Author Archives: nadineriley

Remembering Ruth Bader Ginsburg

September 25, 2020 Drawing portrait of United States Supreme Court Justice, Ruth Bader Ginsburg, vector illustration.

Remembering Ruth Bader Ginsburg

“Don’t be distracted by emotions like anger, envy, resentment. 

These just zap energy and waste time.

(5 Minutes to Read)  On Friday, September 18th our fellow Jewish Citizens commenced another new year, Rosh Hashanah. This sacred time is marked with prayer and other ceremonial events. On the said day they also lost one of their (and our) own. Supreme Court Judge Ruth Bader Ginsburg (aka “Notorious RBG”), a woman whose shoulders many of us stand on, fought relentlessly for gender equality. 

In all honesty, I didn’t know much about her, but after I learned of her passing I spent a few days watching some of her interviews to learn more about her. Through perseverance and a steadfast commitment from women like Ruth, we have come a long way, haven’t we?

As I reflect on Ruth Bader Ginsburg’s life and legacy, and this sacred time period — I envision a society (a world) of shared responsibility; in which each individual’s sole responsibility is to make a contribution to the better good of mankind as a whole, not just self… Can you visualize that? I can.

Moving along — Taxes

 All extensions due to the Covid-19th impact have expired. 

In this article, I will discuss the CARES act relief for Coronavirus-related distributions (CRDs).

The next income tax filing due date for C-Corporations and Individuals who filed an extension is October 15, 2020. Please remember to file on time to avoid unnecessary penalties and fines; this penalty is an additional penalty and separates from the failure to pay imposed by the federal and states.

As I continue, I would like to address one of the most frequent inquiries that were made during the pandemic; retirement withdrawals (RMD withdrawals are not required for 2020). Unfortunately, many among us have been furloughed, lost our jobs, or have seen our compensation drastically reduced, so the need to tap into retirement savings may be inevitable.

The coronavirus-related distributions (CRDs) allow for a significant amount to be withdrawn from certain qualified retirement savings, during the calendar year 2020 (i.e. between January 1 and December 31, 2020). 

How can this be done wisely?

1.Take advantage of the waiver of the 10% penalty for early withdrawal of up to $100,000 under the CARES Act if you experienced hardship during the pandemic. (Generally, if a withdrawal is made from certain retirement savings before an individual reaches age 59½, a 10% early withdrawal penalty is imposed.)

2. Consider withdrawals for basic necessities only. Withdraw just for what you need; forget the nice-to-haves. There is no waiver of taxes — federal and state taxes will be due on the money taken from retirement.  

3. Consider withdrawals from gains that have accumulated over time. While this may not be possible for some individuals, consider withdrawing from the amounts that exceed your contribution. By doing so, withdrawals are made from gains only. This is most likely doable for individuals who have been saving for a long time.

4. No required 20% federal tax withholding is necessary, but consider withholding if you don’t plan to repay or replenish the retirement savings account.

5. Consider taking advantage of the three-year payback period. The CARES act offers an option to pay back funds withdrawn from a qualified retirement plan over a three-year period, and without having the amount recognized as income for tax purposes. This option may be possible if there is a certainty in one’s ability to repay. Furthermore, the full financial impact of COVID-19 still remains a mystery. 

6. Other options are available to 401(k) participants (savers). The CARES Act also allows qualified individuals to take a loan from the participant’s vested account balance. You will not owe income tax on the amount borrowed from the 401(k). Please discuss this option directly with your fund administrator.

In closing, a $100,000 withdrawal from savings is a rather hefty amount. Before you act, consider this wise quote penned by Saint Luke as he recapped the words from his Teacher — “don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?” We are still in a relatively high tax era; and the tax impact will be a factor of your overall income. 

As you and I reflect, let’s contemplate our next best move; then resolve to choose wisely. Let’s remember our shared responsibility to each other and contribute to the better good of another. Envision that!

Stay hope-filled and healthy,

Nadine 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

It’s All About Hope

Child on a beach with hands cupped holding stone pebble with the word hope engraved concept for faith, love, spirituality and religion

{3 minutes to read}  Hope … Such a simple and yet powerful word. Wikipedia defines it like this:

Hope is an optimistic state of mind that is based on an expectation of positive outcomes with respect to events and circumstances in one’s life or the world at large. As a verb, its definitions include: “to expect with confidence” and “to cherish a desire with anticipation.” 

