Infinity CPA Group, LLC

DON'T RUN THE RISK OF A HIGH TAX BILL! Know when you should ask for professional help. BEFORE TAKING ACTION TALK TO YOUR TAX ADVISER. How many times have you seen this legal disclaimer? Unfortunately, all too often taxpayers do not follow this advice and then must pay the price with an unnecessarily high tax bill. Here are some of the most common situations that can save you money by seeking advice before you act. - Getting married - Selling a home - Donating stocks and investments - Getting divorced - Change in dependent status - Approaching retirement - Starting a business - Managing participation in tax-advantaged retirement accounts like 401(k), 403(b), and various IRAs - Death and birth of loved ones - Donating high-value items - Selling stocks, bonds, mutual funds or business property (rentals) - An audit - Tax-efficient transfer of your estate - Selling or buying high value assets (art, collectibles, real estate, and small business assets) - Determining Social Security benefit strategy In advance of any of these events, or when in doubt, please ask for assistance. There are too many stories that include the words “If only they had talked to someone first!”

IS A TAX TIME BOMB LURKING IN YOUR PAYCHECK? Does your paycheck look a little higher than normal? If so, it could be a tax time bomb. THE PROBLEM A payroll tax deferral beginning September 1 was recently signed via a presidential executive order. The potential deferral of your portion of Social Security as an employee could raise your take home pay temporarily until January 2021. Beginning in 2021, the deferred Social Security will then need to be paid. This year’s tax deferral is NOT currently a tax holiday. So if your employer removes your Social Security tax from your paycheck, there is a real possibility you will need to pay it back between January 2021 and April 2021. That could mean a pretty large tax bill for you in early 2021! WHAT YOU NEED TO KNOW THE PAYROLL TAX DEFERRAL IS OPTIONAL FOR MOST EMPLOYERS. Your employer is not required to defer your Social Security payments. However, federal employees will be seeing this tax reduction from September through December of this year. If your employer chooses to defer your Social Security taxes, in all likelihood, they will let you know. COMPARE PAYCHECKS. If you are unsure whether your employer is participating in the tax deferral, get your last paycheck from August and compare it with your most recent paycheck. If the amounts are the same, then your Social Security and other taxes are still being withheld. If you notice that the amounts are different, or that no Social Security taxes are withheld from your current paycheck, then that’s a signal you may have a tax repayment bill in early 2021. REMEMBER TO KEEP CHECKING EACH PAYCHECK. Companies are struggling to figure out if they are required to comply with the presidential executive order, payroll providers are trying to figure out how to comply and everyone is wondering whether the tax obligation will be permanently forgiven. So you will need to keep checking your paycheck throughout the balance of 2020. BE PREPARED TO PAY IT BACK. If taxes have been deferred from your paycheck through the end of 2020, be prepared to have your paycheck withholdings increase substantially beginning in 2021. If possible, open a savings account to set aside the taxes that were not withheld from your paychecks. When it comes time to pay your taxes, you will have funds to weather the repayment storm. CHECK FOR UPDATES. There’s a chance Congress passes a law that forgives the deferred taxes. If this happens, you will have a nice start on an emergency fund should you need it. If you have any questions about how this payroll executive order affects you, please call.

