Ferguson Timar https://fergusontimar.com Certified Public Accounting Firm Tue, 17 Nov 2020 05:00:49 +0000 en-US hourly 1 Optimizing Charitable Giving for Tax Savings https://fergusontimar.com/2020/11/10/optimizing-charitable-giving-for-tax-savings/ Wed, 11 Nov 2020 04:36:10 +0000 https://fergusontimar.com/?p=4889 Despite the highly publicized concern that the 2017 Tax Cuts and Jobs Act (TCJA) would undermine charitable giving in the United States, giving has continued to be high. There’s a simple reason for that: people like to give to causes they care about, regardless of the tax benefits they receive. Charitable giving and the standard...

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Despite the highly publicized concern that the 2017 Tax Cuts and Jobs Act (TCJA) would undermine charitable giving in the United States, giving has continued to be high. There’s a simple reason for that: people like to give to causes they care about, regardless of the tax benefits they receive.

Charitable giving and the standard deduction

The TCJA famously doubled the standard deductible for taxpayers, which meant that fewer filers would need to itemize deductions on their returns. For individuals or married couples who don’t have qualified deductions in excess of the standard deduction, taking the standard deduction is typically the right choice.

The standard deduction for 2020 is $12,400 for individuals and $24,800 for married taxpayers who file jointly. These numbers will go up slightly for the 2021 tax year.

If you are outside the scope of the standard deduction and need to itemize your deductions, your charitable giving still has important tax benefits. The higher your anticipated tax bill, the more benefit you can see.

Ideas for getting the most from your giving

Here are some of the ideas the tax professionals at Ferguson Timar are thinking about as we head into the end of the year:

  • Give more in 2020.

As part of the federal government’s coronavirus relief programs, the IRS has temporarily suspended its limits on how much an individual or married couple can deduct for charitable giving. An individual taxpayer typically can’t deduct more than 60 percent of his or her adjusted gross income in a given year. This cap doesn’t apply to cash gifts made to a qualified organization by December 31, 2020. “Qualified organizations” include religious organizations, veterans’ groups, and fraternal societies. See the complete list on the IRS website.

This one-time rule change can have profound implications for individuals and families who are in a position to take full advantage of it this year.

  • Cover the basics.

Getting the most from your gifts to charity begins with the basics. To claim a deduction for charitable gifts two important thresholds must be met.

First, the deduction needs to be supported by the right kind of documentation. A gift can only be deducted if it is supported by a written record that complies with IRS rules. Gifts of less than $250 must be supported by a written record reflecting the date and amount of the gift, and the name of the charity. Note that a bank record can be enough to meet this requirement for smaller donations. Gifts of $250 or more need a written acknowledgement from the charity, which must reflect any goods or services exchanged for the gift, among other things.

Second, to be deductible a contribution needs to be made to a qualifying nonprofit entity. A common misconception is that contributions to any nonprofit are automatically tax deductible. Make sure that the organization you’re giving to is a 501(c)(3) nonprofit. This is the most common category for charitable, tax-exempt nonprofits, like churches, food banks, many research foundations, and more.

Many nonprofits are organized as 501(c)(4) social welfare organizations. These entities are often set up for a political purpose, such as lobbying for new legislation. Gifts to a 501(c)(4) are not tax deductible. The National Rifle Association is a good example of the a 501(c)(4) organization.

If in doubt, you can check the status of an organization on the IRS website.

  • Think about giving appreciated securities.

Instead of giving cash to your preferred charity, consider gifting securities that have accumulated long-term gains. You get to claim the fair market value of the security as a deduction, and you also avoid the capital gains hit that would come from selling the security.

When contributing securities to a charity bear in mind that the charity will take on your cost basis in the gifted security. Some organizations have policies against accepting securities as donations due to the extra paperwork and potential tax complications they might face when they sell in the future.

  • Consider IRAs in your charitable giving strategy.

Individuals who are over the age of 72 can make a qualified charitable distribution, or QCD, from an IRA directly to a charitable organization. A QCD from a traditional IRA to a qualified charity will avoid treating the withdrawal as a taxable event. It also can satisfy your required minimum distribution for the year.

Ferguson Timar will guide your approach to charitable giving.

The tax professionals at Ferguson Timar are committed to finding tax-efficient strategies that will allow our clients to achieve their financial goals while also supporting causes they care about. What charities would you like to support in 2020? Call Ferguson Timar at (714) 204-0100 or send us an email to get started today.

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The Advantages of Cost Segregation Analysis for Real Estate Investors https://fergusontimar.com/2020/10/28/the-advantages-of-cost-segregation-analysis-for-real-estate-investors/ Wed, 28 Oct 2020 17:14:21 +0000 https://fergusontimar.com/?p=4885 Tax efficiency is critically important for optimizing return on investments in real estate. The rules of depreciation are central to how a real estate buyer’s purchase costs are accounted for over time. By conducting a cost segregation analysis, a purchaser of a commercial building or real estate complex can begin to claim substantially more of...

