It feels difficult to believe that 2018 is almost over. I know everyone says that toward the end of every year, but that feeling has definitely increased around here this time around.

The biggest reason has been the amount of tax changes that have been coming since the passage of the Tax Cuts and Jobs Act. This even continued over the past week or so when we finally saw the final version of the new 1040 form.  And that coming just about a month before you can start to really use it.

So we started the year with many questions, and along the way we got many answers. As we go into the filing season, we are bound to find many more questions, and we will hope that we are given answers.

In such a time of change and upheaval, it is always heartening to have so many clients we work with so closely that trust us to travel the path together. So to all of you out there, thank you.

In such times, as well, it can be even more important to trust in your family and friends. They are the ones who give you the energy to travel that work path. So to all of you out there, thank you.

At this time of year, we celebrate different holidays in different ways. No matter what you do or how you do it, though, let this be a wish that you take the time to embrace who you’re doing it with. Let this be a time when you get to relax and reenergize.

Happy Holidays!

It happens to all of us, even me, as earlier this week, I got click baited.  No one wants to face a tax audit, right? So why wouldn’t you click on an ad that says it will lead you to a list of red flags that could cause the IRS to give your tax return an extra look and potentially trigger an audit.

And I’ll even allow you the chance to give into this impulse by providing you a link to the article here.

This article is from Kiplinger, and although its eye-catching title and slideshow presentation are very clickbait-y, it is not as if the article is full of bad information.  Some of it is even very good, as people should know that the IRS receives copies of your W2s and 1099s, so if you try to not report all of your income, the agency can figure that out without much work.

At the same time, though, I find the idea of red flags that can to an audit kind of misleading.

For instance, another entry on the list is owning your own business, because of how it can open up a sea of potential deductions of which the IRS may want proof. And sure, your business transactions could potentially lead the agency to want to look deeper into your return, but does that mean you should not take deductions to which you’re entitled in the hopes of avoiding an audit?

Of course not.  Instead, I think that the proper mindset to take when doing a tax return is to make sure you are submitting a legitimate one. As long as you do that, you can have as many red flags on it as you want. That will just mean that you are using the system to your best advantage and getting a better return.

This type of mindset may be even more crucial as we head into the first tax return season following the passage of the Tax Cuts and Jobs Act. Are you just assuming that you will now fit into the larger standard deduction and that will essentially sum up your return? Well, that is certainly going to be the case for a number of people, but it’s an assumption that could also lead you to not looking into everything for which you could still qualify and benefit from. And if there are legitimate credits or deductions, don’t you want to use them?

Sure, the more that you do take advantage of those things, the more chances there are that your tax return will look different enough from the norm that the IRS may question it. But why should this be a worry if everything you are doing is legitimate and legal?

As always, we are happy to help you find the best answers for your individual situation. If you want some of those answers before the end of the year, time is starting to run short, but we can still offer appointments before year end.  Even if you don’t look deep into the situation by then, though, we will still be here once we get into 2019 and are again ready to help you with another tax return.

Market Turmoil or Transition?

With the recent market sell-off, many investors have been asking: What is causing this?  Should I get out of stocks completely?  Is there a safe-haven? What they are really asking is: What should I do now?

Passive to Active

In 2007, passive investments represented 26% of the U.S. Stock Market.  Now, in 2018, 83% of investments are passive.  This means that most of the investments are made (in mutual funds, ETFs (Exchange Traded Funds) and by passive managers) without much regard to the fundamentals.  This tends to exacerbate market moves in both directions and causes additional volatility.  We have seen this to the upside, where the FANG stocks (Facebook, Apple, Netflix and Google) have propelled the market higher.  We can now see it to the downside as this can lead to indiscriminate selling, potentially allowing great companies to be sold off for no reason other than their inclusion in an index.

What we need now more than ever is to evaluate companies on their fundamentals and earnings, moving our investments from passive back to active management where the company’s performance is most important.

Overvalued to Undervalued

During these times there is a divergence that occurs from the true value –referred to as the Intrinsic Value, and the current Market Price of an investment. We should look to be buying companies whose market price is currently lower than its intrinsic value.

We have constructed a portfolio to do just that. We suggest moving to this Intrinsic Value Portfolio. It’s easy to see that the fundamentals of such a portfolio will be more resilient in these times and positioned for a higher probability of long-term success.

