14 year-end tax tips

The earlier the better when it comes to adopting a strategy to reduce your taxes. But even if time gets away from you, there are some year-end actions you can take to cut your taxes.

Here are some last-minute tax cutters you might consider:

1. Review income and deductions. It’s all in the timing. The most fundamental year-end tax moveis to adjust the timing of income and deductions. If your income is high, deferring receipt of more income at the end of the year can save taxes. If you’re close to the line on itemizing deductions, accelerating payment of deductible expenses might save taxes.The first step in timing is to know where you stand now. Then try to forecast where you’ll be next year at this time. If you think your next year’s tax rates will be higher than the current year’s, you might save money by switching tactics and accelerating income.

2. Postpone income. If you’re due a bonus, see if your employer will hold off writing the check until January. If you own a cash-basis business, you can time receipt of income by waiting until close to the end of the year to send your December billings.You can’t defer taxes by simply not putting a check in the bank. If you have an unrestricted right to the money, it’s income in the year it’s available -whether or not you choose to receive the funds.

3. Bunch your payments. Some taxpayers find they have almost enough deductions to exceed the standard deduction. If this is your situation, try bunching payments into one year to take advantage of itemizing. The next year use the standard deduction, and then bunch your payments again the following year. This way you’ll itemize every other year.
Other limits to watch are the medical expense limit and the miscellaneous itemized deduction limit. By bunching payments into one year or changing the timing of certain services, you may be able to get a deduction.

4. Pay deductible expenses before December 31. Paying your state income tax estimate before December 31 accelerates your federal deduction. You can also pay property taxes early, make an extra mortgage payment (the interest portion is deductible), pay your tax preparer for your year-end planning meetings, or opt to have dental work or elective surgery before the end of the year. Keep in mind that the IRS doesn’t allow a deduction for payments made before the services are performed.

5. Be charitable. You can make cash contributions or charge them on your credit card and take a current deduction. If you give appreciated property to charity, you’ll get to deduct the full market value. You may need an appraisal to determine the value of some property.

6. Contribute to a deductible IRA if you qualify. You have until the April tax filing deadline to open an IRA and make a deductible contribution for the prior year.

7. Contribute to your company’s 401(k). If you have a 401(k) plan at work, make as large a contribution as you’re allowed to make.

8. Set up self-employed retirement plan before December 31. If you’re self-employed and you want to make a contribution to a Keogh or similar plan, the plan must be adopted before year-end, even though you have until the April tax filing deadline (or later if you get a filing extension) to make a deductible contribution for the previous year.

9. If necessary, adjust your income tax withholding before year-end to avoid underpayment penalties. Withheld taxes are considered paid in equal amounts during the year regardless of when the tax is withheld. Therefore, a year-end adjustment to your withholding could help you avoid a penalty.

10. Consider your marital status. If planning a wedding or divorce, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes.

11. Offset capital gains. Review your investment portfolio to determine whether you should sell some losers before year-end in order to offset capital gains you’ve already realized. Capital losses are first netted with capital gains and then are deductible against ordinary income (limited to $3,000 a year).

12. Check exposure to the AMT. If you have tax preference items, do an alternative minimum tax (AMT) computation when you do your regular tax estimate. If the AMT will apply to you, you may still be able to shift income or deductions to avoid or reduce the tax.

13. Plan for losses. Check your basis in any S corporation in which you are a shareholder and where you expect a loss this year. Be sure you have sufficient basis to enable you to take the loss on your tax return.

14. Look before you leap. A word of caution about year-end tax-cutting maneuvers: don’t rush into transactions which you hope will reduce your tax bill only to find out you’ve created other problems. Do not enter into transactions solely for the tax benefits. All investments should be economically sound. There are those who will sell you so-called “tax” solutions. Analyze such options carefully. Know more...

How to Have a Comfortable Retirement

If you’re age 35 or more and haven’t made a serious effort to plan for retirement, your dreams of a comfortable and active retirement could turn into the nightmare of being old and poor.

Scare tactics, you say? Consider this: most experts say you need at least 66% of pre-retirement income to live comfortably when you retire. But an active retiree may need 70-80% of pre-retirement income to pay for added travel and health care costs.