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Tax efficiency is critically important for optimizing return on investments in real estate. The rules of depreciation are central to how a real estate buyer’s purchase costs are accounted for over time. By conducting a cost segregation analysis, a purchaser of a commercial building or real estate complex can begin to claim substantially more of its purchase price as an expense than might otherwise be the case.

Ferguson Timar serves many businesses that own real estate. We encourage investors in real estate—whether they are buying for short-term reasons or with the intent to hold for decades—to explore the benefits of cost segregation analysis as part of a broader tax strategy.

How does depreciation of real estate assets work?

When a business buys a durable asset—that is, something with an expected usable life of more than one year—it typically cannot claim the full amount of the purchase price as an expense in the year of acquisition. Instead, the value of the asset is broken up into chunks, with a portion of the purchase price taken as a deduction each year until a specified threshold, the asset’s salvage value, is reached on the books.

The IRS sets the depreciation schedules that apply to particular assets (see IRS Publication 946 for details). The more durable the asset, the longer the mandated schedule. A commercial building typically is subject to a 39-year depreciation schedule. Residential rental properties typically follow a 27.5-year schedule.

While the schedules applicable to buildings are quite long, those applicable to other types of asset are considerably shorter. An asset that is not structurally necessary for the building—an office fixture, a hot water heater, or even the doors and windows—can have a depreciation schedule of 15 years or less, and can also qualify for bonus depreciation in the early years of ownership.

A cost segregation analysis breaks down a building by asset type

In a cost segregation analysis, specialists in tax accounting and construction engineering work together to categorize each component of a building into their respective asset classes for depreciation purposes. The end result allows the building’s owner to begin claiming a much larger portion of the purchase price allocated to the non-building assets as depreciation expenses.

The scope of “non-building assets” can be surprising. We’ve already mentioned doors and windows: imagine how much value is in a modern building’s windows alone. Now consider elements like the tile work in a lobby, the light fixtures in every space, the floor treatments, and the specialized systems, like integrated networking features, that are built into the walls. By identifying each of these types of assets, a building’s owner can begin to claim higher deductions sooner.

How does a cost segregation analysis work?

The approach taken by the professionals who conduct cost segregation analyses will vary depending on several factors, including these:

  • How long has the client owned the property? In general, the benefits of a cost segregation analysis are greatest if it is conducted soon after the building is acquired. Many of the benefits of applying a shorter depreciation schedule to qualifying assets are lost after just a few years.
  • What kind of property is it? An apartment complex with uniform unit types will need a different approach than a business park with a wide variety of spaces.
  • What records are available? The more detailed the records about a property—blueprints, materials invoices, and so forth—the easier the analysis becomes. 

A properly executed cost segregation analysis is a hands-on process. The assets will be physically counted and catalogued to ensure that depreciation claims are accurate and backed up with rigorous documentation. Then assets will be parsed into their correct categories following IRS rules.  Finally, the new claimable depreciation expenses will be calculated and incorporated into the taxpayer’s returns.

Get more from your real estate investments with Ferguson Timar

If your business has purchased a property within the last couple of years, or you’re thinking about buying in the near future, cost segregation analysis might be appropriate for you. The tax professionals at Ferguson Timar can help you evaluate whether this strategy is appropriate for your business.

Give Ferguson Timar a call today at (714) 204-0100 or send us an email to schedule an appointment with one of our tax professionals.

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How Does the Medical Expense Deduction Work? https://fergusontimar.com/2020/09/11/how-does-the-medical-expense-deduction-work/ Fri, 11 Sep 2020 21:19:01 +0000 https://fergusontimar.com/?p=4879 For anyone who lacks comprehensive medical insurance, a serious injury or illness can become a serious financial burden. For those who qualify, the federal income tax medical expense deduction can be an important source of savings during such challenging times. But the deduction has important limits. The limits and qualifications of the medical expense deduction...

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For anyone who lacks comprehensive medical insurance, a serious injury or illness can become a serious financial burden. For those who qualify, the federal income tax medical expense deduction can be an important source of savings during such challenging times. But the deduction has important limits.

The limits and qualifications of the medical expense deduction

For the 2020 tax year a taxpayer is permitted to claim all qualified and unreimbursed medical expenses that in the aggregate exceed 7.5% of their adjusted gross income, or AGI. In simplified terms, a taxpayer’s AGI is calculated by subtracting certain deductions and expenses from the taxpayer’s taxable income for the year. Among other things, a taxpayer’s AGI is used to determine how much income tax he or she owes.

For most taxpayers, 7.5% of AGI is a high enough threshold that in a year of good health, a typical taxpayer is relatively unlikely to qualify for the medical expense deduction even if a few otherwise qualifying expenses are incurred.