Get Out Of	Get In To
Overvalued Equities	Undervalued Equities
Fixed Income	Variable Income
Speculative Paper Assets	Defensive Real Assets
Passive Funds and ETFs	Active Management

Let’s get together to discuss how we can transition or rebalance your portfolio to be better able to weather the storm that we are predicting is ahead.

Our work here can sometimes feel over the place – not that this is a bad thing.

In fact, it is one of the parts of my job that I find most interesting. It can be numbing to do the same thing over and over. Here, though, I get to work with many different clients who face many different issues, so helping them always comes in a unique form.

This is something that seems to be hitting many taxpayers as we rush toward the end of 2018. Many people have heard of the some of the tax law changes implemented by the Tax Cuts and Jobs Act, and many used some political calculus to determine how they felt about them. Now, however, they are getting much more interesting in knowing how those changes are going to affect them personally.

As we have said many times, there is not one answer that we can give to cover everyone. Personal answers will be needed. And those personal answers may also change how you go about that political calculus.

So if you need some of that one-on-one attention, please reach out to us BEFORE the calendar turns to 2019.

Now in the interests of continuing to be all over the place, here are a few quick-short items.

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Ohio has become the first state in the nation to start accepting Bitcoin as tax payments from many businesses.

I am not an expert in cryptocurrency, so do not want to give any financial advice on how sound of an investment it is. I would only say that in general the volatility in Bitcoin’s value seen over this year goes to show that one should go into investing in this area with a realization of what kind of risk-reward spectrum you are on.

A move like this by a state, though, only adds legitimacy to the concept and helps the long-range forecast of success for these new currencies.

Maybe this could even lead to us one day understanding just what blockchain is anyway.

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Now I’m not really sure if this time of year opens one up to higher risk of identity theft. There is definitely talk about it, though, as more people make more online transactions during the holiday season.

I am sure, however, that it does always do one good to take common-sense actions to protect your information no matter what the calendar says.  And if your holiday shopping has made you realize that you should be taking some added measures, here is a little primer the IRS recently put out in the spirit of the season.

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Late last week the IRS began an Instagram account. Now sure, I can’t find any real fault in the agency using as many means as it can to reach more people with more timely information, but it was never a platform I imagined was cut out for tax news dissemination.

And no one really wants a heap of tax professional selfies.

Some of us do have some rather cute cats, though …

It is already widely known that the passage of the Tax Cuts and Jobs Act means fewer taxpayers will be itemizing deductions on their tax returns early next year. This means that I will not be spending a lot of time over the next month or so talking about last-minute moves one can make to improve your tax picture. For many, those options have been decrease. This also unfortunately means that I will not be steering as many people to make some late-year charitable donations and then enjoy the tax benefit.

Hopefully, most thought of that latter benefit as a corollary bonus and not the main impetus behind making those donations, for they are still needed.

Giving Tuesday just passed this week, and we are in the time of year when donations reach high levels as feelings of goodwill and hopes of peace drive many to help others. It is not the only time we have had those thoughts this year, though, as recovering from traumatic events like hurricanes and wildfires also necessitated leaning on the generosity of others.

And when you look at the amount of money that can be raised for such wonderful and worthy causes, it can be very heartening. So even if there is a larger chance that making such donations may no longer affect your tax picture, I still want to express the hope that it will not affect your inclination to give if you have the ability to do so.

At the same time, though, there are scammers out there trying to take advantage of this goodwill. It seems that every time a disaster comes along, there are stories of fraudulent people and organizations that pop up to collect money and not pass it along to those they were claiming to help. That is only bound to happen in this more general season of giving, too.

Although it may feel bad to question someone who is claiming to be doing a selfless act, it can do you good to implement a little due diligence and look up the credentials of an organization before making a donation. Sure, there are some large charities that we all know about and trust, but many smaller ones are also doing great work. You may support their mission and just not have known they existed.

So just to ensure that you can feel confident about where your money is going, the IRS offers a Tax Exempt Organization Search online. It provides information on an organization’s tax status, allowing you to confirm it is a tax-exempt entity and eligible to receive tax-deductible charitable contributions. It is an easy check at legitimacy, for if it is a legitimate entity, there is no reason why it would not have formally received tax-exempt status through the agency.

