Combatting Retirement Anxiety and the Fear of Running Out of Money

Retirement is the endgame for most people - it's literally why we work so hard our entire lives. But it's also no longer a situation that is as straightforward as it once was, particularly as far as financial planning is concerned. 

According to one recent study, nearly one out of every three people have nothing saved for retirement. More than half that have less than $10,000 set aside in a bank account for this specific purpose. 

Indeed, a recent survey of CPA financial planners confirms that this situation may be a lot more precarious than most people think. 

Your Money, Your Retirement and You 

According to the most recent AICPA PFP Trends Survey, running out of money for retirement is the top concern of 41% of CPA financial planners today. If people aren't worried about not having enough money to retire in the first place, they're worried about not having enough to maintain their current lifestyle — a fear that 29% of respondents shared. The third biggest concern — coming in far behind the other two — had to do with the rising cost of healthcare, which 11% of people said that they were worried about. 

The same study also revealed that once people retire, the biggest fear of 52% of retirees was a sharp decline in the value of their investments. 

The second biggest fear, coming in at 24%, was a serious illness like dementia. To put that into perspective, millions of people are diagnosed with dementia or other cognitive issues every year, and that trend is expected to increase sharply over the next decade. Despite this, people are STILL more worried about their financial situation than they are about anything related to their health and wellbeing. 

So at the very least, if you've come down with a severe case of retirement anxiety and are worried about your financial situation during your twilight years, know that you are not alone. Luckily, there are a few key steps you can take today to help ease some of this anxiety moving forward. 

The Fight Against Retirement Anxiety 

One of the biggest ways to combat retirement anxiety involves knowing what you can cut if needed. Take a look at your current spending patterns and decide which actions are related to "needs" and which are related to "wants." You can't necessarily cut the amount of money you're spending on healthcare, but you CAN get rid of that expensive cable package. Experts agree that running out of money is actually rare for older people who actively track and plan their spending, so keep this in mind moving forward. 

Likewise, you should also at least consider delaying your Social Security checks until you reach the age of 70. Depending on when you retire, this might mean that you go almost a decade without receiving these monthly checks (if the current average retirement age is any consideration). 

However, making this move means that you'll actually get a lot more money every month - something that may make all the difference if this is something you're truly concerned about. 

Finally, the most important thing that you can do involves the acknowledgment that these types of issues are incredibly common - worrying about having enough money to comfortably retire is not something that is exclusive to you. Everyone thinks about these things and they cause everyone to stress every now and again. It's a natural part of getting older. Don't try to avoid it. 

But you also can't let retirement anxiety prevent you from taking the action today that will protect your financial situation tomorrow. Partner with a financial advisor to lay out your goals and work to come up with the right plan that meets your needs together. That in and of itself is one of the best ways to prevent these types of fears from becoming a reality in the first place.

Be Tax Wise With Your Charitable Contributions

Article Highlights:

• Charitable Itemized Deductions
• Bunching Deductions
• Qualified Charitable Distributions
• Donor-Advised Funds

Donations to charities can be deducted as an itemized deduction on your tax return. This means that to achieve any tax benefit from your charitable donations, you cannot use the standard deduction and instead must itemize your deductions. However, if the total of all your itemized deductions does not exceed the standard deduction amount for the year, then you are better off taking the standard deduction, but in doing so, you will get no tax benefit from your charitable contributions. 

As a rule, most taxpayers just wait until tax time to add up their potential deductions and then use the higher of the standard deduction or their itemized deductions. If you want to be more proactive, here are some strategies that might work for you. 

Bunching – Charitable contributions are a nice fit for the tax strategy referred to as “bunching.” When employing the bunching strategy, a taxpayer essentially doubles up on as many deductions as possible in one year, with the goal of being able to itemize deductions and then taking the standard deduction in the following year. Because charitable contributions are entirely payable at your discretion, they fit right into the bunching strategy. For example, if you normally tithe at your church, you could make your normal contributions throughout the current year and then prepay the entire subsequent year’s tithing in a lump sum in December of the current year, thereby doubling up on the church contribution in one year and having no charity deduction for church in the next year. Normally, charities are very active with their solicitations during the holiday season, giving you the opportunity to make contributions at the end of the current year or simply wait a short time and make them after the end of the year. Be sure you get a receipt or acknowledgment letter from the organization that clearly shows the year when the contribution was made. 

