The fallout from the Tax Cuts and Jobs Acts continues. Hopefully it will ease enough that I can write about something else next week. But for this week …

First, came the release of the 2017 Annual Report to Congress from National Taxpayer Advocate Nina E. Olson. The most interesting part of this may have been concerns expressed about how the IRS would be able to implement all the new rules.

That struggle is connected to the reductions in IRS funding that have been coming throughout the past decade or so. I have written about this in the past, and how it has resulted in a decrease in the number of audits. Granted, this sounds like good news, but just ask anyone who has had business with the IRS (or had to face one of those audits) that required talking to an actual person with the organization and how difficult it was to reach one.

With the partisan bickering and then wondering what the fallout would mean for one’s individual taxes, it is not a real surprise that no one really worried too much about how the new rules would affect the IRS itself. It is not as if anyone holds too much sympathy for the organization anyway. If they are already having issues carrying out the agency’s business, though, it is easy to understand how a set of new rules would further hurt its efficiency.

This feels much like how things were in the wake of the passage of the Affordable Care Act. We all knew that tax credits were going to be involved, and reporting on if one had health insurance would become part of a tax return, but it all felt a little too much up in the air before it came time to actually file. We got through that time, though, and we will get through this one. It just appears that it really will take more than a year to fully appreciate how this will all shake out.

The second thing to report, though, is that some of these things are starting to shake themselves out already, as the IRS has updated its income withholding rates to reflect the new standards. This means that many people could see a little more money in their paycheck over the next few weeks.

Without getting into deep numbers, what this means is what is being withheld in your paycheck is being adjusted so that your tax return will look similar when it comes time to file for the 2018 year. If you have set your withholding to come out even at the end of the year, it still will.  If you set it to receive a refund, chances are good you will still receive one.

While all this stuff is at the front of our minds, though, it might be time to think about adjusting your withholding. Granted everyone loves that refund, but everyone also loves a little more money in every paycheck. With the new rules already possibly putting a little extra in there, altering your withholding could add a little more. Combined, maybe you could make some moves that you did not have the chance to a couple of months ago that you will feel better about in the long run rather than waiting for a refund in 14 months or so.

Often throughout the year when I write about taxes, I know that many people don’t really want to hear about such things. I keep doing it, though, because I know that if I bring up topics that someone is worried about, we can help them. It may not be for everyone, but it is very important for someone. Lately, however, it seems that everyone is thinking and talking about taxes.

I can thank Congress for that as it passed the Tax Cuts and Jobs Act at the end of last year, just before people have to start thinking about taxes as we enter filing season. That combination has been a type of perfect storm that has raised so many questions.  I don’t want to spend my time this week answering any specific questions, but I did want to address the situation in general.

First, if you feel confused by any of this, that is okay. One of the reasons people do not always enjoy thinking about taxes, after all, is that they are complicated. So sure, the recent legislation is complicated, but taxes have always been so. It is not as if a new world has been established that you will not be able to navigate. (And you know someone who can help you get through, too, don’t you?)

Second, know that all the new rules do not apply to the taxes you will soon be filing for 2017. Anything you did last year to keep yourself in the position you wanted to be in when it came to taxes will still have been good moves. If you are worried about how any new rules will affect you in the future, however, let’s talk. It is still January, so we have time to plan in ways that will have you where you want to be under the new rules.

Last, if instead you find yourself in a position where you have not paid much attention to the whole situation, that can be okay. Through all of this, the fact that many people will experience minimal impact can be lost, but do not ignore it out of fear and anger. When looked at through partisan eyes, some think the new act is the path to prosperity, and others believe it is sending us to ruin. If you look at it through practical eyes, however, it just means there are new rules governing what your tax obligation will be.

The latest act has involved lots of changes, but it did not institute a wholly new system. You have made it through the tax system in the past, and you will make it through again. There is no new standard that is going to put anyone in a position where they can no longer meet or understand their obligations.

This does not mean that everyone needs to like the fact that this legislation passed, but all now must follow it. Anger and fear will only clouds things as we do so. We have been here for you before, when taxes could be a complicated and confusing mess, and we remain here for you now, when taxes can still be a complicated and confusing mess.

We have finally made it to 2018 after a bit of a roller-coaster ride through 2017. The last year ended with pretty big tax news, and its ramifications are bound to come up many times throughout the current year. First, however, we must still file tax returns for 2017 and this will come with a new spate of scams run by people trying to take advantage of how frightening taxes can seem.

If it seems that I write about such things often, it is because I do. As long as scammers keep trying to find ways to take your money, we must remain vigilant and stay on top of their tactics. So to that end, here is a list of five new things to watch out for.

