The 10 best tips to prepare for the 2017 tax season

Preparing for Taxes for 2018 and Beyond

Article Highlights:

  • Increase In Standard Deduction
  • Loss of Personal Exemptions
  • Changes to Itemized Deductions
  • Bunching Strategy
  • Employee Business Expenses
  • Business Expensing
  • 20% Flow-through Income Deduction
  • Change in Treatment of Alimony
  • Casualty Losses, Home Equity Interest and Moving No Longer Deductible

Tax reform has changed the way most taxpayers need to think about and plan for their taxes. It is no longer business as usual, and those who think it is are in for a rude awakening come tax time next year. Read more

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You May Not Get a Tax Refund Next Year

Article Highlights: 

  • Payroll Withholding
  • W-4
  • 2018 Tax Projection
  • Adjusting Withholding

With all of the tax reform changes and the corresponding reductions in most taxpayers’ income tax withholding, there are serious concerns that the reduction in withholding, although providing more take-home pay now, could end up resulting in unexpected taxes due at tax time next year. For that reason, taxpayers should be overly cautious about their payroll withholding for 2018. One need only look at the W-4 instructions to realize that an individual without any substantial tax training can quickly become lost when filling out the worksheets. It is not business as usual. Read more

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Don’t Toss Those Tax Records Yet!

Article Highlights:

  • Reasons to Keep Records
  • Statute of Limitations
  • Maintaining Record of Asset Basis 

Even though the 2017 tax due date has come and gone, and even though you have filed your 2017 tax return, you may still need to keep your 2017 tax records. Generally, tax records are retained for two reasons: (1) in case the IRS or a state agency decides to question the information on your tax returns or (2) to keep track of the tax basis of your capital assets so that you can minimize your tax liability when you dispose of those assets.

If you are like most taxpayers, you have records from years ago that you are afraid to throw away. With certain exceptions, the statute for assessing additional taxes is three years from the return’s due date or its filling date, whichever is later. However, the statute of limitations in many states is one year longer than that of federal law. In addition, the federal assessment period is extended to six years if more than 25% of a taxpayer’s gross income is omitted from a tax return. In addition, of course, the three-year period doesn’t begin elapsing until a return has been filed. There is no statute of limitations for the filing of false or fraudulent returns to evade tax payments.

If none of the above exceptions applies to you, then for federal purposes, you can probably discard most of your tax records that are more than three years old; you will want to add a year to that time period if you live in a state with a longer statute.

Examples – Sue filed her 2014 tax return before the due date of
April 15, 2015. She will be able to safely dispose of most of her 2014 records after April 15, 2018. On the other hand, Don filed his 2014 return on June 2, 2015. He needs to keep his records at least until June 2, 2018. In both cases, the taxpayers should keep their records for a year or two longer if their states have statutes of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday, or holiday, the actual due date is the next business day.

The problem with discarding all the records for a particular year once the statute of limitations has expired is that many taxpayers combine their normal tax records with the records that substantiate the basis of their capital assets. The basis records need to be separated and should not be discarded until after the statute has expired for the year when a given asset was disposed of. Thus, it makes more sense to keep separate records for each asset. The following are examples of records that fall into the basis category:

  • Stock-acquisition data – If you own stock in a corporation, keep the purchase records until at least four years after the year when you sell the stock. This data is necessary for proving the amount of profit (or loss) from the sale. If your sales for a given year result in a net loss of more than $3,000, you may need to keep your purchase and sale records for an even longer period. This is because $3,000 is the maximum capital loss that can be deducted in any one year, so the excess loss must be carried over to the following year(s) until it is used up. If the IRS audits a return that includes a carryover loss, it will ask to see the records from the original purchase even if it was more than three years in the past. Thus, don’t dispose of such records until the statute of limitations has passed for the last year when you claimed a carryover loss.
  • Stock and mutual fund statements (if you reinvest dividends) – Many taxpayers use the dividends that they receive from stocks or mutual funds to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep all such dividend statements for at least four years after the final sale.
  • Tangible property purchase and improvement records – Keep records of home, investment, rental-property, or business-property acquisitions, of the related capital improvements, and of the final settlement statements from the sale for at least four years after the underlying property is sold.

For example, when Congress instituted the large $250,000 home-sale-gain exclusion (which is $500,000 for married couples filing jointly) many years ago, homeowners began to be more lax in maintaining their home-improvement records, thinking that the large exclusions would cover any potential appreciation in their homes’ value. Now, that exclusion may not always be enough to cover the gains from a sale, particularly for markets where property values have steadily risen; thus, keeping records of all such home improvements is vital.

What about the tax returns themselves? Although the backup documents that you use to prepare your returns can usually be disposed of after the statutory period has expired, you may want to consider indefinitely keeping a copy of the tax returns themselves (the 1040, the attached schedules/statements, and the state return). If you just don’t have room to keep copies of your paper returns, digitizing them is an option.

