Berdon Blogs

TAX TALK: TCJA Prohibits Undoing 2018 Roth IRA Conversions, 2017 Conversions Still Eligible

Posted by Michael Eagan, J.D., LL.M. on Aug 13, 2018 9:20:00 AM

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

Before the Tax Cuts and Jobs Act (TCJA), you could undo a Roth IRA conversion using a “recharacterization.” Effective with 2018 conversions, the TCJA prohibits recharacterizations — permanently. But if you executed a conversion in 2017, you may still be able to undo it.

Reasons to Recharacterize

Generally, if you converted to a Roth IRA in 2017, you have until October 15, 2018, to undo it and avoid the tax hit.

Here are some reasons you might want to recharacterize a 2017 Roth IRA conversion:

  • The conversion combined with your other income pushed you into a higher tax bracket in 2017.
  • Your marginal income tax rate will be lower in 2018 than it was in 2017.
  • The value of your account has declined since the conversion, so you owe taxes partially on money you no longer have.
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Topics: TAX TALK

TAX TALK: Do You Still Need to Worry About the AMT?

Posted by Michael Eagan, J.D., LL.M. on Aug 6, 2018 9:20:00 AM

There was talk of repealing the individual alternative minimum tax (AMT) as part of last year’s tax reform legislation. A repeal wasn’t included in the final version of the Tax Cuts and Jobs Act (TCJA), but the TCJA will reduce the number of taxpayers subject to the AMT.

Now is a good time to familiarize yourself with the changes, assess your AMT risk and see if there are any steps you can take during the last several months of the year to avoid the AMT, or at least minimize any negative impact.

AMT vs. Regular Tax

The top AMT rate is 28%, compared to the top regular ordinary-income tax rate of 37%. But the AMT rate typically applies to a higher taxable income base and will result in a larger tax bill if you’re subject to it.

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Topics: TAX TALK

TAX TALK: The TCJA has made “Kiddie Tax” More Far-Reaching than ever

Posted by Michael Eagan, J.D., LL.M. on Jul 30, 2018 9:20:00 AM

In the past, some parents and grandparents would attempt to save tax by putting investments in the names of their young children or grandchildren in lower income tax brackets. To discourage such strategies, Congress created the “kiddie” tax back in 1986. Since then, this tax has gradually become more far-reaching. Now, under the Tax Cuts and Jobs Act (TCJA), the kiddie tax has become more dangerous than ever.

A Short History

Years ago, the kiddie tax applied only to children under age 14 — which still provided families with ample opportunity to enjoy significant tax savings from income shifting. In 2006, the tax was expanded to children under age 18. And since 2008, the kiddie tax has generally applied to children under age 19 and to full-time students under age 24 (unless the students provide more than half of their own support from earned income).

What about the kiddie tax rate? Before the TCJA, for children subject to the kiddie tax, any unearned income beyond a certain amount ($2,100 for 2017) was taxed at their parents’ marginal rate (assuming it was higher), rather than their own likely low rate.

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Topics: TAX TALK

TAX TALK: QBI – A New Tax Break for Noncorporate Owners of Pass-Through Entities

Posted by Michael Eagan, J.D., LL.M. on Jul 23, 2018 9:20:00 AM

The Tax Cuts and Jobs Act (TCJA) provides a valuable new tax break to noncorporate owners of pass-through entities: a deduction for a portion of qualified business income (QBI). The deduction generally applies to income from sole proprietorships, partnerships, S corporations, and, typically, limited liability companies (LLCs). It can equal as much as 20% of QBI. But once taxable income exceeds $315,000 for married couples filing jointly or $157,500 for other filers, a wage limit begins to phase in.

