additional schedules, and sticking everything in a file, along with all the forms you received that reported income, expenses, or other tax-related information. These are forms like the 1099 MISC, 1099 INT, etc.

It’s also a good idea to include receipts for purchased items you’ve claimed as deductions and other records. You’ve used for filing your taxes, such as accounting reports and mileage records. Then if by chance the IRS chooses to audit your tax return, you won’t have to scramble to find all the records you need to prove why you claimed these deductions and credits.

Get Organized for Next Year

There’s no better time for organizing tax records than right now. Since you just filed your taxes, you’re aware of what was hard about the process and what parts of filing you can streamline. This may mean creating a physical file or a file on your computer where you can store receipts as they come in. Since more and more receipts arrive via email, you may want to create a separate receipts folder in your email account so they’re easy to find.

If you think you’ll be able to claim new deductions or credits next year, now is the time to start gathering the information to do so. Or if you expect to lose a credit or deduction you claimed last year, you can start considering other ways you can lower your tax burden to compensate. This may mean contributing more to your retirement plan or donating to charity. Being proactive makes it a lot easier to find everything you need when you’re ready to file your taxes next year.

Keep Receipts

You may be able to itemize your deductions, consider keeping all your receipts. When you itemize deductions, you can deduct the amount of sales tax you paid on goods throughout the year. Although the IRS provides a sales tax calculator that calculates a standard tax deduction. It based on your income and ZIP code. You may have spent more than the standard, especially if you made a large purchase. Likely buying a car or building a house, and paid sales tax on the supplies.

If you create a spreadsheet where you can enter the amount of sales tax on everything you’ve bought, it will ultimately save you a lot of time during tax season. This way, you’ll know whether you spent more than the standard tax deduction you’re eligible for.

Consider Storing Your Records Online

When you prefer to keep the amount of paperwork you acquire to a minimum, you can choose to store all your current and past tax information on your computer. Or — even better — online using a cloud service. You do store it on your computer, and be sure you make regular backups. If you subscribe to a cloud service, the information you store on your computer will automatically backup anytime you’re connect to the Internet, ensuring you never lose those records. If you have paper records, you can scan them and upload them onto your computer so you can store everything in one convenient location.

By getting organized now, you can save yourself a lot of time and more than a few headaches when the next tax season comes around. These tips on organizing tax records after you file will make the process a whole lot easier.

The post Organized Your Tax Paperwork appeared first on Flex Tax and Consulting Group (FTCG).

Not that you’ve ever loved tax season (who does?), but now you’re dreading it.

Don’t worry—we’ve got your update! We want you to feel confident in doing your taxes. And here’s the good news: Even though the tax reform bill brought some big changes, it made a lot of things simpler.

Stick with us, and we’ll break down the details so you understand what’s changed and how those changes impact you now that it’s 2019!

The Tax Reform Bill Impacts Your Taxes This Year

That’s right. Even though the tax reform bill—formally known as the “Tax Cuts and Jobs Act”—was introduced a full year ago, it didn’t apply to the taxes you filed last year.

But when you file in April, you’ll feel the difference. You probably even noticed less money being withheld from your paychecks this year as a result of the changes.

The difference in Income Brackets and Marginal Tax Rates

First, one of the most talked-about changes in the 2018 tax reform bill was the update to income tax brackets and marginal tax rates.

So what are marginal tax rates? Those are the percentages of your income that you pay in taxes. What this means for you: Your income is not taxed at one rate but several different rates, depending on how much you make.

How do you know your tax rates? Enter tax brackets. Tax brackets are income ranges. It’s that simple.

Each tax bracket corresponds to a tax rate. For example, if your income is $120,000, your tax rate isn’t a flat 24%. Instead, part of your income is taxed at 10%, part at 12%, part at 22%, and part at 24%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.)

Here’s the thing about income brackets and tax rates: It’s fairly common for tax brackets to change to account for inflation each year. But the marginal tax rates only change when a new tax law is passed—which doesn’t happen often. That’s why people were especially interested in this part of the tax reform bill.

