Important Tips to Begin the 2019 Tax Year right!
It’s a good feeling to start off the 2019 tax year on the right foot. It not only gets you in the grove for growing your business, but it also helps you resist bad habits that try to creep up during the year. Individuals and small businesses should consider various ways to begin the 2019 tax year with helpful tax tips. Here are some suggestions from our tax office that we thought will be helpful.
Collect W-9 Forms at the Beginning of the 2019 Tax Year
Did you operate a business in 2018? It’s a little late now, since these should have been sent to recipients as by January 31st. Regardless, you must issue a Form 1099-MISC to each service provider to which you have paid at least $600 during the given year. It is a good practice to collect a completed W-9 Form from every service provider (even if you are paying less than $600). Why less than $600? You may use that provider again later in the year and may have difficulty getting a W-9 after the fact—especially from providers that do not plan to report all of their income for the year.
Employees, your employer takes the information from your Internal Revenue Service (IRS) Form W-4 and applies it to the IRS’s withholding tables. These tables help the employer to determine the amount of income tax to withhold from your wages in each payroll period. This process did not work all that well in 2018 because, in the wake of the tax reform, the IRS did not have time to properly redesign W-4 form. Therefore the employers were not able to accurately adjust its withholding due to the out-of-date IRS tables. In fact, the IRS has announced that this task will not be completed until it issues the 2020 versions of Form W-4 and the withholding tables. (See our article Getting the W-4 Right is Important!)
So, the problem from 2018 continues into 2019. Therefore, should your 2018 refund or balance due amount not come close towhat you were hoping for, then please consider adjusting your withholding and base your tax on the 2019 projection. If you need assistance, one of our tax experts is available to help you.
Estimated Tax Payments
Are you are self-employed? Then you prepay each year’s taxes in quarterly estimated payments. You do this by sending 1040-ES payment vouchers or making electronic payments. For the 2019 tax year, the first three payments are due on April 15, June 17, and September 16, 2019, and the final payment is due on January 15, 2020. Generally, the basis of these payments is from the prior year’s taxable income. Therefore, should you expect any significant changes in either income or deductions relative to the previous year, feel free to contact this office for help in adjusting your payments accordingly.
Do you marginally itemize your deductions? Then you can employ the bunching strategy, which involves taking the standard deduction one year but itemizing your deductions in the next. However, you must make this decision early in the year so that you can make two years’ worth of charitable contributions in the bunching year.
Required Minimum Distributions for the 2019 Tax Year
Each year, if you are 70.5 or older, you must take a required minimum distribution from each of your retirement accounts or face a big penalty! By taking this distribution early in the year, you ensure that you don’t forget and accidentally subject yourself to penalties.
Are you are looking to reduce your estate-tax exposure? What about just wanting to give some money to family members? In both of these cases, know that, each year, the IRS allows you to gift up to $15,000 to each person who will benefit from these gifts. And, the great news is that there is no limit to the number of people you can gift money to! This will not affect the lifetime estate-tax exclusion amount or paying a gift tax.
It is always a good practice to review your retirement-plan contributions. This helps you to determine whether you can afford to increase your contribution amounts and to make sure that you are taking full advantage of your employer’s contributions to the plan.
Marriages, divorces, births, deaths, and even family clashes all affect whom you include as a beneficiary. Periodically review not just your will or trust but also your retirement plans, insurance policies, property holdings, and other investments. This will help you to be sure that your beneficiary designations are up to date. A good idea would be to communicate with an estate attorney and update any documentation necessary.
2019 Tax Year Reasonable Compensation
With the advent of the 20% pass-through deduction, which is available to most businesses other than C-corporations, the issue of reasonable compensation takes on a whole new meaning. This is particularly true for S-corporations’ shareholders. This has been a contentious issue in the past, as it has allowed shareholders who are not just investors but who are actually working in the business to take a minimum salary (or no salary at all). This is so all their income passes through the K-1 as investment income. This strategy allows such shareholders to avoid payroll taxes on income that should be treated as W-2 compensation. A number of issues factor into a discussion of reasonable compensation. These issues include comparisons to others in similar businesses and to employees within the same business. Also, the cost of living in the business’s locale is an issue. This is a subjective amount, and generally a decision should be made by a firm that specializes in making such determinations.
Generally, vehicles with business use also have some amount of nondeductible personal use in a given year. It is always a good practice to record a vehicle’s mileage at the beginning and at the end of each year so as to determine its total mileage for that year. The total mileage figure is then used when prorating the personal- and business-use expenses that relate to the vehicle.
Contribute to your child’s Section 529 plan as soon as possible! The funds begin accumulating earnings as soon as they are in the account, which is important because the student will likely begin using that money at age 18 or 19.
Do you want to get 2019 Tax Year off to a good start?
Only a few of the tax-related actions that you take during a year will benefit yourself or others. The most important of these actions is keeping timely and accurate tax records; for businesses in particular, this is of the utmost importance. Those who document their income and expense records accurately, generally come out on top when the IRS challenges them.
So, when you have any questions that relate to your taxes or should you like an appointment for tax projections or tax planning, please call this office 781-849-7200. Alex Franch, BS|EA is an enrolled agent with the IRS. You may also email our office at firstname.lastname@example.org. With tax season here, we highly recommend that you set up your appointment quickly as there is less than a month before tax filings are due! Worthtax offers a variety of client discounts to save you money.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning.
Sources and Resources
- E-file Cash Transaction Reports to Battle Against Crime
- Who is Responsible for Massachusetts Tax Filing
- How to Select a Tax Expert, Avoid Dishonest Tax Preparers
- Landlords Are You Collecting-w-9s?
- 7 Ways Small Business Owners Save Money on Taxes Legally
- Getting the W-4 Right is Important!
- Form 1099 Miscellaneous Filing Deadline
- IRS Tax Guidance: S Corporation Stockholder, Reasonable Compensation
- 12 Common Tax Problems to Avoid
- Tax Reform is Confusing Part 2
- Tax Reform is Confusing! Here is a Side by Side Comparison Part 1
- Learn About This Year-End Tax Strategy
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- Don’t Expect the IRS to Take Your Word on Charitable Deductions – Substantiate