Will your company pension and social security replace 60-80% of your salary?

Social security: The portion of your earnings that can be replaced by social security falls dramatically as you climb the income scale. Even if you qualify for the maximum social security benefit, you will probably require additional retirement income from other sources.

Your pension plan: Will your company pension make up the difference? That depends on the plan, your length of service, and your earnings. Many companies are trying to scale back their retirement plans. And if you’ve changed jobs often, you will have decreased the length of service credited to your pension.

What about inflation? The impact of inflation will also be a factor in whether you can retire comfortably. If inflation outpaces the cost-of-living increases for social security and your company pension, your plans to live comfortably from these sources may need to be changed dramatically. And if you have a short-fall in your retirement income to begin with, the effects of inflation will be magnified. Assuming inflation at a modest 4% annually, prices will double every 20 years.

How much is enough? If the prospect of living your remaining years on a steadily declining income doesn’t fit your plans, take stock of your situation now. Then take action to establish a program that will lead to a comfortable retirement.

First, do an estimate of how much income you will have at retirement and an estimate of how much you will need for the kind of retirement you have in mind. For a quick estimate of whether or not you’ll have enough income for retirement, calculate the following:

How to come up with more

If you won’t have enough, the next step is to see how you can come up with the extra income. Your choices will probably be limited to some combination of the following:

• Save more (reduce current spending).
• Increase the return on the savings you already have.
• Postpone retirement.
• Plan to supplement your retirement income with part-time work.
• Accept a lower standard of living when you retire.

The younger you are, the more of your retirement income you can fund through a savings plan. If you’re age 30 and start saving 10% of your yearly income today, you’ll probably reach retirement with a comfortable nest egg. If you don’t get started until age 40, you may need to save 20% of your income.

Maximize your earnings

When deciding on a savings plan, you will want to maximize your earnings. Look first at tax-deferred savings, particularly if your employer offers a 401(k) plan. If you don’t have a 401(k)
available, you can still get tax-deferred earnings through an IRA, long-term growth stocks, insurance annuities, real estate investments, and Series EE bonds.

To earn more on your savings, consider investing in equity investments (stocks and real estate) rather than fixed-income investments (CDs, bonds, savings accounts). If you’re ten years or more from retirement, you may want to put more of your money in equities. As you near retirement, it may be appropriate to switch more of your funds to fixed-income investments.

Start planning now

Regardless of where you decide to invest, the single most important step to a comfortable retirement is to start planning and saving today. Our team is available to help you begin planning now so that you will have a lot to look forward to. Learn more by scheduling a free consultation today: https://www.bas-pc.com/appointment-center/

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Are you Eligible for the Earned Income Tax Credit (EITC)?

Since 1975, the Earned Income Tax Credit (EITC) has provided a tax break to millions of Americans each year. The credit was originally established to give low and medium income taxpayers a break on their Social Security taxes while providing an incentive to work. The EITC is often the subject of missed opportunity as the IRS estimates as many as 20% of taxpayers that qualify for the credit do not include it on their tax return. Here are some things to consider:

Q. Do I have to have children to qualify? Do I have to be married?

A. No. One of the most common errors is thinking the EITC is only for married couples with children. Both single and married taxpayers can qualify for the EITC. Even taxpayers without children may qualify for the credit if they meet certain age and residency requirements. You may NOT, however, file your tax return as “married filing separate” and still receive the credit.

Q. How much can I earn and still qualify for the EITC?

A. If you earned $54,884 or less in 2018 you could qualify ($49,194 if you are unmarried).

Q. If I did not earn income can I still get the credit?

A. No, you must have “earned” income to qualify for the credit. You have earned income if you worked for someone else (wages), are self-employed, or have income from farming. Nontaxable combat pay for military members qualifies as does some cases of disability income.

Q. How much is the credit?

A. The maximum credit could be worth $6,431 to you in 2018 ($6,557 in 2019). The amount of the credit depends on your filing status (married filing jointly, single, widow, or head of household), your income, and how many qualifying children you have.