Is this good or bad news for you? This year, it’s good news! Lower marginal tax rates mean you can pocket more money from your paycheck!

Plus, getting hitched just got easier! Not only will you have a lower tax rate this year, but the shift in tax brackets also removes what used to be an unintentional tax penalty for married filers. Under the 2017 tax law, some married filers were pushed into a higher income bracket when they combined their income with their spouse’s. Now the new income brackets are simply doubled for joint filers, which means that unintentional marriage penalty is gone.

The difference in the Standard Deduction

What else has changed? Another important difference in the 2018 tax reform bill is that the standard deduction has almost doubled. That’s great news!

The standard deduction is an automatic reduction in what you owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.

In many cases, the increase in the standard deduction will make up for the elimination of personal exemptions, leaving some Americans with more money in their pockets.

The Estate Tax Exemption

What’s the estate tax? The estate tax is a tax you pay on inherited money and property. Simple enough, right? Currently, there is a 40% tax rate on any inherited property valued over $5.49 million. In the new tax reform bill, you can inherit a total of $11.2 million in your life before the estate is hit with the 40% tax.

What About Charitable Donations?

Good news for those who like to live like no one else! In 2017, you could deduct up to half of your income in qualified charitable donations if you itemized your deductions. The new tax reform bill has increased that limit to 60% of your income.

What About Medical Expenses?

Another frequently used deduction is the medical expense deduction. Before the new tax reform bill, you could deduct unreimbursed medical expenses above 10% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. The new tax reform bill has reduced that hurdle to 7.5% of your AGI, which means you can deduct more.

What About Health Care?

The tax reform bill doesn’t repeal the Affordable Care Act, otherwise known as Obamacare, but it does get rid of the penalty you owe if you don’t get health insurance. Keep in mind that this change doesn’t take effect until next year. So that means the penalty (which is $695 this year) still applies when you file your 2018 taxes.

Other Tax Deductions That Are Disappearing

There are a few other deductions that didn’t make it past the chopping block in the new tax reform bill, like:

• Casualty and theft losses (except those attributable to a federally declared disaster)
• Unreimbursed employee expenses
• Tax preparation expenses
• Alimony payments
• Moving expenses
• Employer-subsidized parking and transportation reimbursement

And if you’re used to being able to write off miscellaneous work expenses, like travel or meals with clients, those tax breaks disappeared as part of the tax reform bill. That may seem like bad news, but there are plenty of other ways to save money on your small-business taxes.

If you have a small business or a side hustle, a tax pro can help you take advantage of all the deductions you qualify for.

Some of the tax changes this year—like the increased standard deduction—may make it easier for you to file on your own with Flex Tax and Consulting Group. Or you may feel so stressed that you know you’re going to lose sleep if you try to do it on your own. Flex Tax and Consulting Group has served and managed all types of tax and revenue collection for the U.S. for more than eight years. Our value-added services and solutions are based on innovative thinking that fits our valuable clients’ needs. If you have any questions, please don’t hesitate to contact us at 415-860-6288 or info@flextcg.com

The post Your 2019 Taxes: What You Need to Know About the Tax Reform Bill appeared first on Flex Tax and Consulting Group (FTCG).

The benefit of an A/B/C Trust as opposed to an A and B Trust is that the A/B/C Trust not only divides the decedent’s assets from the survivor’s assets. But further divides the decedent’s assets between those with a total value up to the exemption from estate tax and the growth on those assets. And the decedent’s assets over and above the exemption and the growth on them, which will be added to the survivor’s estate on the survivor’s death for estate tax computation only. So it segregates assets possibly subject to tax on the second spouses’ death from those that are not.

Similar to the A and B Trust, on the death of the first spouse, the trust assets are divided so that the survivor’s share (generally one-half) is allocated to the survivor’s trust (i.e., Trust “A”). The decedent’s share is divided into Trust “B” and Trust “C.”

One of these trusts receives assets up to the amount of the estate tax exemption. This trust is often referred to as the “Exemption” or “By-Pass” Trust (i.e., Trust “B”).