Full vs. Partial Phase-In

When the wage limit is fully phased in, at $415,000 for joint filers and $207,500 for other filers, the QBI deduction generally can’t exceed the greater of the owner’s share of:

  • 50% of the amount of W-2 wages paid to employees during the tax year, or
  • The sum of 25% of W-2 wages plus 2.5% of the cost of qualified business property (QBP).
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Topics: TAX TALK

TAX TALK: Volunteering?  Here’s what you can and can’t Deduct

Posted by Michael Eagan, J.D., LL.M. on Jul 16, 2018 9:20:00 AM

Because donations to charity of cash or property generally are tax deductible (if you itemize), it only seems logical that the donation of something even more valuable to you — your time — would also be deductible. Unfortunately, that’s not the case.

Donations of time or services aren’t deductible. It doesn’t matter if it’s simple administrative work, such as checking in attendees at a fundraising event, or if it’s work requiring significant experience and expertise that would be much more costly to the charity if it had to pay for it, such as skilled carpentry or legal counsel.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The Basic Rules

As with any charitable donation, for you to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can use the IRS’s “Tax Exempt Organization Search” tool (formerly “Select Check”) to find out.

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Topics: TAX TALK

TAX TALK: A Green Home can save on Taxes

Posted by Michael Eagan, J.D., LL.M. on Jul 9, 2018 9:20:00 AM

“Going green” at home — whether it’s your principal residence or a second home — can reduce your tax bill in addition to your energy bill, all while helping the environment.  The catch is that, to reap all three benefits, you need to buy and install certain types of renewable energy equipment in the home.

Invest in Green and save Green

For 2018 and 2019, you may be eligible for a tax credit of 30% of expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for installing the following types of renewable energy equipment:

  • Qualified solar electricity generating equipment and solar water heating equipment;
  • Qualified wind energy equipment;
  • Qualified geothermal heat pump equipment; and
  • Qualified fuel cell electricity generating equipment (limited to $500 for each half kilowatt of fuel cell capacity).
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Topics: TAX TALK

TAX TALK: Know the ABCs of HSAs, FSAs, and HRAs

Posted by Michael Eagan, J.D., LL.M. on Jul 2, 2018 9:20:00 AM

There continues to be uncertainty about the Affordable Care Act and the potential impact on health care costs.  So it’s critical to leverage all tax-advantaged ways to fund these expenses, including HSAs, FSAs and HRAs. Here’s how to make sense of this alphabet soup of health care accounts.

HSAs

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored Health Savings Account — or make deductible contributions to an HSA you set up yourself — up to $3,450 for self-only coverage and $6,900 for family coverage for 2018. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

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Topics: TAX TALK

TAX TALK: 2018 Q3 - Key Tax Deadlines for Businesses

Posted by Michael Eagan, J.D., LL.M. on Jun 25, 2018 9:17:00 AM

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2018.  Keep in mind that this list is not all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), and pay any tax due. (See the exception below, under “August 10.”)
  • File a 2017 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.
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Topics: TAX TALK

TAX TALK: Don’t Gamble on your Taxes

Posted by Michael Eagan, J.D., LL.M. on Jun 18, 2018 9:20:00 AM

For anyone who takes a spin at roulette, buys a lottery ticket, or engages in other wagering activities, it’s important to be familiar with the applicable tax rules. Otherwise, you could be putting yourself at risk for interest or penalties — or missing out on tax-saving opportunities.

Wins
You must report 100% of your wagering winnings as taxable income. The value of extraordinary complimentary items (“comps”), such as autos and jewelry, provided by gambling establishments must also be included in taxable income because comps are considered gambling winnings. The IRS has reserved its opinion on whether you can exclude “normal comps,” such as food, drink, lodging, and entertainment, from taxable income. Winnings are subject to your regular federal income tax rate, which may be as high as 39.6%.

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Topics: TAX TALK

TAX TALK: QSB Stock Offers Two Valuable Tax Benefits

Posted by Michael Eagan, J.D., LL.M. on Jun 11, 2018 10:08:49 AM

Investing in qualified small business (QSB) C corporation stock offers you the opportunity to diversify your portfolio and enjoy two valuable tax benefits:

  1. Tax-free gain rollovers. If you buy other QSB stock with the proceeds of selling QSB stock within 60 days, you can defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.
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Topics: TAX TALK

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