TAX TALK: Have a Side Gig? Understand Your Tax Obligations

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 6, 2020 9:20:00 AM

The number of people engaged in the “gig” or sharing economy has grown in recent years, according to a 2019 IRS report. And there are tax consequences for the people who perform these jobs, such as providing car rides, renting spare bedrooms, delivering food, walking dogs or providing other services.

Basically, if you receive income from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made.

IRS Report

The IRS recently released a report examining two decades of tax returns and titled “Is Gig Work Replacing Traditional Employment?” It found that “alternative, non-employee work arrangements” grew by 1.9% from 2000 to 2016 and more than half of the increase from 2013 to 2016 could be attributed to gig work mediated through online labor platforms.

The tax agency concluded that “traditional” work arrangements are not being supplanted by independent contract arrangements reported on 1099s. Most gig work is done by individuals as side jobs that supplement their traditional jobs. In addition, the report found that the people doing gig work via online platforms tend to be male, single, younger than other self-employed people and have experienced unemployment in that year.

Gig Worker Characteristics

The IRS considers gig workers as those who are independent contractors and conduct their jobs through online platforms. Examples include Uber, Lyft, Airbnb, and DoorDash.

Unlike traditional employees, independent contractors don’t receive benefits associated with employment or employer-sponsored health insurance. They also aren’t covered by the minimum wage or other protections of federal laws, aren’t part of states’ unemployment insurance systems, and are on their own when it comes to training, retirement savings and taxes.

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Topics: TAX TALK

T&E TALK: Three Pitfalls When Naming a Life Insurance Policy Beneficiary

Posted by Scott T. Ditman, CPA/PFS on Jan 6, 2020 7:00:00 AM

Life insurance can be a powerful financial and estate planning tool, but its benefits can be reduced or even eliminated if you designate the wrong beneficiary or fail to change beneficiaries when your circumstances change.

Common pitfalls to avoid include:

  1. Naming your estate as beneficiary. Doing so can subject life insurance proceeds to unnecessary state inheritance taxes (in many states), expose the proceeds to your estate’s creditors and ensure that the proceeds will go through probate, which may delay payment to your loved ones.
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Topics: T&E TALK

TAX TALK: Adopting? Enjoy the Tax Savings

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 23, 2019 9:20:00 AM

If you’re adopting a child, or you adopted one this year, there may be significant tax benefits available to offset the expenses. For 2019, adoptive parents may be able to claim a nonrefundable credit against their federal tax for up to $14,080 of “qualified adoption expenses” for each adopted child. (This amount is increasing to $14,300 for 2020.) That’s a dollar-for-dollar reduction of tax — the equivalent, for someone in the 24% marginal tax bracket, of a deduction of over $50,000.

Adoptive parents may also be able to exclude from their gross income up to $14,080 for 2019 ($14,300 for 2020) of qualified adoption expenses paid by an employer under an adoption assistance program. Both the credit and the exclusion are phased out if the parents’ income exceeds certain limits, as explained below.

Adoptive parents may claim both a credit and an exclusion for expenses of adopting a child. But they can’t claim both a credit and an exclusion for the same expense.

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Topics: TAX TALK

T&E TALK: Consider Making Direct Payments of Tuition and Medical Expenses

Posted by Scott T. Ditman, CPA/PFS on Dec 23, 2019 9:00:00 AM

With the lifetime gift and estate tax exemption at $11.40 million for 2019 ($11.58 million for 2020), you may think you don’t have to worry about gift and estate taxes.

However, there are no guarantees that estate tax law won’t be revised in the future or that your accumulated assets won’t eventually exceed the available exemption (which is scheduled to drop significantly in 2026). Thus, there’s a need to investigate other tax-saving possibilities.

Beyond Annual Exclusion Gifts

Under the annual gift tax exclusion, you can reduce your taxable estate without using up any of your lifetime exemption by giving each recipient gifts valued up to $15,000 a year. For example, if you have three children and seven grandchildren, you can give each one $15,000 tax free, for a total of $150,000 in 2019. If your spouse joins in the gifts, the tax-free total is doubled to $300,000.

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Topics: T&E TALK

SALT TALK: What I Didn't Do On My Summer Vacation

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Dec 17, 2019 11:40:36 AM

Just like your choice of summer vacations, the Supreme Court of the United States (SCOTUS) has discretionary authority in deciding whether to review a case. If four justices agree to grant a writ of certiorari, SCOTUS will review a lower court decision and either completely affirm, reverse or possibly some combination of the two.

Only about one hundred or less of the ten thousand petitions received annually are accepted for review. While I've never been swimming in a "cert. pool" on any vacation, most of the justices throw their first-year law clerks head first into the pool to decide which cases will float to the top for further review.

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TAX TALK: Holiday Parties and Gifts and Tax Breaks

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 16, 2019 9:20:00 AM

With Thanksgiving behind us, the holiday season is in full swing. At this time of year, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good idea to understand the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?

Customer and Client Gifts

If you make gifts to customers and clients, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all team members of a customer to share) as long as they’re “reasonable.”

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Topics: TAX TALK

T&E TALK: Five Estate Planning Questions for Single Parents

Posted by Scott T. Ditman, CPA/PFS on Dec 16, 2019 7:00:00 AM

In many respects, estate planning for single parents of minor children is similar to estate planning for families with two parents.  But when only one parent is involved, certain aspects of an estate plan demand special attention. Here are five questions single parents should ask:

  1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, do so to ensure that it reflects your current circumstances. The last thing you want is for a probate court to decide your children’s future.
  2. Have I selected an appropriate guardian? If the other parent is unavailable to take custody of your children should you become incapacitated or die suddenly, does your estate plan designate a suitable and willing guardian to care for them? Will the guardian need financial assistance to raise your children and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.
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Topics: T&E TALK

SALT TALK: Independence Brings Growing Pains

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Dec 10, 2019 10:39:45 AM

One would think it’s so easy. Create a business model where your “workers” are required to buy the assets used to run the business. If not having to tie up your own funds wasn’t enough, you can also lend the workers the money to buy said assets and earn a little interest income to boot.

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TAX TALK: What Medical Expenses Qualify for a Tax Deduction?

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 9, 2019 7:05:00 AM

As we all know, medical services and prescription drugs are expensive. You may be able to deduct some of your expenses on your tax return but the rules make it difficult for many people to qualify. However, with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

The Basic Rules

For 2019, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 10% of your adjusted gross income (AGI). You also must itemize deductions on your return.

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Topics: TAX TALK

SALT TALK: Year End Planning Tips – Taxing Reasons Not to Visit Your Relatives for the Holidays

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Dec 2, 2019 11:40:00 AM

The drive is too far and the traffic is horrendous. Did you see those outrageous airfares? I have a major deadline at work. Didn’t we come to you last year; this year I have to go to the in-laws?  While all members of the Berdon SALT team are anxiously looking forward to traveling to spend the upcoming holidays with our respective families, we know that some of our clients may not be as enthusiastic. Our holiday gift to our readers is two-fold: firstly, an excuse (at least a new one) not to attend that family function, and secondly, potential tax savings for using our excuse.

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