Any amount of the decedent’s share above the exemption is funded to the other trust (i.e., usually Trust “C”). This trust is often also referred to as the “Marital Deduction Trust.”

On the surviving spouse’s death, Trust “A” and the assets of the Marital Deduction Trust (i.e., usually Trust “C”) will be subject to estate tax together with the survivor’s assets if the total exceeds the exemption amount. The assets of the By-Pass or Exemption Trust (i.e., Trust “B”) including the growth thereon, will not be subject to the estate tax on the survivor’s death.

After the first spouse’s death, Trust “B” and Trust “C” will each usually be required to file their income tax returns. The net income of these trusts generally is payable to the survivor and passes through to the survivor for income tax purposes. The Bypass or Exemption Trust (and often the Marital Deduction Trust) will have limits/ restrictions on the availability of the principal for the survivor.

As you can tell, A/B/C Trusts are much more complex than the Standard Trusts we prepare. However, because of the tax benefits of creating an A/B/C Trust, it is appropriate in certain situations. Consult with an experienced estate planning attorney to determine if an A/B/C Trust is proper in your circumstance.

Example 1: Not Understanding Your Trust

Marty dies. Christie is the beneficiary of Marty’s “B” trust. Christie is surprised to find out that she only receives income from the “B” trust and can get principal, but only if she has no other money and then only for health and support. Moral of the story: she shouldn’t have been surprised because by its very nature a “B” trust must have certain limitations built-in. Otherwise, you lose the protections described above.

Example 2: Wife Changes Revocable ‘A’ Trust After Husband Dies

Marty and Christie have a second marriage. Each has two children from the previous marriage. Marty’s estate is $11.4 million of separate property, and Christie’s estate is $11.4 million of separate property. They set up a joint trust that leaves their estate equally to all four children. Sounds good, right?

When Marty dies, Christie follows the trust terms and puts Marty’s $11.4 million in the irrevocable “B” trust and puts her $11.4 million in the revocable “A” trust. So far, so good. But later Christie changes the “A” trust, leaving everything to her children. This means that Christie’s children get 100 percent of “A” and 50 percent of “B”; or, to put it another way, 75 percent of the total estate goes to Christie’s children, and 25 percent goes to Marty’s children. This result can be avoided with a little forethought.

Example 3: Irrevocable Trust Protects Children’s Inheritance

Christie dies. Marty does not divide the trust like he is supposed to. Instead he parties. Marty meets a younger woman, and they get married. They go on cruises, visit Europe, and live high. Marty dies and only $11.4 million is left. Marty’s third wife files a lawsuit to get what’s left in the trust. The court finds that the remaining money is Christie’s and should have been transferred to the “B” trust. Marty’s and Christie’s children split the inheritance in four ways. The third wife gets nothing, as she had no rights in Christie’s property.

Example 4: Future Income Taxes

Jim and Alice Anderson have an estate of $15 million. They have an old A/B/C trust established when the exemption was $11.4 million. Jim Anderson has passed and the trust is divided equally between the “A” and “B” trust. The capital assets received a basis step-up to fair market value when Jim died. However, when Alice dies there will be a basis step-up only in the “A” trust assets.

Bob and Nancy Jones also have an estate of $15 million. They restated their trust in 2014 and optimized their future income taxes, eliminating the old “B” trust and substituting a new irrevocable trust in its place. The Jones trust will receive a basis step-up when Bob dies and again when Alice dies, on all trust “A” and trust “B” assets. All estates of $22.8 million or less should be reviewed to optimize the tax basis step-up.

Yes, these stories go on and on and on. If you have a trust, whether it’s an A/B or A/B/C trust, you should have it reviewed every five years by your estate planning attorney – particularly if your estate has changed and/or gained in value.

Flex Tax and Consulting Group has served and managed all types of tax and revenue collection for the U.S. for more than eight years. Our value-added services and solutions are based on innovative thinking that fits our valuable clients’ needs. If you have any questions, please don’t hesitate to contact us at 415-860-6288 or info@flextcg.com.

