taxes Archives - Note Advisors, LLC

Your Finances and the Upcoming Election

Shawn Glogowski on September 30, 2020

Recently we published a blog about financial uncertainties across our nation as the countdown to the 2020 US election continues. Clearly, some of the most concerning of those are potential changes to federal tax laws. That is why we decided to follow up with specific financial information and strategies that we believe could be effective should such changes occur.

Let’s start with the bottom line. A lot can, and will, change between now and the election. The reality is that no matter the outcome, proposals take time to become legislation. Additionally, to make changes to the tax code, Congress must pass a bill by a majority vote (in both the House and the Senate), followed by the president signing it into law. With the current political makeup of Congress, that path will be difficult.

None the less, if changes to federal tax laws are on the horizon post November 3rd, below are some suggested scenarios and strategies we believe could be effective in protecting your investments and portfolios, if initiated by year’s end.

Most importantly, we suggest you take this pre-election time to GIVE US A CALL to review your financial concerns and plans, and help you stay focused on a diverse portfolio allocation and wealth management plan and avoid distraction-driven election proposals.

Parts of this blog were excerpted from a Charles Schwab investment advisory.

The top marginal tax rate is raised from 37% to 39.6% for income over $400,000.

If possible, defer losses and deductions to future tax years, when tax rates could be higher.
Initiate Roth conversions which could potentially reduce future taxable distributions.

Tax capital gains and qualified dividends are established for incomes over $1 million at the ordinary income tax rate of 39.6%.

Utilize tax gain harvesting to lock in capital gains at the current preferential rates.
Defer loss recognition and possibly deductions to future tax years when taxes could be higher, which could increase the tax benefits of the loss deduction.

Basis on transfers of appreciated property at death are stepped up and the federal estate tax exemption is decreased by 50% or more.

Gift assets to lock in the estate tax exemption and avoid losing the higher limits, which could disappear if tax policy is changed.

Itemized deductions are capped at 28% of income.

Consider accelerating deductions if the 28% limit could cause some deductions to be lost in the future.

Tax credits for middle-to-low-income households are increased.

These tax credits would have income limitations, and there is little higher-income households can do to qualify for them.

The corporate tax rate in increased from a flat 28% from 21%, and tax book income of companies at an increase of 15% if they do not report taxable income.

Clients should review their portfolios and ensure proper diversification to help mitigate the potential negative impact from reduced corporate profits due to increased taxes.

Start collecting additional taxes for Social Security after $400,000 of income.

Owners of pass-through businesses (such as LLCs and partnerships) could consider a transition to an S-corporation to reduce Social Security taxes.

The tax deduction for 401(k) contributions is changed to a tax credit (discussed but not a proposal.)

For this year continue to contribute to a 401(k) as you normally would.
Start or increase contributions to a Roth 401(k).
If passed into law, those who may not receive a tax credit for contributions should consider a Roth account or saving efficiently in a brokerage account.

Parts of this blog are based on a Charles Schwab advisory publication.

Self-employed and Deferred Payroll Taxes

Shawn Glogowski on September 18, 2020

If you are self-employed, you shouldn’t count on the payroll tax break the president has issued via executive order — at least not yet.

Payroll taxes are normally shared by employers and employees. Each covers a 6.2% tax to fund Social Security, as well as a 1.45% tax to fund Medicare.Self-employed people foot the entire bill for these levies themselves, at a cost of 15.3%, and pay for them as part of their quarterly estimated taxes

The president’s executive order would suspend the employee’s share of payroll taxes from September 1st through the end of the year. It would cover workers who make no more than $4,000 per biweekly pay period or $104,000 annually.

It is currently unclear whether this relief would apply to the self-employed, which is raising a number of tax concerns including whether employers or employees could face surprise tax consequences and compliance issues related to the executive order.

Separately, business owners, including independent contractors and freelancers, are already eligible to defer the employer’s side of the Social Security tax via the CARES Act. Under this provision, employers may choose to defer the share of tax that would have been paid from March 27 through Dec. 31. They would then pay 50% of the amount owed next year and the remainder in 2022.

With so many unanswered questions, the best course of action if you are self-employed is to continue to set aside your self-employment taxes and pay them as usual. At the very least, you should wait until further guidance is issued by the Treasury Department to decern on whether you qualify to defer this slice of the tax.

