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Timothy W. Tuttle & Associates
 


Volume 15 Edition 07                Please email comments to newsletter@tuttlefirm.com                  July 2019


Major Events This Month:

For July 2019      

This month:

July 4: Independence Day

Tax day might seem far away, but waiting until year-end to make your tax moves may prove costly to you. Maximizing your tax savings starts with an effective mid-year strategy! Detailed here are some ideas to kick-start your summer tax planning. This issue also includes some unique and free summer travel destinations, an infographic with key IRS audit information, and five steps to help your business set the right salaries for your employees.

Call if you would like to discuss how this information relates to you. If you know someone who can benefit from this newsletter, feel free to send it to them.
 

Effective Tax Planning Starts Now!

With summertime activities in full swing, tax planning is probably not on the top of your to-do list. But putting it off creates a problem at the end of the year when thereís little time for changes to take effect. If you take the time to plan now, youíll have six months for your actions to make a difference on your 2019 tax return. Here are some ideas to get you started.

  1. Know your upcoming tax breaks. Pull out your 2018 tax return and take a look at your income, deductions and credits. Ask yourself whether all these breaks will be available again this year. For example: Any changes to your tax situation will make planning now much more important.
    1. Are you expecting more income that will bump you to a higher tax rate?
    2. Will increased income cause a benefit to phase out?
    3. Will any of your children outgrow a tax credit?
  2. Make tax-wise investment decisions. Have some loser stocks you were hoping would rebound? If the prospects for revival arenít great, and youíve owned them for less than one year (short-term), selling them now before they change to long-term stocks can offset up to $3,000 in ordinary income this year. Conversely, appreciated stocks held longer than one year may be candidates for potential charitable contributions or possible choices to optimize your taxes with proper planning.
  3. Adjust your retirement plan contributions. Are you still making contributions based on last yearís limits? Maximum savings amounts increase for retirement plans in 2019. You can contribute up to $13,000 to a SIMPLE IRA, up to $19,000 to a 401(k) and up to $6,000 to a traditional or Roth IRA. Remember to add catch-up contributions if youíll be 50 by the end of December!
  4. Plan for upcoming college expenses. With the school year around the corner, understanding the various tax breaks for college expenses before you start doling out your cash for post-secondary education will ensure the maximum tax savings. There are two tax credits available, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. Plus there are tax benefits for student loan interest and Coverdell Savings accounts. Add 529 college savings plans, and you quickly realize an educational tax strategy is best established early in the year.
  5. Add some business to your summer vacation. If you own a business, you might be able to deduct some of your travel expenses as a business expense. To qualify, the primary reason for your trip must be business-related. Keep detailed records of where and when you work, plus get receipts for all ordinary and necessary expenses!

Great tax planning is a year-round process, but itís especially effective at midyear. Making time now not only helps reduce your taxes, it puts you in control of your entire financial situation.
 

Can't Miss Stops for Your Summer Road Trip

School is out, the weather is warm, and itís time to head out on a summer road trip! Tired of the same old locations? Every state has a number of unique destinations for the every day explorer. Here are some free ideas for the creative vacation seeker in all of us:

Hitting the road is a great way to spend some time with loved ones this summer. Adding quirky stops that will be remembered for a lifetime make it even better!
 

What You Need To Know About IRS Audits

The IRS recently released its 2018 Data Book, including information on its audit activities for the last fiscal year. This details what you need to know regarding your audit risk, how to prepare for and what to expect in an IRS audit.

Know the facts

IRS Audit Statistics

Totals

FY 2015

FY 2016

FY 2017

FY 2018

Tax returns filed in prior calendar year

191,857,005

192,936,878

195,614,161

195,750,099

Audits

1,373,788

1,166,379

1,059,924

991,168

Percentage of returns audited

Less than 1%

What are your chances of being audited?

It depends. But for most taxpayers, LOW. Approximately 1 in 198 tax returns were audited in 2018. The IRS audited 0.6% of all individual income tax returns filed in 2018, and 0.91% of corporation tax returns (excluding S corporations)

There are two types of audits:

Did you know? Approximately 2/3 of audits are handled through the mail.

