For your safety and ours, we have decided to close our office to clients effective immediately.
While we would prefer clients to utilize their online portal for communication during this time, we understand that it may not be possible in all cases.
If you need to collect something from our office, please call us from your vehicle upon arrival at (502) 241-5656. We will bring your return/information out to you.
If you need to drop something off, please leave it in the black box directly outside the door and we will collect it. We will be sanitizing the box frequently throughout the day.
Kelly King & Co.
The current federal estate tax exemption ($11.58 million in 2020) means that many people aren’t concerned with estate tax. But they should still plan to save income taxes. For example, be careful making lifetime transfers of appreciated assets. It’s true that the assets and future appreciation generated by them are removed from your estate. But the gift carries a potential income tax cost because the recipient receives your basis upon transfer. He or she could face capital gains tax on the sale of the gifted property in the future. If the appreciated property is held until death, under current law, the heir will get a “step-up” in basis that will reduce or wipe out the capital gains tax.
In some cases, investors have related expenses, such as the cost of subscriptions to financial periodicals and clerical expenses. Are they tax deductible? Currently, they’re only deductible if you can show that your investment activities rise to the level of carrying on a trade or business. In that case, you may be considered a trader, rather than an investor. A trader is entitled to deduct investment-related expenses as business expenses. A trader is also entitled to deduct home-office expenses if the home office is used exclusively on a regular basis as the trader’s principal place of business. However, be aware that trader status is difficult to achieve. Contact us with questions.
If your business got a Paycheck Protection Program (PPP) loan taken out due to the COVID-19 crisis, there are potential tax implications. The PPP allows eligible businesses to receive loans that will be forgiven if they spend the proceeds on certain items within a certain period of time. In general, the reduction or cancellation of non-PPP debt results in cancellation of debt (COD) income to the debtor. However, forgiveness of PPP debt is excluded from gross income. The IRS has stated that expenses paid with PPP proceeds can’t be deducted, because the loans are forgiven without having taxable COD income and are tax-exempt income. Deducting the expenses would result in a double tax benefit.
Does your employer provide you with group term life insurance? If so, and depending on the amount of coverage, this employee benefit may create undesirable income tax consequences for you. The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. Contact us if you have questions about group term coverage or how much it is adding to your tax bill.
If your child has been awarded a scholarship, congratulations! But be aware that there may be tax implications. Scholarships and fellowships are generally tax-free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the student or reduces tuition. However, certain conditions must be met. A scholarship is tax-free if it’s used to pay for: Tuition and fees required to attend the school, and fees, books, supplies and equipment required of students. Room and board, travel, research and clerical help don’t qualify. Contact us to learn more.
Oct. 15 is the deadline for individual taxpayers who extended their 2019 tax returns. If you’re finally done filing last year’s return, you might wonder: Which tax records can you toss once you’re done? Now is a good time to go through old tax records and see what you can discard. A common rule of thumb is to keep tax records for at least six years from filing, after which the IRS generally no longer can audit your return or assess additional taxes, even if your income was understated. But hang on to certain records longer including the tax returns themselves, W-2 forms and records related to real estate, investments and retirement accounts.
IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is selected. But with proper preparation and planning, you should fare well. But it helps to know what might catch the attention of the IRS. For example, some audit “red flags” are unusually high deductions, major inconsistencies between previous years’ tax returns and the current one, profit margins and expenses markedly different from those of similar businesses. The IRS normally has three years within which to conduct an audit. If the IRS selects you for an audit, we can help you understand the issues, gather the needed documents and respond to the inquiries effectively.
If you invest in mutual funds, there are potential pitfalls involved in buying and selling shares. For example, you may already have made taxable “sales” of part of your mutual fund without knowing it. One way this can happen is if your mutual fund allows you to write checks against your fund investment. If you write a check against your mutual fund account, you’ve made a partial sale of your interest in the fund (except for funds such as money market funds, for which share value remains constant). Thus, you may have taxable gain (or a deductible loss) when you write a check. And each such sale is a separate transaction that must be reported on your tax return. Contact us with questions.
When a couple is going through a divorce, taxes are probably not foremost on their minds. But without proper planning, some people find divorce to be even more taxing. Several concerns should be addressed to ensure that taxes are kept to a minimum. For example, if you sell your principal residence or one spouse remains living there while the other moves out, you want to make sure you’ll be able to avoid tax on up to $500,000 of gain. You also must decide how to file your return for the year (single, married filing jointly, married filing separately or head of household). There are other issues you may have to deal with. We can help you work through them.