The scope of the medical expense deduction is quite broad, but it has important limitations:

  • Expenses that qualify for the deduction include:
    • Cost of treatment, including visits to doctors and surgeries.
    • Preventative care.
    • Specialist care, such as dental, vision, and psychiatry.
    • Prescription drugs and peripherals, such as hearing aids, glasses, or prosthetics.
    • Travel expenses related to medical care, including mileage, parking, and airline tickets.
  • Expenses that generally do not qualify for the deduction include:
    • Costs of elective procedures, like cosmetic surgery to enhance appearance.
    • Most over-the-counter medications and other health products.
    • Costs that are reimbursed by insurance or other means.

Reporting medical expenses to the IRS

To claim the medical expense deduction, a taxpayer must itemize deductions. Generally speaking, a taxpayer only itemizes deductions if their sum will be greater than the applicable standard deduction amount.

The Tax Cuts and Jobs Act of 2017 (TCJA) dramatically increased standard deduction amounts in part to reduce the number of deductions claimed in returns. In 2020 the standard deduction is $12,400 for individuals and $24,800 for married couples filing jointly.

The standard deduction essentially serves as a second threshold for determining whether claiming the medical expense deduction makes sense. If the taxpayer’s total deductions, including qualified medical expenses, will not exceed the standard deduction, simply taking the standard deduction is the better choice.

If claiming the medical expense deduction makes sense, the taxpayer will need to gather evidence of all the expenses that go into the aggregate figure. Receipts, invoices, mileage records, and other paperwork should be kept for at least three years. The evidence will be important in the event of an IRS audit.

Other health care tax strategies

The medical expense deduction is an important tax tool for individuals and families with high health care costs, but its thresholds limit its utility for many taxpayers. The tax code provides a few other ways to lower the financial impact of medical expenses, including health savings accounts and deductions for employer-provided insurance:

  • Health savings accounts. Contributions to a health savings account (HSA) are made on a pre-tax basis, which means they are not subject to income or employment taxes. Funds in an HAS can be used to pay for insurance premiums, deductibles, and qualified medical costs. To contribute to an HSA an individual must have a high deductible health insurance plan, which in 2020 must have a minimum deductible of $1,400 for individuals or $2,800 for a family.

In 2020, qualified individuals can contribute up to $3,550 for individual coverage or $7,100 for family coverage into an HSA.

  • Buying insurance through a family-owned business. Sole proprietors and other owners of small businesses can treat 100% of the premiums they pay to insure themselves, their spouses, and their dependents as business expenses.

Although premiums can be claimed as a business expense, individual expenses such as deductibles and medical bills cannot. Some business owners will benefit from insuring their family through their business while also setting up an individual HSA at the same time, ensuring that those individual expenses can be paid with pre-tax dollars.

Ferguson Timar is here to answer your questions

Families dealing with high medical costs need a partner to ensure their expenses are turned into an optimal tax deduction. At Ferguson Timar we are committed to providing every client with advice tailored to the client’s unique circumstances.

Are you contending with high medical bills and interested in knowing more about the medical expense deduction? Give Ferguson Timar a call today at (714) 204-0100 or send us an email to schedule an appointment with one of our tax professionals.

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Putting Kids on the Family Business Payroll https://fergusontimar.com/2020/08/14/putting-kids-on-the-family-business-payroll/ Fri, 14 Aug 2020 22:46:28 +0000 https://fergusontimar.com/?p=4875 At Ferguson Timar we serve many clients who own businesses. The entrepreneurs we work with are eager to improve the tax treatment of their companies to improve the bottom line both for their businesses and for their families. In recent years important changes to the tax code have created a new opportunity for business owners...

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At Ferguson Timar we serve many clients who own businesses. The entrepreneurs we work with are eager to improve the tax treatment of their companies to improve the bottom line both for their businesses and for their families. In recent years important changes to the tax code have created a new opportunity for business owners to simultaneously create a source of income for their children and a tax benefit for their companies.

Why hire your kid?

Many business owners don’t know they are allowed to hire their kids as employees. The IRS even encourages it. Giving your child a job is not just a great way to teach them important lessons about work and business. It also gives them a way to earn money—with potentially long-term benefits— while also giving your business a deductible expense.

Hiring your child as an employee can be a valuable financial strategy. Many business owners plan to provide financial support to their children when they go to college. Instead of simply giving the money to their children, they can instead hire them, transforming a gift with no tax benefits into wages that become a deductible expense for the business.

Tax consequences for the kid

The first concern many parents have when they think about whether to hire their children is whether it will create a tax liability for the kid. A child is required to file a tax return in a few situations:

  • The child’s unearned income from things like dividends exceeds $1,100 in a year.
  • The child’s earned income from working is more than the standard deduction, which for 2020 is $12,400.
  • In rarer cases, the child owes employment taxes, perhaps because the employer was not withholding them, or other forms of tax.

