Tag Archives: taxes

What Have You Gained in the “Lost Years?”

Text Think about tomorrow today on notebook

This is the first of two articles – this first one is more individual-focused; the next will be focused on entrepreneurs (including sole practitioners/independent contractors) and small-business. In that article, I will discuss Pass-Through Entity Tax (PTET) and ways to manage the generous but short-lived Qualified Business Income Deductions (QBID).

But first, let’s look back before we look forward. 

In most of my recent interactions with others, the term “lost years” is becoming a part of our conversation. I must say, the first time I heard it, I was a little taken aback. Why would we define them as lost years?

Despite the added responsibilities, I must say that in the past two years I’ve learned more about the beauty and fragility of our being, i.e., human beings, than all my years combined. I have learned that we need each other more than we can ever fathom. We also need a space for solitude, yet as Amanda Gorman expressed in her poem, The Hill We Climb: “… we’ve learned that quiet isn’t always peace.” Learning to wisely balance/manage time with others and time with self can be enriching to our overall well-being.

The years 2020 and 2021 are not lost years. Sadly, we have lost so many of our loved ones during these years and have seen the health of others deteriorate from the lingering side effects of COVID-19. Yet, even in the chaos, some among us have been transformed. Time did an article titled, “Even if You Feel Like This Was a Lost Year, That Might Not Be True.” In the article, the writer looked back at 2020 and wrote how some survivors of trauma, “found that after time, a significant portion of them report feeling renewed. They have a sense of fresh possibilities in life, an openness to following new pathways.” (You can read the entire article here.)

Moving Along to Taxes

You may have heard this echoed from other tax practitioners — this was one of the longest tax seasons! Most of us, including myself, felt like tax season started in January 2020 and didn’t end until the end of April 2022. Think about it — the IRS was given the task of administering most of the pandemic monetary distributions, and as we all know, whatever sits on the IRS’s shoulders falls into the laps of tax practitioners.

In this article, I will share some big moves made by individuals and their impact:

1. Primary Home Sales: One of my indirect mentors noted that of his 40+ years in business, he saw the most home sales in 2021. For primary home sales – under Code §121, the IRS allows an individual taxpayer to exclude up to $250,000 of profit/gain on a home sale (and up to $500,000 if jointly owned) when certain rules are met. While there are multiple complexities to these rules and some decisions may lead to losing all or part of the exemption, in its simple form these rules are:

a. They must have owned the home for at least two of the last five years;

b. They must have used the home as their principal residence for two of the last five years; and

c. They must have not excluded a gain on a home sale in the last two years.

2. Retirement Withdrawal and its Future Tax Effect: In 2020, a large number of individuals took money from their retirement savings and chose to have the taxes due on the withdrawal taxed over a 3-year period. While the tax impact was minimal for most in 2020 – the impact on the portion allocated for 2021 has propelled some individuals into a higher tax bracket. If you would like to cushion the tax impact for the 2022 allocation, consider replenishing your retirement savings by making tax-deferred contributions.

3. Residency Audits: People who moved during the pandemic appear to be returning “home.” If you are one of the many individuals who claimed to have moved from a state (which was your primary residence before the pandemic) with a personal income tax obligation to a state with no personal income tax obligation, and are considering moving back home, be mindful that this will likely trigger a residency audit. Residency audits are quite complex, and the burden of proof often lies with the taxpayer, which means you are guilty until proven innocent. Having adequate documentation can be crucial to defending your case. Each case is unique, and one size doesn’t fit all in a residency audit. Don’t go it alone.

4. Growth of Personal Savings During the Pandemic: Though most among us have lost a sizeable portion of our income in the last two years, many of us have saved more than in previous years. One notable factor was we spent much less on the “nice to haves,” since we were isolated and had no one to impress. Sincerely, I say this — most of our spending is often to impress others. Another factor that impacted our savings positively was that we eliminated many of those valueless subscriptions that are automatically billed and paid.

5. Amateur/Rookie Investors (Stepping Into the Role of Investment Manager):  Many among us used the time at home testing the various waters as investors and have profited from these trades/sales. However, a vast number of individuals did not set aside money to pay the tax liability on those gains. I have received 1099-B brokerage statements this year with over 200 pages. These statements entail short-term gains and “wash” sales. (A wash sale is triggered when an investor sells or trades a security at a loss, and within 30 days buys another similar security.) Short-term gains do not get favorable capital gain treatment, and wash sale losses are not allowable. 

6. The Will: Yes, you read correctly. At the time I drafted this article, I asked Google’s search engine — What is a Will? Over 14 million responses were generated, telling me that a Will matters. A Will is simply a legal document that states how you want your belongings to be handled and cared for after you pass away. A common misunderstanding about a Will is that if one does not have “heirs” then it is not necessary, but this is not true. If this is your thinking, consider this — many of us have resorted to animals for companionship and friendship and may have placed a higher value on our relationships with them than those with human beings. In our Will, we can choose who and how our companions are to be cared for after we have passed. 

Another reason I believe a Will is a necessary document is that it is a written document that expresses how you would like your remains to be handled. This is a selfless act of kindness. The grieving process is overwhelming to our loved ones, but when we make certain preparations in advance, we demonstrate how much we care for them. While a Will may not protect us from family grievances and bickering, in a Will we can state how we would like our ‘remains’ to be handled and who among our heirs should receive what.

If you would like to work with someone sensitive and caring in these matters, please reach out to me.

