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5 Essential Tax Tips for Millennials to Lower their Tax Bills

Thinking about filing our taxes comes with a feeling of confusion and stress for many of us, especially those who aren’t experienced enough with the whole process of filing their income tax and covering their balance. This is particularly true for the younger generations, Millennials and Gen Z who have recently started earning a steady income. Even when it might sound hard at first, there are many different ways in which we can lower our tax bills, making smart financial decisions and patiently waiting for the benefits to kick in. These are some of them.

One of the most efficient ways to save on tax payments is by taking advantage of the retirement plans many companies offer to their employees. Opting for a Traditional 401(k) or a Roth 401(k) account can help us save on taxes in the short or long run or even both. With these accounts, we have a salary deferral that goes straight towards our retirement account, which we would be able to access when we reach retirement age. With a Roth account, we would enjoy tax-free cash flow when we are no longer working, which is a great long-term advantage.

Choosing to purchase a life insurance policy is another great strategy that can come with some tax advantages, yet many young people tend to delay this process until later in life. Besides the benefits of having life insurance, most whole life policies offer the opportunity of withdrawing accumulated tax value on a tax-favored basis. However, we need to keep in mind that every plan and every policy and every company will have a different set of criteria. Therefore, we need to make sure we get advice from a professional, knowledgeable, and trustworthy insurance professional so that they can guide us through choosing the best plan for us.

When it comes to income tax saving tips for millennials, we need to remember that the younger generations tend to land part-time jobs or choose to work on their own. Self-employment comes with many tax benefits in the form of deductions that we can take advantage of. Home office deductions, for example, are a great way to lower our tax bill if we use a portion of our house to run our own business. We can also benefit from choosing the most appropriate business structure for our company, even if we are the owners and only worker. If we work with a knowledgeable advisor, they will be able to help us come with the best strategy for our business.

If we are looking for a long-term investment that will also help on our tax bills, homeownership is a great way to achieve this. There are many benefits that come from being a homeowner, such as the security of having a place to live, and the investment opportunity it represents if we choose to upgrade and sell our property when the time is right. However, we are also eligible for property tax deductions, which can significantly lower our tax bills if we meet certain criteria. In order to determine whether this would work for you, contact a professional tax advisor with experience in real estate and property taxes.


The Taxes-Security-Together Checklist Every Advisor Must Follow

Being able to file our taxes online sure comes with a lot of benefits, as it is a convenient way to make sure we stay compliant with the IRS while saving time and money on the process. However, one of the main concerns many taxpayers have regarding this process is knowing that their data will be safe. Therefore, every tax advisor must follow a checklist of security measures to guarantee that the information of their clients will be safe when handled on a digital format. Such guidelines have been laid out by the IRS in collaboration with the Security Summit, and these are some of the key security features to keep in mind.

In order to guarantee data security, tax advisors need to follow a set of measures that will ensure clients any sensitive information is safe and will not be accessed or misused by anyone who is not authorized to. The Taxes-Security-Together Checklist refers to the “Security Six” measures as:

  • Activate anti-virus software
  • Use a firewall
  • Opt for two-factor authentication methods
  • Use backup software and services
  • Use Drive encryption
  • Create and secure VPNs, or Virtual Private Networks

Besides following these data security measures, tax advisors must create a data security plan, too, which is required by federal law. This way, they will have better strategies to prevent and respond to security breaches. Requirements for data security plans are flexible, so they can fit the needs and circumstances of every tax preparation firm regardless of its size. However, these plans should focus on key risk areas, including employee management, training, information systems, and system failure detection.

Tax preparers need to remember that data security threats change and evolve faster than we think, so it is essential for them to educate themselves and remain alert to common phone call and email tax scams. Learning about spear-phishing emails and ransomware can help us avoid falling victim of tax scams.

Also, we need to understand that client data theft can have devastating effects, and recognizing the signs of malicious attempts to obtain sensitive information will help us become better protected. Some of the most common ones include:

  • Clients receiving IRS letters regarding suspicious tax returns on their behalf
  • Clients receiving tax transcripts they didn’t request
  • Having more tax returns filed through a practitioner’s Electronic Filing Identification Number than the ones that were submitted.

