Since 2018 is coming to a close now is the time to take action to proactively reduce your tax liability before the new year.  Included are a few strategies that may help with your tax situation:

1. Harvest stock losses while substantially preserving one’s investment position. This can be accomplished by selling the shares and buying other shares in the same company or another company in the same industry to replace them, or by selling the original shares, then buying back the same securities at least 31 days later.
2. Apply a bunching strategy to deductible contributions and/or payments of medical expenses. Beginning in 2018 the standard deduction has been increased and the itemized deduction of state and local taxes limited to $10,000 which will cause many taxpayers to lose the benefit of their itemized deductions. By bunching multiple years of charitable contributions and medical expenses into one year a taxpayer may create a taxable benefit that would not otherwise exist.  For example, a taxpayer who expects to itemize deductions in 2018 and usually contributes a total of $10,000 to charities each year, should consider refunding 2019 and 2020 charitable contributions by contributing a total of $30,000 into a donor advised charitable fund and then distribute the funds to the charities over the following two years.
3. Take required minimum distributions (RMDs). Taxpayers who have reached age 70-½ should be sure to take their 2018 RMD from their IRAs or 401(k) plans (or other employer-sponsored retired plans). Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Those who turned age 70-½ in 2018 can delay the first required distribution to 2019, however, this can result in taking a double distribution in 2019 (the required amount for 2018 and 2019).
4. Use IRAs to make charitable gifts. Taxpayers who have reached age 70-½, own IRAs, and are thinking of making a charitable gift should consider arranging for the gift to be made by way of a qualified charitable contribution, or QCD—a direct transfer from the IRA trustee to the charitable organization. Such a transfer (not to exceed $100,000) will neither be included in gross income nor allowed as a deduction on the taxpayer’s return. A qualified charitable contribution before year end is a particularly good idea for retired taxpayers who don’t need all of their as-yet undistributed RMD for living expenses.
5. Make year-end gifts. A person can give any other person up to $15,000 for 2018 without incurring any gift tax. The annual exclusion amount increases to $30,000 per donee if the donor’s spouse consents to gift-splitting. Anyone who expects eventually to have estate tax liability and who can afford to make gifts to family members should do so.

These are broad suggestions that will benefit some but not all taxpayers.  To discuss and create a personalized tax strategy be sure to contact a WFY tax specialist at info@cpa-wfy.com or (949) 910-2727.

© Copyright 2018. All rights reserved.

An offer in compromise can make you happy: “Oh boy, the IRS said yes, and my tax debts are over!” Or it can frustrate you. Let’s go over how to navigate the IRS settlement guidelines and see what an OIC entails.

Here’s the good news:

• An OIC can be a fresh start from your IRS debt.
• You no longer have to worry that the IRS will seize your wages or bank accounts.
• Your credit score will no longer show any tax liens against you — the IRS releases them all.
• IRS collections are put on hold and the compromise is investigated. And then — peace, ah, peace — from IRS certified-mail letters and visits from IRS revenue officers.
• You put the debt behind you and you can go back to saving for retirement.

But here’s some of the bad news:

• The IRS will dig deeply into your finances.
• You have to tell the IRS where you work and bank and you must list your assets, including your house, cars, valuables and retirement accounts.
• The IRS will look at your paystubs, tax returns, bank statements, business profit and loss statements and proof of payment of monthly bills.
• After acceptance of the OIC, the IRS will put you on a five-year probation, requiring full compliance in filing and paying taxes. Not playing ball with all IRS expectations will default the settlement.

But wait! It gets even more dicey:

• An OIC is not a quick fix — it can take the IRS a minimum of nine to 12 months to investigate, and another six months if an appeal is needed. The IRS allows five to 24 months to pay the settlement.
• If you want to pay credit card, mortgage or car loan monthly bills, think again. The IRS may effectively take over your budgeting.
• If the IRS determines it can collect what you owe, it will reject your offer, but you can appeal.
• The settlement amount is not based on fairness, but on collectability.
• It may not work at all! The IRS recently rejected 60 percent of the offers it received: 41,000 rejections out of a pool of 68,000 submissions!

Let’s see where that leaves us:

• An OIC can be a wonderful way to rid yourself of the IRS bugging you.
• You need to consider it from all angles to make sure it’s the right move for you.

A compromise is not the only way to clear the IRS out of your life. The agency can agree that you owe debt, but not force you to repay it — the IRS terms it currently uncollectible and puts you in its bad debt category and leaves you alone. The IRS has 10 years to collect the taxes. You could let the time frame expire rather than compromising. Bankruptcy may be able to eliminate taxes too. See what’s in your best interest.

The point is that you have options, and you should talk to a professional if you’re having tax problems.

© Copyright 2018. All rights reserved.