Chris Archambault 10/1/20 Chris Archambault 10/1/20

Breaking the Code: Unconventional Roth Conversion

By: Tony Khalife, CPA, MST, CFP®

When we use the term Roth Conversion, most clients and practitioners think of the traditional planning opportunity that involves converting your Traditional IRA directly to the Roth IRA. This is often done when the taxpayer is in a low tax bracket in a given year or there are larger estate planning considerations for the next generation.

One unconventional approach to this “traditional” idea is the use of an exception under IRC Section 408(d)(3)(H) – I’ll present some facts and an example below (versus reciting Code).

Facts:

You are a W-2 employee and work at a company that offers a 401(k) plan
The 401(k) plan at your company allows for in-service contributions or rollovers from your IRA
You have a Traditional IRA balance with both pretax and after-tax (nondeductible) contributions

Normally, the traditional planning opportunity is to fund a Traditional IRA with nondeductible contributions. Assuming those are your only contributions to the IRA, you would then convert the Traditional IRA to a Roth IRA (known as a Back-Door Roth). This results in no income tax implications as the original contribution to the IRA was nondeductible to start.

If you have rollovers from old 401(k) plans to your IRA or made deductible IRA contributions in the past, the Back-Door Roth does not “work.” The Code requires pro-rata allocations between pretax and after-tax contributions. If you try to convert your Traditional IRA with both types of contributions, you would have a portion of the Conversion that is taxable to you (versus nontaxable with the Back-Door Roth).

The exception under IRC Section 408(d)(3)(H) allows you to “split” up your pre-tax and after-tax contributions. You can use the exception to roll any pre-tax contributions (and related earnings) to your employer’s existing 401(k) plan (assuming the plan allows for this). Once this is complete, all that is left in your Traditional IRA are your nondeductible contributions. You may then convert your nondeductible contributions to a Roth IRA. The income tax implications are minimal (only taxed on any earnings related to the contributions) – the nondeductible contributions themselves would not be taxable income at the time of conversion. Now you can utilize the Back-Door Roth annually going forward!

This is certainly a unique exception for a unique set of facts and circumstances but could be helpful in some situations for some clients. As always, we are happy to discuss this and review for your individual tax situation.

To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Chris Archambault 9/1/20 Chris Archambault 9/1/20

Breaking the Code: 2020 Presidential Election - Tax Considerations

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

With the presidential election approaching this November and economic recovery on many voters’ minds, we wanted to highlight the tax law currently offered by President Donald Trump and tax proposals by the Democratic nominee, former Vice President Joe Biden. While many of these provisions ultimately depend on the control of Congress in the upcoming election, we do not advise using this preliminary information for tax planning purposes at this time.

The existing tax policies in place were enacted through the 2017 Tax Cuts and Jobs Act. While these are the current rules, they will expire on December 31, 2025 and change back to those of the American Taxpayer Relief Act of 2012. Throughout this article, we will provide information based on the current laws, the proposed tax return from Biden, and the future (2026) expected reverted policies once the current law expires (if there are no tax law changes).

Tax Rates

Individual Income

The current highest individual income tax rate is 37%. In 2026, this tax rate will sunset and revert back to the pre-2017 tax reform rate of 39.6%. Under Biden’s tax plan, the highest individual income tax rate would also be 39.6% for individuals with income over $400,000. In all scenarios, tax brackets are subject to change so taxpayers at all levels may be affected.

Long-Term Capital Gain and Qualified Dividends

These two types of income currently receive preferential tax rates (20% for the highest earners, 0% or 15% for lower income earners). There is currently no change on these income types expected for 2026. Under Biden’s tax plan, taxpayers with income exceeding $1 million will have any income from long term capital gains and qualified dividends taxed at ordinary rates (proposed to be 39.6%), subject to change as referenced for Individual Income Tax Rates.

Tax Deductions

While standard deductions were doubled under the current administration, there were also a handful of limitations set on itemized deductions, including home mortgage interest (only allowed on principal amounts less than $750,000), state and local taxes (limited to $10,000), and miscellaneous deductions (suspended). In 2026, these provisions will be rolled back to the following allowances: home mortgage interest (principal amounts less than $1,000,000), state and local taxes (no limitation), and miscellaneous deductions (restored). Under Biden’s tax plan, he plans to reinstate these pre-2017 tax reform policies. Additionally, Biden has proposed capping total itemized deductions at 28% for individuals with income over $400,000.

Estate Tax

The lifetime gift and generation-skipping transfer (GST) tax exemption is currently $11.58 million. In 2026, this will sunset and revert to $5.49 million. There is currently no proposal on this under Biden’s tax plan other than a potentially fast-tracked reversion to the pre-2017 tax reform limitations.

