Axley & Rode, LLP

Perhaps you’re an investor in mutual funds or you’re interested in putting some money into them. You’re not alone. The Investment Company Institute estimates that 56.2 million households owned mutual funds in mid-2017. But despite their popularity, the tax rules involved in selling mutual fund shares can be complex. Tax basics If you sell appreciated mutual fund shares that you’ve owned for more than one year, the resulting profit will be a long-term capital gain. As such, the maximum federal income tax rate will be 20%, and you may also owe the 3.8% net investment income tax. When a mutual fund investor sells shares, gain or loss is measured by the difference between the amount realized from the sale and the investor’s basis in the shares. One difficulty is that certain mutual fund transactions are treated as sales even though they might not be thought of as such. Another problem may arise in determining your basis for shares sold. What’s considered a sale It’s obvious that a sale oc...

In Information Release 2020-23, the IRS discusses, among other things, the impact of provisions enacted as part of the Taxpayer Certainty and Disaster Relief Act may have on private foundations. The new law has reduced the 2% excise tax on net investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements. These changes are effective beginning after Dec. 20, 2019. Read the full release here:  https://bit.ly/39vRdhn  

The IRS has removed two “in-game” virtual currencies, Roblox and V-bucks, from its list of examples of convertible virtual currencies. “Virtual” currency is a digital representation of value, other than real currency, that functions as a unit of account. “Convertible” virtual currency has an equivalent value in real currency. Roblox and V-bucks are “currencies” only in the sense they’re used in the online games Roblox and Fortnite. The IRS Chief Counsel said that it had been a mistake to list those in-game currencies as examples of convertible virtual currencies. It also said that transactions in those currencies don’t need to be reported on a taxpayer’s tax return.

The prospect of having to garnish an employee’s wages isn’t a pleasant thought, yet it’s a situation that many employers face. As with any onerous task, the more prepared you are, the better. Let’s look at some basic facts about the process. Various types The word “garnishment” is defined as any legal or equitable procedure through which an individual’s earnings are required, under a court order, to be withheld for payment of a debt. This may include: Creditor garnishments, Child support, Garnishments to repay nontax debts owed to the federal government, Student loan garnishments, and Tax levies. As a garnishment, wage withholding for child support usually takes priority over the other types. There are both federal and state laws covering garnishment. For those issued at the state level, the law that’s most beneficial to the employee is generally followed. However, for garnishments issued at the federal level, state law typically takes a back seat to federal law. (Voluntary wage assign...

Do you dread tax time? Many taxpayers get bogged down hunting for receipts and documents in their mountains of paperwork, then scramble to get an appointment with their tax professional. The IRS has put together tips for taking the stress out of tax preparation. The key is having all the needed documents on hand, before your appointment. Obtain and double check the Social Security numbers for everyone on your return. Have your bank account and routing numbers handy if you expect a direct-deposited refund. Collect all W-2s, 1099s and Form 1095-A (if you have Marketplace health insurance coverage). Check all forms for accuracy. Here’s more:  https://bit.ly/3bEjzrF  

The IRS has issued proposed regulations to conform to the Tax Cuts and Jobs Act’s federal income tax withholding changes. The proposed regs are designed to accommodate the redesigned 2020 Form W-4, “Employee’s Withholding Certificate,” and related wage withholding tables. Among other things, the proposed regs provide rules on when employees must furnish a new Form W-4 for changed circumstances, update the rules for the “lock-in letter” program, and eliminate the combined income tax and FICA tax withholding tables. Taxpayers can rely on the proposed regs until they’re adopted as final.

Many people who launch small businesses start out as sole proprietors. Here are nine tax rules and considerations involved in operating as that entity. 1. You may qualify for the pass-through deduction. To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction. 2. Report income and expenses on Schedule C of Form 1040. The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income and not as itemized deductions. If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activ...