The Oxford dictionary gives us three definitions of Hope:

  1. A feeling of expectation and desire for a certain thing to happen.
  2. Grounds for believing that something good may happen.
  3. A feeling of trust.

Saint Paul summarizes hope like this, “Hope that is seen is no hope at all. Who hopes for what they already have? But if we hope for what we do not yet have, we wait for it patiently.” (Romans 8:24-25)

The 2020 celebrations/gatherings are different in light of the uncertainties and losses due to COVID-19. Many among us may be searching for answers. Whether you are affiliated with or subscribe to any faith-based groups, my guess is that you, too, are hoping this unwelcome interruption from COVID-19 will end sooner rather than later. Though difficult to believe right now, something good may yet come out of this pandemic.    

I hope you continue to be well in light of the coronavirus. My sincere condolences to those among us who have lost loved ones and may have been robbed of the opportunity to hear the last words of those loved ones, or were not able to see the last breath those loved ones took.

Though we cannot see the end, may we find new strength and practice self-care as we wait patiently for our hopes to come true. Let’s be gentle with ourselves — and manage our intake of the news we digest across all the various information platforms.

Before I close, I want to acknowledge that there is another side of hope, not yet discussed, yet we often experience it. That is hope deferred. In the good book, the wise King Solomon penned it like this in Proverbs 13:12, “hope deferred makes the heart sick, but a desire fulfilled is a tree of life.” Many of us are feeling sick in our hearts and our consciences ache due to cruelty we sometimes imposed on another; one is the death of George Floyd. Let us take comfort knowing God sees. Let’s remain hopeful, trusting that there is an aspirational good that will manifest out of this intense cruelty. 

In closing, though certain life-changing experiences are better understood in retrospect, yet, 

Hope is being able to see that there is light despite all of the darkness.” – Desmond Tutu. 

Here is how  Martin Luther King, Jr. envisioned it: “We must accept finite disappointment, but never lose infinite hope.”  

Remember…hope is still a good thing, maybe the best of things.

I remain hope-filled and I hope you do, also. 

Be encouraged,

Nadine 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

Another Tax Year Is Now History

Tax filing in progress...

{8 minutes to read}  Before getting into the article, I would like to remind readers that enrollment season is now open. It’s this time of the year when you have the opportunity to enroll for your health care insurance and other employer-offered benefits. Now let’s continue.

Continue reading

How Do I Begin Creating a Financial Budget Based on My Lifestyle?

How Do I Begin Creating a Financial Budget Based on My Lifestyle? by Nadine Riley{8 minutes to read}  In an era of so many uncertainties, individuals and companies are becoming more mindful of their bottom lines. The question is, are we addressing these concerns wisely?

We often talk about how much we need to save, but how closely are we monitoring our spending? Swiping that card and clicking on the “Pay” icon are now second nature and can become costly habits if they are not managed. Every purchase, however small, takes a bite out of our savings — yes, every one. Continue reading

NYS Cut the Cord with the IRS: You May Be Able to Itemize on Your NYS Tax Return

NYS Cut the Cord with the IRS: You May Be Able to Itemize on your NYS Tax Return by Nadine Riley

By now most of us are aware that the new tax rules will impact our Federal tax returns; a large portion of expenses have been reduced OR disallowed under the new tax law (known as TCJA).

Since the law has been enacted, lawmakers of various states with personal income tax obligations have continued to lobby to make them more favorable, and many believed the battle was lost. However, NYS chose to “sever its ties with the IRS” in an effort to help its individual taxpayers.

Generally, most states have their own tax rules that taxpayers are required to follow; they often treat certain transactions in the same manner that the IRS does.

For 2018 tax year and after, New York State will not follow the same tax rules as the IRS (Federal) as is customary. NYS chooses not to follow (to “decouple”) the IRS with disallowing the federal itemized deduction changes made by the TCJA for tax years 2018 and after. As a result, you may be able to claim certain deductions that are limited or disallowed for Federal tax purposes.