Qualified Charitable Distribution – If you are age 70.5 or older, you can make charitable contributions by transferring funds from your IRA account to a charity, which are referred to as qualified charitable distributions (QCDs). The only hitch here is the funds must be transferred directly from the IRA to the charity, meaning your IRA trustee will have to make the distribution to the charity. No minimum amount needs to be transferred, but the maximum of all such transfers for the year is $100,000 per year, per taxpayer. Also note that distributions to private foundations and donor-advised funds don’t qualify for the QCD. 

Thus, this strategy allows you to make a charitable contribution without itemizing deductions; since these distributions are tax-free, you can’t also claim a deduction for them. Even better, QCDs also count toward your minimum required distribution for the year. Because QCDs are nontaxable, your AGI will be lower, and you can benefit from tax provisions that are pegged to AGI, such as the amount of Social Security income that’s taxable and the cost of Medicare B insurance premiums for higher-income taxpayers. If you decide to make a QCD, check with your IRA custodian on the IRA’s rules for how to request the QCD, and be sure to give the IRA custodian ample time to complete the process if you are making the request toward the end of the year. Always get a written acknowledgment from the charity, for tax-reporting purposes. 

Donor-Advised Funds – Contributing to a donor-advised fund is a way to make a large (and generally deductible) charitable contribution in one year and put funds aside to satisfy the donor’s social obligations to make charitable contributions in future years, without incurring the expenses of setting up a private foundation and satisfying annual filing and other private foundation requirements. 

Although generally considered a tax strategy for those with an unusually high income for the year, they are available to everyone, although most such funds set up through brokerages have minimum donation requirements, often $5,000–25,000. Although they may bear the donor's name, donor-advised funds are not separate entities but are mere bookkeeping entries. They are components of a qualified charitable organization. A contribution to a charity's donor-advised fund may be deductible in the year when it is made if it isn't considered earmarked for a particular distributee. The charity must fully own the funds and have ultimate control over their distribution. To document the contribution, the taxpayer must get written acknowledgment from the fund's sponsoring organization that it has exclusive legal control over the contributed assets. Although the donor can advise the charity, which generally will follow the donor’s recommendations, the donor cannot have the power to select distributees or decide the timing or amounts of distributions. The charity must also ensure that all distributions from the fund are arm’s length and do not directly or indirectly benefit the donor. 

Example: Don and Shirley donate $25,000 to a donor-advised fund in one year. The $25,000 can be in the form of cash or even appreciated stock. Don and Shirley get a deduction for the full $25,000 as a charitable contribution during the year of the contribution and can suggest the amounts of distributions from the donor-advised fund should be made to various charities over a number of years. Thus, Don and Shirley achieve a large charitable contribution in one year that can be used to fund their charitable obligations over several years and can claim the $25,000 as an itemized deduction on their return for the year when they made the donation. They do not get a charitable contribution deduction when the funds are paid out to the various charities.

The Best Ways to Create a Budget You Can Live By

It takes little more than a passing understanding of the United States economy to understand that the next recession might be right around the corner. In fact, people have already begun to talk about how it may be arriving sooner rather than later. Recent economic forecasts predict that the economy will not only slow down across 2019, but it will continue to do so into 2020... pointing to the fact that trouble may be just over the horizon. 

If you’re worried about the next great recession and are still haunted by memories of 2007 and 2008, you have every right to be. But you also need to learn from the mistakes of the past. Things got so bad the last time because many, many people were caught off-guard. Based on that, your course of action is clear: You need to start preparing for this possibility, and you need to start doing so today. 

This means getting real about a personal or family budget, which, thankfully, is a lot more straightforward than you might have thought. 

Your Keys to Building a Better Budget 

To build the most accurate and forward-thinking budget that you can, you first need actionable information to work from. That means figuring out your after-tax income, so you know how much money you’re talking about. 

If you get a regular paycheck from your employer, for example, sit down and consider not only your taxes but also automatic deductions for things like health and life insurance and your 401(k). Do this for every member of your household and add all those totals together to get a better idea of the total amount of money you’re actually working with. 

At the same time, you also need to get an accurate idea of what your monthly expenses look like. For the best results, don’t consider your spending habits just yet this early in the process. Instead, simply list everything that you ‒ and your loved ones ‒ spend money on to maintain the lifestyle you’ve grown accustomed to. 

List absolutely everything, including not only the essentials like utilities but also streaming service subscriptions, the amount of money you spend eating out in a month, and more. Don’t hold anything back ‒ it won’t benefit you at all to pretend like you don’t spend $50 a month on coffee runs if you absolutely know that you do. If you need to, go through your credit card statements. A variety of smartphone apps are available that will help you get a granular look at your expenses moving forward. 