The Tax Cuts and Jobs Act of 2017 (TCJA) essentially doubled the standard deduction, which makes this an especially great time for children to earn money from jobs.

Teenagers usually have plenty of ideas of how to spend the money they earn. We recommend parents encourage their kids to contribute to a Roth IRA. The contribution limit for the 2020 tax year is $6,000, but kids can begin building toward retirement by contributing any amount. By starting a Roth IRA early and investing wisely, a child can start reaping the benefits of compounding returns.

Tax consequences for the business

Most businesses that hire a child can claim the wages paid to the child as a deductible expense. All businesses are required to comply with tax withholding rules, which will apply to the child employee. Other details of the tax treatment of hiring a child as an employee vary according to how the business is organized:

  • Pass-through entities (other than S corporations)

A pass-through entity is a business organization that is not treated as a separate taxpayer from its owner. These include sole proprietorships, single-member LLCs that are not treated as corporations, and partnerships or LLCs that are owned by a married couple and that meet IRS rules. Note that S corporations can be pass-through entities for other purposes, but because they are corporations they don’t qualify for this benefit. A qualified pass-through entity can hire a child who is under 18 years of age without being subject to employment taxes, including Social Security and Medicare taxes and federal unemployment tax.

  • Corporations and tax-regarded entities

Corporations (including both C corps and S corps) and other tax-regarded entities don’t have the same advantages as pass-through entities. A corporation must pay employment taxes (Social Security, Medicare and federal unemployment taxes).

Leverage your business to do more for your family

Bear in mind that hiring your child as an employee may have other consequences depending on the particular circumstances of your business and the work being done by the child. For example, the business may be required to provide the child with workers’ compensation coverage.

The professionals at Ferguson Timar are here to guide you through the pros and cons of having your business hire your child. Are you ready to learn more? Give Ferguson Timar a call today to schedule an appointment.

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How Businesses Can Leverage Losses to Access Cash https://fergusontimar.com/2020/07/17/how-businesses-can-leverage-losses-to-access-cash/ Fri, 17 Jul 2020 22:17:00 +0000 https://fergusontimar.com/?p=4869 With so many businesses suffering big losses in 2020, CFOs and company owners need to explore robust tax strategies like never before. Legislative responses to the COVID-19 crisis have introduced—or reintroduced—important tools for business to turn operating losses from this year into tax savings and potentially cash. Over the years Ferguson Timar has served individuals...

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With so many businesses suffering big losses in 2020, CFOs and company owners need to explore robust tax strategies like never before. Legislative responses to the COVID-19 crisis have introduced—or reintroduced—important tools for business to turn operating losses from this year into tax savings and potentially cash.

Over the years Ferguson Timar has served individuals and their businesses through good times and bad. This year has raised challenges like no other. Here are some ideas from our tax professionals for businesses struggling with losses:

Access taxes paid in prior years using net operating losses

In 2017 Congress took away a popular mechanism businesses could use to claim refunds on taxes paid in prior years. Before the 2017 change, businesses could carry their net operating losses (NOLs) back to prior years by filing amended returns for those years. In essence, a business could transform its losses in a down year into losses in a growth year, with the result being a refund.

The coronavirus pandemic has brought back the carryback of NOLs, at least for now. The massive stimulus program passed in the March 2020 CARES Act included a limited-time revival of carrybacks. Under the law, businesses can apply this year’s NOLs to the tax years starting after December 31, 2017, and before January 1, 2021. For those years, NOLs can be used to offset all of a business’s taxable income. The CARES Act also created a mechanism for carrying NOLs forward, which may be beneficial for some businesses.

The flexibility created by the CARES Act has some limits. A business that elects to carryback NOLs must first apply them to the earliest applicable year. In other words, a business that had boom years in 2018 and 2019 would need to apply its 2020 NOLs to the 2018 tax year first.

Explore disaster relief

When President Trump declared the COVID-19 pandemic to be a nation-wide federal disaster in March, he created another potential avenue for businesses to carry back losses from 2020 to 2019. Businesses that have properly extended their filing deadlines for 2019 returns to September or October still have time to look at this option.

Under Section 165(i) of the Internal Revenue Code, businesses within a disaster area are allowed to claim a broad swath of their business losses as disaster-related, provided they meet these criteria:

  • The loss must be sustained in tax year 2020.
  • The loss must be attributable to “closed and completed transactions” such as the closing of a contract period (i.e., rents).
  • Insurance did not compensate the business for the loss.

As with any tax rule, a Section 165(i) claim is subject to specific rules. Ordinary operating losses might not qualify, and other factors, such as how the company used loans, may influence the qualification of specific losses.