Here are some of the deductions you are allowed to claim:

  • State and local real estate taxes paid, including amounts over the $10,000 federal limit
  • Casualty and theft losses, including those incurred outside a federally declared disaster area
  • Un-reimbursed employee business expenses
  • Certain miscellaneous deductions that are no longer allowed federally (e.g. tax preparation fees, investment expenses, and safe deposit box fees)

There are some other areas that will be allowed by NYS:

  • Alimony or separate maintenance payments
  • Qualified moving expenses reimbursement and moving expenses

Please see here to learn of all the areas.

Often as humans we do our best to meet on common ground for a common goal; however, whenever there are few or no commonalities, it may to best to “cut the cord” and stop following the leaders.

Hope you find this information useful. As always, please reach out with any questions.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

Considering the New Tax Laws, Is Starting a Business the Right Choice for Me?

Considering the New Tax Laws, is Starting a Business the Right Choice for Me? by Nadine Riley{6 minutes to read}  During tax season we are often questioned about starting a small business. However, throughout 2018, the two most asked questions we received were:

  1. I have been freelancing for some time now; do I incorporate or form an LLC?
  2. Since I will lose most or all of my deductions as an employee, I am considering having a conversation with my employer about paying me as an independent contractor rather than as an employee. Do you think this is a wise move?

Continue reading

All Pass-Through Entities: Tax Planning is Imperative This Year

All Pass-Through Entities: Tax Planning is Imperative This Year by Nadine RileyThe focus of this article is to highlight how the owners of pass-through entities are impacted under the new tax rules. Though the intent of the law is to simplify your tax reporting requirement, this has not yet been achieved for businesses with pass-through entity income. Before we get into the details, this year planning is of utmost importance for all pass-through entities.

The most notable change for these entities is the IRC § 199A’s new 20% deduction. The new Qualified Business Income Deduction (QBID) provides an additional 20% deduction off the Qualifying Business Income (QBI). The deduction has a lifespan of eight years (2018 – 2025), and is subject to limitations and adjustments. One such limitation is on a Specified Service Business (SSB), “where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.” In simple terms, if most of the income in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, etc. is generated based on the skill set of the owners and employees, the business may be an SSB.

Before we continue, it may be worth your while to review the last business article  from April 2018. It contains a vast amount of information on how your 2018 tax reporting will be impacted by the new tax law.

As we proceed, when a new tax rule (statute) is enacted, in theory it may be understandable, but from a practical standpoint, it may be more difficult to fathom on paper. The IRS will be meeting at the end of July to provide further direction on certain areas of the law; in the meantime, there is still a lot we know that will allow us to start planning now.

Where is the pass-through business income coming from?

  • K1 operating income from partnerships (including multi-member LLCs) and S Corporation shareholders.
  • Net Income from sole proprietorships (Schedule Cs include single member LLCs, Schedule E and Schedule F filers who are individuals, estates, or trusts).

Schedule E activity must be a trade or business (including property rentals). It should be noted that some states treat certain rental income as non-business income, in which case some may not qualify for a QBID.

A word of caution to S-Corp owners.

As a reminder, S-Corp owners are required to take a salary (reasonable compensation) from the company. The principle behind this is that most other entries with pass-through income are subject to the 15.3% Self Employment tax (SE), which creates an unfair advantage. The IRS requires that the owners/officers of the S-Corp take a reasonable salary from the profit of the business before distributing it to the shareholders. The wages an S-Corp owner takes do not qualify for the QBID, only what remains. (The word among tax professionals is that reasonable compensation may be an area of increased audits from the IRS.)

An article written by Toni Nitti a few years ago (yet still relevant) depicts this well. Read it here.

Another concern is that a large number of S-Corp’s are not making much profit.

How will this new deduction affect my overall tax reporting?

Here is a list of some of the areas to which QBID does not apply:

  • QBID does not reduce the 15.3% Self Employment Income tax liability.
  • QBID does not reduce Net Investment Income Tax (NIIT) is investment income tax on capital gains, non-business interest, dividends, etc.
  • QBID does not increase your business Net Operating Loss (NOL).
  • QBID does not reduce your Adjusted Gross Income (AGI).

What are some of the limitations of the QBID?