TAX SHIFTING IDEAS TO REDUCE YOUR BILL TO UNCLE SAM Is there a taxable income reduction idea you can use? Many tax experts talk about shifting your tax burden from one year to the next. While in theory it may make sense, how can you make it work for you in practice? THE CONCEPT Since the tax code is complex in its construction, there are often opportunities to reduce your tax burden by controlling the amount of your taxable income. This is because: 1. Income tax rates vary from 0% to 37% depending on your income and filing status. 2. Many tax breaks have income limits. 3. Tax breaks have income phase-out ranges. 4. Incremental taxes like the alternative minimum tax are triggered by income level. So if you can shift your income and expenses from one year to the next, you could create a net tax obligation for both years that might be lower than if you did nothing. Here are six great ideas to accomplish this. SIX GREAT TAX SHIFTING IDEAS IDEA 1 - KNOW THE RULES. Identify whether you are a good candidate for using shifting as a tax planning strategy. For singles, the income tax rate increases 80% or more on earnings over $40,125. For married couples, that increase occurs with adjusted gross income over $80,250. But other tax benefits are lost at different income levels. Common tax breaks subject to income limits are child tax credits, earned income credits, educational credits, premium health care credits and many educational tax benefits. IDEA 2 - LOAD UP YOUR CONTRIBUTIONS If you itemize your deductions, consider loading up your cash and non-cash contributions into the year that lowers more highly-taxed income. For example, you could shift next year’s donations to your church into this year. This bunching of itemized deductions into one year makes even more sense with the higher standard deductions introduced in 2018. IDEA 3 - LEVERAGE THE CASH BASIS CONCEPT You can take a deduction when you pay for it. A credit card receipt is good on the date you run the transaction and not when you pay your monthly bill to the credit card company. Knowing this, you could pay a property tax statement or a house payment either a little early or a little late to change whether that deduction occurs in this year or next. IDEA 4 - STOP WORKING There are many cases when this technique is an important tax shifting tool. The most common example applies to those who are under the full retirement age and receiving Social Security benefits. If this applies to you, consider actively managing your part-time work or you could end up paying taxes on some of your Social Security benefits or even losing some of them. Work can also hurt your tax situation when a dependent’s wages put you over the earnings threshold to receive the Health Insurance Premium Tax Credit. It may make sense to stop working or arrange to get your last paycheck delayed into the following year. IDEA 5 - MANAGE RETIREMENT PLAN DISTRIBUTIONS Those over age 59½ can use distributions from pre-tax retirement plans to tightly control their taxable income. Your withdrawal calculation should include evaluating how to maximize the tax efficiency of your income. An analysis may indicate it is better to take out a little more this year to get these retirement earnings taxed at a lower rate than if you waited until next year. IDEA 6 - MANAGE YOUR STOCK AND INVESTMENT SALES You have up to $3,000 in investment losses that can offset your higher-taxed ordinary income. Use this to your advantage when deciding whether to take a stock loss this year or next. If done correctly, you can match your stock loss against ordinary income which is taxed at a higher rate. By shifting your taxable income to the right level, you can often reduce your tax bill. Please call if you wish to have a review of your situation.

A GIFT OF STOCK Information is key when using this tax planning strategy You own some stock that has increased in value. To avoid a possible taxable gain by selling the stock, you wish to give it directly to a child or grandchild. This simple idea has some interesting tax consequences to consider. VALUE OF THE GIFT When you gift stock there are not one, but two values to consider. 1. GIFT VALUE. This is the market value of the stock at the time of your gift. Since there is a possible gift tax to you if the value of all gifts given by you to a person during the year is $15,000 or over ($30,000 for a married couple) you will need to calculate this value prior to finalizing your decision to provide the gift. 2. VALUE (BASIS) OF THE STOCK. You will need to determine the cost to you when you originally purchased the shares. This includes any brokerage or other fees. Provide the date(s) you purchased the stock and these costs to the person who will be receiving the gift. PROVIDE IMPORTANT INFORMATION BASIS IS KEY. Those receiving your direct gift of stock are not required to sell it. But when they do, they will need to know: 1. The original cost of the stock and when it was purchased. 2. The date and fair market value of the stock when it was given. 3. If the giver paid any gift tax. TIMING IS IMPORTANT. If the recipient of your gift sells the stock right away, the tax rate applied will depend on the length of time the stocks were owned by you. A gain on a stock held one year or less is considered ordinary income. More than one year is a long-term capital gain. The time-frame of this calculation usually goes all the way back to your purchase records. THE BENEFITS NO TAXES. Gifts of stock allow you to avoid paying capital gains tax on the ownership transfer. As long as annual gift amounts to one person are less than $15,000 ($30,000 for a married couple) there is no tax consequence. LOWER TAXES. In addition, the future sale of the stock could result in lower taxes. This is because long-term capital gains tax rates can be as low as 0% or as high 20%. Short-term capital gains tax rates can be as high as 37%*. Assuming your child or grandchild has lower income than you, the resulting sale creates a potential tax savings. Care must be taken if the gain is high as Kiddie Tax rules could create a tax bite at the parents' tax rate. KIDDIE TAX BENEFIT. If the gift stock pays dividends, future dividend income can potentially be taxed at your recipient’s lower tax rate. This technique can be used to provide dividend income without a child having to pay any taxes up to the Kiddie Tax annual limit of $1,100 of unearned income. GIFT TO ANYONE. Your gift can be provided to anyone you wish, not just a relative. These gift rules also apply to other investments like mutual funds, land and other property. SOME WRINKLES If your stock has a loss it is usually a better idea to sell the stock and take the tax benefit of the loss. If the stock you gift has a fair market value less than your cost, providing the information noted here to the recipient of your gift is even more important. Please ask for help if you are considering a gift of stock or property. If handled incorrectly, your gift could create unforeseen tax consequences. But used in conjunction with other contribution techniques it can be a powerful tax planning tool. * An additional 3.8% Medicare Tax or Net Investment Income Tax may also apply.