Many people have Series EE savings bonds that were purchased many years ago. Perhaps they were given as gifts or maybe you bought them yourself and filed them away. You may wonder: How is the interest taxed? EE bonds don’t pay interest currently. Instead, accrued interest is reflected in their redemption value. (But owners can elect to have interest taxed annually.) EE bond interest isn’t subject to state income tax. And using the money for higher education may keep you from paying federal income tax on it. Unfortunately, the law doesn’t allow for the tax-free buildup of interest to continue forever. When the bonds reach final maturity, they stop earning interest. Contact us with questions.
Unfortunately, COVID-19 has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability for what’s known as the Trust Fund Recovery Penalty. There may be other responsibilities. Contact us to discuss these issues and to get answers to any questions.
If you’ve built a nice nest egg in a traditional IRA (including a SEP or SIMPLE-IRA), it’s critical that you plan carefully for withdrawals from these tax-deferred retirement vehicles. For example, if you need to take money out of a traditional IRA before age 59½, distributions will generally be taxed and may also be subject to a 10% penalty. However, there are several ways to avoid the penalty (but not the regular income tax). Once you attain age 72, traditional IRA withdrawals must generally begin or you’ll be penalized. However, the CARES Act suspended the required minimum distribution rules for 2020. Contact us with traditional IRA questions and to analyze your retirement planning.
Many employees save taxes by placing funds in their employer’s health or dependent care flexible spending arrangements (FSAs). It’s a good time to review 2020 expenditures and project amounts to be set aside for 2021. A pre-tax contribution of $2,750 to a health FSA is permitted in 2020. To avoid forfeiture of your health FSA funds because of a “use-it-or-lose-it” rule, you must make eligible medical expenditures by the last day of the plan year (Dec. 31 for a calendar year plan), unless the plan allows an optional grace period. Like health FSAs, dependent care FSAs are also generally subject to a use-it-or-lose-it rule. Other rules and exceptions may apply. Contact us with any questions.
The Section 179 deduction provides a tax benefit to businesses, enabling them to claim immediate deductions for qualified assets, instead of depreciating them over time. For 2020, the maximum deduction is $1.04 million, subject to a phaseout rule if more than $2.59 million of eligible property is placed in service during the tax year. Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for assets such as machinery and equipment. Under the 100% bonus depreciation tax break, the entire cost of eligible assets placed in service in 2020 can be written off this year. Contact us if you want more details about how your business can make the most of the deductions.
If your employer offers a 401(k) or Roth 401(k) plan, contributing to it is a smart way to build a substantial nest egg. If you’re not already socking away the maximum allowed, consider increasing your contribution. With a 401(k), an employee elects to have a certain amount of pay deferred and contributed by an employer on his or her behalf to the plan. The contribution limit for 2020 is $19,500. Employees age 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,500, for a total limit of $26,000 for 2020. The IRS recently announced that the 401(k) contribution limits for 2021 will remain the same as they are for 2020.
Kelly King & Co.
December 15 at 10:03 AM ·
Medical services and prescriptions are expensive. You may be able to deduct some expenses on your tax return but the rules make it difficult for many people to qualify. You may be able to time certain medical expenses to your tax advantage. For 2020, the medical expense deduction can only be claimed to the extent unreimbursed costs exceed 7.5% of your adjusted gross income. You also must itemize deductions. If your total itemized deductions will exceed your standard deduction, moving nonurgent medical procedures and other expenses into 2020 may allow you to exceed the 7.5% floor. This might include refilling prescriptions, buying eyeglasses, going to the dentist and getting elective surgery.
Medical services and prescriptions are expensive. You may be able to deduct some expenses on your tax return but the rules make it difficult for many people to qualify. You may be able to time certain medical expenses to your tax advantage. For 2020, the medical expense deduction can only be claimed to the extent unreimbursed costs exceed 7.5% of your adjusted gross income. You also must itemize deductions. If your total itemized deductions will exceed your standard deduction, moving nonurgent medical procedures and other expenses into 2020 may allow you to exceed the 7.5% floor. This might include refilling prescriptions, buying eyeglasses, going to the dentist and getting elective surgery.
Kelly King & Co.
