Preparing your 2018 tax return never seems like an easy feat. It often feels easier to just put off your tax preparation. And sure, procrastination can keep a tax headache at bay for a little while. But you’re still better off taking care of your taxes sooner rather than later. In the face of a recent government shutdown and newly applicable tax reform, being prepared with a handy tax prep checklist has never been more important.
Why should I use a tax prep checklist?
Even if you’re having a professional tax preparer complete your tax return, a tax prep checklist can definitely come in handy. Using a checklist will help ensure you have all the information and documents needed to file.
You’ll need to gather forms and documents that fall into the following categories:
State & local taxes or sales tax
Medical expense & health insurance
Federally declared disaster
Aside from helping you organize your documents and forms, tax prep checklists will also help get you in the right frame of mind to start filing. Kick procrastination to the curb by starting on your own checklist.
Click here or on the image below to view and download our Individual Tax Prep Checklist.
How should I use this tax prep checklist?
Move down the list slowly, finding documents you need and storing them safely in a folder meant for your 2018 tax documents. Keep in mind that you may not need every form and document listed on the checklist. Feel free to mark off any of these unnecessary items for you so you can focus on the forms you do need.
If you need any help with filing your taxes, our team of tax experts is always available to help!
It’s a mistake that 21 percent of taxpayers could have made this year. Thanks to the Tax Cuts and Jobs Act that was signed into law in Dec. 2017, some people may owe more to the IRS this year than ever before depending on their tax bracket and filing situation. Why? They may have made a major tax withholding mistake.
While the Treasury Department and the IRS updated their withholding tables to offer a guideline to how much income taxes need to be deducted from your paycheck, some people did not change their tax withholding amounts accordingly. And if you’re one of these people, you’ll have an unfortunate surprise ahead of you come filing time.
Here’s what you need to know about withholding tax:
What is it?
Withholding tax is when your employer takes taxes directly out of your paychecks to send to the IRS and any state tax authorities for you.Employers do this in an attempt to leave you even with any tax collectors by the end of the year. If more tax is withheld than necessary, you’ll end up with a tax refund when you file your taxes.
When it comes to refunds, giving the government what is essentially an interest-free loan isn’t ideal. Still, it’s better than what happens if not enough tax is withheld.
What happens if I didn’t withhold enough taxes?
If you’re part of the 30 million people who didn’t withhold enough taxes in 2018, you may be in for a not-so-pleasant surprise when you go to file. If you didn’t withhold enough taxes, you’ll end up owing a big tax debt when you file your taxes (and potentially getting slammed with an underpayment penalty).
Tax bill too big for you to pay immediately? Don’t worry – there’s always options available to you. You can work with a tax professional to figure out a way to pay that will work for your unique situation.
Is there anything I can do to fix it now?
Unfortunately, you can’t change your withholdings for 2018 now that the year is over and done.
However, this is the perfect opportunity for you to update your withholdings for 2019. Since the withholding table has no foreseeable updates in the near future, you should make time with your tax preparer to review your withholdings. You can also use the IRS’s handy withholding calculator to check your tax withholding. If you need to make changes, update your W-4 form and give this updated version to your employer.
Performing a paycheck checkup now will help you ensure you’re paying the right amount in taxes throughout the year. Take some time to check your tax withholdings now to ensure you’re not left with a hefty tax bill (or an unnecessarily hefty tax refund) come filing time in 2020. If you need help figuring it out, give us a call. Our tax prep experts are always here to help you file timely tax returns to optimize tax breaks and avoid mistakes the first time.
If you’re a business owner, you’ve probably heard the buzz about the 20% pass-through deduction, also known as the qualified business income (QBI) deduction. Everyone discussing this deduction has proclaimed it to be a great perk for business owners. Still, it’s been hard to figure out how to claim it.
The IRS released some guidance on the QBI deduction on Jan. 19, 2019 in the form of 274 pages of final regulations. Sounds like it should have cleared things up, right? Actually, it only clarified that this is one of the most complicated changes that came with the recent tax reform. Let’s shed light on the basics of this intricate deduction by responding to some questions we’ve heard a lot since it was signed into law.
Answers to those burning questions about the 20% pass-through deduction:
What is the QBI deduction?
The QBI or 20% pass-through deduction refers to an individual provision (officially named Section 199A) in the Tax Cuts and Jobs Act. The provision is only effective for tax years after Dec. 31, 2017, and before Jan. 1, 2026.
Section 199A allows owners of pass-through entities to deduct 20 percent of the business income that is passed onto their individual return.
Why was it included in the tax reform?
The pass-through deduction was included to offer a tax benefit to businesses that help grow the U.S. economy. This tax break, however, is meant for a specific subset of business owners.
Who is eligible for the 20% pass-through deduction?
Pass-through organizations are eligible for the deduction. These organizations tend to “pass” the business’s profits “through” to owners or shareholders. The owners of pass-through organizations pay tax through individual rather than corporate returns. It’s estimated that about 95% of businesses fall into this category.
These are all pass-through organizations that could be eligible for the deduction:
Limited liability companies
But there is a catch. Even if your business is a pass-through organization, it doesn’t mean you’ll qualify for the 20% pass-through deduction. There are some key limitations to this deduction that we’ll discuss in a moment.
