Year End Tax Saving Ideas

There's still time to reduce your potential tax obligation and save money this year (and next). Here are some ideas to consider:

• Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year AND next year.
• Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
• Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take RMDs from your retirement accounts by Dec. 31. Don't forget to make all RMDs because the fines are hefty if you don't — 50 percent of the amount you should have withdrawn.
• Manage your gains and losses. Rebalance your investment portfolio and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
• Finalize your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash or property, and investments.  The limit is per taxpayer, so a married couple could provide up to $30,000 in gifts to one individual with no tax consequences. 
• Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy if you expect to itemize on your 2019 income tax return.
• Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
• Develop your own list. Use these ideas as a jumping off point to create your own list of annual review items. It might also include reviewing college savings accounts, beneficiaries, insurance needs, wills, trusts, and going through an aging parent's financial accounts.

Questions about the most effective money-saving moves for your situation? Call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Qualified Charitable Distributions

According to articles published earlier this year, charitable giving by individuals decreased in 2018.  While several factors can contribute to this, certainly one aspect that has always made charitable giving appealing is receiving a tax deduction.  However, because of the recent Tax Cuts and Jobs Act (TCJA), this is not as great of a factor as it once was.  Part of the TCJA changes was the doubling of the standard deduction.  When an individual files their personal return, they can deduct the greater of the standard deduction (a flat dollar amount) or the total of their itemized deductions, which includes charitable contributions.  For 2018, the standard deduction for a married filing joint return was $24,000 ($12,000 for single).  For many taxpayers, this was a high threshold to exceed, especially with the state and local tax deduction being capped at $10,000.

However, there is a part of the tax code that allows individuals 70 ½ and older to still get the benefit of a charitable deduction, while also claiming the standard deduction.  This benefit is achieved by making a Qualified Charitable Distribution (QCD).  Once individuals reach age 70 ½, they are required to begin taking required minimum distributions (RMD) from their traditional IRA accounts.  If an individual does not need these funds to finance their retirement, they can request their IRA trustee to make a direct payment to a qualified charity.  The amount that would normally be taxable, if the individual received the distribution, would now be converted to a nontaxable distribution.  The distribution still satisfies the RMD requirement but does not count towards the taxpayers adjusted gross income (AGI).

By not counting the distribution towards AGI, the taxpayer can potentially realize additional tax savings, aside from the immediate 100% above the line deduction of the distribution, such as:

·       Lower state taxes, as most states begin their tax calculations using Federal AGI

·       Reduced taxable social security benefits

·       Lower potential of being subject to AGI phase out of $25,000 rental real estate exemption

·       Less chance of being subject to phase out of certain tax credits

·       Lower AGI can reduce a high-income beneficiary’s obligation to pay a greater monthly Medicare premium

There are several rules to be aware of in order to benefit from this tax savings opportunity.  First, the benefit cannot be used for distributions from SEP, SIMPLE, or qualified retirement plan accounts.  Second, no more than $100,000 can be donated per taxpayer each year.  For married couples, each spouse can make a separate $100,000 charitable distribution per year.   Finally, if the donor received any benefit from the charity for the donation, then the entire distribution will be considered taxable.   

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

How to Protect Your Social Security Number

Very few things in life can create a higher degree of stress than having your Social Security Number (SSN) stolen. This is because, unlike other forms of ID, your SSN is virtually permanent. While most instances of SSN theft are outside your control, there are some things that you can do to minimize the risk of this ever happening to you.