  • The income threshold for SSB(s) is simpler:

Most pass-through entity income is coming from an SSB and an income threshold limitation applies. If you file a joint return, your spouse’s income could limit or eliminate the 20% business deduction.

Additionally, your other income (such as investment income) could also affect your ability to take advantage of the QBID. As noted in the last article, personal taxable income exceeding $315,000 married/ $157,500 single may limit your ability to take the deduction. If your taxable income is $415,000 married/$207,500 single, you could basically lose the deduction altogether.

  • The more complex restrictions and adjustments are to the non-SSB(s):

These are other caps that could affect those businesses that are non-SSB. These caps revolve around wages and depreciable business properties. Those will not be discussed in this article due to the complexity and its uniqueness from business to business.  

Long before the law was enacted, the questions were coming in; here are three (3) of the most frequently asked questions we have received from our clients and others.

  • What business is best for me? Do I give up my S-Corp status and go back to a C-Corp?

While this question is best answered on a per taxpayer basis, here’s what I want you to understand: C-Corporation income that is distributed to the owner is double taxed. (To read full answer, click here.)

  • I am an independent contractor; do I form an LLC or S-Corp?

My response would be yes since I am looking beyond a tax viewpoint, however, let’s first make a correction. S-Corp is not a legal entity; it’s simply a tax election that the company makes. Before making a decision to form a company, consider the cost to form or organize a legal entity, to maintain and don’t forget the NYC publishing requirement, that is an added cost.

Please keep in mind that proper books and record should be maintained for the company. You should consider using the service of an accountant to track the financial stability of the company.

If you are interested in forming a legal entity, we can help you to form one that is right
for you and assist you with your accounting needs, so please contact us. (To read full answer, click here.)

  • I get a W-2 from my employer, however my role is one like that of an independent contractor, I pay my own health insurance and take care of my own job expenses.

The response to this question is not clear-cut. Some industries require that you are classified as an employee. I would first ask that you evaluate your role with your employer and if you strongly believe you are an independent contractor, consider forming a legal entity. (To read full answer, click here.)

Here is our two cents about each tax status!

C-Corps are great if they are profitable and you are an employee of the corporation. The company can pay for your health insurance, retirement matching, profit-sharing, reimburse you for tuition, and a plethora of other benefits, if they can afford it. There is also a great death benefit. Consider the long-term impact, and if you plan to take the company public in the future, then C-Corp is the choice to make.

S-Corp election is a great way to capitalize on your expenses; however, keep in mind that your financial health is beyond tax reporting.  As mentioned in the previous article, if your intent is to rent or buy a home in the future, underwriters and landlords look unkindly on low income. It may be seen as a sign of poor cash flow, thus the question is raised about your “ability to pay.” Also poor cash flow is not attractive to other types of lenders and investors.

S-Corp also has another layer of reporting, that is payroll reporting. Last, but not least, not everyone can qualify for S-Corp status.

LLC & Partnerships: Single member LLCs are viewed as sole proprietorships and are reported as a part of your personal tax returns, unless you elect S-Corp status. All your expenses are exposed and in plain view to the IRS, so proper record keeping is imperative. It is also one of the most scrutinized areas by the IRS. Don’t let this deter you, it still remains one of the more easy to “manage” legal entities; and more flexible than S-Corp.  

What’s next? Planning!!

There are no two ways about it — all pass through-entities should consider a tax planning consultation. This will allow you to get a better sense of your 2018 tax liability and plan in advance, to reduce the possible negative effect of the new tax laws.  ​

And, if your total income exceeds $315,000 married/ $157,500 single, you may need a comprehensive tax planning analysis.

Don’t Wait! It is URGENT that every client with a pass through entity or total income in excess of $315,000 married/$157,500 single, contact us by August 10th, 2018 to set up a time to meet so we can  create a tax plan that will allow you to mitigate any possible adverse effects from the new tax law.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

Don’t Wait! Get the Tax Guidance You Need Before It Is Too Late!