Q. What else should I know?

A. A valid social security number is required for you, your spouse, and any qualifying children to receive the credit. It is also important to save information to support your claim for the credit. If the IRS thinks you recklessly disregarded the rules and claimed the credit in error, they could prohibit you from receiving the credit for two more years. If the filing was deemed fraudulent, you could be barred from using the credit for 10 years!

Remember to check for your EITC every year. Just because you did not qualify in the past does not mean you can’t qualify for the credit in the future. If you have questions or need assistance evaluating your qualification, our team is here to help. Schedule a meeting today: https://www.bas-pc.com/appointment-center/

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Understanding Tax Terms: Structuring |Bookkeeping services NJ

If someone manipulates cash transactions to avoid required bank reporting to the Treasury Department, they are using the technique of structuring their transactions. Knowing what is reported and the power given to the IRS to seize related assets can be important.

Background

To identify questionable illegal transactions, financial institutions are required to report any monetary amounts over $10,000 to the Treasury Department. If someone knowingly structures their transactions to avoid this reporting, the Bank Secrecy Act allows the IRS to legally seize these assets. The old rules provide broad discretion in this area and many innocent taxpayers not only had assets frozen but found it virtually impossible to get their funds returned to them.

Example: Vocatura’s Bakery in Norwich, CT did most of their bakery trade in cash. To help their local banker not have to fill out required federal forms when they deposited $10,000 or more, they tried to make lower deposits. One day the IRS showed up at their business and seized over $65,000 of their deposits suspecting illegal activity through use of this structuring activity. Using civil forfeiture rules, the IRS permanently seized this small business’ assets. Three years and lots of legal fighting later, the business finally got their money back. Here is a link to their story; IRS Returns Bakery’s Money After 3 Years.

What you should know

Be aware of the rule. As more small businesses try to avoid the high charges associated with credit cards, they must also be aware of the Bank Secrecy Act rules. Establish a good relationship with your banker and have them understand your business to help create a potential ally if needed. Do not knowingly try to avoid the $10,000 reporting rule.

Consistent numbers. Create a regular routine of sales deposits. Do not save up deposits and then deposit similar amounts. This could raise red flags.

The rules are changing. In a recent change, the IRS will still pursue structuring violations, but will try to more closely align action taken with knowledge of criminal activity. The government must show that the taxpayer knows of the rules and knowingly structures their transactions to avoid the reporting.

There are bad guys. Money laundering is a big problem. Whether it be drug money, terrorist fund raising, bootlegging or other illegal activity, excess cash deposits will raise suspicions. So,while the IRS uses their tools to catch these crooks, they are making an active attempt to keep innocent taxpayers out of their net.

If you need further clarification or have questions about structuring transactions, we’d be happy to help. Don’t hesitate to schedule time with our team today: https://www.bas-pc.com/appointment-center/

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Lost Pet? Don’t Become a Fraud Target

When a pet disappears, owners can become distraught, calling animal shelters, advertising in local papers, posting photos on every telephone pole and fence post all in the hope of hearing news of their lost animal. At such times, pet owners are also more vulnerable to fraud. Consider the following scenarios:

• The truck passerby: You get a call from a truck driver who says they’re calling from another state. Seeing your flyers, they recognized the cat (or dog) as yours. A few days ago, when delivering goods in your area, the animal somehow stowed away on the truck.

Before becoming aware of the animal, the truck driver says they’d driven through two states. Unfortunately, the pet also had some (unspecified) health problems, so they paid a visit to a veterinarian. If you want your pet returned, you’re told, several hundred dollars must be transferred to the truck driver’s account to cover the vet costs.
Only one problem is that the truck driver doesn’t have your pet, and never did. They found the description of your animal and are using that information to exploit you.

• The tag team: Again, someone responds to your lost pet ad. The caller sympathizes with you, then pumps you for descriptive details about your lost pet. In this scenario, the caller reluctantly informs you that they don’t have the pet you’re describing. After hanging up, the caller shares unadvertised details about the pet (details that you provided) with their partner. The partner then contacts you and provides such a convincing description that you’re persuaded. By the way, they say, please transfer the reward money to my account.

How can you protect yourself against such scams? 