STATE TAXING AUTHORITIES ARE COMING AFTER YOUR MONEY States are creating laws that snag taxpayers everywhere New state tax laws are making more and more taxpayers tax cheats without them realizing it is happening. Think it can’t happen to you? Here are some examples. Your small business registers for sales tax in Texas and you receive a letter from some obscure Texas town that says you need to send them a registration fee. Where did this come from? A Florida widower with income marries a retired woman who lived in Utah for nine months. The woman has no income. He has never been to Utah, even to visit. Per Utah tax law he must now pay income tax to Utah on his Florida income if he files a joint federal tax return. A Delaware resident owes Minnesota income tax for consulting work even though she never steps foot in Minnesota. This is because the company who the Delaware resident did work for has a physical presence in Minnesota. The same situation is true in California and other states. You decide to retire in Nevada to enjoy the sunshine. You then receive an audit letter from New York that says you need to pay them income tax, even though you no longer live there. They demand credit card statements, your driver's license and more. You provide the information, yet their demands do not go away. California routinely sends out notices to small businesses throughout the country demanding detailed sales transactions for multiple years for any of their California customer transactions. If you do not reply, you could be in for an audit from this state. States are creating business fees to capture taxes from out-of-state small businesses. This is to get around national laws that protect interstate commerce. This new category of tax is in addition to income taxes and sales/use taxes. Until national leadership provides unified interstate guidance, states will continue to get more aggressive with the creation of new tax laws. This is more prevalent as states struggle with lost revenue due to this year's pandemic. There are even situations where two states can claim tax on the same income and you are stuck in the middle facing double taxation and tax penalties. This ever-changing landscape requires annual review. This is especially true if you plan to move in the near future. Please call if you need help.