1 – Fake phone numbers

One of the best tactics for tax scammers is to do everything they can to make it appear as if their communications are actually coming from the IRS. One way they have been doing is by setting up spoof numbers with a caller ID that is a Washington D.C. number and some that even come up on caller iD with a label such as “IRS-important.”

This is the time to remember that the actual IRS will never make first contact with you over the phone. You will receive a mailed notice, and likely multiple ones, before ever actually speaking to someone from the agency. And if you question if who you are talking to is actually from the IRS, it is okay to end your current conversation, and check its veracity.

2 – Voicemail Messages

Since many are learning that it is okay to just ignore people who call out of nowhere and say they are from the IRS, scammers are trying to bypass that by finding ways to leave voicemails without your phone ever ringing.  It can feel more frightening if you get their whole spiel left in that manner, but again, this will never be the first way that you hear from the IRS.

3 – Revoking your degree

Scammers also do what they can to try to hit people where it hurts. To that end, there are scams that come with a threat saying if you do not pay their fictional bill, then they will revoke your Bachelor’s Degree.  When looking at this from afar, we can logically see how this brand of punishment makes no sense, but if in the midst of an already frightening situation, you can appreciate how this could also be rather disconcerting. But again, the IRS does not use this tactic.

4 – Social Media

Just as how the IRS will always contact you by mail before calling you, their first method of contact will not be through your social media. In this world, this is often a great way to get someone’s attention, and scammers know this.

5 – Specific methods of payment

Finally, many scams come with demands of types of payment that should give you pause. This can be prepaid debit cards or even things like iTunes gift cards. This is another one of those situations where from afar you see how it should feel off to pay a legitimate bill through such means. If someone starts to threaten you, though, you might do whatever it takes to make it stop.

Tax talk dominated much of the end of 2017, and no matter how one feels about the final legislation that passed, it is now a reality. It seems fitting that this came at the end of a calendar year, when the nostalgic yearning to look back claims a strong hold on us all.

In a calendar year, tax reform went from a (clearly naïve) thought that a tax return would be done on the back of a postcard, to largely talking about the ACA and health care provisions of the tax world, to finally turning into a much more complete, and still complicated, package.

Just how this all turns out and what it means to you may not be fully understood and felt until we hit early 2019, for the new rules will not affect the 2017 tax returns that we shortly will begin preparing. So although it is a bit rarer at this time of year, we are looking ahead, too.

With it still being the holiday season, I do not want to take the time now to go through some of the stuff that changes under the new bill. I am sure that we will have plenty of opportunities to go through that deeper stuff over the next 18 months or so.

With it still being the holiday season, though, I did want to take this chance to express gratitude that we have been able to track this and take the trip together. If it were not for my clients, I would not get to make a career from this world, which I still love even during the maddening times.

In fact, it is during those maddening times when I feel that gratitude the most. For yes, this is not always an easy path, and it is littered with many numbers (some huge), and multiple pages of tax law that take a lot of time and effort to correctly parse and use to the best advantage.

Seeing how this all works out for your situation will take some time, but we look forward to helping you along that path, and are thankful for the opportunity to do so. Here then is a simple wish for 2018 to bring health and prosperity for everyone as we make the journey.

As promised last week, get ready for business talk! Come on, you know it’s your favorite part of the holiday season.

In that previous blog, I wrote about how the state of our economy is causing more and more individuals to act like a business. At some point, though, it ends up making more sense to become an actual business. So this time I wanted to talk about the different forms a business can take. Each of these come with different tax considerations (which is too in-depth, and most likely too boring, to fully go into here), so that is something we should talk about if you are thinking about setting up a new venture.

First, there is being a sole proprietor. This is when you are in business for yourself, but have not actually incorporated your business.

Then, there is a partnership, which is exactly like it sounds. This is a group where everyone involved contributes something to the business. This can be money, property, labor, skills, etc., with the key being that everyone expects to share in the profits and losses of the business. The partners are not employees, but the profits or losses from the venture are passed through onto their tax returns.

A corporation is what one tends to think when thinking of larger businesses. In this case, shareholders exchange money and/or property for stock in the corporation. The corporation then realizes net income or loss, pays taxes, and distributes profit to its shareholders.

S corporations are corporations that pass their income, losses, deductions, and credits through to their shareholders. Those shareholders report this on individual tax returns, and pay individual income tax rates on it.

Finally, a limited liability corporation is a business structure that has slightly different rules depending on what state it is in. Owners in an LLC are called “members,” and this can include anywhere from one owner to many. Within there, the LLC can be treated as a corporation, partnership, or as a part of the owner’s tax return by the IRS.

If that sounds like it can be a little all over the place, that’s because it can, but there are great benefits of forming an LLC.  The biggest of these is that it separates one’s personal assets from that of a business, making one not personally responsible for the debts and liabilities of the business.