• Provide only partial information in advertisements and flyers. Then, when someone responds to an ad, ask open-ended questions such as, “Please describe the cat to me,” instead of yes/no questions such as, “Does Fluffy have two gray spots on his back?”
• Beware of callers who appear to be fishing for information.
• Be suspicious of callers from other states or countries.
• If you’re offering a reward, don’t let money change hands until the lost pet is in your possession.

If you need help protecting your information and identity or have questions about ensuring your financial information is secure, we’re here to help. Schedule an appointment with one of our team members here: https://www.bas-pc.com/appointment-center/
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Where to get money for a growing business

The following sequence of events is common to many new and expanding businesses.

The Short-Term Squeeze

You start your business with a limited amount of capital and an abundance of good ideas and ambition. The sales activity has been adequate to produce a net profit. Your inventory is about twice as large as you intended. Your accounts payable are past due to the point where some creditors want to ship C.O.D. only. To keep your creditors happy, you have been overdrawing your checking account to the dissatisfaction of your banker. You have a short-term note past due at the bank.

These are all symptoms of a very common business ailment -too much short-term debt.

This type of cash squeeze can be avoided if you confine your company’s growth to that which can be handled from retained earnings. If thecash retained in the business from last year’s profits is $25,000 and inventory grows by twice that amount, somebody (you, your banker, or a new partner) has to fund the expansion that cannot be funded by the retained earnings.

Long-Term Funding

If you can’t provide additional capital and you don’t want a partner, you need to look for long-term funding from one of the following sources:

• Funds from Owner- Studies indicate that as much as 60% of all small business funding comes directly from the owner or his/her immediate family. Outside of your immediate family or friends, you may find funding from other private parties or from financial institutions.

• Private Lenders- There are some problems with outside private lenders. First, they are few and far between. Second, they generally demand a higher rate of interest and/or want to own a percentage of the business.

• Financial Institutions- The main problem in using financial institutions for small businesses is that banks are not in the “risk” business. Although you may be very optimistic about your company’s future and have a glowing cash flow projection, the banker is not likely to rely on it for loan purposes. You may have adequate collateral in terms of inventory, real estate, etc., but if the banker feels that you will not have adequate after-tax net profits to service a loan, he/she is not likely to lend you money. Bankers do not want to liquidate your assets in satisfaction of their loan.

• Small Business Administration- If financing is not otherwise available on reasonable terms, the Small Business Administration may be available to assist with its various loan programs.

• Money Brokers- There are “money brokers” who advertise in various newspapers and business publications. Many of these brokers want to be paid in advance to locate possible lenders for you. Be very cautious of any broker and ask for references and credentials. Any proposal by such brokers should be reviewed by both your attorney and your accountant before you sign anything.

If you would like more information on the business funding options available in your situation, please feel free to call: Contact us | Accounting Services New Jersey | Payroll services New

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Conquer Student Loan Debt | Payroll services New Jersey

Obtaining a legitimate college degree is an expensive proposition. Many will be paying off student loans —month after month, year after year —for decades.
With smart financial management, graduates can liquidate their college debt in a reasonable time, freeing up cash for other priorities. Here are four tips for paying off loans quickly and efficiently:

• Build a budget. Get a handle on where money is going. A budget can help prioritize, enabling you or your child to whittle down student loans more quickly. Several online tools are available. You can even use a simple spreadsheet listing monthly income and expenses.

• Talk to your employer. Your company or your child’s company may offer one-time loan payoffs in exchange for a lower starting wage or other concessions. Negotiate when interviewing. After taking a job, check with the human resources department about options.

• Use autopay. Reducing payment steps makes it less likely to divert those funds to lesser priorities. As an added bonus, you or your child may develop the discipline to live on less while loans are being paid off.

• Reduce your other bills. Talk to your cell phone provider. Consider dropping cable. Postpone that expensive vacation. Hold off on expensive purchases that aren’t necessary at the moment.

It all goes back to prioritizing student loan payments. It’ll be worth it when you can enjoy the benefits of a rising salary, increased cash flow and a stellar credit score in a few years from now. And don’t forget to take advantage of possible education tax credits and deductions.

If you have questions about student loans or need help determining what tax breaks are right for you, don’t hesitate to reach out. Our team of financial professionals are here to assist and answer any questions you may have: https://www.bas-pc.com/appointment-center/

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2020 Health Savings Account Limits

The savings limits for the ever-popular health savings accounts (HSA) are now set for 2020. The new limits are outlined here with current year amounts noted for comparison.