The Beautiful Simplicity of the 50/30/20 Budgeting Plan 

Once you’ve got that bottom line dollar value, the next step involves choosing a budgeting plan that you can stick by. Generally speaking, the 50/30/20 plan is popular, both because of its effectiveness and its simplicity. 

As the name suggests, this plan says that you should spend about 50 percent of your after-tax income on pure necessities. This means food, utilities, rent or mortgage payments, and other critical financial obligations like that. You can absolutely spend money on things that you want but don’t need (like that night out on the town or that fancy new 4K TV), but it shouldn’t total more than 30 percent of your after-tax earnings. Then, the remaining 20 percent gets funneled directly into your savings account (or is used toward debt repayment). 

Depending on the amount of debt that your household has, you may have to adjust these totals a bit. Not all debt is bad, but too much debt can obviously be crippling. Increase the amount of money you’re using to pay down debt in the short term to help create a steadier foundation from which to build for the long term. 

Other Important Considerations 

Going back to your expenses, now that you know exactly what you’re spending money on every month, look for opportunities to proactively cut back whenever possible. Do you pay $15 per month for a Netflix account that you don’t really use? It’s better to cancel that and pocket the $15 NOW before it becomes a requirement for you to do so during the next recession. 

Finally, and perhaps most importantly, don’t be afraid to enlist the help of a professional if you’re not sure what to do. Diving into your finances can always be stressful from a certain perspective, and with the looming threat of a recession on the horizon, that will only get even worse. Rather than trying to do everything yourself and making mistakes in the process, consider enlisting the help of a professional to fill in some of the gaps that exist in your own knowledge. 

Financial professionals have seen it all ‒ they’ve worked with every type of situation ‒ both good and bad and can bring an invaluable wealth of experience to the conversation. In the end, you’ll be left with more than just a budget you can live by. You’ll have one that sees you come out all the better on the other side because of it.

Read This before Tossing Old Tax Records!

Article Highlights: 

• Reasons to Keep Records 
• Statute of Limitations 
• Maintaining Record of Asset Basis 

If you are a neat-nick and your tax return for last year has been completed and filed, you are probably thinking about getting rid of the tax records related to that return. On the other hand, if you are afraid to dump old records, you are probably looking for a box to put them in so you can store them away. Well, you do have to keep them for a period of time but not forever. 

Generally, tax records are retained for two reasons: (1) in case the IRS or a state agency decides to question the information on your tax returns or (2) to keep track of the tax basis of your capital assets, so that you can minimize your tax liability when you dispose of those assets. 

With certain exceptions, the statute of limitations for assessing additional taxes is three years from the return’s due date or its filing date, whichever is later. However, the statute in many states is one year longer than that of federal law. In addition, the federal assessment period is extended to six years if more than 25% of a taxpayer’s gross income is omitted from a tax return. In addition, of course, the three-year period doesn’t begin elapsing until a return has been filed. There is no statute of limitations for the filing of false or fraudulent returns to evade tax payments. 

If none of the above exceptions applies to you, then for federal purposes, you can probably discard most of your tax records that are more than three years old; you will want to add a year to that time period if you live in a state with a longer statute.

Examples – Sue filed her 2015 tax return before the due date of April 15, 2016. She will be able to safely dispose of most of her 2015 records after April 15, 2019. On the other hand, Don filed his 2015 return on June 2, 2016. He needs to keep his records until at least June 2, 2019. In both cases, the taxpayers should keep their records for a year or two longer if their states have statutes of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday, or holiday, the actual due date is the next business day.

The problem with discarding all of the records for a particular year once the statute of limitations has expired is that many taxpayers combine their normal tax records with the records that substantiate the basis of their capital assets. The basis records need to be separated and should not be discarded until after the statute has expired for when a given asset was disposed of. Thus, it makes more sense to keep separate records for each asset. The following are examples of records that fall into the basis category: 

• Stock-acquisition data – If you own stock in a corporation, keep the purchase records until at least four years after the year when you sell the stock. This data is necessary for proving the amount of profit (or loss) from the sale. If your sales for a given year result in a net loss of more than $3,000, you may need to keep your purchase and sale records for even longer. This is because $3,000 is the maximum capital loss that can be deducted in any one year, so the excess loss must be carried over to the following year(s) until it is used up. If the IRS audits a return that includes a carryover loss, it will ask to see the records from the original purchase, even if it happened more than three years in the past. Thus, don’t dispose of such records until the statute of limitations has passed for the last year when you claimed a carryover loss.
  
