While the maximum capital gain tax rate can be as high as 23.8 percent, most taxpayers pay 15 percent. But there is the possibility to have your capital gains go tax-free; zero percent! In fact, this tax break has been around for more than a decade and comes into play more often than you may think. Here is what you should know:
Qualifying for the 0% capital gains rate:
You qualify for preferential long-term gain treatment if you sell stocks, bonds or real estate (and other capital assets) you’ve owned longer than a year.
For 2019, the zero percent rate applies to long-term capital gains for single taxpayers with taxable income up to $39,375 and married filing joint taxpayers up to $78,750. This often applies if you’re having a low income tax year due to:
• Temporary job loss
• A tax loss passed through to you from an S corporation or partnership
• Income fluctuation for a commission-based job
• Retirement
• Moving to part-time employment
Awareness is the key:
While you may not typically have the zero capital gain tax rate available to you, it is important to note when it comes into play.
Here’s an example: Adam and Eve Johnson recently retire. They have a number of mutual funds they’ve owned for years and have retirement savings accounts. Their current income is $58,700. Should they withdraw money from a retirement account or sell some of their mutual funds? Because they’re aware of the zero percent capital gains, they decide to sell mutual funds with long-term capital gains of $20,000 this year to get the money tax free!
Consider your year-end tax moves:
So, keep the zero percent capital gains rate in mind as the year winds down. Know your projected income for the year and depending on your situation, you might realize capital gains that are subject to no or lower tax rates.
Remember other factors often come into play, including the taxability of Social Security Benefits, so call if you would like a review of your situation.
Handling employment taxes can be complicated, especially when you’re required to file important tax documents throughout the year. Here’s a list of key forms and deadline dates to help keep you on track.
Form 941 — Employer’s quarterly federal tax return
This form is used to report income tax withheld from employees’ pay and both the employer’s and employees’ share of Social Security and Medicare taxes.
Employers generally must deposit Form 941 payroll 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 payroll tax liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the 15th of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
Return filing deadlines:
Jan. 31, 2020 – Due date for filing Form 941 for the fourth quarter of 2019. If you deposited your taxes in full and on time, you have until Feb. 10, 2020, to file this return.
April 30, 2020 – Due date for filing Form 941 for the first quarter. If you deposited your taxes in full and on time, you have until May 11, 2020, to file this return.
July 31, 2020 – Due date for filing Form 941 for the second quarter. If you deposited your taxes in full and on time, you have until Aug. 10, 2020, to file this return.
Nov. 1, 2020 – Due date for filing Form 941 for the third quarter. If you deposited your taxes in full and on time, you have until Nov. 10 to file this return.
Form 940 — Employer’s annual federal unemployment tax return (FUTA)
This return is due annually. However, FUTA tax must generally be deposited once a quarter if the accumulated tax exceeds $500.
Jan. 31, 2020 – Due date for filing 2019 Form 940. If you deposited your taxes in full and on time, you have until Feb. 10, 2020, to file this return. This day is also the deadline for depositing federal unemployment tax for October, November and December 2019.
April 30, 2020 – Deadline for depositing federal unemployment tax for January, February and March 2020.
July 31, 2020 – Deadline for depositing federal unemployment tax for April, May and June 2020.
Nov. 1, 2020 – Deadline for depositing federal unemployment tax for July, August and September 2020.
Form W-2 — Wage and tax statement
Employers are required to send this document to each employee and the IRS at the end of the year. It reports employee annual wages and taxes withheld from paychecks.
Jan. 31, 2020 – Due date for employers to provide 2019 Forms W-2 to employees, and for employers to send copies of 2019 W-2s to the Social Security Administration, whether filing electronically or with paper forms.
Tax deadline extensions for disaster areas
For taxpayers living in designated disaster areas, the IRS extends certain filing and tax payment dates. Taxpayers living in the affected areas (and those whose tax professionals are located in those areas) have relief from penalties for filing under the new extended dates. These filing and payment extensions are also available to some relief workers.
There’s still time to reduce your potential tax obligation and save money this year (and next). Here are some ideas to consider:
Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year AND next year.
Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take required RMDs from your retirement accounts by Dec. 31. Don’t forget to make all RMDs because the fines are hefty if you don’t — 50 percent of the amount you should have withdrawn.Keep in mind, even if you don’t have RMDs yet, removing a planned amount from your retirement accounts each year may be more tax efficient than waiting until you are required to do so.
Manage your gains and losses. Rebalance your investment portfolio, and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
Finalize your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash or property, and investments.
Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy.
Review your automated billing transactions. This is a good time to identify what automatic monthly expenses should be reviewed for reduction or elimination. You may also discover billing for services you thought were canceled. This specific review often catches errors that a simple account reconciliation may be missing.
Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
Develop your own list. Use these ideas as a jumping off point to create your own list of annual review items. It might also include reviewing college savings accounts, beneficiaries, insurance needs, wills, and going through an aging parent’s financial accounts.
Questions about the most effective money-saving moves for your situation? Call today.