Other Tax Related Concerns

Corporate Taxes: Current corporate tax rate is 21%. Under Biden’s tax plan, this would increase to 28%.
Payroll Taxes: Currently a 15.3% federal payroll tax split between employers and employees with a $137,700 salary cap (for 2020). Under Biden’s tax plan, the payroll tax would continue as it is currently and would increase for individuals earning over $400,000.
1031 Like-Kind Exchanges: Currently allows real estate investors to defer recognition of capital gains with reinvestment. Under Biden’s tax plan, elimination of deferral for investment real estate.
IRA Deduction: Currently allows a $6,000 tax deduction for certain taxpayers for qualifying IRA contributions. Under Biden’s tax plan, proposal of expanded retirement savings initiatives, including a 25% refundable tax credit.
State Taxes: We also want to note that many states have recent tax proposals that should be taken into consideration, particularly for New York and California.

While there is much uncertainty on the upcoming election, we hope this summary of the current and proposed tax policy is helpful when reviewing personal finances and planning for the coming years. If there is a change with the upcoming election (Congress and/or Presidency), any potential tax law changes would likely not be enacted until 2021. We will be planning to reach out for more in-depth information and individual tax planning after the election but before year-end. At this time, we will not be making any recommendations on proposed/potential changes.

Please do not hesitate to reach out to us if you have any immediate questions specific to your situation or would like any additional information.

Chris Archambault 7/29/20 Chris Archambault 7/29/20

Breaking the Code: CARES Act - 2020 RMDs

By: Tony Khalife, CPA, MST, CFP®

The CARES Act was enacted on March 27, 2020 in response to the Coronavirus / COVID-19 pandemic. One major provision of this act is the waiver of the 2020 required minimum distribution (RMD). We’ve outlined some of the specifics below if you have not yet taken your RMD for 2020 or if you would like to roll 2020 RMDs back into retirement accounts.

Are RMDs required in 2020?
If you have retirement accounts subject to RMDs (401(k) plans, IRAs, SEP IRAs, defined contribution plans, etc.), the distribution requirement for 2020 has been suspended. This waiver applies to anyone over age 70 ½ (or 72 if the SECURE Act applies). Additionally, the IRS has further clarified that any beneficiaries of Inherited IRAs are also exempt from the 2020 distribution requirement regardless of age. The waiver does not apply to defined benefit plans or anyone taking “substantially equal periodic payments” under IRC 72(t), which is not the same as an RMD.

What happens if I already received my RMD for 2020 prior to the CARES Act?
Many taxpayers have their RMDs set on automatic schedules to avoid the administrative burden or chance of potentially forgetting to take the minimum distribution. Some clients have these set monthly, in the beginning of the year, or the end of the year.

Normally, you have 60 days to re-contribute or rollover any distributions back into a qualified account. If you received an RMD for 2020 and decided you do not need the funds/income, you could return the distribution to that account or another qualified account within 60 days. If the distribution was more than 60 days prior, the IRS is now granting taxpayers until August 31, 2020 to rollover or re-contribute the prior distribution. This can be done for any and all RMDs in 2020, including those from Inherited IRAs. After the August 31st deadline, taxpayers would still have the normal 60-day rollover rule to return any distributions. Please note that this can be avoided by stopping any automatic RMDs or not taking the RMDs at all for 2020.

Planning Opportunity
The waiver of the 2020 RMD requirement provides taxpayers with significant flexibility and planning opportunities. Taxpayers can waive the distribution requirement to reduce their ordinary income. If cash flow is an issue, we recommend selling stock or other capital assets and utilizing the preferential long-term capital gain rates (compared to ordinary income tax rates with RMDs). Alternatively, if distributions are not needed and cash flow is not an issue, a Roth conversion may make sense depending on other sources of income and overall estate planning considerations.

The CARES Act has provided a unique opportunity for tax planning for 2020. Please do not hesitate to contact us regarding your 2020 RMDs and any questions you may have.

Chris Archambault 6/30/20 Chris Archambault 6/30/20

Breaking the Code: Home Office Deduction

By: Tyler Nguyen & Monica Jia, Spring 2020 Interns

With about a third of Americans currently working from home because of COVID-19, we’ve been receiving many inquiries regarding the home office deduction. We had two of our Spring 2020 interns take a deep dive to help shed some light on this commonly misunderstood deduction.

Who is allowed to take this deduction?

Since the Tax Cuts and Jobs Act passed in December 2017, only self-employed individuals are eligible for the home office deduction. If you receive a W-2 at the end of the year, you are not eligible for the deduction.

The home office deduction is reported through Schedule C - a tax form used for self-employed individuals to report their income and expenses throughout the year.