• Stock and mutual fund statements (if you reinvest dividends) – Many taxpayers use the dividends that they receive from stocks or mutual funds to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when They are eventually sold. Keep all such dividend statements for at least four years after the final sale.
  
• Tangible property purchase and improvement records – Keep records of home, investment, rental-property, or business-property acquisitions; the related capital improvements; and the final settlement statements from the sale for at least four years after the underlying property is sold.

For example, when Congress instituted the large $250,000 home-sale-gain exclusion (which is $500,000 for married couples filing jointly) many years ago, homeowners began to be laxer in maintaining their home-improvement records, thinking that the large exclusions would cover any potential appreciation in their home’s value. Now, that exclusion may not always be enough to cover the gains from a sale, particularly for markets where property values have steadily risen; thus, keeping records of all such home improvements is vital. 

What about the Tax Returns Themselves? Although the backup documents that you use to prepare your returns can usually be disposed of after the statutory period has expired, you may want to consider indefinitely keeping a copy of the tax returns themselves (the 1040, the attached schedules/statements, and the state return). If you just don’t have room to keep copies of your paper returns, digitizing them is an option. 

If you have questions about whether to retain certain records, give this office a call. Before discarding any records, it is a good idea to make sure that they will not be needed down the road.

When Can You Withdraw from Your 401k or IRA and Avoid Penalties?

Withdrawing money early from your 401(k), your IRA or some other type of retirement fund is something that may be necessary for a wide range of reasons. Maybe you're dealing with unexpected medical bills and could use a bit of financial assistance. Perhaps you've gone through some type of life-changing event like a divorce. Regardless — it happens, and it's totally understandable. It is not, however, a decision that should be made lightly. If you want to withdraw funds from your 401(k) or IRA and avoid the often hefty penalties that follow, you'll need to keep a few key things in mind. Avoiding Penalties on Retirement Accounts: What You Need to Know All told, there are actually a number of different ways that you can qualify for a penalty exemption on withdrawals from these types of retirement accounts — provided that you're using that money for very specific purposes. Currently, these include but are not limited to things like: Education expenses. Provided that your expenses count as tuition, books, fees to a university or other supplies, you're allowed to take an IRA distribution for "qualified higher education expenses." You're about to buy a new home. If you are buying a home in your name for the first time, you can take out up to $10,000 from your IRA without suffering a penalty. If you happen to be married, your spouse is able to do the same — so long as neither of you has had any type of ownership interest in another piece of property at any point over the last two years. Medical expenses. If you happen to be dealing with medical expenses that themselves are greater than 10% of your adjusted gross income for the current calendar year, you'll be happy to know that you can pay for them directly out of your IRA without dealing with a penalty of any kind. Family circumstances. If at any point you've been required to pay funds to a member of your family (like your children, dependents or even a divorced husband or wife), you can get the penalty fee waived on your withdrawal. Provided that your employer allows it, you can also take out what is called a 401(k) loan. This is exactly what it sounds like - you're borrowing against your 401(k) up to $50,000 or half of your account balance, whichever is less. The best part about this method, in particular, is that it usually doesn't even require a credit check, so you won't have to deal with a "hard pull" that temporarily hurts your credit score. Generally speaking, the maximum loan term is up to five years. In certain circumstances, however, this can go up to 15 years. Not all employer plans actually allow this, however, so you'll want to talk with your company's human resources department to make sure this is actually an option that is on the table for your particular circumstances. One of the most important things to understand about all of this, however, is the idea that "penalty free" and "tax free" are two totally separate things. Regardless of whether or not you qualify for a penalty exemption, you will still need to pay taxes on the money that you withdraw at ordinary income rates. The only major exception to this is in the case of a Roth IRA, which you can take money out of penalty free AND tax free after five years. You may be able to enjoy the same benefit on a Roth 401(k), but only if your employer plan specifically permits this. Regardless, as you can see, avoiding penalties on these types of funds is not necessarily as difficult as you probably thought it was going to be. Provided you go about things in the right way, you'll have fast access to the funds you need when you need them the most.

Disappointed in Your Tax Refund?

If your tax refund is less than you anticipated, you are not alone. In a report issued by the Treasury Department on February 14, the average refund it is paying in 2019 has dropped to $1,949 from $2,135 in the prior year. In addition, the number of returns filed so far has dropped from 13.5 million last year to 11.4 million this year for the same period.

