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Year End Tax Planning For Individuals – Why It Is So Important This Year!

John Dundon- Tax Planning

Year End Tax Planning For Individuals

If you happen to be like me – desperately seeking any distraction from this holiday season – there is no better time than the present to start some year-end tax planning. Why is tax planning particularly important this year for almost EVERYONE? Basically the Tax Cuts and Jobs Act brought generational changes to the tax rules. The last time the tax code changed this dramatically was in under President Reagan in 1986.

  • People who thought the reporting under Obama Care was onerous are in for a surprise, a BIG surprise. Tax professionals and taxpayers alike are challenged with understanding these new laws and regulations. With the average age of the tax professional in Colorado being 68 years old, many are simply closing up shop. When it is time to engage you may find yourself out in the cold without adequate representation. Little is more disenfranchising than the discovery you handed over hard earned money to our esteemed authorities because your head was in the sand.

Yes – it might be the driest stuff you read all day. Yes -it will be worth the 3 minutes of your time to peruse.  Not all considerations below may apply specifically to you but they are worth knowing about and sharing with friends or family.

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Tax Planning Time For Small Business Owners

John Dundon- TP Small

As we run full tilt into the holidays – between storing boats & fishing poles, repairing bikes, readying hunting gear and waxing skis don’t forget to THINK about next spring’s tax time.

An ounce of preparation today can save BIG $$ come spring. Particularly if you are looking to lower your tax bill for this year and possibly the next… and who isn’t interested in that?!?

This year tax planning takes place in the light of a new – Tax Cuts and Jobs Act (TCJA) — a generational change in how the United States taxes income. In fact:

  1. the last time the US Tax Code changed this much was in 1986 under President Reagan
  2. tax practitioners are retiring in droves – thoroughly defeated with the sheer volume of changes
  3. the US Treasury is still behind in producing regulations to govern these new statutes
  4. the 2018 filing season may very well  be delayed as a result

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Tax Planning For Pass-Through Business Entities After Tax Reform

John Dundon, Pass-Throughs And Tax Cuts And Jobs Act

Tax planning under the TCJA for pass through entities is a post for small business owners everywhere paying US income taxes.

Now that the Tax Cuts and Jobs Act (TCJA) is in full swing, many of you have been clamoring for tax planning strategies. This post addresses some essential aspects of the Act and suggest some strategic implications to be used for planning purposes.

One of the most significant changes coming out of the TCJA are the new tax rates:

  • The individual tax rate is reduced to a maximum 37%.
  • The tax rate for pass-through entities can be reduced by 20%.
  • The corporate tax rate is reduced from 35% to as low as 21%.

As a result of these new tax rates there is a growing debate over whether a business should be organized as a pass-through entity or a full blown ‘C’ corporation. 

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What Is A Specified Service Or Trade Business(SSTB)?

John Dundon - Specified Service Or Trade Business

When not riding my mountain bike in the Rocky Mountains I tend to hang out with tax nerds … pretty much all the time, to the extent that tax nerds actually ‘hang out’ that is.  At one of our most recent ‘meetups’ (think band camp without the instruments) we had a lot of fun indulging in freshly picked peaches & poking holes in the bizarrely nuanced albeit new ‘concept’ (if you will) of what a Specified Service Trade or Business (SSTB) is ‘proposed to be’ according to our esteemed ‘rule-writers’ from the US Treasury.

Worth noting is that there were a LOT of smart people in the room, many of whom spent their entire adult lives reading and writing about (as well as applying) the US Tax Code/Regulations. 

We all generally agreed that no business wants to be deemed a SSTB (as the acronym alone sounds like a disease) and that as a result there will be all sorts of skulduggery rearing its ugly head in the not too distant future from US Taxpayers and perhaps our beloved federal government alike.

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Federal Tax Deduction Allowed For Gluten Free Diet With Physicians Prescription

John Dundon, Gluten Free Diet Tax Deduction

Many people suffer from Celiac’s disease.  To be eligible to deduct the excess costs of a gluten-free diet under Internal Revenue Code Section 213, you must have a documented reason to require the observance of a gluten-free diet, along with a physician’s prescription to follow a gluten-free diet. This should provide sufficient documentation of eligibility.

The excess cost of gluten-free food can be deducted if you can deduct expenses paid for medical care for yourself, a spouse, or a dependent, to the extent the aggregate expenses exceed 10 percent of adjusted gross income.

If you meet both criteria above and choose to itemize deductions start collecting receipts and record them regularly. Download a spreadsheet from the Celiac Sprue Association for calculating the deductible expense.

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IRS Penalty: What Is Reasonable Cause?

