Timothy W. Tuttle &
Volume 14 Edition 5
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Major Tax Deadlines:
For May 2018
Businesses are required to make federal tax deposits on dates determined by
various factors that differ from business to business.
Payroll tax deposits:
Employers generally must deposit Form 941 payroll taxes (income tax withheld
from employees' pay and both the employer's and employees' share of FICA taxes)
on either a monthly or semiweekly deposit schedule. There are exceptions if you
owe $100,000 or more on any day during a deposit period, if you owe $2,500 or
less for the calendar quarter, or if your estimated annual liability is $1,000
Monthly depositors are
required to deposit payroll taxes accumulated within a calendar month by the
fifteenth of the following month.
generally must deposit payroll taxes on Wednesdays or Fridays, depending on when
wages are paid.
more information on tax deadlines that apply to you or your business, contact
the Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and
Jobs Act (TCJA) was passed by Congress in a hurry late last year, and the IRS
and tax preparers have been working to digest some of the more thorny issues
created by the tax overhaul. Here are the latest answers to some of the most
home equity interest still deductible?
The short answer
is: Not unless youíve used the money to buy, build or substantially improve your
Before the TCJA,
homeowners were able to take out a home equity loan and spend it on things other
than their residence, such as to pay off credit card debt or to finance large
consumer purchases. Under the old tax code, they could deduct interest on up to
$100,000 of such home equity debt.
effectively writes the concept of home equity indebtedness out of the tax code.
Now you can only deduct interest on ďacquisition indebtedness,Ē meaning a loan
secured by a qualified residence that is used to buy, build or substantially
improve it. If you have taken out a home equity loan before 2018 and used it for
any other purpose, interest on it is no longer deductible.
a small business owner. How do I use the new 20 percent qualified business
Itís complicated and you should get help.
businesses structured as sole proprietors, S corporations and partnerships can
deduct up to 20 percent of their qualified business income. But that percentage
can be reduced after your taxable income reaches $157,500 (or $315,000 as a
married couple filing jointly).
The amount of the
reduction depends partly on the amount of wages paid and property acquired by
your business during the year. Another complicating factor is that certain
service industries including health, law, consulting, athletics, financial
services and accounting are treated slightly differently.
The IRS is expected to
issue more clarification on how these rules are applied, such as when your
business is a mix of one of those service industries and some other kind of
What are the new rules about
dependents and care giving?
There are a few
things that have changed regarding dependents and care giving:
Standard deductions are nearly doubled to $12,000 for single filers and
$24,000 for married joint filers. The code still says dependents can claim a
standard deduction limited to the greater of $1,050 or $350 plus unearned
Unearned income of children under age 19 (or 24 for full-time students) above
a threshold of $2,100 is now taxed at a special.
If you have
dependents who arenít children under age 17 (and thus eligible for the Child
Tax Credit), you can now claim $500 for each qualified dependent member of
your household for whom you provide more than half of their financial support.
You can now
deduct medical expenses higher than 7.5 percent of your adjusted gross income.
You can claim this for medical expenses you pay for a relative even if they
arenít a dependent (i.e., they live outside your household) as long as you
provide more than half of their financial support.
Stay tuned for
more guidance from the IRS on the new tax laws, and reach out if youíd like to
set up a tax planning consultation for your 2018 tax year.
decline for 6th year in a row
(but don't get complacent)
IRS audit rates
declined last year for the sixth year in a row and are at their lowest level
since 2002, the agency reported. That's good news for people who don't like to
be audited (which is everybody)!
But don't get
complacent. A closer look at the IRS data reveals some audit pitfalls to beware.
Here is what you need to know:
statistics for individuals
Fiscal Year Ending
All individual tax returns
No income ...................
$25,000 - $50,000:
$50,000 - $75,000: .
$75,000 - $100,000: .
$100,000 - $200,000:
$200,000 - $500,000:
$500,000 - $1 million:
$1 million - $5 million:
$5 million - $10 million:
$10 million and over:
these audit rates are stated as a percent of total returns with "total positive
income" (TPI) as claimed on individual tax returns. In general the examinations
are for tax returns filed in the previous calendar year.
examinations obscure the reality that you may still have to deal with issues
caught by the IRS's automated computer systems. These could be math or typo
errors or missing forms. While not as daunting as a full audit, you need to
keep your records handy to address any problems.
but audit chances are still high on both ends of the income range: no-income
and high-income taxpayers.
