When Donald Trump was elected almost a year ago now, there were immediate questions about how that could affect the upcoming tax season. That turned out to be all for naught, as we learned that nothing happens that quickly. Then the questions turned to how his handling of health insurance would affect taxes. And well, we’re still not sure about all those answers. And now we are even more focused on what a more extensive tax reform package could mean, but we have hit November without a clear picture there, too.
And now with guilty pleas and indictments affecting associates of the president, who knows where anything is going to end up.
I can’t remember a time when so many things in so many different areas felt so much in flux. So often in this space I like to write and offer some direction, or at least some tips to point you in possible directions about difficult issues. This time, though, I feel like all I can do is shrug.
This doesn’t mean that all is bad, though. Many economic indicators are good, consumer spending is growing, and the stock market is strong. Even if we don’t know all the answers on where things are going, we do not appear to be on the verge of any collapse.
Sometimes, though, it feels like we may be perched on a precipice, but I think that comes from the divide between sides where middle ground no longer seems tenable. This dynamic has been happening for nearly two decades, and now that we have probably the most polarizing president in history, it has only been exacerbated.
So yes, I am mostly shrugging this week about any specific issue, but I wanted to take the chance to speak up about the political divide.
First, it doesn’t matter what side of any debate you are on. It does, however, matter that you have thought out your position. Don’t blindly follow anyone. These debates are over important issues and chances are really good that their outcome will affect you. So look into them, make your choices, take your stand, but do it with knowledge.
Second, once you have done that, don’t be afraid to speak up. It is okay to share what you believe and it is a good thing (at a base level) that social media has given so many people a voice who did not have one before. But remember to do it with tact and to do it with respect. These are beliefs and outlooks we are talking about, so there is no one final answer.
So finally, have these debates with respect and an open mind. You don’t have to change everyone’s mind, and you won’t, but that does not make them evil. In turn, they also don’t have to change your mind. We should, however, always be open to having our minds changed. Granted, in some cases it may take a lot to accomplish it, but be open enough to listen to others and allow it as possibility.
For only then can we ever rediscover compromise.
Adoption Tax Credit
Between hurricanes, health care and tax reform, too many of my recent blogs have felt at best confusing and at worst depressing. Granted, as someone who works in taxes I am used to not always being a bearer of good news, but this has felt excessive. So today I am going to try to turn the tide a bit and speak of one of the positive times in which I do get to be involved.
One of those happy times comes when someone gets to adopt a child, for I then get to bring the news that it comes with a tax credit. Granted, this is a very small piece when weighed against the importance of the whole situation, but it is one of those instances where if the tax help exists, you should take advantage of it.
Unfortunately, and not surprisingly, this credit isn’t simple, and complicated enough that I could not hope to explain every bit of it in depth in this small amount of space. So to introduce it, I will let the IRS speak for itself. It states that, “tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2016 is $13,460 per child.”
And if any of that doesn’t make sense to you, well it’s the IRS so that’s not surprising, and I promise we will work through it if you are in a situation to utilize it.
I did, however, want to spend some time going through what qualified expenses are for this credit, because how much money one can spend before an adoption is finalized can be quite large. So first of all, these include all reasonable and necessary fees paid for the adoption itself, as well as court costs and attorney fees incurred during the process. Beyond that, though, traveling expenses during the experience count, and this includes food and lodging while away from home.
Another key point is that these expenses count even before an eligible child has been identified. This means that what one pays at the outset of adoption efforts, such as home studies, are qualified expenses. Also, as another point of definition, an eligible child is an individual under the age of 18, or a person incapable of self-care.
There are some limitations, though. First of all, there is a income limit based on your modified adjusted gross income. So it is possible to have enough income that this credit is eliminated. Also, qualified expenses do not include expenses one pays to adopt the child of a taxpayer’s spouse.
Regardless, this credit still applies to a great number of adoptions. It’s a little extra financial bright spot following the brighter spot of an actual adoption. So if you are someone who is eligible for this, please contact us, for we would love the chance to further help celebrate those positive times. It feels like we all could use it.
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Now that wildfires have been added to the list of disasters for which some tax relief measures have been granted, our ability to feel safe keeps being chipped away at. As these situations come at us with alarming regularity, they have caused many stories and tips (including from me) to be put out there in the hopes of helping people prepare for such events. What if it’s already too late, though?
It is that situation that prompted the IRS to release some tips for those who need to reconstruct records after a disaster. I think they’re worth mentioning here, for not only is it good advice and guidance for those who are in the unfortunate situation of needing to immediately heed it, but it also gives some ideas on how you might want to handle recordkeeping to try to mitigate the pain, hassle, and heartache that disaster may cause.
For overall, the more organized you were beforehand (while hopefully seeing the need to keep those organized records in more than one place), the easier it will to put things together afterward.
But if you need to still create a list of lost inventory, contacting suppliers for past invoices can help you start to document goods that you purchased. This won’t necessarily allow you to arrive at any final numbers, but will provide a baseline of information to work with.
Those numbers can work hand in hand with income, too, some of which can be found from old tax documentation. This includes federal, state, and local returns, but if you’re a business, don’t stop there,, for you should also be able to acquire sales tax reports and payroll tax documentation.
