The Florida legislature again approved a week-long sales-tax holiday on purchases of disaster-preparedness supplies, including batteries, flashlights and generators, to encourage the state’s residents and businesses to get ready for the 2019 hurricane season.
Beginning on Friday, May 31, and running through the end of the day on Thursday, June 6, 2019, Florida residents can buy the following storm-related supplies without paying sales tax:
- Portable, self-powered light sources, including flashlights, with a sales price of $20 or less
- Portable, self-powered radios, including two-way radios and weather-band radios, selling for $50 or less
- Tarps and other waterproof sheets, ground anchors or ties with a price tag of $50 or less
- Gas or diesel fuel tanks that are sold for $25 or less
- AA, AAA, C, D, 6-volt or 9-volt batteries sold for $30 or less (car and boat batteries are excluded)
- Non-electric coolers up to $30
- Portable generators sold for $750 or less
- Reusable ice sold for $10 or less
Florida’s hurricane season kicks off on June 1 and lasts until Nov. 30. Everyone in the state should have a plan for securing their homes and businesses and protecting their families before during and after a storm. This entails having ample supplies, food, medications and cash; knowing your evacuation route; securing important documents; and having appropriate insurance coverage for their homes and potential business interruption.
About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant’s state and local tax (SALT) practice, where he helps individual and business to meet their corporate, state and local tax reporting requirements. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at info@bpbcpa.com.
If you are one of the millions of taxpayers who received a smaller-than-expected tax refund or a surprise tax bill after filing your federal income tax returns for 2018, you can take comfort in knowing you are not alone. If you do not want to end 2019 in a similarly disappointing financial position or worse, now is the time for you to take action and maximize your tax efficiency for the remainder of this year.
First the facts: According to the Tax Policy Center, the Tax Cuts and Jobs Act (TCJA), that went into effect beginning in 2018 did provide the majority of taxpayers with an average tax cut of $800 in the form of higher take-home pay. In addition, the IRS reported that the average refund check it issued as of April 19, 2019, was $2,725, down just 2 percent, or $25 from last year. Yet, when it came time to file their federal returns, many taxpayers forgot about the additional take-home pay they enjoyed during the year and instead focused on the smaller refund they received as compared to prior years. As good as it may feel to get a refund back from the government, doing so may mean you are missing out of other tax saving opportunities.
Following are six smart moves to make after filing your taxes for 2018.
Check your Current Paycheck Withholding
In general, taxpayers owe the government money when they do not pay their fair share of taxes during the year, either through quarterly estimated tax payments or by having the correct amount of taxes withheld from their wages by their employers. In contrast, taxpayers who overpay their tax liabilities during a year can end up with a refund from the government. The key to paying the appropriate amount of tax depends on the information taxpayers provide on Form W-4.
For 2018, a significant number of taxpayers received larger paychecks and smaller refunds due to a combination of factors in which the number of allowances on employees W-4 forms were not updated and aligned with the IRS’s new withholding tables that reflected the TCJA’s lower tax rates, limits to itemized deductions and loss of certain exemptions under the TCJA. In many cases, taxpayers ended up owing the government money even though their overall tax liabilities were reduced.
To avoid this problem in the future, it is important that you check their withholding against the number of allowances you claim on form W-4. The fewer allowances, the more money your employer will withhold for taxes, and the less likely you will end up with a tax bill. Under certain circumstances, it may be beneficial for you to increase your withholdings by a certain dollar amount for each pay period in order to limit your risks of receiving a tax bill at the end of the year.
While the IRS offers taxpayers the ability to check their withholding using its online calculator, be forewarned that this tool is complicated and requires users to know and understand complex tax matters. Instead, consider meeting with your accountant to provide you with a paycheck withholding checkup and provide you with the answers you need to accurately complete a new W-4 and to implement other strategies to maximize your tax efficiency.
Increase or Start Making Quarterly Estimated Tax Payments
If your withholding does not accurately represent your expected tax obligation for the year, or if you are self-employed or work a part-time job for which taxes are not withheld from your pay, you may need to make quarterly estimated tax payments to make up the difference between what you paid during the year and your actual tax liabilities come April 15.