What is an HSA?

An HSA is a tax-advantaged savings account whose funds can be used to pay qualified health care costs for you, your spouse and your dependents. The account is a great way to pay for qualified health care costs with pre-tax dollars. In fact,any investment gains on your funds are also tax-free as long as they are used to pay for qualified medical, dental or vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a high-deductible health plan (HDHP).

The Limits


 Note: An HDHP plan has minimum deductible requirements that are typically higher than traditional health insurance. To qualify for an HSA, your coverage must have out-of-pocket payment limits in line with the maximums noted above.

Not sure what an HSA is all about? Our team is available to discuss whether an HSA is right for you. Please schedule time here: https://www.bas-pc.com/appointment-center/

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Investing Basics: Mutual Funds

When you buy shares of a mutual fund, your money is pooled with other shareholders’ money and invested in a portfolio of securities (stocks, bonds, etc.) An investment in a mutual fund offers you diversification and management by professionals.

Mutual funds have no guarantee of good returns or safety of your investment; they go up and down just like the rest of the market.

There are several different kinds of mutual funds, each with different investment objectives. If you decide to put your money into a mutual fund, you should look for one whose objectives match your own investment objectives and financial needs.

The different categories of mutual funds include these major classifications:

• Aggressive growth or capital appreciation funds invest in smaller companies, looking for growth that will result in capital gains income rather than ordinary dividend and interest income. Because of their speculative nature, these funds are in the high risk category, giving you the chance of highest return as well.

• Growth funds buy stocks that are expected to increase in value in the future. They are somewhat less risky than aggressive growth funds, produce very limited income, and are seeking long-term capital gain returns.

• Income funds are those investing in securities to produce current income through dividends and interest, rather than long-term increase in value and capital gains.

• Growth and income funds are aiming for both income and long-term growth. They invest in blue chip companies that pay reasonably good dividends and whose stock tends to increase in value over a period of time read more...

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How to Protect Your Social Security Number from Theft

With the dramatic increase in identity theft, what can be done to protect your Social Security Number (SSN) from these would-be thieves? Here are some ideas.

Do not carry your Social Security Card with you. Your parents were encouraged to do this, but times have changed. You will need to provide it to a new employer, but that is about it.

Know who NEEDS your Social Security Number. The list of those who need to have your number is limited. It includes:

• Your employer. To issue wages and pay your taxes.
• The IRS. To process your taxes.
• The State Revenue department. To process your state taxes.
• The Social Security Administration. To note your work history and record your benefits.
• Your retirement account provider. To enable annual reporting to the IRS.
• Banks. To enable reporting to the IRS.
• A few others. Those who need to report your activity to the government (example: investment companies.)

Do not use any part of your Social Security number for passwords or account access. Many retirement plans use your Social Security Number to enable you to access their on-line tool. When this happens, reset the login and password as soon as possible.

Do not put your Social Security Number on any form. Unless a business has a legal need for your number, do not provide it. Common requestors of this number are insurance companies and health care providers. Simply write, “not available due to theft risk” in the field that requests your number. If the supplier says they need it, ask them why read more...

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How to Defend Your Deductions

When faced with questions on your tax return deductions, it is getting all too common for tax authorities to deny everything and then make you prove that your deductions are valid. Do not let this happen to you. Here are some suggestions.

The one-two punch

To prove your deduction most auditors are looking for two key documents. Miss one of the two and your deduction will evaporate like smoke at a campfire.

1.Receipts. This is the first of the sure-fire two things you must have to validate a deduction. The receipt should clearly show the company or entity, the date, the value of the activity and a clear description of the activity. In the case of donations, the receipt should also have a statement that confirms you received no benefit in return for your donation. It should also state that you are not retaining part ownership of the donation.

2.Proof of payment. This is the second of two sure-fire things you must have to validate a deduction. You will need a canceled check, a bank statement or a credit card receipt and related statement.