IRS penalty relief brings big business opportunities for astute tax practitioners as the IRS does indeed have the authority to provide relief from various penalties if you know how to do the dance.

In 2014 the IRS abated either in part or in full approximately 12.3% of the 40.3 million penalties issued reducing penalty assessments paid by US Taxpayers up to $9.8 billion.

According to the IRM, relief from penalties can fall into one of four separate categories.

  • Reasonable cause.
  • Statutory exceptions.
  • Administrative waivers.
  • Correction of IRS error.

This post drills down into Reasonable Cause. The IRS bases reasonable cause on all the facts and circumstances of each individual case file and it allows for relief of penalties as per IRM 20.1.1.3.2.

The IRS grants reasonable cause relief when you exercised ordinary business care and prudence in determining your tax obligations but nevertheless were unable to to timely comply with those obligations.

IRS Policy Statement 3-2 provides a very limited list of ’causes’ which can be ‘reasonable’ for late filing of a return or failure to deposit or pay tax when due (IRM 1.2.12.1.2).

Examples of sound causes for delay which can be accepted as reasonable cause include:

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The New Draft Version 2019 IRS Form W-4 Is A Rage Inducing Abomination

John Dundon,2019 Draft W-4

The New Draft version 2019 Form W-4 is a rage inducing abomination.

When I first looked at the new Draft version of the 2019 Form W-4 Employee’s Withholding Allowance Certificate my initial reaction was rage.  Yes, rage! Rage towards an unnecessary yet profound encroachment of privacy by our federal government. When you view the form you will see that you now must report for the love of the almighty two very private pieces of data to your employer:

  1. All other income earned outside your job
  2. Total itemized deductions.

Your employer has no business knowing this information about you! What is happening?

Thanks to the eukaryote dimwits in charge (e-DICs), the budget busting, deficit exploding Tax Cut & Jobs Act (TCJA) now requires that “your employer” calculate “your” income tax withholding in a different way than before. This is accomplished by imposing upon you in exchange for gainful employment an obligation to prepare, sign (under penalty of perjury) and submit to your employer IRS Form W-4.

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It Matters In Determining If The Accuracy Penalty Applies – Negligence  VS. Disregard

It matters in determining if the accuracy penalty applies when negotiating with the IRS. Section 6662(c) and Reg. §1.6662-3(b) provide the following definitions and guidance.

Negligence includes any failure to make a reasonable attempt to comply with the rules or regulations or to exercise ordinary and reasonable care in the preparation of a tax return.

It also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly.

Negligence Is Strongly Indicated Where:

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How To Formulate An IRS Penalty Abatement Request

Greetings fellow tax nerds! Perhaps life might suck for me at present but lately, there seems to be nothing more satisfying than making tax penalties go away. Think about it. You’re a good person. You work hard. You struggle every day to do right. Then all of a sudden something changes. It appears innocuous.

Your busy and it gets blown off. Happens all the time. Three years later the IRS sends you a letter asserting that you are guilty and you are indeed guilty as charged. I’ve grown exhausted by toothless IRS letters and more so the reprobate tax collection practice of preying on taxpayer fears of the IRS…for profit.

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How To Submit A Reasonable Cause Claim To The IRS For Penalty Abatement

If you have not filed your personal income tax form (1040), generally, you should get the tax form filed ASAP without consideration for the yet to be assessed penalties.

Then exercise patience.

Wait for the IRS to assess the penalty and then send a reasonable cause explanation to the address indicated on the notice from the IRS. This way you mitigate all sorts of procedural kerfuffles. Read more

Navigating The Shoals Of IRS Penalty Abatement – Types Of Defense (Part II)

Now that you may have missed the income tax filing and payment deadline perhaps it is a good time to understand how to cope with penalization as it can get woefully expensive – not to mention mind numbing – if you go about it have baked.

There are a handful of defenses you can attempt to assert when it comes to navigating the shoals of IRS penalty abatement, chose with care and proper counsel.

The key IMHO is to comport yourself with law abiding dignity whilst deliberately navigating through these general options, including: Read more

Navigating The Shoals Of IRS Penalties

For those of us inclined to the proverbial ‘head-bury’ strategy with Big Brother, it is best to understand the civil penalties assessed when IRS systems catch up – as measured in tangible $$ out the pocket. For the brave of heart, navigating the shoals of IRS Penalties can be intimidating to comprehend but it is far from rocket science.

Understanding IRS civil penalties starts with picking up Part 20.1 of the Internal Revenue Manual (IRM).  Here you will find guidance on all areas of civil penalties imposed by the Internal Revenue Code (IRC).

Criminal penalty provisions are contained in IRM 9.1.3 and beyond the scope of this post. Read more

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