Save for Retirement
Whether you are a few years or a few decades from retirement, it’s never too early to start planning. Contributions to 401(k) retirement plans can reduce your taxable income in the year of contribution, and the money you save will continue to grow tax-free until you begin taking withdrawals to fund your golden years. For 2018, the maximum amount you may contribute to these plans via salary deferral is $19,000, or $25,000 if you are age 50 or older.
If you don’t have access to an employer-sponsored retirement savings plan, you may qualify to set up an individual retirement account (IRA) for yourself and/or your spouse. The maximum amount you may contribute to a traditional IRA or Roth IRA for 2018 is $6,000, or $7,000 if you are age 50 or older. The type of IRA you are eligible to set up will depend on your filing status and annual income.
Share Your Wealth
The new tax law and its very generous estate tax exemption reduces the number of taxpayers who will be subject to federal estate and transfer taxes, at least through the end of 2025, when the exemption will be cut in half and return to its pre-TCJA levels. For 2019, individual taxpayers may transfer up to $11.4 million in assets to their heirs during life or at death without incurring federal estate or gift taxes, or $22.8 million for married couples. On the other hand, not all states follow federal laws, and some of those that do not have hefty estate taxes. If you live in one of these states, you should consider employing one of many strategies to remove assets and their related tax liabilities from your estate.
For example, the tax law allows individuals to annually give gifts of $15,000 or less to as many people as you wish free of gift taxes. If you are married, the exclusion amount is $30,000. Therefore, if you and your wife have four children, you could give four gifts totaling $120,000 without incurring transfer tax. All gifts to U.S. spouses, no matter the amount, avoid gift taxes as do the education and medical expenses you pay directly to a school or medical provider on behalf of another person. However, if you make a payment directly to a student or another individual, you will trigger gift tax consequences.
Conduct an Estate Plan Checkup
Building and preserving wealth over the long term requires advanced planning and consistent care and attention to ensure that that the plans you made yesterday continue to reflect your needs today and your goals for the future. This involves reviewing your will and the names of your beneficiaries on financial accounts and insurance policies at least once a year, at a minimum. Remember that your personal circumstances will continue to change over your lifetime as will tax and estate laws.
It is critical that you remain vigilant and frequently review the state of your personal and professional affairs. This will enable you to take swift action, as needed, (and possibly implement new strategies and structures) to protect your assets, along with any potential future appreciation in value, while minimizing your exposure to income, capital gains and estate and gift taxes.
Stay Informed
No one knows for certain what the future will bring, but the one thing you can count on is that there will be several more rounds of changes to the U.S. tax code during your lifetime. Even today, more than one year after Congress passed the TCJA overhauling the tax code, taxpayers are still awaiting IRS guidance to help them comply with the law. Working with experienced advisors and accountants can help you stay up-to-date on recent changes to the law, interpret it appropriately and provide you with sound strategies that will serve you well now and into the future.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors and Accountants, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
The IRS recently issued a highly expected, second set of proposed regulations on the Opportunity Zone program intended to help more investors, developers, business owners and underserved communities across the U.S. begin working together to maximize the intended benefits of this program.
Congress established the Opportunity Zone program at the end of 2017, as part of the Tax Cuts and Jobs Act (TCJA), with the purpose of encouraging investment, economic growth and job creation in designated distressed communities (qualified opportunity zones) by providing federal tax incentives to taxpayers who invest in businesses located within these communities. The IRS issued a first set of proposed regulations on Opportunity Zones in October of 2018; however, these regulations left many unanswered questions and considerable uncertainty regarding many aspects of the program. A second set of proposed regulations provide many additional answers and deliver some much-needed clarity to investors.
What Are The Tax Benefits of the Opportunity Zone Program?
The Opportunity Zone program offers investors the potential ability to defer, reduce or even eliminate taxes on certain capital gains generated from the sale of appreciated assets, including real estate, stocks, bonds and other investment type property. To qualify for preferential tax treatment, investors generally have 180 days from the date on which the gain would be recognized to roll over a gain into a qualified Opportunity Fund (QOF) created specifically to invest in real estate projects and/or businesses located in any of the more than 8,700 distressed, low-income communities that the federal government has certified as qualifying Opportunity Zones (QOZs). The longer the taxpayer holds his or her investment in the QOF, the greater the tax benefit.