Lastly, any professional tax advisor needs to work on a data theft security plan in case they were victims of a cyberattack of if their clients’ sensitive data happened to get compromised. Such a plan such include:

  • Contacting the IRS Stakeholder Liaison as soon as possible
  • Collaborating with the IRS to protect the accounts of our clients
  • Hiring a cybersecurity expert in order to prevent and stop data theft.

Data protection cannot be taken lightly, and as tax advisors, it is our responsibility to make sure we follow every measure there is in order to guarantee our clients their information isn’t at risk when working with us.


Selling a Property? Save on Taxes with These Useful Tips

One of the most frequently asked questions we get as tax advisors is related to saving on taxes when selling a real estate property. Even when there are several ways to do this, most taxpayers aren’t familiar with all the different options they have available. That’s why we have gathered four very common, effective, and easy strategies that will allow you to save on taxes when selling a real estate property, including paying the capital gains tax, processing an installment sale, choosing a 1031 exchange, and looking for Opportunity Zones.

The very first strategy we will go over consists in paying the capital gains tax as soon as we sell a property. Even when this might not sound as a tax-saving strategy, it can help us get this balance out of the way from the get-go, leaving the rest of the money for our personal projects. There is an advantage that comes from paying the capital gains tax upfront, though. Most of the times, capital gains rates are lower than the regular income tax rate, ranging from 0 to 20 percent during the last couple of years. In comparison, income tax rates might reach 37% at the highest, so it is worth running the numbers and seeing which one would be better for us.

Whenever we sell a property, one of our main concerns comes from the possibility of significantly increasing our income for that tax year, which would move us from one tax bracket to a higher one. One of the best strategies we can implement when selling a real estate property and save on taxes is by opting to go for an installment sale. This type of sale can benefit both the seller and the buyer, as you would be significantly reducing the chances of ending up on a higher income tax bracket, while allowing the buyer to make smaller payments over a period of time, including interests of course. Before opting for this option, make sure you are aware of all the legal considerations you need to take regarding the security of the payments from the buyer.

If we are looking to sell our property in order to buy another one, we should consider going for the 1031 Exchange, also known as a like-kind exchange. This way, you would be able to sell one property and then buy another one of equal or greater value at the same time. As a result, the property sale taxes would be either deferred indefinitely or until we sold the second property. One of the greatest advantages of like-kind exchanges is that we can do this several time, or exchange one property for multiple ones and vice versa, as long as we stay within the limits of the IRS.

Now, if we are looking to invest the money we receive from selling a property, we should really consider doing so in what we know as Opportunity Zones, also referred to as OZs. These areas are parts of towns or cities that have struggled economically and that allow investors to be part of jumpstarting these communities. When we buy or sell properties located at an Opportunity Zone, we could reduce taxable gains and even have access to tax-free growth opportunities, reinvesting capital gains in properties within designated OZs. The best part is that we don’t need to reinvest the entire sale proceeds on OZ properties, only the gain amount, as long as we do this within the first 180 of selling our property.

4 Useful Tax Deductions for Senior Citizens and Retirees 

Whenever we reach the age of retirement, we need to be more careful with our finances than when we were still employed, whether it was by someone else or if we had our own business. When it comes to tax planning, there are several deductions that senior citizens and retirees alike should be aware of, as they could take advantage of these deductions and reduce their tax bills. Some of these useful deductions include medical and dental expenses, charitable contributions, retirement plan contributions, and selling your house.  

Regardless of our age, medical and dental expenses are a part of our everyday life, as we need to get general check-ups, treatments for common or serious conditions, and nobody is immune to the occasional dental cavity. However, we all reach an age on which we must be more mindful of our health and paying a visit to our doctor becomes more and more common. Even when this means that we will be spending more on medical bills, we are able to take advantage of this tax deduction on our income. For 2019, the IRS allows taxpayers who itemize their deductions to include the total of our medical bills that exceed 10% of our adjusted gross income. 

For many retirees and senior citizens, this is the perfect time to give back to their communities, and it is quite common for them to support different local, state, national, and even worldwide organizations. This brings many benefits, as you are able to lend a helping hand to those who need it the most while being able to reduce your tax bill quite a bit. Just as it happens with medical and dental expenses, in order to take advantage of this charitable contribution deduction, we need to itemize our deductions instead of choosing the standard deduction. Also, we need to remember that all our cash contributions must remain below 60% of our adjusted gross income in order to qualify for the deduction.  