targets for audits because the IRS is cracking down on fraud in refundable
credits designed to help those with low income, such as the Earned Income Tax
Credit (EITC). The EITC can refund back more than a low-income taxpayer paid
in, so scammers attempt to collect these refund credits through fraudulent
increasingly been a target for IRS audits. Not only do wealthy taxpayers tend
to have more complicated tax returns, but the vast majority of federal income
tax revenue comes from wealthy taxpayers. Based on the statistics, the very
highest income taxpayers can assume they will be audited about every six
are more likely
to be audited. Returns with large charitable deductions, withdrawals from
retirement accounts or education savings plans, and small business expenses
and deductions are reportedly more likely to be the subject of an audit.
rates are declining, don't discount the possibility that you may still be
selected randomly for an audit. Always retain your tax records and support
documents for as long as you need them to substantiate claims on a return. The
IRS normally has a window of three years from the filing date to audit a return,
but this can be extended if the agency believes there's any fraudulent activity
If you do
receive an audit letter from the IRS, it's best to reach out for some
professional assistance as soon as possible.
small business off the rocks
business eventually hits a rough patch. Itís easy to get discouraged when it
happens. But look at the upside: you have infrastructure in place, you have
existing customers and most importantly, you have the hard-won experience of
knowing what works and what doesnít. With that in mind, here are some ideas to
get things back on track:
Focus on triage.
Just like a
hospital ranks patients for attention according to the severity and urgency of
their injuries, you need to rank your biggest issues. First list what needs to
be done urgently, such as paying bills, making payroll and delivering orders.
Then rank what is most important long-term, like reviewing expenses, improving
marketing and advertising, and gathering sales leads.
This process means setting aside the idealistic business plan you had before
you ran into problems and focusing on the nitty-gritty business realities of
revenue, expenses and cash flow. You can pick up the business plan after you
plug the holes in the boat, and revise it based on what you learned from your
If you are running into
troubles you may be spending money on things that arenít working. Try this
exercise before trouble is seen on the horizon: ask yourself what you would
eliminate first if your business situation took a turn to the worse. Second?
Third? Youíve just made your cost-cutting priority list.
Get market information.
business isnít working well, you need to take a closer look at your market.
Look at what your most successful competitors are doing. Pick the brains of
your customers, your vendors and your employees for their opinions about the
products, services and companies in your industry.
Improve your offering.
what youíve learned from your market research, make improvements to your
product or service. Use your research and business experience to help you
narrow down your list to a few ideas, which you can then test through
trial-and-error. One of the most disciplined ways to do this is through A/B
testing: create two versions of your offering with one variable changed. Keep
whichever one does better and scrap the other, then offer a new A/B test using
the improved version. Your products or services will get better over time
based on market feedback.
Improve your operations.
product or service may be great, but for some reason itís not getting the
attention of customers. Meanwhile, a competitor may be outselling you with
something inferior. If thatís the case, youíll need to revamp your operations:
your marketing, advertising, sales and online presence. You can use the same
A/B process you used to improve what youíre selling to improve how you sell:
change one variable at a time and learn from trial-and-error what works and
businesses are those that address problems and use them to grow. When seen in
this light your business will often become stronger as a result of periodic
five-star review trap
(Read this before using star ratings for your business)
When a five-star
consumer rating system for products and services was adopted by major online
businesses including Amazon, Yelp and Trip Advisor, the practice soon became
widely used. But other businesses such as Netflix ditched star ratings after
discovering some downsides. Here are some things to consider before you adopt a
star rating system in your own online business:
Troublemakers love it.
Unfortunately, most satisfied users will not bother to rate your product or
service, while dissatisfied customers tend to be highly motivated. That gives
the complainers too much power. It's especially risky if your product or
service is new. A few low ratings from a disgruntled group can kill a
fledgling offering before it even gets off the ground.
Competitors love it.
Even great ratings can work against you. Products rated with five stars make
it easy for your competitors to know what to copy and what to avoid. For
example, if an Amazon reseller's product gets consistent five-star ratings,
Amazon sometimes starts selling it directly, often to the chagrin of the
reseller who instantly finds their sales being taken over by the online
Fixed issues are
If dissatisfied customers identify a problem with a product or
service through negative one-star reviews, even if you fix the problem the
damage will be done. Future sales are likely to suffer because of poor
historic ratings, despite the fact that you made improvements. And if you
erase the old ratings, it may look like you are being dishonest by tampering
with the rating system.