All this can start to give you numbers, but one could be most interested in trying to document the loss of property. Much of that may not be recorded in any of the above documents, especially for types of property that you have had for years, and frankly, those can often be some of the more valuable pieces you own.
The best thing to do in that situation is have photos or videos of the property. It is good practice to keep such evidence for insurance documentation, but even if you did not take that step in a proscribed and clinical way, the IRS offers the interesting idea of checking your mobile phone and other cameras for anything that could have been captured on photos or videos that you have there.
Barring that, though, business owners should still sketch out the interior and exterior of their locations, nothing where equipment and inventory was located. For the outside of buildings, note as many things as possible as landmarks, include parking areas, and include anything damaged in the incident.
These are just small tips, but at least they offer some guidance for those who could be in situations where they feel helpless. To keep yourself from becoming helpless in the future, though, think of those steps you could take now to ease the pain of future disasters. There’s no way to make such things easy, but simple steps will feel much bigger when you’re in a situation that makes you glad they were taken.
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Casualty Loss Deductions
Now that the shock of what Hurricanes Harvey and Irma did to our country has begun to fade, it can be too easy for those unaffected to go on with their lives without paying any more attention to those directly affected. So first let this be a slight push to not completely forget about those who are still battling, and if your situation has changed since the storms struck and you can now afford to give help, please do. And those are only the disasters I mentioned in this space previously, for we also should not forget those in Puerto Rico still trying to rebuild after Maria’s wrath.
What all this tells us is that the impact of huge storms like these does not end when the storms move out. Returning to normal cannot be done with the flick of a wand when your house may no longer be a suitable or safe dwelling. And although I wrote earlier of some of the special tax rules being put in effect for those in disaster areas, I want to also note that many of those people can also take advantage of the casualty loss tax deduction.
This was not included as one of the special measures being undertaken by the IRS, for it is something always in place. It may be one of the deductions not always known about, however, for many rely on their insurance to reimburse them for any damage, destruction, or property loss occurring from unexpected events. And it is true that this this deduction does not cover things for which you were reimbursed by insurance. What about when insurance does not cover everything, though? Well at that point, at least you can have some of that hurt mitigated with tax help.
To cover the very basics of this rule, casualty losses occur from “sudden, unexpected, or unusual” events. This means that anything not occurring through normal wear and tear or progressive deterioration could possibly be reported as a loss on your taxes. Think of it this way, if you need a new roof because it’s been a number of years since it was replaced, that does not count, but if you need a new roof because a tornado damaged your home, then it does count.
When this happens to your personal property, the amount of your casualty loss is the lesser of the adjusted basis of your property or the decrease in fair market value of your property as the result of the casualty.
Now at this point the insurance reimbursement comes into play, for you must adjust the casualty loss by the amount of that reimbursement, but if you can document that you still had a loss following that, then it can still be reported as an itemized deduction.
And as a side note, the same general rules apply to any losses you may have from theft.
Such losses are generally deductible in the year that they occur, so you don’t want to sit on making claims and getting everything in order when it comes to these events. There are also some rules around the deduction that make it not the easiest deduction to navigate, but as always, please be sure to reach out to us if you need any assistance doing so.
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The Limits of Reform
In the last week, the ideas behind President Trump’s tax reform plan finally started to become known. And it is natural for everyone to read the details and think about how it will affect their situation. No matter what answer you came up with, though, don’t start thinking that it means anything definite. Just remember the back-and-forth battle with health care that has occurred since Trump took office as an example of how difficult turning thought into action can be.
And since that is still so much up in the air, there is no reason for me to delve into the nuts and bolts of what is being proposed. Just know that we will remain on top of it so that you can trust your tax returns are in capable hands when any changes come.
I do, however, want to talk about the idea of how what is being proposed is being framed in terms of making taxes easier to understand and the tax code less complicated. But when so many pieces are involved, isn’t it bound to be a little complicated? Taxes are a huge way that a giant country of hundreds of millions of people is funded. And politics aside, most of those people want the government to have some level of power, and with that comes a cost. There will never be an end to the debate of how much power should be used and in what areas, but it will end up being expensive no matter what.
And because of that, there is no way this will end with a system that is simple enough that everyone can take care of their taxes on the back of an envelope. That’s a dream that will take bigger changes than simply how a tax bill is calculated.
Taxes are difficult, and no one wants to really think about how much we pay for them. It feels like money that we rightfully earned is being taken from us. But remember that they do go to fund many things that mostly everyone wants the government to do, so it’s not that bad.
At the same time, though, everyone should feel entitled to use the tax system – however the government determines it stands at the time- to their greatest advantage and keep the most money that you can in your own pocket. It’s legal and been determined you deserve it after all, right? So because of that, and because this system is going to be complicated no matter what, it’s good to have a professional by your side.
It is impossible to ignore the proliferation of do-it-yourself tax products that are out there now. Do you really want to teach yourself how to handle things that can be this difficult, though? No one wants a fly-by-night heart surgeon, because he works with a complicated system. Now your tax return may not be as immediately dire, but it should still be placed in capable hands.
So remember our hands are here for you, today, and through whatever the future holds.
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