If your family has trouble with the kiddie tax, you face some new wrinkles for tax years 2018 through 2025 thanks to the Tax Cuts and Jobs Act (TCJA) tax reform. This is one of the many areas where tax planning can pay off.
For 2018–2025, the TCJA tax reform changes the kiddie tax rules to tax a portion of an affected child’s or young adult’s unearned incomeat the federal income tax rates paid by trusts and estates.
Trust tax rates can be as high as 37 percent or, for long-term capital gains and qualified dividends, as high as 20 percent.
Unearned income means income other thanwages, salaries, professional fees, and other amounts received as compensation for personal services. So, among other things, unearned income includes capital gains, dividends, and interest.
Earned income from a job or self-employment is never subject to the kiddie tax.
Your dependent child or young adult faces no kiddie tax problems if he or she does not have unearned income in excess of the kiddie tax unearned income threshold ($2,100 for 2018 and $2,200 for 2019).
And when your dependent child exceeds the threshold by only a minor amount, the kiddie tax hit is minimal and nothing to get too upset about.
But if your child is getting hit hard by the kiddie tax, your tax planning should consider two proven strategies.
If your family is facing a kiddie tax problem, be sure to contact us so we can help you reduce or maybe eliminate the kiddie tax.
What tax effect would death, retirement, or disability have on you or your business? Here’s an easy example to illustrate.
Let’s say that in 2017, you purchased for business use a pickup truck with a gross vehicle weight rating greater than 6,000 pounds. Asserting that you use the pickup 100 percent for business, you expensed the entire $55,000 cost.
What happens to that $55,000 expensed amount if you die, retire, or become disabled before the end of the vehicle’s five-year depreciation period?
If you operate your business as a pass-through entity, such as a proprietorship, partnership, or S corporation, the profits of that business can generate the Section 199A tax deduction.
You qualify for the Section 199A deduction— with Trump's new tax plan, exceptions do apply.
With Form 1040 taxable income equal to or less than the thresholds certain thresholds, even doctors, lawyers, accountants, financial planners, stockbrokers, manufacturers, retailers, consultants, and all other businesses with pass-through income may qualify for the deduction.
If your taxable income is above certain thresholds, you will need to consider tax planning- now!
Why now? Because some strategies require that you have time on your side.
If you are looking at a retirement plan strategy, you want time to consider your options and get that tax-savings plan in place.
As you can see, no issues.
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Your personal residence combined with a desire for a rental property can provide an opportunity for tax savings double play!
The tax-saving strategy is to combine the tax-avoidance advantage of the principal residence gain exclusion break with the tax-deferral advantage of a Section 1031 like-kind exchange. With proper planning, you can accomplish this tax-saving double play with full IRS approval.
The double play is available when you strategically satisfy the requirements laid out in IRC Code. The kicker is that tax-deferred exchange treatment is allowed only on like kind exchanges.
With tax planning our average client has avoided taxes on a gain of $2.4 million, using the strategies according to the 7,000 plus page tax laws.
Pay No Income Taxes Ever! There are tax plans to accomplish this goal!
TCJA which is our Tax Reform has many still contemplating how this new law will apply to various aspects of their business. The good news is that TCJA has provided significant benefit to most business owners. Planning is vital to taking advantage of these benefits.
These proactive strategies will avoid limits that the Net Operating Loss (NOL) rules impose.
Changes lawmakers made to the NOL deduction rules can take tons of money out of your pocket. Prior to tax reform you could carry back NOL to prior year and receive refunds of taxes paid in those years. Read Article.
Those days are over!
Which is where tax planning can help this is good news. Contact us so we can set up tax planning options that best fit your needs.
If you claim your business miles at the IRS optional rate, and are now being audited by the IRS for your business mileage, they may request odometer readings for your vehicle.
Your next questions:
The tax code is very clear about this and the answer is yes.
The IRS, in its Internal Revenue Manual has precise steps that examiners must take when looking at business miles.
The bottom line here is that once you get the letter from the taxing authority don't go at it alone.
Had you reported this income as an S corporation, your chances of audit 20%.
If you filed your business income and expenses as a proprietor in 2017 and reported $100,000 or more in gross receipts, your chances of IRS audit were 2.4 percent (2017 returns are still open for audit, so the percentage could increase).
Had you reported this income as an S corporation, your chances of audit were only 0.20 percent.
You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it.
Regardless, let’s assume that you’re a little paranoid about audits, and you want to claim the home-office deduction in a way that doesn’t attract the attention of the IRS.
If keeping more money for your future appeals to you, please contact us, so we can look at your options to see if we should spend some time on your tax planning.
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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.