In closing, as I looked back at the past two years — for me, they were years of gains. Through 2020 and 2021, I have certainly attended the most wakes/funerals when compared to the last 10 years, yet I feel I have grown more within — more unmasked — less inhibited — more vulnerable and am much freer. I’m sincerely grateful for the meaningful and genuine conversations that were part of this experience. I’m equally grateful for the opportunity to serve others in this privileged capacity, and humbled when I reminisce on the ebbs and flows of this role.

Thank you for allowing me access to you – at times that access may only be a peephole. Other times it could be a window, while still others it is an open door.  Whatever level of access you provide, I am equally grateful for each. I am reminded of a scripture that depicts the loving nature of our Creator as he stands at our doors and knocks, saying:

Here I am — I stand at the door and knock. If anyone hears my voice and opens the door, I will come in and eat with that person, and they with me.” 

May we resolve to let him in and allow him access to our lives. We can start with a small peephole. Only God knows how He will use this access to transform us for His goodness, but He will.

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

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.  

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

How Will the “TCJA” Affect Me or My Business?

How Will the “TCJA” Affect Me or My Business? by Nadine Riley{7 minutes to read}  This October the curtain came down on the 2017 tax year. Now, all eyes are focused on how the Tax Cuts and Jobs Act (TCJA) will impact the 2018 tax year, and How will I be affected? Continue reading

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

Where Are We With Tax Reform? (Personal)

“Planning is a process of choosing among those many options.

If we do not choose to plan, then we choose to have others plan for us.”

–  Richard I. Winwood   

Where Are We With Tax Reform? (Personal) by Nadine Riley{5:12 minutes to read} Hope you are enjoying the warm sunny days of the season.

I can’t help but wonder, is it just me, or is it becoming a challenge to stay on track with what’s going in Washington with regards to federal tax reform? The uncertainties are evident. The Trump administration released a report on July 28, 2017 regarding the status of all the proposed changes. As it relates to tax reform, the most current report that we are aware of was released on April 26, 2017. If what’s promised is implemented, individuals/families and businesses will be affected. Continue reading

Insurance Policies Part 1: Personal

Insurance Policies Part 1: Personal by Nadine Riley{4:54 minutes to read} Oftentimes, the demands of everyday living make us forget about protecting our most valuable asset, ourselves. We protect our identity, our homes, vehicles, phones, appliances, etc. without thinking twice about it. Our day is filled with the to-dos of today, the plans for tomorrow and the regrets of yesterday, but when was the last time we slowed down to think about life’s what-ifs?

  • I am the main breadwinner of my home. What if my employer decides to downsize (i.e. your service is no longer needed)?
  • What if I lose my largest client?
  • What if that pain is not related to gas, heartburn, sciatica, migraine, etc., but related to a rare disease that scientists are still researching?

These are just a few of the challenges we may face on this side of life.

Insurance is an essential and integral part of our finances. It provides protection if something happens to us. In this article, we will explore some common (but often overlooked) types of insurance in an effort to help you understand why they are necessary and which may apply to you and/or your business. We will also provide some real life examples in the hope that you may be able to relate.

Personal Insurance Policies

Disability Insurance – If someone is unable to work (in a full or partial capacity) due to a sickness or injury, a disability insurance policy will provide dollars to help them continue their lifestyle and pay their bills. Most employees are covered under a group policy; however, the policy may not be enough. A decent disability insurance policy should cover at least 60% of your income. The payout is generally tax-free if you have paid the premium with after-tax dollars.

Real Life Example: An OB-GYN hurt his back while at the hospital and could no longer practice. Through his disability insurance, he received an equivalent, tax-free salary with a yearly cost of living adjustment and has been able to move on to create a charity for young mothers in Haiti.

Life Insurance Life insurance, though not the most sought after type of insurance, is still one of the key insurances. Life Insurance provides a tax free sum of money to your family to help them replace you as the essential income producing part of the family. In the past, life insurance was seen solely as a protection for your loved ones after you die, but in recent years, it has been used as a savings vehicle. This makes it more attractive for single individuals.

Real Life Example: A dentist in midtown Manhattan passed away in 2016. His family and kids received over $5 million in cash because he had the proper coverage. Even with all of the emotional anguish, they have been financially self-sufficient because of his foresight and planning.

Long Term Care – Long Term Care is an insurance that helps provide dollars in case you or a loved one needs extended care, either in a facility or through an in-home health care worker. Medicare only provides coverage for a short period of time, so any additional care costs fall on the family. The ideal time to think about Long Term Care is when you are young or in your mid 50s. If you are financially responsible for a member of the older generation, you can obtain a policy for your parents.

Real Life Example: I have a client whose father has been in a medical facility for 6 years at a rate of $14,000 per month. Without LTC coverage, his family would be shouldering this burden.

In our next article, we will cover the types of insurance one should have when they are a business owner. As an employee, we had a steady stream of income and protection through our employer’s group policies. Now both income and insurance coverage are up to us.

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

Taxes: So What’s Next?

Taxes: So What's Next? by Nadine Riley{3:36 minutes to read} What will my tax bill look like in 2017 under the new president? In the past weeks, I have been asked this question many times.

If you are also pondering this question, let’s recap in more detail some of the tax changes Mr. Trump proposed. In addition to Trump’s plan, we will also examine the blueprint delivered by the Ways and Means Committee Republicans (in June 2016) regarding the proposed rebuilding of America. (You can read more about Ways and Means here.) Continue reading