Article Highlights:

• Average Refund Down 
• Tax Filings Down 
• Effects of Lower Refunds 
• Actual Tax Generally Lower 
• How This Happened 

If your tax refund is less than you anticipated, you are not alone. In a report issued by the Treasury Department on February 14, the average refund it is paying in 2019 has dropped to $1,949 from $2,135 in the prior year. In addition, the number of returns filed so far has dropped from 13.5 million last year to 11.4 million this year for the same period.

With all the hype about how tax reform would reduce taxes, taxpayers were anticipating larger refunds this year but instead are receiving less, on average. This has left the Republican lawmakers who passed the tax reform scrambling to explain why the refunds are lower.

Lower refunds can be especially harmful to taxpayers who count on their refunds to pay their annual property taxes, holiday spending and other debts. Many count on the refunds to pay for summer vacations and other discretionary spending. Some who normally receive refunds may even find themselves owing money this year.

Although most taxpayers will actually pay less in taxes this year, this does not necessarily translate into increased refunds. For most, the tax cut provided more take-home pay during 2018, instead of adding to their refunds at the end of the year. This decrease in withholding spread over 52, 26 or 24 paychecks is far less noticeable than a lump sum added to the refund.

How did this happen? The culprit is generally the amount of tax you had withheld from your paycheck each payday. The tax reform was passed at the very end of 2017, not allowing the IRS sufficient time to adjust the employer withholding tables or the W-4 – Employee’s Withholding Allowance Certificate – for the new law. When they did a couple of months later, the revised withholding tables and W-4 produced lower withholding, leading to the lower refunds.

The IRS was aware of this and issued notices almost weekly cautioning taxpayers that the lower withholding would lead to lower refunds or perhaps even them owing instead of receiving a refund. The General Accounting Office estimates that the number of taxpayers who will owe taxes this year will increase from 18 to 21 percent.

If you are affected and want to avoid the same thing from happening next year, you may want this office to compare your current withholding to your projected tax liability so that you can adjust your withholding to produce the result you desire on your 2019 return.

Relief from the Affordable Care Act Penalty for Not Being Insured

Article Highlights:

• Tax Reform 
• Penalty for Not Being Insured 
• Premium Tax Credit 
• Employer Penalty 
• Coverage Exemptions 
• Hardship Exemptions

Thanks to the tax reform, beginning in 2019, the penalty for not having adequate health insurance, which the government refers to as the “individual shared responsibility payment,” will no longer apply.

The elimination of this penalty as of 2019 does not impact the health care subsidy for low-income families, which is known as the premium tax credit and which is available for policies acquired through a government insurance marketplace. This elimination also does not affect the penalties assessed on employers that do not offer affordable insurance to employees and that have 50 or more full-time-equivalent employees.

However, the penalty still applies for individual taxpayers who did not have minimum essential health coverage for 2018 and is the greater of the sum of the family’s flat dollar amounts or 2.5% of the amount by which the household’s income exceeds the income-tax-filing threshold.

For 2018, the flat dollar amounts are $695 per year ($57.92 per month) for each adult and half that amount ($347.50; $28.96 per month) for each child under the age of 18; the maximum family penalty using this method is $2,085 per year ($173.75 per month).

As an example, say that a family of four (2 adults and 2 children) has a household income that exceeds the income-tax-filing threshold by $100,000. This family would have a maximum penalty equal to the greater of the flat dollar amount ($695 + $695 + $347.50 + $347.50 = $2,085) or 2.5% of the income amount (2.5% × $100,000 = $2,500). Thus, the maximum penalty would be $2,500. However, the penalties are applied separately per month, and they do not apply in a given month if certain exceptions are met.

There are a number of exceptions to the penalty, as listed below. For details related to qualifying for any of these exceptions, please give this office a call. Some of the penalty exceptions apply to the entire year, and some only apply to a specific month in the year. If penalty relief applies to a specific month, it also applies to the months just preceding and following that month. The table below lists the various exceptions and the code number the government assigned to that exception.

COVERAGE EXCEPTIONS	CODE NUMBER
Income below the tax-filing threshold.	No code
Coverage considered unaffordable.	A
Short coverage gap (less than 3 months).	B
Certain U.S. citizens or resident aliens living abroad.	C
Member of a health care ministry.	D
Member of an Indian tribe.	E
Incarcerated.	F
Aggregate self-only coverage unaffordable.	G
Resident of a state that did not expand Medicaid.	G
Member of tax household born or adopted during the year.	H
Member of tax household died during the year.	H
Member of certain religious sects.	ECN*
Ineligible for Medicaid based on a state decision not to expand Medicaid.	ECN*
Coverage considered unaffordable based on projected income.	ECN*
Certain Medicaid programs that are not minimum essential coverage.	ECN*
* Certain hardship exemptions.	G – See list below

* ECN standards for “exception certification number,” which must be applied for and provided through the government marketplace.