Other proof hints

Contemporaneous. Any proof of payment and receipts should generally match the date of the activity. The IRS and state agencies are quick to dismiss receipts that are obtained after the fact. A good rule of thumb is to ensure receipts and proof of payment are received at the time of the activity. If not, at least make sure you have receipts and payment proof within the tax year the deduction is taken.

Other proof. In addition to the above, there are certain deductions that require additional documentation. Here are the most common;

Mileage logs. You will need to show properly maintained mileage logs for business miles, charitable miles and any medical mile deductions.

Business records. You will need financial statements for any business related activity with supporting documentation.

Residency. If you live in multiple states or multiple countries, you may have to prove where you lived during the year. Keep records that show your physical presence to support your tax filings.

Proof of non-reimbursement. If you claim any unreimbursed business expenses, many states are asking you to prove that you were not able to get these expenses reimbursed from your employer. The easiest ways to do this are to show a denied expense report or to get your employer to write a letter that confirms your expenses are not reimbursed. Those most impacted by this are musicians, barbers/hairstylists, construction workers and anyone who uses their own tools to do their job for their employer.

Tax deductions can be tricky. Count on our team to help make sure your deductions have been filed properly. Reach out and schedule time today: https://www.bas-pc.com/appointment-center/

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The Nine Basic Rules of Investing

There is no magic to making money by investing. It requires discipline, determination, perseverance, and hard work. In deciding what investments are suitable for you, you must first understand the nine basic rules of investing.

1. Risk versus return. The greater the risk that you will lose not only the return on your investment but your original investment as well, the greater the potential rate of return. An individual investor should always try to get the highest rate of return without going beyond the risk level that he or she finds comfortable.

2. Inflation. If inflation is higher than the return on your investments, you are losing future purchasing power. If, for example, you have $1,000 earning 3% after tax, and inflation is 4%, your $1,030 will purchase only $990 of goods one year later.

3. Liquidity and marketability. A liquid investment can be readily converted to cash; a marketable investment can be readily sold for cash. A savings account, for example, is highly liquid, and blue chip stocks are readily marketable. A piece of real estate, on the other hand, may take time to sell and convert to cash. Often, yields run conversely with liquidity and marketability.

4. Tax aspects. An investor’s return should always be computed after taxes. Some investments have tax advantages that increase their relative after-tax yield. Tax-exempt bonds, for example, carry a lower return rate than taxable securities. However, your after-tax return may be higher with the tax-free investment than with a taxable one.

5. Income versus appreciation. Some investments provide current income (such as high-dividend stocks); others have little current income but appreciate over time. The best investments provide both income and appreciation.

6. Management. Some investors enjoy managing their own portfolios. Others lack either the time or knowledge to be effective managers. Your desired degree of involvement will help determine the kinds of investments best for you.

7. OPM. Using “other people’s money” and leveraging into investments allows you to get a higher return on your own invested dollars; however, the risk is also higher. Again, you’ll have to decide your own comfort level.

8. Diversification. Those investors seeking safety count on diversification. Diversification is simply investing in two or more kinds of investments. Then if one investment goes sour, you do not lose everything.

9. Your goals. In your own investment program, it is your goals that are important, not the goals of your broker or financial advisor. Never invest in anything that you do not understand or with which you are not comfortable. Decide what your objectives are and what your risk-tolerance level is, and go for the highest return within those boundaries.

For further assistance with financial planning and investments, our team is available to answer any questions you may have. Set up a meeting here: https://www.bas-pc.com/appointment-center/

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Investing Basics: Know When to Sell a Stock

Selling a stock is an important decision – almost as important as the decision to buy. Unfortunately, while the world is full of buy recommendations, there is very little advice on when to sell.

Many investors make the mistake of holding onto losing stocks too long. Sometimes they compound this error by selling their winners too soon. The results? A remaining portfolio of mostly poor performers.

Successful investors limit their losses and let their winners run. There are a variety of ways to do this; the more popular strategies include:

• Setting a predetermined sales price.At the time you invest, choose two prices, one below your purchase and another above it.
  For example, at the time you buy a stock for $50 per share, prepare to sell it at $60. Set a low-side “sell” price, too, to limit your loss if the price falls. Where to set these prices depends upon your expected profit and the loss you can withstand if the stock price drops.