And as always, remember that if something feels fishy, it is worth investigating before you commit to anything. But when things don’t feel fishy, they can instead feel great and wonderful, so please commit to helping there.

It is hard to believe that it has been almost a year since the Tax Cuts and Jobs Act was passed. Because of that, much of what has been discussed in tax circles throughout 2018 has been new rules. Today, though, I think it is worth giving some time to an issue that is a perpetual one – tips.

I think a big part of why this is such an endearing question is because those who make tips tend to see them as separate from their wages. And this makes a lot of sense - they are received in a different way, aren’t always received in a paycheck, and seem to be earned from a customer instead of an employer. In the end, though, the disappointing answer to how tips are handled is that they also are subject to taxes.

I am now going to be even more disappointing for this taxation is supposed to happen no matter how the tips are received. Whether they are received in cash, part of a credit card transaction, or divvied up with coworkers in a sharing arrangement, they are all supposed to be reported and subject to tax withholding.

Legally, employees are supposed to report cash tips received to their employer by the 10^th of the following month. That amount is then to be recorded as part of one’s pay so that the appropriate taxes can be withheld.

But yes, I knowingly prefaced the last paragraph with “legally.” I’m not going to be naïve enough to pretend that some do not report all of their tips, or that there possibly unspoken arrangements in an establishment to not speak of all the tips that come through. So if some tips have never been reported, that is out of our hands here when tax time comes. I am just making it my job to speak of the legal obligations, what you choose to do with that information is in your hands. But yes, when cash is simply handed over, reporting can be tricky and spotty.

When these tips are reported, they are subject to income tax, employee Social Security tax, and employee Medicare tax. It is quite understandable how it can feel it like a hit when you have to pay into multiple areas out of money that already reached your hand. If you keep up with reporting this month by month, though, you can learn to estimate how it will affect your paycheck. Possibly more importantly, though, is that you the regular reporting keeps there from being any big surprises come tax reporting time. When things are done monthly, payments are being made, preventing large ones being needed come April.

The rules on tips can get a little more complicated when you reach higher numbers, but I will not discuss those here. Those don’t tend to be the questions I get when it comes to this area anyway. Instead, it is almost always about whether tips are taxed at all, and now you know the answer.

It happened as it always happens, the country voted and made it through another election. This one, however, certainly felt a little more divisive than most, and the results showed that that division is real. Those results also show that one can’t make financial and tax plans based on election promises.

One of the promises that President Trump spoke about in the lead-up to the election was a Republican plan for a 10% middle-class tax cut. Obviously, this would appeal to many people and speaks to concerns some have that his party’s passage of the Tax Cuts and Jobs Act did more for high-wealth people and businesses than for those in the middle.

For the people this rhetoric spoke to, if that was their biggest concern with the country’s direction, they should have voted on that promise. The Republican Party had already shown it has the ability to pass tax legislation. If it retained majorities in both houses of congress, there was no reason to think that it could not have done it again.

Now, however, with a Democratic majority in the House of Representatives, the chances of this happening are essentially nil. And therein lies the crux of what I want to say this week.

There is nothing wrong, and it is an essential part of our democracy, with voting for the way that you want the country to run, and that often aligns with self-interest. It is great to have a candidate or party speaking to what you want addressed, and feeling they will address your issues and concerns. You just can’t plan ahead based on that information.

For now, the tax rules passed in the TCJA look to be the rules we will be going by for the next few years. Another power shift will likely be needed before anything major can be passed. Heck, if there’s one thing the TCJA is teaching us, it is that even when major tax legislation is passed, it takes time to fully get into the minutiae of it and understand all of its implications.

It is worth spending some time investigating how the rules affect your tax picture and what you can do to make it work in the best way for you. That is a difficult enough experience to work through without making speculative moves based on promises and rhetoric.

And yes, as you take that time and make your moves under the current system, chances are good that you will find rules you wish were different. Latch onto that, feel strongly about them, do what you can to make your voice heard, and continue to vote in the future. That is a powerful act that can help you see the change in the country you want to see. It’s just part of the process, though, and a process that can take a long time to see through to a conclusion. So in the meantime, work within the rules we have, and know that we are here to support you along the journey.