New Tax Brackets – Tax Years 2019 and 2020

Most years, slight changes are made to tax rates.  These updates are generally minor and reflect changes in inflation.  Major tax code revisions, like those that went into place for 2018 under the new tax law (TCJA), are rare.

For tax years 2019 and 2020, the IRS has made tweaks to roughly 60 tax provisions.  Below are a few highlights that will affect the largest percentage of taxpayers.  If you have specific questions related to your tax situation, be sure to consult with your tax professional.

New Tax Brackets: 

Other changes:

1) Standard Deductions: For tax year 2019 (i.e. the returns you will file over the next few months), the standard deduction for single filers rises to $12,200.  For married/joint filers, it will be $24,400.  For tax year 2020, the amounts will increase again to $12,400 and $24,800 respectively.  For heads of households, the standard deduction increases from $18,000 in 2018 to $18,350 (2019) and $18,650 (2020).  Remember, you take whichever is higher when comparing the standard deduction to your itemized deductions.

2) Earned Income Credit (EIC): 

2019 (investment income must be $3600 or less for the year)


2020 (investment income must be $3650 or less for the year)


3) Adoption Credit: Taxpayers can receive a credit of up to $14,080 for qualified adoption expenses of a special needs child paid in 2019.  For tax year 2020, the credit increases to $14,300.

4) Healthcare coverage: The penalty for not having the minimum healthcare coverage was $695 on your 2018 return.  For 2019 and beyond, there is $0 penalty.

5) SALT Cap: For the time being, the cap on the deductible portion of State and Local Tax (SALT) will remain unchanged at $10,000 annually.  Repealing the $10,000 cap has been discussed in the House so changes may be coming down the line.

Questions about changes to these or other tax provisions?  Get in touch with Levesque & Associates!

Landlord? Don’t Overlook This Important Tax Info

Many Americans own rental property. Whether you inherited a home, decided to downsize or upsize your personal residence, or just came across a great investment opportunity, people get into the landlord game for many different reasons and via many different avenues. Regardless of which category you fall into, all landlords must be sure to keep detailed records of income and expenses related to the property for tax time.

Deductions
If you are making money from the rental of a property that you own, then you must report the rental income on your tax return. Owning a rental property also means that certain expenses become deductible – thereby reducing the total amount of rental income that’s subject to tax.

Deductions vs. Depreciation

Deductions are very straight forward – these are the costs of operating, repairing, some improvements, and managing your rental property. These expenses should be tracked by the landlord (or his/her employee) and included, along with rental income, on Schedule E of the tax return. Depreciation, on the other hand, is not as straight forward. Generally, the basis or cost of the building (but not the land) is depreciated using straight-line depreciation which is done over 27.5 years. An equal amount of the building’s basis is deducted each year on the tax return. Any additions or improvements costing more than $2500 are also depreciated but are done so separately from the building. Additions or improvements costing less than $2500 can be deducted fully in the year of purchase.

Depreciation must be carefully tracked for tax purposes. Once the property is fully depreciated, no additional depreciation can be taken. Additionally, when a rental property is sold, the depreciation must be recaptured if the sale price of a rental property exceeds the adjusted basis (i.e. the owner’s initial investment plus the cost of certain improvements during ownership). Recaptured depreciation is reported as ordinary income for tax purposes.

Reporting Income and Expenses
At Levesque & Associates, we recommend clients track income and expenses either through bookkeeping software such as QuickBooks (appropriate if you own multiple investment properties) or through a simple excel sheet. You can also easily make use of apps such as Expensify to maintain and categorize receipts. Even though you are tracking the information, be sure to keep receipts with your personal records for at least 7 years.

Management Companies
Some property owners utilize a management company for collections of rent payments as well as property maintenance and other expenses. Typically, these management companies provide a 1099 in January of each year which summarizes the income earned by the owner. If you utilize a management company, we STRONGLY encourage you to keep your own records and compare the information you receive from the management company with what you have on file. Mistakes do happen and property owners should take responsibility for ensuring the accuracy of the of the information reported to the IRS.

Record Keeping
Good record keeping will not only help you determine the profitability of your rental property, but it will help make the preparation of your tax return much easier. Maintain records of everything related to the property. This includes keeping detailed receipts for any expenses such as repairs and improvements. You should also keep detailed records of all rental income received. Should you be selected for an audit, you will need to provide these records to the auditor. If you are audited and cannot provide proof of the expenses and income reported on your return, you may be subject to additional taxes and penalties.