How does the IRS define a “home office”?

The IRS dictates that the space used for the home office deduction must be your principal workplace and used exclusively for business - none of it may be used for personal use. This area could be a place in your home or a separate free-standing structure such as a garage, studio, or barn where you meet with patients, clients, or customers in the normal course of business.

Great! I have an area of my home that I use exclusively for business. What expenses qualify for the home office deduction?

There are two ways to calculate the deduction: the simplified method and actual expenses method.

The simplified method does not require specific expenses to be reported by the taxpayer and calculates the deduction based on square footage. The area of the home office is multiplied by an IRS prescribed rate (current rate is $5). The home office area is limited to 300 square feet or a $1,500 deduction.

Alternatively, a taxpayer can choose to deduct their actual expenses related to their home office. Direct expenses, only for the business area of your home, are fully deductible to the limit of gross income. These may include repairs, painting, etc. for the area. Indirect expenses, which are expenses that help keep your entire home running, are deductible based on the square foot percentage. These include costs that are under an umbrella for the whole home - real estate taxes, home mortgage insurance, rent, utilities, and even depreciation.

Expenses that can also be deducted as an itemized deduction (real estate taxes, home mortgage interest) are includable. If only a portion of the expense is allowed, the remainder of the expense can be taken as an itemized deduction.

In many cases, the simplified method is just that - simple. It may lead to a smaller deduction, but greatly reduces the burden of recordkeeping for the taxpayer.

We hope this has been a helpful summary of the home office deduction. If you have questions regarding your specific situation, please do not hesitate to reach out to us for further information.

Chris Archambault 6/5/20 Chris Archambault 6/5/20

Breaking the Code: The Paycheck Protection Plan Flexibility Act

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

Back in April, we wrote an article about the CARES Act, a $2 trillion financial aid package that included $350 billion in relief for small businesses impacted by the COVID-19 pandemic. Today, June 5th, the Paycheck Protection Plan Flexibility Act was signed into law, which provides more guidance on PPP loans. Although this is primarily for businesses, we wanted to share the highlights of this bill which are generally favorable to small businesses.

Choice to Extend Spending Period

The bill allows PPP borrowers to use the funds from the loan over a 24-week period instead of the original 8-week period limitation. The idea of this change is to increase the flexibility of the loan and allow for more small businesses to increase their forgiveness amount or to reach full forgiveness. This also addresses the challenge that some employers have faced: trying to rehire employees that are making more money on expanded unemployment (planned to expire July 31) than their pre-pandemic wages.

This time extension also applies to the restoration of workforce levels to pre-pandemic levels – a requirement for full forgiveness – and allows for exceptions if they do not fully restore their workforce. Previous guidance allowed borrowers to exclude employees that turned down rehire offers in good faith, but now employers can adjust their calculations if they cannot find qualified employees or are unable to reopen their businesses due to pandemic related restrictions.

Forgiveness Threshold

The CARES Act required 75% of the PPP loans to be used for payroll expenditures to qualify for full forgiveness. If the 75% was not achieved, only partial forgiveness would apply. The Paycheck Protection Plan Flexibility Act decreases that requirement from 75% to 60%, but now does not allow for any partial forgiveness. If less than 60% of the loan is used for payroll costs, forgiveness of the loan is completely eliminated.

Additional Topics

Borrowers using the funds now have five years to repay the loan at a 1% interest rate instead of the original two-year repayment period
Businesses that took a PPP loan may delay the payment of payroll taxes (50% deferred until 12/31/2021 and 50% deferred until 12/31/2022)

We hope this summary is helpful as we all navigate this uncharted territory. As more guidance is released, we will keep our clients updated. As always, if any questions regarding specific situations, please do not hesitate to reach out to us. We are happy to help.

Chris Archambault 4/2/20 Chris Archambault 4/2/20

Breaking the Code: The CARES Act Loan Programs

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

The CARES Act, a $2 trillion financial aid package that includes $350 billion in desperately needed relief for small businesses impacted by the COVID-19 pandemic, was passed on Friday, March 27th, 2020. Its components include stimulus payments to individuals, expanded unemployment coverage, student loan changes, different retirement account rules and more.

We wanted to get ahead of the coverage and share some details on two main loan programs that are covered in this package: the Economic Injury Disaster Loan and the Paycheck Protection Program. During this current economic slowdown, these loan programs will be vital for small businesses. While there are other forms of relief in this package, briefly mentioned at the end of this summary, we will revisit those at a later time.

Eligible businesses are encouraged to apply for both loan programs below but be sure to track the uses of each loan. EIDL allows a broader use of funds while PPP limits to operating expenses. There are no industries that are excluded from these programs and self-employed individuals allowed to participate in both.