In addition to the general exceptions included in the table above, hardship exemptions are also available. The most common of these exemptions are:

• Being homeless.
  
• Evicted or facing eviction because of foreclosure.
  
• Received a shut-off notice from a utility company.
  
• Experienced domestic violence.
  
• Death of a family member.
  
• Fire, flood or other disaster that caused substantial damage.
  
• Filed for bankruptcy.
  
• Medical expenses could not cannot be paid, resulting in substantial debt.
  
• Increased necessary expenses to care for an ill, disabled or aging family member.
  
• Claiming a child who was denied Medicaid or CHIP coverage.
  
• Ineligible for coverage because state didn’t expand Medicaid.
  
• Financial or domestic circumstances, including an unexpected natural or human-caused event, causing an unexpected increase in essential expenses, which prevented obtaining coverage under a qualified health plan.
  
• The expense of purchasing a qualified health plan would have caused the taxpayer to experience serious deprivation of food, shelter, clothing or other necessities.

To claim a hardship exemption, an individual must obtain an ECN through the normal application process, or for 2018, they may self-certify the hardship. However, an individual who is self-certifying is cautioned to retain documentation that demonstrates qualification for the hardship exemption, in case it is later challenged by the IRS.

A person is eligible for a hardship exemption for at least the month before, the month(s) during and the month after the specific event or circumstance that created the hardship.

Filing a 1099-MISC May Now Apply to Landlords. Are You Collecting the Needed W-9s?

Article Highlights:

• $600 Threshold 
• Exceptions 
• Form W-9 
• Impact of Tax Reform 
• 1099-MISC Filing 

If you use independent contractors to perform services for your business or your rental that is a trade or business, for each individual whom you pay $600 or more for the year, you are required to issue the service provider and the IRS a Form 1099-MISC after the end of the year, to avoid losing the deduction for their labor and expenses. (This requirement generally does not apply to payments made to a corporation. However, the exception does not extend to payments made for attorney fees and for certain payments for medical or health care services.)

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year exceed the $600 limit. As a result, you might overlook getting the information needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services. Having a properly completed and signed Form W-9 for all independent contractors and service providers will eliminate any oversights and protect you against IRS penalties and conflicts.

The government provides IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law, should the individual provide you with incorrect information. We highly recommend that you have a potential vendor or independent contractor complete a Form W-9 prior to engaging in business with him or her.

Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099-MISCs to service providers, they realize they have not collected the required documentation. Often, it is difficult to acquire the contractor’s, handyperson’s, gardener’s, etc., information after the fact, especially from individuals with no intention of reporting and paying taxes on the income.

This has become even more important in light of the tax reform’s 20% pass-through deduction (Sec. 199A deduction), since the regulations for this new tax code section caution landlords that to be treated as a trade or business, and therefore to be generally eligible for the 199A deduction, they should consider reporting payments to independent contractor service providers on IRS Form 1099-MISC, which wasn’t generally required for rental activities in the past and still isn’t required when the rental is classified as an investment rather than as a trade or business. This caution was included in IRS regulations issued after the close of 2018, which caught everyone by surprise and left most rental property owners to deal with obtaining W-9s after the fact from service providers and issuing the 1099-MISCs after the due date of January 31, 2019. For each 1099-MISC form filed after the January 31, 2019 due date but within 30 days there is a penalty of $50. After 30 days and by August 1, 2019 the penalty increases to $100 per 1099-MISC and those filed after August 1, 2019 the penalty jumps to $270 per 1099-MISC. These penalties do have maximum amounts.

1099-MISC forms must be filed electronically or on special optically scannable forms. If you need assistance with filing 1099-MISCs or have questions related to this issue, please give this office a call. Also, make sure you have all of your independent contractors or service providers complete a Form W-9 for 2019.

Your Small Business Survival Guide for If (and When) the Economy Slows Down

According to one recent study conducted by the Small Business Administration, there are approximately 28.8 million small businesses in the United States that are collectively responsible for about 99.7 percent of all economic activity in this country. In many ways, they represent the “canary in the coal mine” for a nation. When small businesses are doing well, this is a sign that the economy is strong and that the future is a bright one.

Unfortunately, the reverse is also true as NSBA revealed that the greatest challenge to both small business growth and survival is economic uncertainty. That idea in and of itself may be nothing new, but a number of recent studies and surveys have revealed that a slowdown in the economy is an issue that may be significantly more timely than many realize.