Solid sellers look
If you introduce star ratings, you may have hundreds of thousands of satisfied
customers who don't bother to review the product or service. This can give the
perception that no one buys it or it's no good ó and perception can soon
because the five-star rating system does not work well in many cases, positive
customer feedback is still a great marketing tool. Consider using other formats
to collect and showcase sincere customer feedback to demonstrate the goodwill
supporting your business.
handle a gap in health care coverage
coverage gaps happen. Whether because of job loss or an extended sabbatical
between gigs, you may find yourself without health care for a period. Here are
some tax consequences you should know about, as well as tips to fix a coverage
Coverage gap tax
You will have to
pay a penalty in 2018 if you donít have health care coverage for three
consecutive months or more. Last year the annual penalty was equal to 2.5
percent of your household income, or $695 per adult (and $347.50 per child),
whichever was higher. The 2018 amounts will be slightly higher to adjust for
lost her job-based health insurance on Dec. 31, 2016, and applied for a plan
through her stateís insurance marketplace program on Feb. 15, 2017, which went
into effect on
April 1, 2017.
Because she was without coverage for three months, she owes a fourth of the
penalty on her 2017 tax return (three of 12 months uncovered, or 1/4
of the year).
penalty is still in place for tax years 2018 and earlier, it is eliminated
starting in the 2019 tax year by the Tax Cuts and Jobs Act.
Three ways to
handle a gap
There are three
main ways to handle a gap in health care coverage:
If youíre in a coverage gap
because youíve left a job, you may be able to keep your previous employerís
health care coverage for up to 18 months through the federal COBRA program.
One downside to this is that youíll have to pay the full premium yourself
(itís typically split between you and your employer while you are employed),
plus a potential administrative fee.
You can enroll in
an insurance marketplace health care plan through Healthcare.gov or your
stateís portal. Typically you can only sign up for or change a Marketplace
plan once a year, but you can qualify for a 60-day special enrollment period
after youíve had a major life event, such as losing a job, moving to a new
home or getting married.
Applying for an exemption.
If you are
without health care coverage for an extended period, you may still avoid
paying the penalty by qualifying for an exemption. Valid exemptions include
unaffordability (you must prove the cheapest health insurance plan costs more
than 8.16 percent of your household income), income below the tax filing
threshold (which was $10,400 for single filers below age 65 in 2017), ability
to demonstrate certain financial hardships, or membership in certain tribal
groups or religious associations.
money tips for couples
Spring is here
and love is in the air. Or, it is as long as you aren't arguing over money with
your special someone. Couples consistently report finances as the leading cause
of stress in their relationship. Here are a few tips to avoid conflict over
finances with your long-term partner or spouse:
Be honest with
each other about your financial status. As you enter a committed relationship,
each partner should learn about the status of the other person's debts, income
and assets. Any surprises down the road may feel like dishonesty and lead to
Discuss future plans
closer you are with your partner, the more you'll want to know about his or
her future plans. Kids, planned career changes, world travel, hobbies,
retirement expectations Ė all of these will depend upon money and shared
resources. So, discuss these plans and create the financial roadmap to go with
them. Remember that people in a long-term marriage may be caught unaware if
they haven't talked about the future and find out their spouse's priorities
have changed over time.
Know your comfort levels.
discuss your future plans, bring up hypothetical situations: How much debt is
too much? What level of spending versus savings is acceptable? How much would
you spend on a car, home or vacation? You may be surprised to learn that your
assumptions about these things fall outside your partner's comfort zone.
Try to divide financial tasks such as paying certain bills,
updating a budget, contributing to savings and making appointments with tax
and financial advisors. Then periodically trade responsibilities over time.
Even if one person tends to be better at numbers, it's best to have both
members participating. By having a hand in budgeting, planning and spending
decisions, you will be constantly reminded how what you are doing financially
contributes to the strength of your relationship.
Learn to love compromise.
people have the same priorities or personalities, so differences of opinion
are going to happen. One person may want to spend, while the other wants to
save. Vacation may be on your spouse's mind, while you want to put money aside
for a new car. By acknowledging these differences of opinion will happen,
you'll be less frustrated when they do. Treat any problems as opportunities to
negotiate and compromise. Instead of looking at the outcome as "I didn't get
everything I wanted to do," think of it as "I sacrificed some of what I wanted
out of love for my partner and he/she did the same for me."
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The information contained in this newsletter is of a general nature and should
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professional assistance. For more information on anything in ONLINE ADVISOR,
or for assistance with any of your tax, business, or financial strategy concerns,
contact our office.
Timothy W. Tuttle & Associates