If you have a child in college or entering college during the next school year, you need to read this. You can now fill out your required Free Application for Financial Student Aid (FAFSA) for the next school year.
FAFSA application timeframe
The Free Application for Federal Student Aid (FAFSA) process opened on Oct. 1.
The time to file is now
The earlier you file your application, the earlier you will receive aid packages from most participating schools. The application is used to receive grants, federal loans and work study awards. Here are some hints to ensure the application process works in your favor:
Create your FSA ID. If you have not already done so, both the student and a parent will need to set up a Federal Student Aid (FSA) ID (username and password) within the FAFSA system. You cannot submit the FAFSA form without first doing this.
File the FAFSA early! As soon as possible, fill out and submit your FAFSA. Filing early maximizes your chances of receiving aid. It also minimizes your chances of missing an unknown application deadline.
Use your tax records. Because the year is not yet over, you can use last year’s (2018) tax information when filling out the application. There are IRS tax return data retrieval tools within the online application to automate this process.
Talk to your advisors. If you have a child ready to attend college, stay in touch with both your financial advisor and your school advisor. A financial advisor is used to help manage your assets to present a good financial picture starts before your student’s junior year in high school. The school advisor is a great resource to help you find potential sources of money.
Collect the right info.To fill out a FAFSA you will need the following:
Social Security number
Alien registration number (if not a U.S. citizen)
Federal tax information
Record of any nontaxable income (excluding retirement account balances)
Balances of the following:
Cash, savings and checking accounts
Investment asset balances
Other assets
FSA ID
Filling out the form can be a daunting task for the uninitiated, but with proper preparation you can get your form done in quick order.
It’s easy to push tax planning to the sidelines when tax laws are ever-changing and hard to understand. Here are some common (but often unfounded) reasons for avoiding tax situations, plus tips to help get past them and start paying less tax this year:
It doesn’t make a difference. This point of view is especially problematic in years with unique situations. Even in uneventful years, external forces like new tax laws can be managed if planned for in advance.
Selling a house? You can avoid taxes if primary residence requirements are met.
Starting a business? Choosing the correct entity can save you a bunch of taxes.
Getting ready to retire? Properly balancing the different revenue streams (part-time wages, Social Security benefits, IRA distributions and more) has a huge impact on your tax liability.
It’s out of your control. Timing is important when it comes to minimizing taxes, and the timing is often in your control. Bundling multiple years of donations into one to get a deduction, holding investments over one year to get a lower tax rate, and making efficient retirement withdrawals are just some examples of prudent tax strategies that you control.
There’s not enough money. There are tax strategies to be implemented at all income levels, not just those at the top of the tax bracket. Tax deductions are available for student loan interest, IRA contributions and others even if you claim the standard deduction. Certain tax credits (called refundable credits) will increase your refund even if you don’t owe taxes. Missing any of these tax breaks can unnecessarily increase your taxes.
I only need help at tax time. When the standard deduction doubled in 2018, many people assumed they could kick their feet up and wait for a big refund. That assumption proved to be false for a large number of taxpayers when their refunds came in lower than expected or turned into a tax bill. Don’t let this happen to you! Every year has it’s own set of changes and challenges that you should plan for well before tax time rolls around.
It’s too overwhelming. Tax planning is often as simple as looking for ways to reduce taxable income, delay a tax bill, increase tax deductions, and take advantage of all available tax credits. The best place to start is to bolster your level of tax knowledge by picking up the phone and asking for assistance.
Thankfully, it’s not too late to get on track for 2019. If you haven’t scheduled a tax-planning meeting, now is a great time to do so.
A sad and oft-repeated truth is that half of all new businesses fail within the first five years. Although many factors contribute to business failure, a common culprit is poor cash management. All businesses, large and small, must deal with the uncertainty of fluctuating sales, inventories and expenses. Follow these practices to moderate the ebb and flow of cash in your business:
Analyze cash flow. If you don’t know it’s broken, you can’t fix it. The starting point for any meaningful action to control cash is discovering where the money’s coming from and where it’s going. Get a handle on cash by monitoring your bank accounts for at least one complete business cycle; then use that information to establish a realistic forecast. This should be done throughout the year to help you understand your seasonal cash needs.
Monitor receivables. Extending credit to risky customers, failing to identify late payers, refusing to collect payment on a timely basis — these practices amplify cash flow problems. Mitigate receivable fluctuations by generating aging reports. Use the report to follow up when payments are late. You may even wish to offer discounts to customers who pay early.
Slow down payments. Prudent cash flow management dictates that you retain cash as long as possible. So pay your vendors on time — not too early. Of course, if suppliers offer discounts for early payment, take advantage of cost savings whenever possible. Also consider negotiating with suppliers to extend payment terms.
Time large expenses. If you know a property tax payment is due in May, start setting aside money in a separate fund in October. The same holds true for any large payment that comes due during the year. If your equipment is nearing the end of its useful life or your roof is showing signs of wear, start saving now. Don’t let big expenditures catch you by surprise.
By taking these steps and endeavoring to smooth out cash fluctuations, proficient managers keep their companies strong throughout the business cycle.