Taxpayers that reinvest capital gains into a QOF may defer paying tax on that amount until the earlier of Dec. 31, 2026, or the date they sell an interest in the QOF. If they hold the QOF investment for at least five years, they can receive a 10 percent step-up in the basis on the original investment and be able to exclude 10 percent of the rolled over gain from taxes. Investments held for at least seven years avoid taxes on 15 percent of the original deferred gain. Should investors keep their qualifying investment in a QOF for at least 10 years, they have an opportunity to completely avoid paying tax on post-acquisition appreciation of their investment in QOF.
What Does the April 2019 Opportunity Zone Guidance Cover?
The long-awaited regulations issued by the IRS on April 17, 2019, clarify many issues that are not addressed in the original language of the statute or the initial IRS guidance issued in October 2018. Taxpayers should meet with experienced advisors and accountants to understand how these provisions affect their unique facts and circumstances, and how they may fit into a larger strategy for preserving wealth and maintaining tax efficiency.
Among many other things, the regulations address the following issues:
- Allow taxpayers to contribute cash and/or other property in a QOF partnership in exchange for a qualifying investment;
- Clarify that only net Section 1231 gains are eligible for deferral, with the 180-day period beginning on the last day of the tax year;
- Debt-financed distributions – subject to certain limitations, allow debt-financed distributions from a QOF partnership to investors without triggering gain inclusion.
- Investment in operating businesses – provide helpful working capital safe harbor and income sourcing rules;
- Treatment of leased property – clarify that, subject to certain rules, leased property can be treated as qualified opportunity zone business property (QOZBP);
- Clarify original use and substantial improvement requirements for unimproved land and buildings that have been vacant for five years;
- Sale of assets before 10-year holding period – provide 12-month period for a QOF to reinvest the proceeds;
- Carried interests – clarify that carried interests are generally treated as a non-qualifying investment (i.e., not eligible for OZ program benefits);
- Exit rules – allow investors who have held the QOF interest for at least 10 years to elect to exclude from income flow-through capital gains attributable to the QOF’s sale of qualified opportunity zone property (QOZP);
- Exiting QOZ investment;
- Reinvesting gains;
- Defining qualified opportunity zone businesses (QOZBs) and qualified opportunity zone business (QOZB) property;
- Satisfying the income and working capital tests;
- Treatment of leased property; and
- Treatment of transfers of ownership interest by gift and at death.
About the Author: Arkadiy (Eric) Green, CPA, is a director of Tax Services with Berkowitz Pollack Brant, where he works with real estate companies, commercial and residential developers, property management companies, real estate investors and high-net-worth individuals to structure investments and complex transactions for maximum tax efficiency. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
Considering the amount of time and efforts taxpayers need to gather documents and prepare for the filing of their federal income tax returns, it’s no wonder that mistakes can occur. Luckily, the IRS offers taxpayers a few options for fixing their tax return filing errors.
In general, you have three years from the date you filed an original tax return to file an amended tax return to claim a refund, or two years after you paid a tax liability, if that date is later.
When your originally filed tax return includes mathematical errors, done’ fret. The IRS will likely correct those calculations for you without requiring you to file an amended tax return. The same is true if you forgot to attach to your tax return your IRS Form W-2 or one of the required schedule.
However, if you made an error in your filing status, income, deductions or credits, you will need to complete an amended tax return on paper using IRS Form 1040X, which you may not file electronically. Rather you must put it in the mail to the IRS with other required forms and schedules. The IRS recommends that taxpayers expecting to receive a refund from their originally filed tax return wait until they receive that money back from the agency before filing an amended tax return.
If an amended tax return results in a higher tax liability for you, be prepared to pay the tax as soon as possible to avoid the imposition of penalties and interest. One of the easiest ways to accomplish this to use the IRS’s Direct Pay tool, which allows you to immediately transfer money directly to the IRS from your personal bank accounts.
There are times when you will need to make changes to several years of tax returns. In those instances, you must complete separate Forms 1040X for each year you are amending, and you should mail the amended returns separately to the IRS in such a way that you can track and confirm the agency received each one.
The advisors and accountants with Berkowitz Pollack Brant work with U.S. and foreign citizens and their businesses to develop tax-efficient solutions that meet regulatory compliance and evolving financial needs.
About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