Part of preparing for the future includes making contributions to a retirement plan that will allow us to be financially stable when we are ready to enjoy our golden days. Whether we decide to open a traditional IRA, a Roth IRA, or a 401(k) plan, we are able to make tax-deductible contributions to those accounts. Depending on our age, we will have different contribution limits, but those over 50 have higher limits than those who haven’t reached that age yet. Just remember that you’ll pay taxes on the contributions that you make, but whenever you start withdrawing money from these accounts, interests and income generated are tax-free. 

Selling our house and moving to a smaller place once our children have moved to their own place makes a lot of sense, as it can help us reduce the amount of work needed to keep our house clean and tidy, as well as reducing the expenses of having such a property. Even when it might be hard for some to make this decision, we should remember that the profit we get from the sale is completely tax-free, and if we lived there for a long time, we probably have substantial equity, which means we should earn a large profit. Just make sure you have lived there for at least 2 out of the 5 years before the sale, and that your profit doesn’t exceed $250,000 for single taxpayers and $500,000 if you’re married filing jointly so that the profit can remain non-taxable.  

Aspects to Keep in Mind About the Different Types of Car Taxes

Whenever we are buying, leasing, or owning a car, we are subject to different types of taxes that depend on both state and local laws, as well as the type of vehicle we own. The state on which our car is registered or where it is used can also determine the taxes we would owe. Therefore, it is important to understand how car taxes work, as it would help us become more aware of any tax balance that would be generated. This is what you need to know about the different types of car taxes and how it might apply to you.  

To begin with, we should be aware that there are two different types of car taxes we might have to pay when we lease, buy, or own a car. The most common type of tax we might have to pay when we purchase a car, whether new or used, is a sales tax. These taxes may vary from one state to another, having a 7.5% sales tax in the state of California, with local governments being able to charge an additional tax of up to 2.5% on top of the state sales tax.  

The second type of car tax we are likely to owe is the property tax, which is charged about half of the states, but California is not one of them. California used to charge this property tax on vehicles, but in 1935 this system was replaced with the annual registration fee. Whether we are subject to a state property tax or a registration fee, we should keep in mind them both are based on the current value of our vehicles, and in the case of California, car owners are subject to a 1.75% rate.  

If we want to calculate the amount of sales tax we will be subject to, we need to consider how several factors might affect the ending balance. Your vehicle’s purchase price will definitely affect the total sales tax we would have to pay, but there are other factors to consider, including the category of the vehicle. Also, we need to remember that every city and municipality can charge additional sales taxes, so it’s always best to consult with our car dealer before actually purchasing a vehicle.  

When it comes to calculating the property taxes that we owe for our car, the rules for assessing the value of our car will be determined by the state or municipality that charges this tax. In the case of California, the Department of Motor Vehicles is in charge of determining such rules and of assessing the value of your car, too. There is an online tool available for car owners to request an estimate of their property tax and registration fee, and you can consult this on their official website.  

What You Need to Know About Taxes on Micro-investment Earnings 

It is not uncommon to come across ads for apps like Stash, Acorn, Rize, and Robinhood, promising significant earnings resulting from small investments. This makes investing look easy and attractive, as we all might be looking for ways to get extra cash and increase our income. However, those who are new to the world of investments, and micro-investments in particular, need to be aware of the extra paperwork that might be needed for their earnings. There are several forms you might be needing, depending on how much you earned and what you did with those earnings. Here are some of the most common ones.  

One of the most common forms we should expect regarding our earnings from micro-investment apps is Form 1099-MISC. We will need this form if we earned any kind of cash bonuses or awards from any micro-investment app totaling $600 or more. These earnings will be taxed as income, so keep that in mind. We should also remember that this form has a different deadline than that of our income taxes, being January 31st of next year, so prepare beforehand and avoid missing the date.  

Another form you should be aware of is Form 1099-B, which you will receive in case you sold any of your investments during the tax year. This is because, every time you sell investments, you need to pay taxes on the profit, which is called capital gains. On the other hand, if you sell investments that represent a loss, you need to report such losses to the IRS. However, this might reduce your taxable income, and the tax rate may vary, depending on how long you had a given investment.  

If we have experience with investments, or if we were really lucky, our investments might do so well that a portion of them could be shared with other investors. If such was the case, we should be expecting to receive Form 1099-DIV for all investment dividend earnings that we withdraw. For these cases, the tax rate we may owe would depend on the level of our income and on how long we held such investment. We should also expect Form 1099-INT if we earned interests of more than $10 through any institution, including micro-investment apps.  

