Tax Planning

2018 Social Security changes announced

Posted on Nov 13, 2017

The Social Security Administration stated there will be a 2 percent cost-of-living adjustment (COLA) to monthly Social Security and Supplemental Security Income benefits for 2018. This is the largest increase since 2012. Up to $128,700 in wages will be subject to Social Security taxes (up $1,500 from 2017). Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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HOW TO FIX YOUR OVERFUNDED ACCOUNT

Posted on Oct 26, 2017

Is socking away large sums in a tax-deferred retirement account ever a bad idea? It is when you exceed the annual IRS limits. And intentional or not, the penalties can be painful. Here’s how overfunding occurs and what steps to take to fix the problem. When do overfunding situations occur? Overfunding retirement accounts happens more than you may realize. It can be the result of a job change that causes you to participate in the two different employer retirement plans. Sometimes people forget they made IRA contributions early in the year and do it again later. Others forget that the IRA limit is the total of all accounts, not per account. The rules are complicated. Traditional IRAs can’t be contributed to after age 70½, while Roth IRA contributions are subject to income limits. Plus all contributions are predicated on having earned income. IRAs The annual Roth and Traditional IRA contribution limit is $5,500 ($6,500 if age 50 or older). If you surpass this amount, you pay a 6 percent penalty on the overpayment every year until it’s corrected, plus a potential 10 percent penalty on the investment income attributed to the overfunded amount. The fix: If the overfunding is discovered before the filing deadline (plus extensions), you can withdraw the excess and any income earned on the contribution to avoid the 6 percent penalty. You will potentially owe 10 percent on the earnings of the excess contributions if you’re under age 59½. You can apply the withdrawn contribution to the next year. If your issue is due to age (70½ or older for a Traditional IRA) or income limit (for a Roth IRA), consider recharacterizing your contribution from one IRA type to another. 401(k)s The rules for correcting an overfunded 401(k) are a little more rigid. You have until April 15 to return the funds, period. The nature of the penalty is also different. The excess amount is taxable in the year of the overfunding, plus taxable again when withdrawn. So, you pay tax twice on the same amount. And in certain cases, overfunding a 401(k) could cause it to lose its qualified status. The fix: If you suspect an overpayment situation, contact your employer as soon as possible. Adjust your contribution amount before the end of the year and try to get the problem resolved that way. No matter the cause, if you are in doubt about how to handle excess contributions, give us a call. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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BUSINESS TAX: TIME TO CONSIDER SECTION 179?

Posted on Oct 25, 2017

Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. While it doesn’t change the amount of depreciation you can take over the life of capital purchase, it can change the timing by allowing you to deduct your purchase in the first year you place it in service. How does Section 179 work? Generally, when you purchase a piece of equipment for your business — say a $10,000 computer system — you can’t deduct the entire cost in the year it was purchased. It must take the expense by depreciating the cost over several years. Section 179 allows you to deduct the cost of the $10,000 computer in the year it was purchased and placed in service. You can deduct the expense of up to $510,000 of qualified property. The $510,000 deduction begins phasing out dollar for dollar if $2.03 million or more of qualified property is purchased during the year (meaning it phases out completely after you’ve purchased $2.54 million in business capital assets). What is qualified property? Qualified property includes things like tangible personal property, computer software and qualified real property (e.g., interior building costs for nonresidential buildings). Section 179 doesn’t apply to property acquired for use in a rental property if it’s not your trade or business but simply an investment. Some vehicles qualify for Section 179 expensing, within limits. (The limits were brought about when some business owners bought expensive Hummers and expensed the cost in a single year.) If you are considering your options for depreciating your business assets under Section 179, here are important details to remember: Section 179 allows deducting the expense of up to $510,000 of qualified business purchases. A Section 179 deduction cannot create a loss for the business. A Section 179 deduction must be for business use. If an asset is not entirely used for business, the allowance is reduced. If you sell a Section 179 asset prior to the full depreciation period, you will have to record any sales proceeds as taxable income. Many states limit the use of this federal shifting of depreciation. Taking Section 179 for capital purchases can be useful, but it’s not for everyone. Using Section 179 for an immediate tax break means it’ll no longer be available for future years. Consider this as you manage your business’s tax obligation. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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How to hit the standard deduction threshold

Posted on Oct 24, 2017

Have you hit your standard deduction threshold yet? If not, you still have a few options to help create a lower tax bill for the 2017 tax season. One way is to donate stock you’ve held for more than a year to a charity. You can also consider prepaying next year’s donation in the current year. Another option is to pay your taxes prior to year-end. We can help you find the best option for your situation. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Are you withholding enough for taxes?

Posted on Oct 13, 2017

Don’t leave it up to chance – check your 2017 tax withholdings while you still have some time to make changes. You can use the withholding calculator on the IRS website to see if you are paying too much or not enough. To make a change, fill out a Form W-4 and give it to your employer. You’ll end up filling out another form in early 2018 to adjust your withholding schedule. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Your receipts are important: save them

Posted on Oct 2, 2017

When it comes to taking qualified deductions on your federal tax return, three things must happen: Recognize that an expense might be deductible on your tax return. Keep a record of the expense in an organized fashion. Obtain the proper (and timely) documentation to support your deduction. This might be obvious to most people, but here are some typical areas where taxpayers often fall short. In the long run, these items could end up costing you plenty during tax filing season, and trigger IRS audits. Cash donations to charity. To deduct and support your deduction to a qualified charity you must have valid support. Donations of cash are no longer deductible if they are not supported by a canceled check or written acknowledgement from the charity. A donation deduction of $250 or more needs to be supported by documentation created at the time of the donation. A canceled check and bank statement are not sufficient. If you get audited, having the charity issue documentation after the fact may not be enough. Non-cash contributions. You need documentation for these donations as well. This includes a detailed list of items donated, the condition of the items and their estimated fair market values. While this level of detail is not required for small donations, keeping good records and taking photos is a good practice. Investment purchases and sales. If you bought or sold an investment you will need to know your cost basis. Today’s regulations require brokers to report to the IRS the cost basis of investment sales. Review your broker accounts and correct any errors. It’s very difficult to defend yourself in an audit when records reported to the IRS are in error. Copies of divorce decrees, alimony and child support agreements. There are often conflicts between two taxpayers taking the same child as a deduction. Do you have the necessary proof to defend your position? The same is true with alimony and child support. Keep these documents in a safe place and be ready to use them if necessary. Copies of financial transactions. Keep copies of documents from any major financial transaction. This includes real estate settlement statements, refinancing documents and any records of major purchases. These documents are necessary to ensure your cost basis in the property is properly recorded. The documents will also help identify any tax-related items like mortgage insurance, property taxes and possible sales tax paid. Mileage logs. Lack of tracking deductible miles is probably one of the most commonly overlooked documentation requirements. Properly recording charitable, medical and business miles can really add up to a large deduction. If the record is not available, the IRS is quick to disallow your deduction. If you are not sure whether a document is needed, retain it. Then you can always retrieve it if needed. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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