HOW TO PROTECT YOUR SOCIAL SECURITY NUMBER FROM THEFT With the dramatic increase in identity theft, what can be done to protect your Social Security number (SSN) from these would-be thieves? Here are some ideas. DO NOT CARRY YOUR SOCIAL SECURITY CARD WITH YOU. Your parents were encouraged to do this, but times have changed. You will need to provide it to a new employer, but that is about it. KNOW WHO NEEDS YOUR SOCIAL SECURITY NUMBER. The list of people or organizations who need to have your number is limited. It includes: YOUR EMPLOYER. To issue wages and pay your taxes. THE IRS. To process your taxes. YOUR STATE'S REVENUE DEPARTMENT. To process your state taxes. THE SOCIAL SECURITY ADMINISTRATION. To record your work history and track future benefits. YOUR RETIREMENT ACCOUNT PROVIDER. To enable annual reporting to the IRS. BANKS. To enable reporting to the IRS. A FEW OTHERS. Those who need to report your activity to the government (investment companies, for example). DO NOT USE ANY PART OF YOUR SOCIAL SECURITY NUMBER FOR PASSWORDS OR ACCOUNT ACCESS. Many retirement plans use your Social Security number to enable you to access their online tool. When this happens, reset the login and password as soon as possible. DO NOT PUT YOUR SOCIAL SECURITY NUMBER ON ANY FORM. Unless a business has a legal need for your number, do not provide it. Common requestors of this number are insurance companies and health care providers. Simply write, “Not available due to theft risk” in the field that requests your number. If the supplier says they need it, ask them why. DO NOT NOTE YOUR FULL SOCIAL SECURITY NUMBER ON ANY FORM. If you are required to give out your number, try marking out the first five numbers (i.e. xxx-xx-1234). DO NOT PUT YOUR SOCIAL SECURITY NUMBER ON YOUR CHECKS. If requested by the government to place your number on a check to apply a payment, simply put the last four digits on the check. NEVER GIVE YOUR NUMBER OUT OVER THE PHONE OR IN AN EMAIL. Remember to periodically check your credit score with the major agencies to ensure your data has not been stolen. Once stolen, it is often difficult to get a new SSN issued.

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TIPS TO ORGANIZE YOUR TAX RECORDS Creating order out of chaos As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year? Here are some tips. KEEP IT ALL IN ONE PLACE. It seems obvious, but how often have you found yourself going through piles of paper looking for that elusive 1099 tax form or charitable deduction receipt? If you only do one thing, this is it. TIME TO SORT. Now that everything is all together, best practice is to sort your information into the same buckets used in your tax return. At a minimum, sort the information into the basic categories below. If you have a lot of one category, sort that stack into the following sub-categories. A. INCOME * Wages (W-2s) * Alimony * Business income (1099's, K-1s) * Interest income (1000-INT) * Dividends (1099-DIV) * Winnings (W-2G, 1099-G) * Social Security * Investments (1099-B) * Other Income Items B. INCOME ADJUSTMENTS * Student loan interest * Tuition & fees deductions * Alimony paid * Educator expenses * Other education expenses * IRA contributions * HSA/MSA contributions C. ITEMIZED DEDUCTIONS * Taxes paid * Charitable contributions * Interest expense (mortgages) * Medical/Dental expenses * Investor/Other expenses * Casualty/Theft losses D. CREDIT INFORMATION * Child & dependent care expenses * Other credit-related expenses * Adoption expenses * Education expenses E. BUSINESS/RENTAL * Sort income and expenses for each business activity or hobby activity or rental unit NOTE: Remember this list is not all-inclusive, it is here to help you sort your information into a usable form to make tax filing easier. NOT SURE BUCKET. There may be things you receive that you are not certain about needing for tax filing purposes. These items should be gathered in one place for review. SUM IT UP. Once the information has been categorized, create a summary of the information. This summary can be a printed copy of an organizer or it could be a simple recap you create. IS SOMETHING MISSING? Pull out last year’s tax return and create a list of things you needed last year. Use this as a checklist against this year’s information. While this process will not identify new items, it will help identify missing items that qualified in prior years. FINALIZE REQUIRED DOCUMENTATION. Certain deductions require substantiation and/or logs to qualify your expense. Common areas that require this are: business mileage, charitable mileage, medical mileage, moving mileage, non-cash charitable contributions, and certain business expenses. These logs should be maintained throughout the year, but now is a good time to make sure they are complete and ready to go for tax filing. It is very easy to overlook something given the lengthy list of taxable income items, deductions and credits. By following these tips you can greatly reduce that risk.

