Mutual Fund Tax Tip

December 17th, 2018

capture2When mutual funds pay dividends they reduce the cost of the share price by the amount of the dividend. Buy shares of mutual funds after the 2018 dividend record date to save tax dollars. This allows you to buy the shares at a lower cost and not pay income tax on the amount of the dividend.

Annuity Tax Tip

December 17th, 2018

capture2Donating an annuity with a cash surrender value higher than your investment will trigger taxable income in the year of transfer. Taxable amount will be the difference between the cash surrender value and your investment.

The value of the annuity can still be deducted as a charitable contribution if you itemize deductions.

If you donate the annuity before you turn 59 ½ you will owe a 10% penalty on the early distribution.

If you are trading one annuity for another it must be done as a direct exchange to avoid income tax.

2019 Retirement Account Maximum Contribution Limits

December 17th, 2018

401(k), 403(b), and 457 plans: 
Maximum: $19,000, people age 50 and older can contribute an additional $6,000

Simple Plans: Maximum: 
$13,000, people age 50 and older can contribute an additional $3,000

Traditional and Roth IRA:
$6,000, people age 50 and older can contribute an additional $1,000

These amounts are totals for the year regardless of
how many separate accounts you have.

S-Corp Shareholder Wages & Income – Ohio Withholding

December 17th, 2018

capture2The Ohio Business Deduction allows an S-Corp shareholder to deduct from their Ohio income up to $250,000 ($125,000 if married, filing separately) of S-Corp profits.  W-2 wages paid to the shareholder are also included for the deduction, if the shareholder owns 20% or more of the S-Corp.

You may want to consider adjusting your Ohio withholding and/or estimated payments since no tax will be due on combined S-Corp profits and W-2 wages up to these amounts.

529 College Savings Accounts

December 17th, 2018

capture2For Ohio residents, deductions for 529 College Savings plan contributions are increased to $4,000 per year, per beneficiary (student) with contributed amounts above $4,000 carried forward to future years.

529 College Savings Accounts can now be used to pay up to $10,000 of tuition for grades K-12.

Strategy for clients paying tuition for K-12: Contribute amount of tuition, up to $10,000 per calendar year, then withdraw it to pay for K-12 tuition in the current year.

Partnership Income – Ohio Withholding

December 17th, 2018

capture2The Ohio Business Deduction allows a Partner to deduct from their Ohio income up to $250,000 ($125,000 MFS) of Partnership income that is passed through from the Partnership.  Guaranteed payments made to the partner are also included for the deduction, if the partner owns 20% or more of the partnership.

You may want to consider adjusting your Ohio estimated payments since no tax will be due on Partnership income up to these amounts.

Let us know if you have any questions.

State of Ohio Federal Adjusted Gross Income (FAGI) Billing Program

December 17th, 2018

capture2Ohio law (Revised Code section 5747.08(E)) requires taxpayers to file certain information on their return consistent with the information reported on their federal return. On November 6, 2018, the Ohio Department of Taxation (ODT) began mailing Federal Adjusted Gross Income (FAGI) billing notices for tax year 2016 to taxpayers who had a discrepancy between what was reported on the U.S. Individual Income Tax Return Form 1040 and what was reported on the Ohio Individual Income Tax Return Form IT-1040. The FAGI billing notice summarizes “As Filed” and “As Corrected” amounts for federal adjusted gross income, exemptions and/or filing status and the total amount owed (additional tax due plus interest) to ODT because of the adjustments.

TO AVOID AN ASSESSMENT AND ADDITIONAL CHARGES, TAXPAYERS MUST RESPOND TO THE BILLING NOTICE IMMEDIATELY.

If you receive any notice, please contact us immediately.

Entertainment-related Meal Expenses – Changes for 2018

December 17th, 2018

capture2Before 2018, businesses could deduct 50% of business-related meal and entertainment expenses.  The Tax Cuts and Jobs Act (TCJA) eliminated the deduction for entertainment expenses incurred after 2017.  Business-related meal expenses, on the other hand, remain 50% deductible.  That raised an important question:  Are food and beverages purchased while entertaining clients and customers entertainment expenses that are no longer deductible or business-related meal expenses that continue to be 50% deductible?  This has created a lot of uncertainty surrounding a time-honored, well used, and legitimate business practice of wining and dining clients.

Fortunately, the IRS has recently given us the answer to this question, and it is good news.  Although the TCJA eliminated the deduction for entertainment expenses, food and beverages purchased while entertaining clients continue to be 50% deductible under the longstanding requirements, but only if they are purchased separately or stated separately on the bill, invoice, or receipt.

For example, if you take a customer to a ball game and purchase tickets in a suite where food and beverages are provided, none of the ticket cost is deductible unless the cost of the food and beverages is stated separately on the bill, invoice, or receipt.  In that case, 50% of the food and beverage costs are deductible, while the rest of the ticket cost is a nondeductible entertainment expense.  Of course, the IRS warns that the entertainment disallowance rule cannot be circumvented by inflating the amount charged for food and beverages.

This pretty well means that it’s business as usual for these entertainment-related meal expenses, with the added requirement that, to be deductible, the cost of food and beverages must be purchased separately or stated separately on the bill, invoice, or receipt.

NOTE:  It is important to remember the longstanding rules for entertainment-related meals continue to apply – namely, to be 50% deductible, the expenses must not be lavish; you or one of your employees must be present at the event; and the person being entertained must be a current or potential business customer, client, consultant or similar business contact.  Also, business must be conducted during the event (or immediately before or after) and the time, place, business purpose, and the business relationship of the attendees must be documented.

Please give us a call if you have any questions or need our assistance.