Sell the stock if it hits either of these “target” prices. You may reevaluate and change these prices, but only if there’s a compelling, legitimate reason to do so.

• Another technique uses “moving averages.” You can calculate various moving averages using different stocks and different time periods. These averages are plotted on a graph to reveal trends that help you determine when to sell.

• Monitoring business fundamentals. Yet another technique is to sell when the company’s fundamental business indicators begin to wane. A few of the important factors are earnings, market share, profit margin, and sales volume. You can obtain this information from the company’s financial statements and from newspaper and magazine reports. The idea is to sell when the stock becomes overpriced in light of these factors.

• Selling overvalued stock. The price/earnings ratio (share price divided by earnings per share) is one measure of a stock’s relative value. If the ratio is too high, the stock may be overvalued, and it’s time to sell. For example, if a stock has traditionally sold for 20 times earnings and it’s now selling for 40, it’s probably overvalued. Some investors compare their stock’s ratio to the ratio of the Standard & Poor’s 500, again as a measure of relative value.

• Earnings trends. You might use the company’s earnings to gauge whether the stock will perform well in the future. Some investors compare earnings to other companies in the industry or to the Standard & Poor’s 500. If earnings trail the others by a certain percent, then sell. Other investors compare current trends to historical earnings. Sell the stock if a company’s earnings for the most recent 12-month period are less than the previous 12-month period.

There are, of course, other techniques (and combinations of techniques). If you invest in stocks, be sure to give careful thought to what your selling strategy should be.

There is no consensus on which strategy works the best, but professional investors do agree on one thing: selling stock requires discipline. Any rational strategy is probably better than none at all. Pick one that makes sense to you and stick with it. If you have questions or need help, our team of professionals can help! Schedule time here: https://www.bas-pc.com/appointment-center/

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The Lost Art of Tracking Home Improvements

One of the more popular provisions in the tax code is the $250,000 capital gain exclusion ($500,000 for a married couple) of any profit made when selling your home. As long as you follow the rules, most home sales transactions are not a taxable event.

• But what if the tax law is changed?
• What if you rent out your home?
• What if you cannot prove the cost of your home?

Your best defense to a potentially expensive tax surprise in your future is proper record retention.

The problem

The gain exclusion is so high, that many of us are no longer keeping track of the true cost of our home. This mistake can be costly. Remember, this gain exclusion still requires documentation to support the tax benefit.

The calculation

To calculate your home sale gain take the sales price received for your home and subtract your basis. This “basis” is the original cost of your home including closing costs adjusted by the cost of any improvements you have made in your home. You might also have a reduction in home value due to prior damage or casualty losses. As long as the home sold is owned by you as your principal residence in at least two of the last five years, you can usually take advantage of the capital gain exclusion on your tax return.

To keep the tax surprise away

Always keep documents that support calculating the true cost of your home. This should include:

• Closing documents from the original home purchase
• All legal documents
• Canceled checks and invoices from any home improvements
• Closing documents supporting the value of the sale of the home

There are some cases when you should pay special attention to keeping track of your home value.

You have a home office. When a home office is involved, it can impact the calculation of the capital gain exclusion. This is especially true if you depreciated part of your home for business use.

You have lived in your home for a long time. Most homes will rise in value. The longer you stay in your home the more likely the value of your home will rise over time. For example, a sizable gain can occur when an elderly single parent sells their home after living in it for over 50 years.

You live in a major metropolitan area. Certain areas of the country are known to rapidly increase in value.

You rent out your home. Any time part of your home is depreciated, it can impact the calculation for available gain exclusion. Home rental also can impact the residency requirement calculation to receive the home gain tax exclusion.

You recently sold another home. The home sale gain exclusion can only be used once every two years. If you recently sold a home with a gain, keeping all documents related to your new home will be critical.

The best way to protect this tax code benefit is to keep all home-related documents that support calculating the cost of your property. We’re here to help! Please schedule time if you wish to discuss your situation with our team: https://www.bas-pc.com/appointment-center

Sharing Economy Now in IRS Spotlight

Did you know… 40% of the workers in the Sharing Economy are unaware of their tax responsibilities and over 60% of the service provider companies are not training their new workers on their tax responsibilities.
Source: Written statement of Nina E. Olson, National Taxpayer Advocate given at the Hearing on “The Sharing Economy” to the Committee on Small Business, U.S. House of Representatives, May 26, 2016.