If you have questions, or need to talk about this or any other financial issues, give us a call. We’re to help

Mid-Year Tax Reviews Can Save You $$$

Shawn Glogowski on August 31, 2020

Every tax season, U.S. businesses owners and individual taxpayers undergo an amazing ritual. At the beginning of the year, we start collecting forms from various entities: banks, creditors, investment companies, our employers, etc.

After we have gotten all of our paperwork, we then figure out whether we’re going to waste a weekend slogging through all this paperwork, or if we’re going to outsource it to someone like a strip mall tax preparer or a CPA. Whatever we decide, our singular focus is to figure out one thing: “How big is my refund going to be?”

If the answer is negative, meaning we owe the IRS money, that ruins the whole weekend. Whatever the result, all we know is that once we have finished—which is usually around March 15th for businesses and April 14 for most individuals— we don’t think about taxes for another year.

Is that the right approach? Perhaps not.Here are 5 reasons why you might want to review your tax situation mid-year.

Tax Review Reason #1: Adjusting employer withholdings.

In early 2018, the IRS prescribed new withholdingtables for employers, based upon the changes in the Tax Cuts and Jobs Act of 2017. While most people will pay a lower tax bill, there are those who might pay more. However, the withholding tables are largely adjusted to withhold less in taxes which can result in a nasty double whammy for some taxpayers of paying more in taxes, but having less withholdings in their paycheck.

You can avoid this situation by simply taking 10 minutes to check for yourself on the IRS’ withholding website. Here, you can walk through some pretty simple questions about your personal situation, income, and possible deductions. After answering these questions, the IRS will give you some suggestions on whether you need to adjust your employer withholdings.

Tax Review Reason #2: Seeing the tax impact of specific life events.

Sometimes, it seems that our taxes just stay the same, regardless of what we do. That is not necessarily true. Here are a few examples of specific life events that should encourage you to do a mid-year tax review.

If you have a child going to college, you may qualify you for a tax credit and deductions for tuition expenses. Check out the IRS Website for details.
If you have purchased a home for the first time and are starting to itemize deductions because of the mortgage interest and real estate taxes you are now paying.
If you have installed energy-efficient appliances that provide you eligibility for tax credits. Click here for more information.
If you are recently retired and need to figure out how your withholdings work now that your employer is no longer taking that money out of your paycheck.

Tax Review Reason #3: Sound tax advice.

If you ask a tax professional questions about your financial situation at this time of year, you are consulting them when they are not singularly focused and stressed over getting through tax season.

You can have an enlightened conversation about this year’s tax return with the knowledge base of last year’s returns and the calm of an off-season consultation.

Tax Review Reason #4: Learn more about your options and properly plan.

Planning to sell some stock? Depending on your situation, there’s probably more than one right way to do this. There are also there are many tax-inefficient ways. Talking with a financial professional before you make these decisions might help you save money on taxes.
Looking to increase your charitable contributions this year? Perhaps you can get more bang for your buck if you bunch itemized deductions every other year.
Just retired, but not ready to take money out of your IRA? Perhaps it is worth doing Roth conversions while you’re in a low tax bracket, so you won’t get a nasty surprise when you have to start taking required minimum distributions and find out you’re in a much higher tax bracket. Proper tax planning might help you figure out the best decisions for your situation.

There are so many different aspects of your life with some sort of tax impact. And it’s important to make sure you’re doing this while you still have time to make changes. For example:

If you need to adjust your withholdings, it’s best to do it mid-year, so you have more paychecks for those changes to take effect. **
If you’re looking to contribute to an IRA**, it’s probably best to spread out those contributions over the course of the year. When you do tax planning mid-year, you can always come back at year-end to see what else needs to be done, but the reverse isn’t necessarily true.

The point should be to enjoy your BEST life while remaining as tax efficient as possible. And that’s best done with proper tax planning.

What’s next? Talk to your financial advisor. That’s us!! Note Advisors is a one-stop-shop for all of your tax review and planning needs.

In fact, GCW Principal, Shawn Glogowski, is an Enrolled IRS Agent, which means he is licensed to practice before the IRS and, if needed, can legally advocate with them on your behalf.

Why not get your mid-year tax review going now, before it’s too late.

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Parts of this blog were excerpted from an online article by WestChase Financial Planning.