December 22 at 10:21 AM ·
If you’re self-employed and don’t have paycheck withholding, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The 4th 2020 estimated tax payment deadline for individuals is Friday, Jan. 15. Even if you do have some withholding from paychecks or other payments, you may still have to make estimated payments if you receive income such as Social Security, prizes, rent, interest and dividends. Generally, taxpayers send four equal installments. But people who earn income unevenly during the year (for example, from a seasonal business) may be able to send smaller payments. Contact us if you have questions about the estimated tax rules.
If you’re self-employed and don’t have paycheck withholding, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The 4th 2020 estimated tax payment deadline for individuals is Friday, Jan. 15. Even if you do have some withholding from paychecks or other payments, you may still have to make estimated payments if you receive income such as Social Security, prizes, rent, interest and dividends. Generally, taxpayers send four equal installments. But people who earn income unevenly during the year (for example, from a seasonal business) may be able to send smaller payments. Contact us if you have questions about the estimated tax rules.
Kelly King & Co.
Yesterday at 11:51 AM ·
The best choice of entity can affect your business in several ways, including the amount of your tax bill. Although S corporations can provide substantial tax advantages over C corporations in some cases, there are potential tax problems to assess before deciding to convert from C to S status. One issue to consider is last-in, first-out (LIFO) inventory. A C corporation that uses LIFO inventory must pay tax on the benefits it derived by using LIFO if it converts to an S corporation. Other issues to consider are the built-in gains tax, passive income tax and unused net operating losses. Contact us if you’re interested in an entity change. We’ll explain your options and the tax implications.
The best choice of entity can affect your business in several ways, including the amount of your tax bill. Although S corporations can provide substantial tax advantages over C corporations in some cases, there are potential tax problems to assess before deciding to convert from C to S status. One issue to consider is last-in, first-out (LIFO) inventory. A C corporation that uses LIFO inventory must pay tax on the benefits it derived by using LIFO if it converts to an S corporation. Other issues to consider are the built-in gains tax, passive income tax and unused net operating losses. Contact us if you’re interested in an entity change. We’ll explain your options and the tax implications.
The COVID-19 relief law that was signed recently contains many provisions that may affect you. The law provides for direct payments of $600 per eligible individual ($1,200 for a married couple filing jointly), plus $600 per qualifying child. The government has already started making bank direct deposits or mailing checks. Another provision extends a charitable donation tax deduction for individuals who don’t itemize deductions. For 2020, they can take up to a $300 deduction per tax return and for 2021, married joint filers can claim up to $600. These are only a few provisions in the new law. We’ll make sure that you get all the tax breaks you’re entitled to when we prepare your tax return.
If you or your child attends (or plans to attend) college, you may be eligible for tax breaks to help foot the bill. The new Consolidated Appropriations Act made some changes. The law repeals the Tuition and Fees Deduction for 2021 and later years. In addition, for 2021 and beyond, the new law aligns the income phase-out rule for the Lifetime Learning Credit (LLC) with the more favorable phase-out rule for the American Opportunity Tax Credit (AOTC). The LLC can be worth up to $2,000 per tax return annually while the AOTC can be worth up to $2,500 per student each year. Talk with us about which tax credit is the most beneficial in your situation. Each has its own requirements.
The IRS is opening the 2020 individual income tax return filing season on Feb. 12. (This is later than in the past because of a law that was recently enacted.) Even if you usually don’t file until closer to the April 15 deadline (or you file an extension), consider filing early. It can potentially protect you from tax identity theft. In these scams, a thief uses another person’s personal information to file a fraudulent return early in the filing season and claim a bogus refund. Another benefit of early filing is that if you’re getting a refund, you’ll get it faster. And if you were eligible for an Economic Impact Payment last year and didn’t receive it, you can claim it on your 2020 return.
There’s a new IRS form for business taxpayers that pay or receive certain types of nonemployee compensation and it must be furnished to most recipients by Feb. 1, 2021. After sending the forms to recipients, taxpayers must file the forms with the IRS by March 1 (March 31 if filing electronically). The requirement begins with forms for tax year 2020. Payers must complete Form 1099-NEC to report any payment of $600 or more to a recipient. February 1 is also the deadline for furnishing Form 1099-MISC to report certain other payments to recipients. There’s no automatic 30-day extension to file 1099-NEC but an extension may be available under certain hardship conditions. Contact us for help.