If you have questions about whether to retain certain records, give this office a call; before discarding any records, it is a good idea to make sure that they will not be needed down the road.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler NW is to earn our clients’ trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

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Not-Being-Insured Penalty Eliminated

Article Highlights:

  • Shared-Responsibility Payment
  • Originated in 2014
  • Fully Effective in 2016
  • How It Is Calculated
  • Eliminated in 2019

Note: This one of a series of articles that explain how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family—both in 2018 and in future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

Beginning in 2014, the Affordable Care Act, also known as Obamacare, imposed what a “share-responsibility payment” on taxpayers who did not sign up for minimum essential health coverage. This payment is essentially a penalty for not being insured.

The penalty was phased in during 2014 and 2015, and it became fully effective in 2016. The penalty also began to be inflation adjusted after 2017.

The penalty for 2018 is the greater of the sum of the family’s flat dollar amounts or 2.5% of the amount by which the household’s income exceeds the income-tax filing threshold.

For 2018, the flat dollar amounts are $700 per year ($58.33 per month) for each adult and $350 per year ($29.17 per month) for each child; the maximum family penalty using this method is $2,100 per year ($175 per month).

As an example, say that a family of four (2 adults and 2 children) has a household income that exceeds the income-tax filing threshold by $100,000. This family would have a maximum penalty equal to the greater of the flat dollar amount ($700 + $700 + $350 + $350 = $2100) or 2.5% of the income amount (2.5% × $100,000 = $2,500). Thus, the maximum penalty would be $2,500. However, the penalties are applied separately in each month, and they do not apply in a given month if certain exceptions are met.

Because of the Act, in 2019, the shared responsibility payment will no longer exist, thus allowing taxpayers the discretion of choosing to not have any coverage without the fear of being subject to a substantial penalty. However, the penalty still applies for 2018.

This does not impact the health care subsidy for low-income families, which is known as the premium tax credit and which is available for policies that are acquired through a government insurance marketplace. It also does not affect the penalties assessed on employers that do not offer affordable insurance to employees and that have 50 or more full-time-equivalent employees.

For questions or additional information, please call this office.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler NW is to earn our clients’ trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

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Tax Filing Deadline Rapidly Approaching

Highlights:

  • 2017 balance due payments
  • IRA contributions for 2017
  • Estimated tax payments for first quarter 2018
  • Statute of limitation 2018 refunds

Just a reminder that the due date for 2017 tax returns is April 17, 2018! There is no penalty for filing late if you are receiving a refund. However, it is quite a different story if you have a balance due. There are two types of penalties. Late filing and late payment penalties are quite severe. Filing an extension gives you until October 15th to file and avoid the late filing penalties. However, there is no extension for paying your tax liability even if you have a valid extension to file. Read more

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Estate Tax Exemption Doubled under Tax Reform

Article Highlights

  • Estate Tax Exemption
  • Unused Exemption Portability
  • Annual Gift Tax Exemption
  • Check Your Beneficiaries

Note: This is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.

Leading up to the passage of the Act, there was considerable discussion about repealing the estate and gift tax. That didn’t happen! But Congress did double the value of an estate that is excluded from being taxed, and as a result, fewer estates will be subject to the 40% estate tax, and even those in excess of the excluded amount will pay less tax. Read more

Living Abroad? Here Is How Tax Reform May Affect You

Living Abroad? Here Is How Tax Reform May Affect You

If you are an expatriate living abroad, you may be wondering how the provisions of the Tax Cuts and Jobs Act (TCJA) will impact you. This is the most extensive tax change in over 30 years, and although it was touted as tax simplification when it was in the planning stages, nothing was simplified related to U.S. citizens and resident aliens working abroad. The following is an overview of how things will play out for you beginning in 2018.

Read more

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Can’t Pay Your Taxes by the April Due Date?

Article Highlights:

  • What to Do If You Can’t Pay
  • Loans
  • Credit Card Payments
  • IRS Installment Agreements
  • Retirement Funds

If you aren’t one of those lucky Americans who gets a tax refund from the IRS you might be wondering about your options for paying off your tax liability by the April due date.

The IRS encourages taxpayers to pay the full amount of their tax liability on time, and it imposes significant penalties and interest on late payments. Thus, if you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the fully funds to pay your taxes so that you are not subjected to the government’s penalties and interest. Here are a few options to consider. Read more

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Tax Reform Limits Exchanges to Defer Taxes

Article Highlights:

  • Deferring Tax with Like-Kind Exchanges
  • Changes Made by Tax Reform
  • Impact on Trade-ins

Note: This is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as the “Act” in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.

Whenever you sell business or investment property and have a gain, you generally have to pay tax on the gain at the time of sale. In the past, the tax code provided an exception and allowed you to postpone paying tax on the gain if you reinvested the proceeds into similar property as part of a qualifying like-kind exchange. These types of exchanges are commonly called Sec. 1031 exchanges (referring to the tax code section that allows them). These rules have applied to real estate, cars, farm animals and other business and investment items that are like-kind property. Read more

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Business Owners Beware: New Tax Law Severely Limits Entertainment Deductions

 

Note: This is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December 2017, could affect you, your business or your family, in both 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

If you are a business owner who is accustomed to treating clients to sporting events, golf getaways, concerts and the like, we have some bad news for you. The GOP’s tax-reform bill that President Trump signed on December 22nd of last year eliminated the business-related deduction for entertainment, amusement or recreation expenses, effective beginning in 2018. Read more