• Never carry your card. Place your SSN card in a safe place. That place is never your wallet or purse. Only take the card with you when you need it.
• Know who needs it. As identity theft continues to evolve, there are fewer who really need to know your SSN. Here is that list:
• The government. The federal and state governments use this number to keep track of your earnings for retirement benefits and to ensure you pay proper taxes.
• Your employer. The SSN is used to keep track of your wages and withholdings. It also is used to prove citizenship and to contribute to your Social Security and Medicare accounts.
• Certain financial institutions. Your SSN is used by various financial institutions to prove citizenship, open bank accounts, provide loans, establish other forms of credit, report your credit history or confirm your identity. In no case should you be required to confirm more than the last four digits of your number.
• Challenge all other requests. Many other vendors may ask for your SSN but having it may not be essential. The most common requests come from health care providers and insurance companies, but requests can also come from subscription services when setting up a new account. When asked on a form for your number, leave it blank. If your supplier really needs it, they will ask you for it. This allows you to challenge their request.
• Destroy and distort documents. Shred any documents that have your number listed. When providing copies of your tax return to anyone, distort or cover your SSN. Remember, your number is printed on the top of each page of Form 1040. If the government requests your SSN on a check payment, consider placing only the last four digits on the check, and replace the first five digits with Xs.
• Keep your scammer alert on high. Never give out any part of the number over the phone or via email. Do not even confirm your SSN to someone who happens to read it back to you on the phone. If this happens to you, file a police report and report the theft to the IRS and Federal Trade Commission.
• Proactively check for use. Periodically check your credit reports for potential use of your SSN. If suspicious activity is found, have the credit agencies place a fraud alert on your account. Remember, everyone is entitled to a free credit report once a year. You can obtain yours on the Annual Credit Report website.

Replacing a stolen SSN is not only hard to do, it can create many problems. Your best defense is to stop the theft before it happens.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Indiana Department of Revenue's INTIME & INTax Systems

Indiana’s Department of Revenue has embarked on the creation of an online e-services portal – Indiana Taxpayer Information Management Engine, or INTIME.  The portal enables Hoosiers to file, pay, view and manage their state taxes in one convenient location 24/7.  Services available in the portal are:

·       View past payments and returns

·       Electronically file returns and make payments currently submitted by paper

·       Amend returns electronically

·       Submit an Electronic Power of Attorney (ePOA)

·       View Correspondence, Send Messages, Update Names and Addresses

The first segment was rolled out in September 2019 and allows access to INTIME for the following:

·       Corporations (C, S and Partnerships)

·       Utility Receipts

·       Financial Institutions

·       Not For Profit Organizations

The other rollouts are anticipated to be as follows:

September 2020:

·       Food and Beverage Taxes

·       Sales Taxes

·       Out of State Use Taxes

·       Withholding Taxes

·       Other taxes

September 2021:

·       Individuals

·       Various Wagering and Gaming Taxes

July 2022:

·       Alcohol Taxes

·       Various Cigarette and Tobacco Taxes

·       Various Fuel Taxes

As each of the segments above are rolled out, taxpayers needing those segments are to use INTIME.  For more information, go to https://projectnextdor.dor.in.gov/

Indiana’s Department of Revenue also has the existing system:  Indiana Tax or INtax.  This site provides services for those areas for which INTIME has not yet been rolled out and allows for management of various sales taxes, withholdings, fuel taxes, gaming taxes and other taxes.  The site allows for:

·       Payment of taxes

·       View payment history

·       Register and manage EFT accounts

·       Send secure messages to the Department of Revenue

Visit this website at https://intax.in.gov/  to view a tutorial and learn all that the site offers.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Five Surprising Taxable Items

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are five taxable items that might surprise you:

• Scholarships and financial aid. Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful - if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research). Tip: When receiving an award, review the details to determine if any part of it is taxable. Don't forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.
• Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records. Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.
• Unemployment compensation. Unfortunately the IRS doesn't give you a break on the taxes for unemployment income. Unemployment benefits you receive are taxable. Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.
• Crowdfunding. A popular method to raise money for new ventures or to support a special cause is crowdfunding through websites. Whether or not the funds are taxable depends on two things: your intent for the funds and what the giver receives in return. Generally, funds used for a business purpose are taxable and funds raised to cover a life event (e.g., special causes or medical assistance) are considered a gift and not taxable to the recipient. Tip: Prior to using these online tools to raise money, review the terms and conditions and ask for a tax review of what you are doing. If you need to account for taxes, reserve some of what you raise for this purpose.
• Cryptocurrency. Cryptocurrencies like Bitcoin are considered property by the IRS. So if you use cryptocurrency, you must keep track of the original cost of the coin and its value when you use it. This information is needed so the tax on your gain or loss can be properly calculated. Remember, the tax rate on property can vary if you own the cryptocurrency more than a year, so record all dates. Tip: For those considering replacing cash with things like Bitcoin, you need to understand the gain or loss complications. For this reason, many people using cryptocurrency do so for speculative investment purposes.