Reasons you may be audited

Although the IRS uses random selection as one method to choose tax returns to audit, it may also flag returns because:

  1. Youíre in a higher income tax bracket.
  2. You have math errors on your tax return.
  3. You report no income or not all of your income.
  4. Your tax return involves issues with other taxpayers whose returns are being audited.

Other reasons: reporting too many losses, deducting too many work expenses and claiming too many charitable contributions may also trigger an audit.

Always be prepared

Use your past tax return as a checklist of items to keep on hand:

FYI: Always use copies of records during an audit. Keep your original documents.

More ways to prepare: Check IRS.gov to review its Audit Techniques Guides (ATGs). They are used by IRS examiners and can identify areas for potential audits, as well as help you understand what the IRS may question.

What to do if youíre audited

Your tax return may never be audited. But if it happens, here are a few tips to make the process go more smoothly:

The bright side: If you are audited, you may end up with a refund. In FY 2018, approximately 30,000 audits resulted in refunds, totaling $6 million.

Sources: IRS.gov, Kiplinger.com, Forbes.com, Nerdwallet.com
 

Make Setting Salaries Easier With These 5 Steps

Whether you are hiring for the first time, filling an open position, or conducting annual performance reviews, finding a salary range that attracts and retains valued employees can be a difficult task. Here are some suggestions to help make the process a bit easier for you and your company:

  1. Know what your business can afford. Like any business expense, you need to know how it will affect your budget and cash flow. Make a twelve-month profitability and cash forecast and then plug in the high end of the annual salary range you are considering to see if itís something your business can absorb. After all, the greatest employee in the world canít help you if you donít have the money to pay them. Donít forget to account for increases in benefit costs, especially the escalating cost to provide healthcare. Once you establish a budget, you can allocate your spending plan to your payroll.
  2. Understand the laws. In general, the federal government sets the minimum requirements (minimum wage of $7.25 per hour, overtime rules and record keeping requirements). States and localities often add their own set of rules. For example, the state of Illinois, Cook County and the city of Chicago all have different minimum wage requirements. If you are located in Chicago you need to adhere to the highest rate. So research all payroll rules that apply to your location at the beginning of the process. When reviewing the rules, donít forget that different rules often apply depending on the number of employees in your business.
  3. Review and update job descriptions. Take some time to review key jobs and update them as appropriate. With new positions, note the exact tasks and responsibilities you envision for the role. Then, think about the type of person that will succeed performing these responsibilities. Once you have a clear picture of who you are looking for, you can begin to build a detailed job description and narrow in on a specific salary range.
  4. Establish value ranges and apply them. Value is key when determining the perfect salary amount. Define the range of value for the position and then apply that valuation to the current personís performance within the defined pay range. Use websites and recruiters to establish the correct range of pay, then apply experience and employee performance to obtain a potential new salary amount. Remember, size of company, location and competitiveness of the job market are all factors to consider.
  5. Factor in company benefits. A strong suite of employee benefits is a powerful tool to couple with a competitive salary. Donít be afraid to communicate their value to prospective and current employees (they help with retention, too!). According to Glassdoor, health and dental insurance are the most important, but flexibility is close behind - over 80 percent of job seekers take flexible hours, vacation time and work-from-home options into consideration before accepting a position.

Finding the right salary can be tricky, but with some preparation and research, you can find the balance that satisfies the needs of your business and your employees.
 

How To Protect Your Social Security Number

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

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

Basic Customer Retention Questions You Need to Answer

Your businessís ability to retain customers is one of the most important components to sustain growth and profitability. Here are the three retention questions every business owner should be able to answer:

Donít make the mistake of assuming business success comes from constantly adding new customers. Most sustained growth and profitability comes from first understanding marketing activities targeted to keep your current customers. The best place to start is to calculate and understand your base retention numbers.
 

As always, should you have any questions or concerns regarding your situation please feel free to call.

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Timothy W. Tuttle & Associates
www.tuttlefirm.com