In fact, all of these forms have benefits when used in the correct situations. Of course, that also means that there are drawbacks when not correctly used for a specific situation. This can also be intimidating because it is something that many do not even know they have to think about until it is time to think about it. When done correctly, though, it helps protect your interests and can put you in the best spot to have the biggest initial advantage when it comes to paying taxes. So when I said last week that it is good to sometimes think like a business, it is also good to sometimes become a business. And if you need some guidance with that, do not hesitate to reach out to us. 

As we jet through December, some people will start to gather information in preparation for filing their taxes next year. I don’t mean to say that this is something everyone needs to do, though. For example, if the only income you receive all year is from a regular job that will send you a W2 next month, that is going to handle a lot of numbers we have to fill in come filing time. More and more, however, that situation is covering less and less people.

Of course that one-W2 situation would never cover businesses (and I’ll return to them more next week), but many individuals are becoming more like a business in our current economy as they earn money in ways other than just through a paycheck, These extra bits of income can include a side business, freelance work, or even participating in the sharing economy. It is those people, who come with a slightly more complicated tax picture, to whom I want to speak to this week.

The society we live in makes it easy to become one of these people as the internet offers simple ways to make more money. Websites such as Fiverr and Upwork provide an arena for people to bring their skills to those who need them, making connections that could be impossible outside of the digital world. Many of these transactions are carried out for a nominal amount, but that still counts as income.

Possibly more prevalent are those getting money through the sharing economy. This ranges from Uber drivers to those offering up their home, or even exclusive properties, on Airbnb. So even if you have not technically made yourself a business, it is possible that you have been getting some money in a way that means you should start thinking like a business.

The first thing I want to make you aware of in these situations is the self-employment tax. I could spin off into too many paragraphs about how this works, but will try to keep it simple. This boils down to the government ensuring you still contribute to social security and Medicare out of income earned through self-employment. This is something that many are unaware of until they have to pay it.

On the other side, though, many types of self-employment will also come with expenses that become tax deductible when they are incurred by doing this type of business. Just what is an allowable deduction (or how much of it is deductible) will vary depending on what it is you are doing, but chances are really good that there is something you can deduct.

And there we loop back around to where it can pay to be conscientious and think about these things before it is time to file your taxes. Thinking like a business will only result in better numbers at the end of the process, and the best businesses stay on top of things. So please be aware that we are open for planning meetings now to help you get the most out of this and all coming years.

Tax reform has moved closer to becoming fact, so there is at least a middling chance that there could be big changes coming before the end of the year that may affect how much we owe in taxes when it comes to file them in early 2018.

Now just what those changes may be is still far from certain, and may not be completely clear until we get down to putting pen to paper (or fingers to keyboard) and actually entering information into tax forms.

Even in this time of uncertainty, though, one should not hide from taxes, or throw up our hands and decide that there is nothing we can do. As always, there are advantages to handling these things straight-on, and tackling them as early as possible.

And yes, that can mean starting now. So here are my top five reasons to start preparing for tax season now:

1.      Choice of appointment time.

All the procrastination that happens come tax time means that we get VERY busy in April as everyone tries to finish up in days what they had months to do. I like to think that we do a good job of accommodating everyone, but that means you may need to take an appointment time that’s not ideal. I assure you, however, that many of those ideal times are open in January and February.

2.      Staring early equals more time

And let’s be honest, the vast majority of us do not keep a folder through the year where we can slide in pertinent tax documents that we have gone over and collated chronologically. A little mindfulness now means there less chance that you’ll forget about something you need in the future.

3.      More time equals more opportunity

Also, when the time crunch is not on, you have more of a chance to gather information that you may not have even known would help you. One of my favorite things during tax season is making people aware of deductions they did not know about. But when it’s April 15^th, tracking down a receipt to save yourself $20 pales in comparison to just getting things filed on time.  If it’s February 15^th, though, going home and spending the 15 minutes it may take to get some another documents  turns out to be a much more manageable proposition. And when it only takes five minutes, most of us are okay with working at a $240 an hour clip, right?

4.      Decrease your stress

We’ve all waited into April at some point to do our taxes, right? We also all spent the weeks before that thinking of how we should get moving, how we’re going to spend the weekend getting everything together, and then feeling the stress build as it doesn’t happen, right? Why not make yourself a promise now to not feel that pressure this year.

5.      Moves can still be made

And this is because you don’t even have to wait until the calendar changes to start this work. I’m not going to pretend that there is some secret magic move that we can do in these final weeks to remove your tax bill or even decrease it by 50 percent. We can, however, do some smaller things like making charitable donations or putting money into retirement funds that could decrease your final bill.