Bear in mind that individuals can also claim relief under Section 165(i), but the scope of what they can claim is substantially narrower than what applies to a business filer.

Are you ready to do more with your taxes?

Ferguson Timar continuously explores tax strategies to find the best approaches for our clients. Has 2020 presented your business with losses that you’d like to turn into tax savings or even an infusion of cash in the form of a refund? The tax professionals at Ferguson Timar are standing by to help you get started. Give us a call at (714) 204-0100 or send us a message from our contact page.

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Now is a Great Time to Explore Estate Planning Strategies https://fergusontimar.com/2020/06/12/now-is-a-great-time-to-explore-estate-planning-strategies/ Fri, 12 Jun 2020 22:25:10 +0000 https://fergusontimar.com/?p=4863 Amidst the turbulence of 2020 it can be tempting to hold off on making long-term plans. That thinking is wrong. The current economic climate, combined with tax rules that are favorable today but may disappear in the future, makes now a great time to explore estate planning strategies. Ferguson Timar is proud to serve clients...

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Amidst the turbulence of 2020 it can be tempting to hold off on making long-term plans. That thinking is wrong. The current economic climate, combined with tax rules that are favorable today but may disappear in the future, makes now a great time to explore estate planning strategies.

Ferguson Timar is proud to serve clients who need the sophistication our professionals offer. These are just a few of the ideas we are exploring with clients who want to preserve their wealth now and for their next of kin:

  • Make gifts while asset prices are low.

Current rules are favorable for parents who wish to make gifts during their lifetimes. In 2020 a gift to an individual of up to $15,000 is exempt from the gift tax. Any amount over $15,000 must be reported on IRS Form 709. Form 709 does not trigger a tax. Rather, the IRS uses it to track gifts to the recipient against the lifetime exclusion. In 2020, the recipient will owe taxes on any lifetime gift amounts in excess of $11.58 million—an all-time high.

The economic fallout of the coronavirus pandemic has undercut asset values in many sectors. Individuals who have substantial assets to transfer may wish to take advantage of the current low value of those assets to make gifts in 2020. Doing so will optimize the

  • Consider loans instead of gifts.

Parents who are concerned about giving away too much of their retirement nest egg but who still want to help their kids pay for major expenses might wish to provide a loan instead of a gift. Loans between related parties must carry a minimum interest following the Applicable Federal Rates (AFR) established monthly by the IRS. In June 2020 the AFRs are extremely low, with a long-term rate of only 1.01%. Using a simple loan agreement, parents can help their kids without implicating gift taxes or drawing down too much of their savings.

Bear in mind that certain types of gifts are exempt from the gift tax or have other implications. For example, tuition payments made directly to a college are not subject to the gift tax. Another common scenario involves parents who wish to support their children in buying a home. Mortgage lenders generally require down payments to be made from unencumbered funds. In other words, gifts typically are the right way to support a child’s home purchase.

  • Consider a generation-skipping trust.

A generation-skipping trust (GST), as the name suggests, bypasses the grantor’s kids to name grandchildren (or anyone else who is 37 and a half years old or younger) as beneficiaries. By structuring a trust this way, a grantor ensures that children avoid estate taxes. A GST can be structured to provide the “skipped generation” income from its assets, so the grantor’s children aren’t necessarily left out.

Under current rules, GSTs are especially attractive tools for avoiding estate taxes. Through 2025 a GST can transfer assets valued at up to $11.2 million per individual without being subject to estate taxes. Gifts to GSTs currently can be made to unlimited generations into the future, allowing high net worth individuals to lock in current high exemptions for the very long term.

Look to the future with Ferguson, Timar & Company

Estate planning requires a close analysis of individuals’ and couples’ short- and long-term plans.  At Ferguson Timar we take a proactive approach with every client. Our goal is to position our clients to save on taxes both now and into the future, while positioning their assets to go further and do more for themselves and their loved ones. To make an appointment with one of our experienced tax professionals call (714) 204-0100 or send us a message from our contact page.

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Two Important 2020 Tax Tips for the Self-Employed https://fergusontimar.com/2020/05/15/two-important-2020-tax-tips-for-the-self-employed/ Fri, 15 May 2020 21:49:08 +0000 https://fergusontimar.com/?p=4857 The unprecedented disruption to the economy brought by the coronavirus pandemic has had profound consequences for people who are self-employed. When customers and clients stop placing orders or stop paying their bills, self-employed professionals often struggle to make ends meet. Several options are available to help small businesses during the crisis. By now most small-business...

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The unprecedented disruption to the economy brought by the coronavirus pandemic has had profound consequences for people who are self-employed. When customers and clients stop placing orders or stop paying their bills, self-employed professionals often struggle to make ends meet.