Although electric vehicles are a small percentage of the cars on the road today, they’re increasing in popularity. And if you buy one, you may be eligible for a federal tax break. The tax code provides a credit to purchasers of qualifying plug-in electric drive motor vehicles including passenger cars and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that can’t exceed $5,000. Therefore, the maximum credit is $7,500. There are a number of requirements to qualify and the credit may not be available because of a per-manufacturer cumulative sales limitation. (Tesla and GM vehicles are no longer eligible.) Contact us if you want more information.
It’s understandable if you’re more concerned about your 2020 tax bill than you are about your 2021 tax situation. That’s because your 2020 individual tax return is due to be filed in less than 3 months. However, it’s a good idea to familiarize yourself with tax amounts for this year. For example, the amount you have to earn in 2021 before you can stop paying Social Security on your salary has increased to $142,800 (from $137,700 for 2020). For 2021, you can contribute up to $19,500 (unchanged from 2020) to a 401(k) plan. You can contribute another $6,500 catch-up amount to a 401(k) if you’re age 50 or older. Contact us if you have questions or need more information.
Please see below for information on our protocols for this year's Tax Season. Call 502-241-5656 or email Louisem@kingcpa.net with questions.
MAILCHI.MP
Important: Tax Season Information
To claim a deduction for a donation of $250 or more, you generally need a contemporaneous written acknowledgment from the charity. “Contemporaneous” means the earlier of the date you file your income tax return, or the extended due date of your return. If you made a donation in 2020 but don’t have a written acknowledgment, you can request it from the charity and wait to file your 2020 return until you receive it. Additional rules apply to certain types of donations. Keep in mind that under a 2020 law, taxpayers who don’t itemize deductions can claim a federal income tax write-off for up to $300 of cash contributions to IRS-approved charities for the 2020 tax year.
If you’re approaching retirement, you probably want to ensure the money you’ve saved in retirement plans lasts as long as possible. If so, be aware that a law was enacted in late 2019 that made significant changes to retirement accounts. For example, the SECURE Act repealed the maximum age for making traditional IRA contributions. Before 2020, traditional IRA contributions weren’t allowed once you reached age 70 1/2. An individual of any age can now make contributions, as long as he or she has compensation and is otherwise eligible. The required minimum distribution age was also raised from 70 1/2 to 72. These are only some of the changes. Feel free to contact us with any questions.
During the pandemic, many people are working from home. If you’re self-employed and run your business from home or perform certain functions there, you may be able to claim deductions for home office expenses against your business income. There are two methods for claiming deductions. With the actual expenses method, you claim direct expenses, such as the cost of carpeting and a proportionate share of indirect expenses, such as utilities, insurance and depreciation. With the simplified method, you deduct $5 for each square foot of home office space, up to $1,500. Unfortunately, employees aren’t eligible for home office deductions. We can help you determine if you qualify and how to proceed.
April 15 is not only the deadline for filing your 2020 tax return, it’s also the deadline for the first estimated tax payment for 2021. You may have to make estimated payments if you receive interest, dividends, self-employment income, capital gains or other income. If you don’t pay enough tax during the year through withholding and estimated payments, you may be liable for a tax penalty on top of the tax that’s due. Individuals must generally pay 25% of their required annual tax by April 15, June 15, Sept. 15, and Jan. 15 of the following year, to avoid an underpayment penalty. If a deadline falls on a weekend or holiday, the payment is due the next business day.
President Biden has signed the American Rescue Plan Act into law. Among the many relief provisions are direct payments that will be made to eligible individuals. The full amount for eligible individuals is $1,400 ($2,800 for eligible married couples filing joint tax returns) plus $1,400 for each dependent. Most eligible taxpayers will receive direct bank deposits or paper checks in the mail. The full payments are available to those with adjusted gross incomes (AGIs) of less than $75,000 ($150,000 for married couples filing jointly and $112,500 for heads of households). There is also an increased Child Tax Credit for eligible taxpayers, part of which will be paid out monthly later this year.
The new American Rescue Plan Act provides eligible families with an enhanced child and dependent care credit for 2021. This is the credit for expenses paid for the care of qualifying children under the age 13 so the taxpayer can be gainfully employed. For 2021, the first $8,000 of care expenses generally qualifies for the credit if you have 1 qualifying individual, or $16,000 if you have 2 or more. (These amounts were $3,000 and $6,000, respectively.) If AGI is $125,000 or less, the maximum credit is $4,000 with 1 qualifying individual and $8,000 with 2 or more. The refundable credit phases out and for taxpayers with an AGI greater than $440,000, it’s phased out completely.