Tax compliance is a problem for Uber drivers, Airbnb and others deemed to be in the new Sharing Economy. The IRS is aware of this and has recently launched a new “Sharing Economy Tax Center” on their website to help this growing group of workers. Here are ideas to keep you out of this IRS spotlight.

The Sharing Economy

The sharing economy consists of workers that are taking part in the service economy by “sharing” their resources for part-time or full time employment. Some common examples are:

Cab services: use your car
Delivery services: use of your car
Short-term rentals: use of rooms, apartments, and homes
Home services: use of your personal tools and supplies
Note: While the IRS seems to be focusing on this new “Sharing Economy” really any freelance worker has the same tax challenges as these workers.

Key Tax Responsibilities

If you use your car as a cab or rent out your home for the big golf tournament, you will need to understand the following tax obligations.

Employee or contractor? You need to know which of these defines your employment arrangement. Your personal tax obligations are markedly different under each scenario. As an employee, the service company is responsible for paying the business portion of Social Security and Medicare. They will pay unemployment taxes. They will also withhold your portion of Social Security, Medicare, federal taxes and state taxes and send them in for you. These payments are reported to you on a W-2. This is not the case if you are a contractor.

Social Security and Medicare. All employers are required to pay Social Security and Medicare taxes. As a contractor, you will need to reserve 12.4% of your net income for Social Security and 2.9% for Medicare payments.

Estimated taxes. You may need to send in quarterly estimated tax payments to avoid tax penalties when you file your tax return.

Other taxes. You may be subject to other taxes including unemployment taxes.

Depreciation. This area can be confusing. You are able to expense a portion of the cost of capital assets (like your car) if they are used for business purposes. However, if also used for personal use you will need to adjust the amount available for depreciation.

Special tax rules. Other areas of the tax code have special provisions. The most common of these is use of your home for business or rental.

The tax rules for those in the new service economy are complex and confusing. Our team has the experience and know-how to help you navigate this tricky part of the tax law. If you need assistance, feel free to reach out to our team to schedule time: https://www.bas-pc.com/appointment-center

Avoid Tax Traps in Loans to Friends and Family

Lending to friends and relatives is a tricky business, and not only because of the stress it can place on your relationships. There are tax issues involved as well. If you have to lend money to someone close, here are some tips to do it right in the eyes of the tax code.

Charge interest

Yes, you should charge interest, even to friends and family. If you don’t charge a minimum rate, the IRS will imply interest in the loan and tax you for the interest they assume you should be getting. This can occur even if you’re not actually getting a dime.

Charge enough interest

Not only should you charge interest, the amount must be reasonable in the eyes of the IRS. If it’s not, the IRS will imply interest at their minimum applicable federal rates (AFRs). To stay on the safe side, always charge an interest rate at or above these AFRs, available on the IRS website. The good news is these interest rates are low and almost always below the prime interest rate.

Know the exceptions

If you don’t want to charge interest, you don’t have to IF:

The money is a gift. You and your spouse can each give up to $15,000 to an individual each year (this maximum remains $15,000 in 2019).

OR:

The loan is less than $10,000 and is not used to purchase income-producing property.If you don’t charge interest and the loan is used to purchase income-producing property such as capital equipment or to acquire a business, special tax rules apply. In this case it’s good to ask for assistance.

Get it in writing

If you expect repayment, write out the terms of your loan. There are a variety of basic loan document formats online that you can use. Creating a loan document may seem unnecessarily formal when dealing with a friend or family member, but it’s important for two reasons.

1. It documents your tax code compliance. By documenting the terms and charging a stated interest rate you can clearly show you are within tax code rules.
2. You avoid misunderstandings. Creating a written document will make it clear that it is a real loan, not an informal gift. Your friend or relative will know that you expect to be paid back and when you expect repayment.

If you need help with the tax law when it comes to loans to friends or family, count on our team to help you navigate properly. Schedule time today and we can help walk you through it: Tax Consultant in New jersey