Several options are available to help small businesses during the crisis. By now most small-business owners probably have heard about federal loan programs like the Paycheck Protection Program, which may offer temporary relief from cash shortages even for sole proprietors. Applying for unemployment benefits may be another way to keep the lights on.

Proactive tax planning should also be part of a self-employed professional’s survival toolkit. Lowering the tax bill for 2020 is only one part of the goal. Taxes paid in prior years can be a source of cash flow for struggling business owners. Becoming more disciplined about taxes now also will continue to pay dividends into 2021 and beyond.

Ferguson Timar helps many small business owners develop more effective tax strategies. These are two that we think are worth thinking about in 2020.

  • Use net operating loss carryback to access profits from prior years.

Among the important provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act is a temporary relaxation of the rules governing carryback of net operating losses from business activities. The law allows businesses—including sole proprietors—to apply 100% of losses accrued in the tax years prior to 2021 to the five tax years prior to the year of the loss. By “carrying back” losses in this way, a business owner can reduce or eliminate taxable income from those prior years and claim a refund for taxes paid in those years.

Carrying back net operating losses is a great strategy for taxpayers who earned a healthy profit prior to 2020, but who are now facing mounting expenses. If cash reserves allow for it, a business owner may want to increase losses in 2020 to take advantage of the carryback allowance, for example by buying new equipment to support the business.

  • Consider the home office deduction.

People who use a part of their home exclusively as an office may want to consider using the home office deduction to reduce their 2020 tax liability. The home office deduction allows self-employed individuals to claim a portion of expenses related to the home as business expenses. These include mortgage or rent payments, utilities, repairs and maintenance, and other costs.

Many people who work from home have thought about the home office deduction in the past and decided it was not worth taking. The challenges of 2020 may have changed that outlook.

Home office deductions are calculated in a couple different ways. For expenses related to the entire home, like mortgage or rent payments, the deductible portion is calculated based on the office’s square footage compared to the rest of the home. If the home office area takes up 15% of the total square footage of the home, that is the amount of whole-home expenses that can be deducted. Certain costs that relate only to the office space itself, such as upgrades to electrical outlets at an office desk, may be fully deductible.

The home office deduction is quite complex and is subject to important caveats. The home office must be used exclusively and regularly for business purposes, and it must be your principal place of business. IRS Publication 587 runs down the full list of requirements and restrictions.

The home office deduction should not be taken without considering the downsides. People who own their homes will need to evaluate the deduction’s impact on the tax basis of their home. By taking a home office deduction, a homeowner is essentially taking an advance against the price paid for the home, so when the home is sold any taxable gain will include certain amounts claimed in the home office deduction.

Ferguson Timar supports small businesses and their owners.

The tax advisors and bookkeeping professionals at Ferguson Timar work hand-in-hand with clients to ensure their tax strategies are efficient and cost-effective for the long term. How are you addressing your tax needs in 2020? Give us a call at  (714) 204-0100 or reach out through our contact page to make an appointment with one of our advisors.

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Tips for 2019 Tax Returns During the Coronavirus Crisis https://fergusontimar.com/2020/04/08/tips-for-2019-tax-returns-during-the-coronavirus-crisis/ Wed, 08 Apr 2020 21:43:50 +0000 https://fergusontimar.com/?p=4848 The coronavirus pandemic has much of life into a kind of stasis. When Treasury Secretary Mnuchin announced an extension of the deadline to file 2019 tax returns, it may have felt like tax season was going into a temporary freeze along with sporting events, social gatherings, schools, and (for many) work outside the home. Even...

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The coronavirus pandemic has much of life into a kind of stasis. When Treasury Secretary Mnuchin announced an extension of the deadline to file 2019 tax returns, it may have felt like tax season was going into a temporary freeze along with sporting events, social gatherings, schools, and (for many) work outside the home.

Even though the filing deadline has been pushed back to July 15, taxpayers who are able to focus on wrapping up their 2019 taxes should still aim to get their returns filed soon. These are uncertain times. With conditions changing by the hour, the safest choice is to put last year’s taxes safely in the rearview mirror.

The team at Ferguson Timar is continuing to serve clients through these challenging times. Here are some of the ideas we’ve been thinking about during this very strange tax season.

  • Will refunds be delayed by the coronavirus crisis?

Getting ahold of your tax refund check may be especially important for your personal finances this year. The IRS has not changed its pre-pandemic projection that it will pay most refunds within 21 days of receipt of electronic filings. Delays are normal for paper filers, people who want to receive their refunds as paper checks, and filers who claim certain credits flagged by the IRS as having high fraud risk. Let’s hope the pandemic does not impact the ability of the IRS to continue to process returns.

  • There’s extra time to pay.

The July 15 extension applies to payments as well as filings. This is true for several kinds of tax, including estimated quarterly income taxes for businesses and individuals. Note that it does not apply to payroll taxes. If you end up owing money to the IRS for 2019 or for the first quarter of 2020, the extension offers an extra few months to get the cash together.