The post Estate Tax Planning – Setting up the ABC Trust or Q-TIP Trusts to reduce federal estate taxes appeared first on Flex Tax and Consulting Group (FTCG).

A deceased person’s estate is a separate legal entity for federal income tax purposes. If you’re the executor of someone’s estate, you may need to file an income tax return for the estate, as well as a final personal income tax return for the deceased person.

Filing an Income Tax Return for an Estate

Filing requirements, deductions for estate expenses, and more.

The executor must file a federal income tax return (Form 1041) if the estate has:

• gross income for the tax year of $600 or more.
• a beneficiary who is a nonresident alien.

What kind of income does an estate have? Common examples are rents from real estate in the estate, a salary that wasn’t paid to the deceased person before death, or interest on an estate bank account.

If you promptly distribute all the estate assets to the people who inherit them, the estate may not have income, and you may not need to file an income tax return for it. For instance, if the deceased person owned a house in joint tenancy with his spouse, and she had payable-on-death designations on his bank accounts, those assets will pass immediately to their new owners at death. They won’t generate income for the estate.

Form 1041: The Estate’s Income Tax Return

The income tax return form for estates is IRS Form 1041. It’s also called a “fiduciary” return because you file it in your capacity as executor of the estate. (An executor is a fiduciary that is, someone who entrusted with someone else’s money and has a legal duty to act honestly and in the best interests of the estate.) The Form 1041 return is similar to the personal income tax return, Form 1040, that we all file every April 15. There’s a “Decedent’s estate” box at the top of the form, which you should check.

The executor of the estate is responsible for filing a Form 1041 for the estate. The return is file under the name and taxpayer identification number (TIN) of the estate. On it, you’ll report estate income, gains, and losses, and will claim deductions for the estate. You don’t have to include a copy of the will when you file the return.

The Estate’s Tax Year

The estate’s tax year begins on the date on which the deceased person died. You, as executor, can file the estate’s first income tax return  which may well be it is last) at any time up to 12 months after the death. The tax period must end on the last day of a month. If you file in any month except December, the estate has what’s called a fiscal tax year instead of a calendar tax year.

Deductions

All estates get a $600 exemption. You can also deduct:

Distribution to beneficiaries

If you required to pay out the income on estate assets to beneficiaries, you can take a deduction for those amounts. To calculate the amount of the deduction, fill out Schedule B. The income distribution deduction determines the amount of any distributions taxed to the beneficiaries.

Executor’s fees

If the estate paid the executor, the amount can deducted from the estate’s income. The executor must report the fees as taxable income on his or her income tax return.

Expert fees

You can deduct reasonable amounts the estate paid to attorneys, accountants, and tax preparers.

Expenses of administration. The amount you spend to wrap up the estate to collect assets, pay debts, and distribute property to the people who inherit it is deductible. You don’t have to conduct a formal probate to have deductible expenses of administration, but if you do costs are likely to include probate court filing fees, the cost of publishing probate notices in the local newspaper (as required by the probate court), and the cost of buying a bond (a type of insurance policy that guards against your misuse of estate assets), if it’s required.

Miscellaneous deductions

Some other expenses can be deducted if they exceed two percent of the estate’s adjusted gross income. Examples are investment advice, safe deposit box rentals, office supplies, postage, and travel expenses.

You cannot deduct medical or funeral expenses on Form 1041. You may be able to deduct medical expenses on the deceased person’s individual income tax return.

Forms for Beneficiaries

If you distribute income to beneficiaries, they are responsible for paying income tax on it. When you file the estate’s Form 1041, you must give each beneficiary a Schedule K-1 form, showing how much the beneficiary received during the tax year.

Paying the Tax

The executor is responsible for making sure that the estate pays any income tax due. The tax paid from estate assets.

Flex Tax and Consulting Group has served and managed all types of tax and revenue collection for the U.S. for more than eight years. Our value-added services and solutions are based on innovative thinking that fits our valuable clients’ needs. If you have any questions, please don’t hesitate to contact us at 415-860-6288 or info@flextcg.com.

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