 

 

Do you own a rental property? Make sure you are keeping records of the following items and providing to your tax professional at tax time:

  • All loan and interest payments
  • Repair receipts
  • Personal property costs (such as new appliances or lawn equipment)
  • Driving – if you have to drive to your rental property for any reason, you can either deduct actual auto expenses (gas, upkeep, repairs, etc) or mileage (learn more about mileage write-offs here).
  • Overnight travel, including airfare, hotel costs, meals, and other expenses, can be deducted if they are directly related to your rental property. Be sure to keep detailed records as the IRS is known to scrutinize these kinds of deductions.
  • Home office expenses, provided the landlord meets certain minimum requirements. This includes a percentage of the cost of home expenses including utilities, insurance, and more. Your tax professional will require total square footage of your home, square footage of dedicated office space, and a total of home costs
  • Do you pay an employee or independent contractor for help with your rental? Their pay is a rental business expense.
  • Any insurance you carry related to rental activity should be kept and provided at tax time.
  • Fees associated with legal and professional services such as an attorney, accountant, management company, etc.

Looking for more information? Get in touch with Levesque & Associates by phone or email.

501(c)(3) – Is it the Right Fit for You?

Thank goodness for non-profit organizations!  So many exist and they do wonderful things for our communities, our neighbors, veterans, pets, and more.  At Levesque & Associates, we have the pleasure of working with multiple non-profit organizations and enjoy being part of the good work – even if it’s just taxes and bookkeeping – that these people do.  We are often approached by clients who are interested in starting a non-profit organization of their own.  What most people do not realize, however, is that becoming a non-profit is not as simple as filling out a form and then making donations or contributions.  If you have considered establishing a 501(c)(3) and operating as a non-profit, there are many things you should consider.  Speak with your CPA or lawyer to make sure this is the right fit for your goals and to be sure the appropriate steps are taken.

Steps to becoming a non-profit organization

  1. Choose a name for your nonprofit corporation (check with the Secretary of State to make sure the name is not already in use).
  2. File “articles of incorporation” with your state. This step must include specific language to make sure that you receive the tax-exempt status you are seeking.  Some states may offer specific information via a packet to help you with this step.
  3. Apply for a federal tax ID number (EIN).
  4. Apply for tax-exempt status with the IRS (Package 1023). You must submit the application along with a copy of your filed articles of incorporation.  Some non-profits may be able to use a simplified version of the application.
  5. Apply for tax-exempt status with your state (not applicable in all states). Some states will automatically grant tax-exempt status after you’ve filed your articles of incorporation and received federal tax-exempt status.
  6. Draft your corporation bylaws.
  7. Appoint directors. These individuals will make policy decisions and adopt the bylaws.
  8. Obtain any necessary licenses or permits for your type of business (state and county specific).

*Some states may have additional requirements which is why it is recommended that you work with a professional to ensure compliance.

Ongoing requirements

Once you’ve earned your non-profit status, the work isn’t over.  There are requirements to maintain the 501(c)(3) status.  Failing to comply with requirements can lead to fines and, for many organizations each year, loss of 501(c)(3) status.  The IRS regularly reviews the activities of non-profit organizations to ensure that they are continuing to do the work that originally earned them the 501(c)(3) status.

The IRS generally requires exempt organizations to file an annual report.  Some states may require annual or biannual reports as well.  501(c)(3) organizations must also file a specific tax return each year (form 990).  While non-profit organizations are exempt from certain taxes, most must still pay any employment taxes, taxes on unrelated business income, as well as some state and local taxes.  Depending on the activity of the organization, these tax returns can become quite complex.  If an organization fails to file the appropriate return three years in a row, tax-exempt status will be revoked. If you do not have any activity, you must still file a return (called a Zero Return).

Regular meetings of the Board of the Directors are also expected and meeting minutes should be created any time the board meets to discuss policies, procedures, changes, etc.  One item that is the responsibility of the board is the determination of pay and benefits for the Executive Director and any other key employees.  The compensation must be reasonable and comparable to amounts paid by comparable organizations.  This item is often the primary focus of the IRS for exempt organization audits.   The discussion of pay and benefits as well as the process used to make these determinations should be well documented.

Special considerations

If the functions of your 501(c)(3) change, you must notify the IRS.  Sometimes organizations begin with a need in mind but overtime the focus shifts or they find another area in which they feel they can be more impactful.  If this happens, you must notify the IRS that the focus of your organization has changed or risk losing non-profit status.

You may feel like everything in your 501(c)(3) is streamlined, but take note that record keeping and tax filings are not easy (or cheap) for non-profits and those unexpected expenses will consume a portion of the funds you intend to donate.

 

*If you’re not an entity and are looking for more control over where your contributions can go, call us to discuss other options for contributions including Charitable Remainder Trusts and Donor Advised Funds.