TAX SAVINGS FOR NON-ITEMIZERS Can't itemize? There are still tax breaks for you A common misconception in tax filing has been that if you use the Standard Deduction versus itemizing your deductions you now have few additional benefits available to reduce your tax bill. This is often not the case. STANDARD OR ITEMIZE? Every taxpayer can take the Standard Deduction to reduce their income. However, if your deductions are going to exceed the standard amount you may choose to itemize your deductions. The primary reason someone itemizes deductions is generally due to home ownership since mortgage interest and property taxes are deductible and are generally high enough to justify itemizing. But with higher Standard Deductions, fewer taxpayers are able to itemize. Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, high medical expenses, and other miscellaneous deductions. WHAT IS AVAILABLE So what opportunities to reduce your taxable income are available if you use the Standard Deduction? Here are some of the most common: * IRA Contributions (up to $6,000 or $7,000 if age 50 or over) * Student Loan Interest ( up to $2,500) * Educator Expense Deduction (up to $250) * Alimony Paid (for divorce decrees prior to 2019) * Health Savings Accounts (if you qualify) * Self-employed health insurance premiums * ½ of self-employment tax * Numerous education incentives like; Savings Bond Interest, Coverdell accounts, American Opportunity Credit and Lifetime Learning Credit * Plus numerous credits including; Earned Income Credit, Dependent Care Credit, Child Tax Credit, Retirement Savings, and Elderly Credit Income limitations often apply to these tax reduction opportunities, but for those who qualify, the tax savings can be significant. This list is by no means complete. What should be remembered is to rely on a complete review of your situation prior to jumping to the conclusion that tax breaks are just for someone else. That someone else might just be you, the Standard Deduction taxpayer

LOWER YOUR TAXES - THIS YEAR! Here are 6 ideas that most people can use While 2020 winds down, there is still time to reduce your tax burden. Here are six ideas that can save money for most of us. 1. LEVERAGE PRE-TAX SAVINGS. Take advantage of opportunities to set aside income on a pre-tax basis. This includes; * Participation in your employer's retirement savings program. * Fully funding Health Savings Accounts (HSA), and “Flex Benefits” accounts that allow using pre-tax earnings to pay for childcare and out-of-pocket medical costs. Remember, however, unlike HSAs it is important to use up any funds in your Flex health care accounts and dependent care accounts prior to the end of the plan year as any unused funds will be forfeited. * Take full advantage of employee benefits like pre-tax child care, parking reimbursements, and any tuition reimbursement programs. * Paying any health care costs with pre-tax dollars. 2. DEFER INCOME AND ACCELERATE DEDUCTIONS (or vice versa!). When possible think about whether it is better to reduce taxable income in this year or next year. By understanding which tax year will be more advantageous to you, you can act to defer income into a subsequent tax year and accelerate deductible expenses into the current tax year. On the other hand you may believe tax rates will be higher next year. If this is the case you will want to move as much income into the current year and defer expenses. Here are some ideas if your strategy is to minimize taxable income this year: * Delay receipt of a bonus check * Make an extra house payment * Make extra charitable contributions (that you would make anyway)* * Make next year’s church donations this year.* * Make extra trips to donate non-cash items prior to January 1st* * Review your investments to book gains and/or losses *Note: With higher standard deductions, many of you will not be itemizing deductions each year. If this is you, consider bundling two or three years of deductions into one year. This is especially beneficial with charitable contributions. 3. HARVEST GAINS AND LOSSES. Each year up to $3,000 in investment losses can be used to offset ordinary income. This is done after using the tax code's netting rules. Furthermore, any donation of appreciated stock can avoid paying tax on the capital gains of the donation. Make full use of this knowledge to make tax efficient moves with any investment gains and losses. 4. MAXIMIZE TAX-EXEMPT AND TAX-DEFFERED INVESTMENTS. The higher your tax bracket the more tax savings you’ll realize with tax exempt and tax deferred contributions such as employer sponsored 401(k)s, IRA’s, tax-free municipal bonds, and Section 529 College Savings Plans. 5. MAKE FULL USE OF YOUR MARGINAL TAX. The U.S. ordinary income tax has seven different tax rates with a maximum rate of 37%. The higher rates are like stairs, you go to the next highest rate instantly, when you pass a dollar amount. Knowing this, make full use of a lower rate until you step up to the next level. Those that are taking money out of retirement accounts should make full use of this idea. 6. AVOID PENALTIES. The IRS has become penalty crazy, as our tax system slowly migrates from a voluntary compliance system to a punitive one. For instance the minimum failure to file penalty has increased from $100 in 2009 to $435 in 2020. So avoid costly penalties and interest charges getting your tax records in order now. That way filing on time will be a breeze.