A Recession and Your Business: A Primer

According to the latest CNBC/SurveyMonkey survey, 53 percent of respondents say that they expect an economic recession sooner rather than later. In fact, many of them think that it could arrive as soon as 2020. This comes despite the fact that 52 percent of respondents described business conditions as “good” for the first quarter of 2019; 57 percent expect increased revenue; and 28 percent actually plan to increase their own full-time staff in the short term.

One of the major factors that contributed to the devastation wreaked by the last recession was that it was so sudden. Things got very bad very quickly, and a lot of small business owners suffered as a result.

But, if most people are in an agreement that another recession is on the way (and indeed, a lot of people seem to think we’re overdue), that knowledge itself becomes your most powerful asset. If you truly want to make sure that your small business is capable of surviving when the economy slows down, there are a few key things you’ll want to keep in mind.

Always Be Prepared

Experts agree that one of the best ways to make sure that your small business comes out of the next economic slowdown in one piece has to do with being as proactive and as prepared as possible.

Your business might not need a working capital injection today, for example, but it may once the next recession begins. At that point, it might be difficult to gain access to that capital thanks to poor or uncertain economic conditions.

To combat this, consider taking out a new line of credit to help make sure those funds are available if and when the time comes. Getting a credit line for $20,000 doesn’t mean that you have to borrow that money today or even in full. But the peace of mind that comes with knowing you do have access to these funds will go a long way toward making sure that you can stay afloat during those slow periods.

It All Comes Back to Cash Flow

Likewise, if you know with some certainty that an economic slowdown is inevitable, there are steps that you can take in the short term to avoid traps and other pitfalls that would cause additional damage during a recession.

When the economy does slow down, you’ll need to make sure that your cash flow is in order. If that is currently a problem for you, it’s only going to get worse as time goes on. Make an effort today to collect on accounts receivable at a faster pace. Improve and optimize your own processes and workflows to make sure that you’re getting the money for services rendered as quickly as possible. If you take meaningful steps to improve your cash flow situation now, it will be one less thing you have to worry about if the economy does slow down dramatically next year.

The Art of Inventory Management

Finally, one of the best steps you can take to protect your business during slow economic periods has to do with performing an overhaul of your inventory management practices.

Inventory costs are always a major pain point for most small businesses, but this is especially true during a recession. Again, take a look at some of the problems you may have today that could cause major damage down the road.

Do you currently order far too many of one specific item? Is there an item that you have that can be sourced somewhere else for a better price? Are you capitalizing on every opportunity to reduce shipping and warehousing costs?

These are the types of questions you need to ask yourself prior to the next economic slow period. If you wait until things start to get tough before taking a look at your inventory management practices, you’ll have waited far too long. You may be able to make progress at that time, but the lion’s share of the serious damage will have already been done.

However, by following tips like these to strengthen the foundation of your business right now, it will still be as solid as you need it to be moving forward - regardless of what happens with the economy during that time. If nothing else, these steps will all help to make sure that your business comes out of the next recession stronger than ever, which is definitely the position you want to be in.

How to Pay Your Federal Taxes

If you aren’t one of those lucky Americans who get a tax refund from the IRS, you might be wondering how you go about paying your balance due. Here are some electronic and manual payment options that you can use to pay your federal income tax:

Article Highlights:

• Electronic Funds Withdrawal 
• Direct Pay 
• Electronic Federal Tax Payment System 
• Send a Check 
• Pay by Cash 
• Credit Card 
• Installment Agreement 
• Tap a Retirement Account 