Even when the tax implications that come from micro-investments might sound too complex for us, we should not feel intimidated or confused by them. The amount of taxes that we would owe to the IRS depends greatly on our tax profile, and the chances of our investment earnings pushing us to a higher tax bracket are bare. Instead of being afraid, we should consult our finances and investment earnings with a professional tax consultant that can guide us through the process and helps us stay compliant with IRS rules and regulations.  


How to File the Taxes of My Kids When They Are Taking a Summer Job 

It comes the time in every kid’s life when they are old enough to start taking casual jobs, from the classic lawn mowing gigs to more formal summer jobs at fast-food restaurants or local businesses. This might give parents a great sense of satisfaction as they see their kids growing up and becoming responsible members of a community. However, this also raises the question of who will be in charge of filing their income taxes on the money they make during this job. If you are asking yourself this question, these are some aspects to keep in mind.  

To begin with, we need to remember that, as it is stated in IRS Publication 929, Tax Rules for Children and Dependents, our kids are the ones responsible for filing their own income taxes using standard Form 1040, as well as paying for any penalties or interests they may accrue. However, if our kids are not able to file their own income taxes for any reason, then the parents or guardians become legally responsible for filing their kids’ taxes. Parents and guardians are also able to sign the return if the kid isn’t able to, but we must include the words “By (signature), parent (or guardian) for minor child”.  

Now, there are some situations on which our children will need to file their federal income tax return, and we should make sure we go over these situations with them as clearly as possible. Otherwise, they would be failing to file, and this could lead to IRS penalties and interests. These include:  

  • Your kid has more than $1,100 of unearned income. 
  • Your kid’s gross income exceeds the greater of $1,1000 or earned income of up to $11,650 plus $350. 
  • Your kid’s earned income is more than $12,200. 
  • Your kid owes other taxes, such as the self-employment tax or the alternative minimum tax. 

Many parents tend to ask us if it isn’t easier for them to simply report the income of their kids as part of their own return, which is a very good question. As a parent or guardian, you can choose to report your kid’s income as part of your own return by including Form 8814 Parents’ Election To Report Child’s Interest and Dividends. However, this only applies if your child will be under age 19 as of December 31st, 2019, or if they will be a full-time student under age 24 by that same time, and their only income is generated by interests and dividends.  

If your kid has taken a summer job this year and you are not sure about how to report their income tax, don’t hesitate and give us a call. It is never too early to get a professional giving the assistance that you need in this kind of situations.  

If You Are a Business Owner, These Are the Taxes Your Company Must Pay 

Having our own business comes with many different challenges and responsibilities and making sure we overcome all of them while remaining compliant with all our requirements can be tough at first. However, if we took the time to work on a business plan, we might already have a clear idea of the steps we need to take. Part of these responsibilities includes paying our company’s taxes, whether we need to do this quarterly or annually. These are some of the taxes you need to be aware of when you start or own a business.  

Income taxes. To begin with, every business must pay taxes on the profit they generate, which corresponds to their total income minus deductible expenses. Small business owners, partners in corporations, and owners of S-Corps can pay these taxes through their personal income tax returns. However, sole proprietors and members of single-member LLC’s need to file a Schedule C and include it in their personal return.  

Sales tax. Depending on the state our business operates, our company might be subject to paying sales taxes on the products and services we sell, which may also vary from one state to another. Nonetheless, companies in most states are required to collect sales taxes and pay them to the department of revenue of each state. These taxes also include the items and services we offer online, which may be required for specific types of online stores.  

Property tax. if our company owns buildings, land, or any other type of real estate, we will be subject to property taxes, which are paid to our local taxing authorities, such as the city or the county our property is located at. These taxes are determined based on the assessed value of our property, and even when a portion of these can be deductible, we need to consult with the IRS before assuming our property expenses are eligible for a deduction.  

Self-employment taxes. These correspond to Social Security and Medicare, and sole proprietors and partners must pay them based on their business’s income. This is because business owners, proprietors, and partners do not qualify as employees of their companies, which means that they cannot withhold these taxes that way. The only ones who would be exempt from self-employment taxes are the owners of corporations who work as employees. 