2021 MILEAGE RATES ARE HERE! New mileage rates announced by the IRS Mileage rates for travel are now set for 2021. The standard business mileage rate decreases by 1.5 cents to 56 cents per mile. The medical and moving mileage rates also decrease by 1 cent to 16 cents per mile. Charitable mileage rates remain unchanged at 14 cents per mile. 2021 NEW MILEAGE RATES *Business Travel - .56 Rate/Mile *Medical/Moving - .16 Rate/Mile *Charitable Work - .14 Rate/Mile Here are the 2020 mileage rates for your reference: 2020 MILEAGE RATES *Business Travel - .57.5 Rate/Mile *Medical/Moving - .17 Rate/Mile *Charitable Work - .14 Rate/Mile Remember to properly document your mileage to receive full credit for your miles driven.

2017 - Leo J Panzer, CPA - Awarded Distinguished Service to the Profession by Nebraska Society of Certified Public Accountants (pictured Kate Mullen & Leo Panzer)

UNDERSTANDING TAX TERMS: AFRs Your grandson needs a car, but cannot afford the payments. As a favor, you provide the $25,000 to purchase the car. You tell your grandson to pay you back when he can, but there is no loan document. The IRS sees this payment during an audit and asks you where your interest income is for this loan. Should this happen, you will quickly understand the meaning of AFRs. AFRs DEFINED AFRs STAND FOR APPLICABLE FEDERAL RATES. They are minimum interest rates that the IRS applies to a transaction when no rate is stated or implied. In other words, you may have a transaction that the IRS believes has an interest income/expense element to it, but none has been claimed by you. These minimum interest rates are published each month by the IRS for three different loan terms: Short-term (0 to 3 years); Mid-term (4 to 9 years); and Long-term (over 9 years). WHEN DOES THE AFR APPLY? You may think that money you gave to a friend or that car sale to your cousin with repayment over time has no interest rate, but the IRS often sees it differently. If no interest rate is stated, the IRS will apply the applicable AFR and you could be in for a tax surprise. Here are some common examples when the AFR rates can come into play: * LOANS TO FAMILY AND FRIENDS. * BUYING ANYTHING OVER TIME. If you take possession of an item, but can pay for it over a length of time, imputed interest is involved. * EMPLOYEE ADVANCES. This can include giving an employee the rights of stock ownership, but not expecting payment for the stock right away. HOW TO USE THE AFR KNOWLEDGE TO YOUR ADVANTAGE 1. CREATE A LOAN DOCUMENT. Whenever you establish a transaction that has the expectation of repayment, write up a simple loan agreement. Not only will it clarify your repayment expectation, it also establishes the repayment terms. Ensure both parties sign and date the document. 2. ESTABLISH A SAFE INTEREST RATE. Use the AFR tables to establish an audit-safe interest rate. Remember, AFRs are also used if the IRS believes your stated interest rate is too low. 3. LEVERAGE GIFT RULES. Remember you (and your spouse) can each gift up to $15,000 to an individual. If you stay under this threshold, you could defend your money transfer as a non-interest bearing gift and not a loan. 4. CAUTION WITH HOUSING TRANSACTIONS. Banks are asking buyers to document where they receive their money for their down payment. If the money comes from you, it could establish a potential implied loan document that you might need to defend. If you plan to help with a down payment in the future, try to understand the bank’s look-back rules for this disclosure reporting and use this knowledge in conjunction with the IRS gift rules to avoid creating implied interest. Should you wish to see the published AFR rates, they are available on the IRS website at www.irs.gov AFRs. IRS.GOV Internal Revenue Service | An official website of the United States government