What is a specified service trade or business (SSTB) and how does it apply to the deduction?
A specified service trade or business (SSTB) is defined in the legislative text of IRC Section 199A as:
“Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees [or] any trade or business which involves the performance of service that consist of investing and investment management, trading, or dealing in securities.”
Any business that fits that definition only qualifies for the deduction if the owner’s taxable income is less than certain threshold amounts. Here’s a handy visual breakdown of the trades and business fields that fall into the category of SSTBs:
How do I calculate how much I could save with the 20% pass-through deduction?
Unfortunately, it’s not as simple as just multiplying your pass-through income by 20 percent. Even most tax professionals have to run complicated calculations through advanced tax programs. The best way to really find out how much you can save is to find a tax professional who is experienced in running these calculations.
Can I split my company into different entities to lower my tax bill?
What is the best business structure for me and will it qualify me for the 20% pass-through deduction?
This is a near-impossible question to answer without knowing the specifics of your business and income. The pass-through deduction will inevitably help some business owners. Meanwhile, others may benefit more by maintaining a C-corporation structure.
If I do qualify for the QBI deduction, what are the limitations?
Here are the main limitations of the 20% pass-through deduction:
The deduction cannot exceed 20 percent of your taxable income in excess of capital gains.
You cannot deduct more than the lesser of QBI or the greater of:
50 percent of your allocable share of the wages paid by the business with respect to QBI, or
25 percent of your allocable share of wages plus 2.5 percent of the unadjusted basis of qualified property owned by the business.
This limitation begins getting phased in at taxable incomes of $157,500 for single taxpayers and $315,000 for married taxpayers filing jointly.
As mentioned before, the deduction is temporary and may not exist past 2026.
The complicated nature of the 20% pass-through deduction makes it difficult to navigate for the average taxpayer.
If I don’t qualify for the deduction, are there other ways I can save on my taxes?
Don’t worry. The QBI deduction is not the only way to save on your business taxes. The tax reform also brought along a lower tax rate for C-corporations and repealed the corporate alternative minimum tax.
In sum, the 20% pass-through deduction could bring you a great tax break. But it’s also a complex and headache-inducing change. The good news is that there are tax experts like ours ready to help you decipher what Section 199A means for you and your business taxes.
“But if the government is shut down, can’t I just wait to file my taxes or pay back my tax debt?” This is one of the most dangerous thoughts you can have during the shutdown. The IRS shutdown mode should not keep you from dealing with your taxes or tax debt. The government may be able to shut down, but you can’t shut down taxes or tax debt. With tax season beginning next week, we’ve put together a simple guide to help you prepare to deal with your taxes and tax debt during and after the IRS shutdown.
Here are some tips to help you make your way through this IRS shutdown and the aftermath:
1. Gather all your tax forms.
Make sure all your tax forms arrive on time. If they don’t, make sure you check your records to ensure you didn’t receive any missing forms earlier than expected.
If you still cannot find some of your necessary forms, be sure to reach out ASAP to the responsible party. The IRS may not be available by phone due to the shutdown. So, you will want to put extra effort into contacting the issuer of the form you need. If you’re missing a W2 form, be sure to contact the responsible employer before considering reaching out to the IRS. You’ll want to make sure you have all the tax forms needed before you file, otherwise you could be at risk for an audit.
2. File as soon as you can.
Once you have all your tax forms, don’t hesitate to start filing. The deadline to submit personal tax returns for most of the nation is April 15, 2019. The only exceptions to this deadline are for Maine and Massachusetts residents, who have until April 16 to file, and District of Columbia residents, who have until April 17.
If you do think you’ll need an extension past these deadlines, you can seek one from the IRS or state taxing authority. Just keep in mind that an extension is an extension to file, not to pay. So if you owe, you must pay on time. You’ll want to keep a copy of your extension too as proof that you filed one.
Also, you should consider e-filing this year. The IRS has strongly encouraged taxpayers to file their returns electronically in order to minimize errors and receive faster refunds.
4. Get ready for the rigor of audits and collections once the shutdown ends.
During the IRS shutdown, they won’t be conducting audits or actively engaging in collection activity. You’ll still get automated initial contact letters about audits and any automated collection activity will continue. Just because they won’t be auditing or partaking in collection activities doesn’t mean you should put your feet up and relax.
In fact, this is the perfect time for you to prepare yourself and your paperwork for the inevitable. The government can’t stay shut down forever. And once the IRS is up and running again, they’ll be starting up those audit and collection processes in full force. You don’t want to be caught unprepared for something like that. Make sure you find tax audit help as needed and start looking into ways to stop those collection activities.
5. Don’t wait to take action on outstanding tax debt.
A government shutdown may seem like the perfect time to avoid your tax debt. It gives you so many excuses not to resolve your IRS bill: it’s hard to reach the IRS, they won’t be pursuing you actively, you may not be getting paid if you’re a furloughed government worker or third-party government contractor, etc.
At the end of the day, this IRS shutdown has come at an unfortunate time, coinciding with the first tax season that includes all the tax reform changes that came with the Tax Cuts and Jobs Act. If you need any help figuring out your taxes or finding back taxes help, our team is always here to help.