Payroll taxes. Companies are also required to pay taxes on employment or payroll corresponding to the earnings of our employees. These taxes must be paid to both the IRS and the Social Security Administration. Employment and payroll taxes are used to cover different types of taxes, including FICA taxes, unemployment, and workers compensation taxes on both federal and state levels. 

How to Pay and Deduct Property Taxes as Small Business Owners 

Just as individuals do, businesses have to pay taxes on any property they own, including land and buildings, and it might be a bit tricky for small business owners who have just started operations. However, understanding how to pay and deduct property taxes as small business owners will help us keep our company compliant while making our accounting and legal responsibilities more manageable. This is what you should know regarding property taxes if you or your company have just purchased a property or any real estate assets. 

As we mentioned above, businesses that own property or real estate are required to pay tax on such properties to the IRS. These taxes are called ad valorem because they depend on the value of the property, which means that the value is determined by a property assessor. We must remember, though, that the assessed value for tax purposes is not the same as the fair market value, which would then be determined by a business appraiser.  

When it comes to property taxes, these are assessed by different local entities, like towns, cities, counties, or villages, and they are used for local purposes such as building and improving roads, schools, and any infrastructure that the community needs. Therefore, the corresponding tax authority will register the properties owned by your business and send a tax bill showing the amount of tax you should cover year by year.  

You should keep in mind that some property expenses can be deductible, but the IRS has set different limitations that you need to be aware of. TO begin with, you will be able to make a deduction based on the assessed value of your property. In order to deduct a portion of your property taxes, expenses must be made for local benefit, including maintenance, repair, or interest charges. However, you need to consult your local taxing authority to make sure your company’s expenses will qualify.  

If you are thinking about buying or selling business property, you also need to keep in mind that during the year of the transaction, the tax bill would then be shared between the buyer and the seller. This will be determined by the period of time during which a real estate asset was owned by the seller and the period of time during which the buyer became the new owner.  

Property taxes for small business owners might be a bit trickier than we think but having the right tax professional by your side giving you the guidance you need will make this process much easier. If you are a business owner who wants to buy or sell a property for your company, get in touch with us and we will give you the assistance you deserve.  

4 Simple Steps for Small Businesses to File Their Federal Income Taxes 

One of the biggest responsibilities for business and corporations, regardless, is ensuring compliance when filing their income tax report. Since failing to do so, either by mistake or intentionally, can have severe consequences on any company, we need to make sure we are submitting our information accurately and in a timely matter. This might feel more difficult for small businesses for many different reasons, as they may not have enough experience or an assigned tax advisor to guide them. That’s why we have summarized four simple steps for small businesses to file their federal income taxes in an easy and efficient way.  

The very first step of the process must be gathering all our records, making sure we have every paper and every receipt that we need in order to accurately document our business expenses and earnings. In order to make this step even easier, we should consider using an expense-tracking software or keeping the record on a spreadsheet. This would allow us to have a digital backup of our receipts in case we need one, and we might also be able to import our information directly to our income tax report.  

Once we have put together all our expense and earnings information, we need to find the right form for our business, which will change depending on how we are operating our businesses. Many small businesses are run as a sole proprietorship, so they are able to report their income taxes by attaching a Schedule C form to their personal taxes. The IRS would also allow you to use Schedule C if you run your business as an LLC and you are the only owner. In the case that you ran your business as a corporation or you treated your LLC as one, then you would also need to file your taxes filling a separate Form 1120. 

After finding the right form for our business, we can move onto filling out the information required. If we are going to be filing Schedule C, we shouldn’t worry much, as it is a two-pages long form which lists all the possible expenses and deductions our business can claim. Form 1120 is quite similar, but this form requires more detailed information that might not always apply to small businesses. Besides, this form must be separate from your personal taxes, unlike Schedule C. 

Every business owner must pay a lot of attention to the different tax deadlines that might apply for their companies, depending on the organization structure and the tax form they will be submitting. Since Schedule C is part of the regular Form 1040 for personal taxes, the April deadline would not change. C-Corporations filling Form 1120 need to file their taxes on the 15th of the fourth month after the tax year closes, which would be April. S-Corporations filing Form 1120S need to submit their taxes on the 15th of the third month after the tax year closes, which would be March.  

If you want to know more about the different steps for small businesses to file their federal income, don’t hesitate and get in touch with us. We will be glad to give you all the assistance and guidance you and your company need.