• Electronic Funds Withdrawal – You can pay using funds from your bank account when your tax return is e-filed. There is no charge by the IRS for using this payment method, and payment can be arranged by your tax return preparer, allowing for e-filing of your return and submitting an electronic funds withdrawal request at the same time.
• Direct Pay – You can schedule and make a payment directly from your checking or savings account using IRS Direct Pay. There is no fee for this service, and you will receive an e-mail notification when the funds have been withdrawn. Payments, including estimated tax payments, can be scheduled up to 30 days in advance. You can change or cancel the payment up to two business days before the scheduled payment date.
• Electronic Federal Tax Payment System – This is a more sophisticated version of the IRS’s Direct Pay that allows not only federal income tax but also employment, estimated and excise tax payments to be made over the Internet or by phone from your bank account, with a robust authentication process to ensure the security of the site and your private information. This is a free service. Payments, which can be scheduled up to 365 days in advance, can be changed or canceled up to two days prior to the scheduled payment date. You can use IRS Form 9783 to enroll in the system or enroll at EFTPS.gov – but do so well in advance of the date when a payment is due because the government will use U.S. mail to send you a personal identification number (PIN), which you will need to access your EFTPS account.
• Send a Check – You can also pay the old-fashioned way by sending in a check along with a payment voucher. The payment voucher – IRS Form 1040-V – includes the information needed to associate your payment with your IRS account. IRS addresses for where to send the payment and your check are included with Form 1040-V.
• Pay with Cash – Taxpayers without bank accounts or those who would just prefer to pay in cash can do so by making a cash payment at a participating 7-Eleven store. Taxpayers can do this at more than 7,000 locations nationwide. Taxpayers can visit IRS.gov/paywithcash for instructions on how to pay with cash. There is a very small charge for making a cash payment, and the maximum amount is $1,000 per payment. But don’t wait until the last minute, as it will take up to a week for the IRS to receive the cash payment. 

The IRS also has a mobile app that allows taxpayers to pay with their mobile device. Anyone wishing to use a mobile device can access the IRS2Go app to pay with either Direct Pay or by debit or credit card. IRS2Go is the official mobile app of the IRS and is available for download from Google Play, the Apple App Store or the Amazon App Store.

If you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the funds needed to fully pay your taxes, so that you are not subjected to the government’s penalties and interest. Here are a few options to consider when you don’t have the funds to pay all of your tax liability.

• Credit Card – Another option is to pay by credit card by using one of the service providers that work with the IRS. However, as the IRS will not pay the credit card discount fee, you will have to pay that fee. You will also have to pay the credit card interest on the payment.
• Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement that will allow you to make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. In addition, interest will also be charged at the current rate, and you will have to pay a user fee to set up the payment plan. By signing up for this arrangement, you agree to keep all future years’ tax obligations current. If you do not make payments on time or if you have an outstanding past-due amount in a future year, you will be in default of the agreement, and the IRS will then have the option of taking enforcement actions to collect the entire amount you owe. If you are seeking an installment agreement exceeding $50,000, the IRS will need to validate your financial condition and your need for an installment agreement through the information you provide in the Collection Information Statement (in which you list your financial information). You may also pay down your balance to $50,000 or less to take advantage of the streamlined option.
• Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because it jeopardizes your retirement and the distributions are generally taxable at the highest bracket, which adds more taxes to the existing problem. In addition, if you are under age 59.5, such a withdrawal is also subject to a 10% early-withdrawal penalty, which will compound the problem even further.
• Family Loan – Although it may be uncomfortable to ask, obtaining a loan from a relative or friend is an option because this type of loan is generally the least costly, in terms of interest.

Whatever you decide, don’t just ignore your tax liability, as that is the worst thing you can do, and it can only make matters worse.

Taxpayers can get help any time of the year

When the federal income tax-filing deadline come and go, some taxpayers might still need tax help. To offer their hep the IRS has several resources available for taxpayers year-round: 

Resources

IRS.gov. Taxpayers can find all sorts of helpful information on IRS.gov. They can click on “Help” at the top of the home page to access several online tools. They can also get answers to their tax questions with the Interactive Tax Assistant and the IRS Tax Map. Anyone who is waiting for their refund this summer can use ‘Where’s My Refund?’ to check the status of their refund.

Taxpayer Advocate Service. TAS is an independent organization within the IRS. TAS employees can help people who are experiencing economic harm, who are seeking help in resolving tax problems, or who believe that an IRS procedure is not working as it should. Taxpayers can contact TAS by calling the case intake line at 1-877-777-4778 to determine if they are eligible for assistance.

Low Income Taxpayer Clinics. The LITCs provide professional representation to individuals who need to resolve tax problems. These clinics also help taxpayers who speak English as a second language. They can represent eligible taxpayers at no charge in tax disputes with the IRS.

Multimedia Center. Taxpayers can watch dozens of YouTube videos on a variety of topics. They can view them in English, Spanish or American Sign Language. They can also listen to IRS podcasts. All are available in English and Spanish.

Twitter.  Taxpayers on Twitter can get tax-related announcements and tips from @IRSnews. @IRStaxpros tweets news and guidance for tax professionals. Tweets from @IRSenEspanol have news and information in Spanish. The Taxpayer Advocate Service sends tweets from @YourVoiceAtIRS.

Galloway Tax Express is open year-round to help taxpayers with an issues they may have after tax season. We can be contact by phone at 336-705-6322, website or email.