Some businesses with payroll tax concerns may be able to seek relief under the coronavirus stimulus package passed into law on March 27. Qualified businesses may be able to retain certain payroll taxes, rather than paying them to the IRS.

  • IRA contribution deadlines have been extended, but beware!

When the Treasury Department extended the tax filing deadline they also extended the deadline for people to contribute to their retirement accounts. The contribution limit for a traditional or Roth IRA is $6,000 for people under the age of 50, or $7,000 for those over 50. Although taxpayers now have until July 15 to make their contributions, those who are in a financial position to contribute before April 15 should do so. Taxpayers don’t want to be caught in the middle if financial institutions fail to retool their systems to allow contributions after April 15 to count toward an individual’s 2019 limits.

  • How do 2019 returns influence eligibility for a stimulus check?

The stimulus package passed into law on March 27 includes direct payments to qualified individuals. Adults are eligible to receive up to $1,200 each, with an additional $500 for every qualifying child who is 16 years old or younger. Eligibility for the payments is based on income. Single adults with adjusted gross incomes of $75,000 or less, or married couples who file jointly and earn $150,000 or less, will receive the full amount. Those earning more than these limits will receive less, with individuals earning $99,000 or more or couples earning $198,000 or more receiving nothing.

There are a few important things to know about the stimulus checks:

  • They will not be taxable income. However, if your 2020 income exceeds the eligibility limits you may be required to return the affected portion of the payment with your 2020 tax payment.
  • Eligibility will be based on the taxpayer’s 2019 return or, if one hasn’t been filed yet, the 2018 return.
  • If your previous income makes you ineligible for the benefit, but your 2020 income will make you eligible, you may be able to receive it as a tax credit when you file your 2020 taxes.
  • If your bank account information or mailing address has changed since you last filed your taxes, you will need to update the IRS with your current information. The IRS has indicated that it is working on creating a web-based portal to allow taxpayers to provide updated information.

Have state tax deadlines been extended?

Most states have extended their deadlines to match the IRS deadline of July 15. Taxpayers should double check their state’s rules before assuming that they need not file on April 15. Some states have only extended certain types of filings while leaving deadlines for others in place.

The California Franchise Tax Board has extended deadlines to July 15 for most types of filing, including personal, partnership, LLC, and corporate filings.

Ferguson Timar is here for you.

Ferguson Timar continues to serve clients during these challenging times. We’re here to answer your questions, help you prepare your 2019 returns, and begin planning for the future. To make an appointment with one of our advisors, call (714) 204-0100 or reach out through our contact page.

 

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Do These 3 Things Before April 15 https://fergusontimar.com/2020/03/13/do-these-3-things-before-april-15/ Fri, 13 Mar 2020 20:36:35 +0000 https://fergusontimar.com/?p=4841 Tax Day will be here before you know it. The time has come to make final preparations for filing or extending by April 15, and for making a payment to the IRS. This is a busy time of year for the tax preparers at Ferguson Timar. These are three of the topics on our minds...

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Tax Day will be here before you know it. The time has come to make final preparations for filing or extending by April 15, and for making a payment to the IRS. This is a busy time of year for the tax preparers at Ferguson Timar. These are three of the topics on our minds right now:

  • Pull together financial information about 2019.

For many people, pulling together the required information is the hardest part of filing taxes. Finding the prior year’s return and gathering tax reports from banks, investment advisors, and others can be time-consuming on their own. But for many taxpayers, accounting for potential deductions is the most complicated part of tax preparation. If filing by April 15 is important to you, get this process started early.

Ideally, calculating deductions is a matter of tabulating receipts for things like unreimbursed work expenses, charitable contributions, and so on. For taxpayers who aren’t particularly organized, finding receipts can be a big job. Getting them into the right tax category is the next step.

Taxpayers who went through major tax events in 2019 will want to take extra time to ensure they have all the necessary information they’ll need to complete accurate returns. The purchase or sale of a home or business, getting married or divorced, having significant health costs, and other big changes can have significant tax consequences.

  • Maximize contributions to your retirement accounts.

Many taxpayers set up automatic deductions from payroll or a checking account to ensure their retirement accounts are funded by year-end. It’s important to verify that the maximum contribution was in fact made. If it wasn’t, now is the time to top off.

Taxpayers who own Traditional or Roth Investment Retirement Accounts (or IRAs) have until April 15 to maximize their contributions for the 2019 tax year. For 2019 and 2020, individuals can contribute up to an aggregate of $6,000 to either a Traditional or Roth IRA, or a mix of the two.  The limit goes up to $7,000 for people who are 50 or older.