How do dependents affect federal income taxes? The Congressional Budget Office recently issued a report ( https://bit.ly/3bbJarM    ) on this topic. It analyzed tax return data under 2019 tax rules and compared it with the rules that are scheduled to be in place for 2026. It estimated that the average tax benefit per dependent for 2019 is $2,300 ($3,800 per family). Under the 2026 tax rules, that benefit will be $1,700 per dependent ($2,800 per family), on average. Under current rules put in place by the Tax Cuts and Jobs Act, the tax benefit of children younger than 17 is generally greater than the tax benefit of older children or other relatives. Those rules are set to expire after 2025.

Taxpayers have fundamental rights when dealing with the IRS. Among them is the right to only pay what’s legally owed. You also have the right to: receive a refund if you overpay: be in contact with the IRS if you believe you’re being billed unfairly; and amend a tax return if you discover an error. In addition, you can ask to have an “amount owed” removed if it’s incorrect and request that interest be removed from your account if the IRS causes unreasonable delays or errors. And delinquent taxpayers may submit an offer in compromise, requesting the IRS to accept less than they owe (which the IRS may or may not accept). Here’s more about the “Taxpayer Bill of Rights”:  https://bit.ly/3baKlYq  

If you’re getting ready to file your 2019 tax return, and your tax bill is higher than you’d like, there may still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the Wednesday, April 15, 2020, filing date and benefit from the resulting tax savings on your 2019 return. Do you qualify? You can make a deductible contribution to a traditional IRA if: You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or You (or your spouse) are an active participant in an employer plan, and your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year-to-year by filing status. For 2019, if you’re a joint tax return filer covered by an employer plan, your deductible IRA contribution phases out over $103,000 to $123,000 of modified AGI. If you’re single or a head of household, the phaseout range is $64,000 to $74,000 for 2019. For married filing separately, the...

Are you an employer who owns a business where tipping is customary for providing food and beverages? You may qualify for a tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income. How the credit works The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes. You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In ot...

When employees request time off under the Family and Medical Leave Act (FMLA), employers need to tread carefully. The FMLA can trip you up in various ways, including how to legally document and approve eligibility for leave. Many employers particularly struggle with what information they may ask for without inadvertently violating the employee’s rights. Trust but verify In simplest terms, you may request certification of the medical basis for the leave request. But it’s typically not a quick process. The FMLA requires that you ask for the certification within five business days of learning of an employee’s need to take leave. That request must be in writing and include an official “rights and responsibilities” notice so that everyone is on the same page legally. Employees, in turn, need to provide you with the medical certification within 15 calendar days. Technically they have a little grace period if they’ve made a good faith effort to meet the deadline and failed. However, they’...

An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business. Social Security tax The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019). Deductions Section 179 expensing: Limit: $1.04 million (up from $1.02 million for 2019) Phaseout: $2.59 million (up from $2.55 million) Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at: Married filing jointly: $326,600 (up from $321,400) Married filing separately: $163,300 (up from $160,725) Other filers: $163,300 (up from $160,700) Retirement plans Employee contributions to 401(k) plans: $19,500 (up from $19,000) Catch-up contributions to 401(k) plans: $6,500 (up from $6,000) Employee contributions to SIMPLEs: $13,500 (up from $13,000) Catch-up contributions to SIMPLEs: $3,000 (no change) Combine...

Right now, you may be more concerned about your 2019 tax bill than you are about your 2020 tax situation. That’s understandable because your 2019 individual tax return is due to be filed in less than three months. However, it’s a good idea to familiarize yourself with tax-related amounts that may have changed for 2020. For example, the amount of money you can put into a 401(k) plan has increased and you may want to start making contributions as early in the year as possible because retirement plan contributions will lower your taxable income. Note: Not all tax figures are adjusted for inflation and even if they are, they may be unchanged or change only slightly each year due to low inflation. In addition, some tax amounts can only change with new tax legislation. So below are some Q&As about tax-related figures for this year. How much can I contribute to an IRA for 2020? If you’re eligible, you can contribute $6,000 a year into a traditional or Roth IRA, up to 100% of your earned i...