In December 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA) and changed how your children calculate their tax on their investment-type income. The TCJA changes led to much higher tax bills for many children.
On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire
Kiddie Tax Basics
When your children are subject to the kiddie tax, it forces them to pay taxes at a higher rate than the rate they would usually pay.
Here’s the key: the kiddie tax does not apply to all of a child’s income, only to his or her “unearned” income, which means income from:
For 2019, your child pays the kiddie tax only on unearned income above $2,100.
Congress passed some meaningful tax legislation as it recessed for the holidays. In one of the new meaningful laws, enacted on December 20, you will find the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).
The SECURE Act made many changes to how you save money for your retirement, how you use your money in retirement, and how you can better use your Section 529 plans. Whether you are age 35 or age 75, these changes affect you.
Here are eight of the changes.
Most of these apply to any event that occurred after December 31, 2018.
This strategies allow you to start thinking about your future while optimizing your tax options. If this sounds like something you will benefit from, contact us at 262-358-8297.
It is important to understand that tax planning will save you money, you don't have to commit a crime by trying your luck with Tax Evasion!
January 14, 2016 a South Dakota woman age 33 was convicted of Making and Subscribing a False Tax Return. She was sentenced to 5 years of probation, and ordered to pay a $100 special assessment to the Federal Crime Victims Fund and $14,792 in restitution to the Internal Revenue Service. She charged on September 17, 2015, and pleaded guilty on October 2, 2015.
The conviction stems from her falsely subscribing to her 2013 tax return by underreporting her income tax liability.
This is known as tax evasion and it is a crime. It is illegal to attempt to lower your tax liability by being deceitful and concealing your income or over reporting expenses.
It is imperative that you inform your tax provider of all income received, even if you have not formed a legally entity and have earned income outside of your W-2 employment. i.e if you decided to embezzle money from your company that money is taxable. You will need to include that as income on your tax return.
To legally reduce or eliminate your tax liability requires effective tax planning and evaluation. I will assist you with lowering your tax bill by structuring your transactions so that you reap the largest tax benefits.
Giving to your church, school, or other 501(c)(3) charity is a noble act no matter how you choose to give.
But for the purposes of tax savings, some forms of giving are much more beneficial to you than are others. As a business owner, you can use some business strategies to get the money to these institutions as business expenses.
While this does not change anything from the institution’s perspective, it hugely increases your tax savings. The Tax Cuts and Jobs Act (TCJA) makes it harder to benefit from your personal donations.
Let’s say you donate $10,000 to a church, school, or other 501(c)(3) charity:
1. Will you get a tax deduction—in other words, will you itemize?
2. Will you benefit from the entire $10,000 as an itemized deduction? In other words, did the $10,000 simply put you over the hump that beat the standard deduction?
3. Say you can deduct all $10,000 as an itemized deduction. Would making it a business deduction increase the tax benefit value to you?
The simple maneuver of converting your personal residence to a rental property brings with it many tax rules, mostly good when you know how they work.
The first question that arises when you convert a personal residence into a rental is how to determine the property’s tax basis for depreciation purposes during the rental period and for gain/loss purposes when you eventually sell.
Weirdly enough, two different basis rules apply:
Once you’ve converted a former personal residence into a rental, you must follow the tax rules for landlords. Here is a quick summary of the most important things to know:
If your rental property throws off a tax loss, things can get complicated.
The so-called passive activity loss (PAL) rules will usually apply. In general, the PAL rules allow you to deduct passive losses only to the extent you have passive income from other sources, such as positive income from other rental properties or gains from selling them.
Eventually your rental property should start throwing off positive taxable income instead of losses because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you now get to use them to offset your passive profits.
Another nice thing: positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3 percent, so it’s a wonderful thing when you don’t have to pay it.
One other good thing is that your net rental profits may qualify for the Section 199A deduction.
When you sell a rental property that you’ve owned for more than one year, the profit (the difference between the net sales proceeds and the tax basis of the property after subtracting depreciation deductions during the rental period) is generally treated as a long-term capital gain.
Always keep in mind the good news here. You don’t pay the taxes on the property appreciation until you sell.
Remember those suspended passive losses we mentioned above? The suspended losses are ordinary losses. When you sell a rental, you can find two great benefits:
And always keep this in mind: rental real estate owners can avoid taxes indefinitely using Section 1031 exchanges (named after the applicable section of our beloved Internal Revenue Code).
The tax code totally mislabeled the 1031 exchange. It’s absolutely not an exchange or a swap. It works like this:
We're Here to Help
Get advice from our experienced network of financial managers.
Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.