Individuals with 401(k) plans typically need to make their contributions prior to the end of the calendar year, but in some cases may be able to make contributions that will apply to the 2019 tax year even after January 1. For example, self-employed individuals who file their business taxes on April 15 may have the option of contributing to their solo 401(k) plan on or before April 15 if certain conditions are met. Check with your plan administrator or get in touch with the tax advisors at Ferguson Timar to evaluate whether a contribution made before April 15 can be applied to 2019.

  • File for an extension if you need one, but remember to pay estimated taxes on time.

If completing your returns by April 15 is going to be difficult, consider filing for an extension of time. Extensions are granted automatically to taxpayers who submit a timely request. The request can be made online. Once extended, the taxpayer has until October 15 to submit a completed return for the 2019 tax year.

Bear in mind that an extension of time applies only to the submittal of the return, not to the payment of taxes. A taxpayer who receives an extension still must make a payment to the IRS by April 15. IRS Form 1040-ES provides a worksheet for calculating estimated taxes. For many taxpayers it’s best to work with a preparer to ensure the estimated tax payment is accurate.

Call Ferguson Timar for your tax preparation needs.

The tax advisors at Ferguson Timar work year-round to ensure their clients are ready to file their tax returns accurately and on time. Do you need help getting your 2019 returns in order? Give us a call at (714) 204-0100 or reach out through our contact page to talk to one of our advisors today.

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Making Sense of IRA Tax Strategies https://fergusontimar.com/2020/02/14/making-sense-of-ira-tax-strategies/ Fri, 14 Feb 2020 21:41:33 +0000 https://fergusontimar.com/?p=4836 Tax-advantaged retirement accounts are an important tool for getting the most from a lifetime of earning. Traditional and Roth IRAs, 401(k) programs and other options shelter a portion of an individual’s income from taxation, whether at the time it is contributed (such as with a traditional IRA) or when it is withdrawn (as with a...

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Tax-advantaged retirement accounts are an important tool for getting the most from a lifetime of earning. Traditional and Roth IRAs, 401(k) programs and other options shelter a portion of an individual’s income from taxation, whether at the time it is contributed (such as with a traditional IRA) or when it is withdrawn (as with a Roth IRA).

There are many strategies to maximize the tax benefits of an IRA. At Ferguson Timar, we think these are some of the more important ones to know:

  • Before retirement, try to maximize your contributions. 

Over a lifetime, an individual who contributes the maximum amount to an IRA account every year will be substantially better off in retirement than someone who does not. Even for people who are nearing retirement, contributing to an IRA is often still a good strategy. For 2019 and 2020, the maximum contribution an individual can make to an IRA (Roth or traditional) is $6,000, or $7,000 for people who are 50 or older.

  • Think about a Roth conversion of a traditional IRA.

The Roth was designed to provide an extra tax benefit to people who fall under a certain income threshold. As a consequence, Income and filing status can affect an individual’s eligibility to contribute directly to a Roth IRA. However, a taxpayer may have the option of converting all or part of a traditional IRA into a Roth IRA. Care must be taken during these transactions because any gain on the assets in a traditional IRA will be subject to tax. A conversion also triggers additional IRS reporting requirements.

  • Take Required Minimum Distributions (RMD) from traditional IRAs on time.

Individuals are required to begin taking minimum distributions from their traditional IRA accounts after they reach the midpoint of their seventieth year. The first distribution must be taken by April 1 of the year following this milestone. After that, they need to be taken by December 31 to avoid the penalty.

And the penalty for not taking the RMD is significant: 50% of the required minimum.

The RMD is based on an individual’s life expectancy and the balance in his or her combined traditional IRA accounts. Appendix B of IRS Publication 590-B provides life expectancy standards to help in the calculation, which is quite complex. A tax advisor should be consulted to ensure the right amount is being taken before the end of each year.

  • Have a strategy for RMDs.

IRAs typically hold a mix of cash and securities. When an RMD is made, choices must be made about which assets will be used. Some financial advisors default to taking a small percentage out of each investment in an account, which can result in the undesirable realization of losses or liquidation of investments that an individual might prefer to hold.

Fortunately, a strategy for RMDs can be crafted to cover several years into the future. A small effort now to prioritize which assets will be used to make RMDs will give long-term peace of mind. At the same time, it makes sense to automate payments to ensure compliance.

  • Think about where RMDs go.

Individuals who take RMDs from a traditional IRA have several options for reducing the resulting tax bill. Consider donating to a qualified charity. Donations made to a charity directly from an IRA will satisfy the RMD requirement but will not carry over to the individual’s adjusted gross income. A tax advisor will have other suggestions based on the individual’s circumstances and goals.

Let Ferguson Timar tune up your IRA strategies.

The tax advisors at Ferguson Timar are passionate about helping our clients get the most from their hard-earned retirements. Do you need help making a plan for your IRA or other retirement accounts? Give us a call us today at (714) 204-0100 or reach out through our contact page.

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