When in doubt, it's a good idea to keep accurate records so your tax liability can be correctly calculated and you don't get stuck paying more than what's required. Please call if you have any questions regarding your unique situation.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Ideas to Improve Your Financial Health

No one likes to be blindsided by financial hardship. Listed here are 10 ideas to help ensure your financial situation stays healthy.

• Create a safety net. Plan to have a minimum savings balance to cover at least three months' of expenses (ideally, this should be six to 12 months). If your reserves are light, start saving now. Even if it is a little amount, it can get you on the right track.
• Develop a budget. At least once a year develop a basic budget. Set goals and try to hit them. If this seems overwhelming, start simple. What is coming in and what goes out each month? Becoming aware is the first step to improving your financial health.
• Make your spouse a financial partner. If you die, does your significant other know where everything is? Can he/she pay the bills? Does he know where account numbers are? Does your spouse know who you use to help with things? If not, it is time to start talking.
• Review your beneficiaries. Once a year review beneficiaries on all accounts. This includes retirement accounts as well as names on wills and estate plans. The legal hassle created without this review can be devastating to your surviving family. This is especially important if you had a recent life event (marriage, divorce, birth or death).
• Maximize your benefits. Make sure you review your retirement plans to maximize any employer match in your account. Also review your plan's administrative expenses. If they are too high they can cost you thousands of dollars over your lifetime.
• Create a disaster plan. If your home burned down or was flooded, are your important records easily accessible and protected? If not, consider creating a disaster plan. This may include placing important documents in a safe deposit box in another location than your home.
• Review your credit report. With the recent increase in identity fraud, plan to check your credit with the major credit agencies once a year. The agencies are legally required to make their report available to you annually without charge.
• Review your insurance plans. Periodically look at your health, life, home and liability insurance. With the legal nature of our society, you might consider the need for an umbrella policy to cover against potential litigation. But also consider flood insurance and a replacement value homeowner's policy.
• Manage your debt. Review your use of credit cards, loans, etc. Understand your net worth (assets minus liabilities). Make progress in reducing your debt load starting with the highest interest obligations first. Is your debt lower than it was last year?
• Plan for fun. Just because you are taking steps to improve your financial situation doesn't mean that you can't have fun. Be smart about your entertainment spending. If you are planning a vacation, research money-conscience options and have a budget that fits in with your other financial goals.

This list is by no means complete, but if you focus on the areas mentioned, your financial life will become more planned and less likely to be struck by an unforeseen surprise.

If you have questions, call us at (219) 769-3616 or email them to gward@swartz-retson.com.

IRS Email Scam

IRS Warns of New Impersonation Scam

The Internal Revenue Service (IRS) and its Security Summit have recently issued warnings about a new email impersonation scam that is spreading rapidly across the country.  Taxpayers began notifying the IRS earlier this week about unsolicited emails from imposters, including emails claiming to be sending tax filing reminders. 

The scam emails will contain links to websites that are similar in appearance to the IRS.gov website and that require the taxpayers to login to an account, using a password created by the scammers.  The account claims to have details about the taxpayer’s refund, tax return, and tax account history.  However, the account is actually a link that will infect the user’s computer with malware.  The imposters will use the malware to attempt to gain control of the taxpayer’s computer or secretly download software to track keystrokes.  This tracking can provide the scammer with sensitive information, such as passwords to websites that the taxpayer frequents. 

It is important to remember that the IRS will never contact taxpayers via email, especially regarding tax sensitive information such as refund statuses.  Likewise, the IRS will never initiate contact through text messages or social media channels.  If taxpayers receive a message from the IRS via any of these channels, they should forward the message immediately to the IRS at phishing@irs.gov.  Also, if taxpayers feel they are the recipient of a potential scam, they can call the IRS during business hours to confirm the information they received.    

These scams are similar to others in which imposters will contact taxpayers over the phone and demand immediate payment of taxes using methods such as prepaid debit cards, gift cards, or wire transfers.  Never submit payment via these methods – the IRS will first send taxpayers a bill through the mail before using other methods to collect tax due.    

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.