Don’t Wait! Get the Tax Guidance You Need Before It Is Too Late! by Nadine Riley{5 minutes to read}  We are already in the heat of summer; yet the atmosphere surrounding the unknown impact of the new tax law still creates a chilly feeling. While you may just want to wait to see, that is, be more reactive in nature, we don’t suggest you do that as the new tax law will impact almost everyone, some more than others. This article is geared towards providing guidance to taxpayers with withholdings, whether from a W-2 job, retirement, or Social Security.

Recap: The 2017 Tax Cuts and Jobs Act (TCJA) that overhauled the Tax Reform Act of 1986 has significantly changed the way we view taxes. For the most part, the provisions will be effective for eight years, from 2018-2025. (Please refer to our previous article Welcome to 2018 Tax Season sent in January. The article details the areas that will be impacted on your 2018 tax return.)

What has changed since the last communication?

The tax rules continue to evolve, at least from a practical tax reporting viewpoint. In the last article, we reported deductibility of home equity mortgage interest. The IRS took a stand to clarify what interest can be deducted. In IR-2018-32, Feb. 21, 2018, the IRS said that “despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled.” However, as under the prior law, if the money is/was used to pay for personal debt, it is not deductible. (Read more from the IRS here. Also, here is the 2018 Tax Brackets Flyer from Edward Jones. See which bracket will apply to you in 2018.)

What was then, is not now!

In prior years, many Americans who paid their Federal income tax through withholding taxes taken out of their paycheck, found at the end of the year that they had overpaid and received a nice Federal tax refund. The law change this year is structured so that most people will see less tax withheld every pay period resulting in increased “take-home” pay, rather than a refund check at the end of the year.

As previously mentioned, if you have deducted any of the expenses below in the past, you may be faced with an unwelcome increase in your tax bill next spring, since some of these expenses will be limited or eliminated, thus increasing your tax liability:

  • Property tax on your primary or secondary home;
  • State and local taxes paid from your income (most states have income tax reporting);
  • Mortgage and home equity interest (new mortgages, which included refinances will be  affected if the loan exceeds $750,000). Existing (before 2018) mortgages under $1M are not affected;
  • Employee and job expenses – This can be a game changer for many. There may be more tax advantages for some individuals to work as independent contractors. However, there are other hoops to jump thru in order to authenticate your classification as an independent contractor. Employers may be faced with other tax issues from the Department of Labor.

People often counted on their tax refund check to help ease their financial situation in some way. With the new tax law, you may go from a history of receiving refund checks to a balance due to the government at tax time.

We are quite concerned about the unwelcome surprise you may receive at tax filing time next spring. The good news is that we still have time to change the year-end result if we act soon.

How can you mitigate any surprises next spring?

  • If you are an employee with withholding (whether from a W-2, retirement, or Social Security), we very strongly suggest that you set up a Withholding consultation with us.
  • If you have types of income other than the types mentioned above, we suggest you set up a tax planning consultation with us.

Don’t be reactive! It is URGENT that every client with withholding, whether from a W-2 job, retirement, or Social Security, contact us by July 31, 2018 to set up a time to meet so we can calculate your 2018 tax situation and withholding, and then make changes if needed.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

2017 Tax Year is Almost Behind Us. How Will the New Tax Laws Affect You and Your Business in 2018?

2017 Tax Year is Almost Behind Us. How Will the New Tax Laws Affect You and Your Business in 2018? by Nadine Riley{8:24 minutes to read}  The chatter seems to have decreased regarding the new tax laws, but the uncertainty still seems rather high. The Tax Cuts and Job Act (H.R.1), which is now enacted, affects each of us and our businesses. The intent of the law is explicit in its title, however, in practicality some areas are still too complex to see how they tabulate on paper. For the most part, the effective date for enactment of the law is January 1, 2018, but some parts of the law (such as depreciation) do affect items purchased in 2017. Continue reading

Welcome to 2018 Tax Season!

Welcome to 2018 Tax Season! by Nadine Riley

{7:12 minutes to read}  ​It has been said this is the biggest tax overhaul of the last seven decades; most of us may not have experienced the last one.

From a high level overview, notwithstanding the fact that certain individual itemized expenses will be increased, combined & capped, or eliminated, lower income individuals will have a reduced tax bill. The intent of this article is to quiet some of the noise surrounding the recent Tax Cuts and Jobs Act Bill and highlight some of the advantages and disadvantages. Continue reading