Economic Injury Disaster Loan (EIDL)

This loan program was initiated by the Small Business Association (SBA), but has been updated with the CARES Act. Applications are currently open online directly through the SBA in a more simplified process from previous uses: https://covid19relief.sba.gov/#/. SBA will make the determination of the company’s actual economic injury.

While up to $2M may be available as a loan, these funds are available as a grant up to $10,000 for working capital needs provided as early as 3 days of application date. These loans do not require personal guarantees and SBA loans may be deferred by lenders up to six months with submitted request. The interest rate for businesses is 3.75%.

Paycheck Protection Program (PPP)

This is a new loan program established by the CARES Act for small businesses (500 or fewer employees). The loans are made through banks and other lenders for companies that have been operating and paying salaries prior to February 15, 2020. While applications for these loans are currently unavailable, they have an expected start date of Friday, April 3, 2020 with an implementation period of 30 days.

When calculating the loan amount for the PPP, companies will use a rolling 12-month (for seasonal employers, rolling 12-week) average of monthly pre-tax payroll costs. These costs include salaries, wages, vacation pay, health benefits, retirements, etc. Once the average has been calculated, the company must multiply this amount by 2.5 in order to get their maximum loan amount. This loan is available up to $10M.

The funds from these loans can be used for operating expenses for the company – including, but not limited to payroll, mortgage interest or rental payments, utilities, group health benefits, transportation costs, and other debt obligations. If companies keep the same workforce during the 8-week period following the application date or restore their payroll afterwards to pre-crisis levels, these loans will be forgiven for those operating expenses. This forgiven loan is excludable from gross income.

The stipulations on these workforce restrictions include number of employees as well as reduction in pay greater than 25%.

When applying for these loans, the documentation needed falls in three categories with some examples below:

Verification of employees and payrates: Payroll tax filings, state income
Permissible payment verification: Rental leases, cancelled bank checks
Certification from businesses that funds are used appropriately

Typical affiliation rules for the SBA are waived under the PPP for businesses with 500 or fewer employees that are assigned a NAICS code beginning with 72, franchises with assigned identifier codes by the SBA, or those receiving financial assistance from a small business investment company. Additionally, all SBA fees are waived with no asset lien or personal guarantee required.

Stimulus Check

A maximum of $1,200 for individuals ($2,400 for joint filers) and $500 for each child will be provided as a one-time payment for US taxpayers. These amounts are subject to a phaseout of adjusted gross incomes greater than $75k (single) and $150k (married) up to $99k (single) and $198k (married). Individuals’ 2019 tax returns are used for eligibility determination, but if not yet filed, 2018 tax returns are acceptable.

If the IRS already has your bank account information from your 2019 or 2018 returns, it will transfer the money to you via direct deposit based on the recent income-tax figures it already has. The IRS will build a portal where individuals can update their information on file. Payment are expected to be received by April 17, 2020. These stimulus checks will not be subject to taxes for 2020. They are in essence an advance on a tax-credit for tax year 2020. If you are not eligible for the stimulus check based on your 2018 or 2019 returns, you may be eligible in 2020 based on the income earned in that year.

Washington Post has a helpful calculator that may be useful to you: https://www.washingtonpost.com/graphics/business/coronavirus-stimulus-check-calculator/

Expansion of Unemployment Benefits

Self-employed individuals and part-time workers are newly eligible for unemployment benefits. An additional $600 per week is available depending by state as a payout for up to 4 months through July 15, 2020. State-level unemployment insurance is also extended by an additional 13 weeks through December 31, 2020. Specifics and eligibility will be largely determined by the Labor Department and your state’s unemployment department pending additional guidance from the Labor Department.

Other Hot Topics

IRA (Traditional, Roth, & SEP) contributions are extended to 7/15/2020
Up to $100,000 allowed as an early distribution from retirement plans without 10% penalty but must be repaid over three-year period
One-year delay for Required Minimum Distributions
Student loans up to $5,250 can be made by an employer and can be excluded from gross income
Employee retention credit: Allowed 50% of the first $10,000 wages per employee as a credit against payroll taxes

Payroll taxes can be postponed and paid over next two years

Chris Archambault 3/3/20 Chris Archambault 3/3/20

Breaking the Code: 2020 Actions Effecting 2019 Tax Returns

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

Didn’t 2020 just begin? How is it March already?! Don’t worry, we’re thinking the exact same thing. While a lot of your tax documents should have been received by now (or are in process), we wanted to quickly talk about some actions that you could take in 2020 to impact your 2019 tax returns.

Individual Retirement Accounts

If you haven’t done so already, there is still time to contribute to your retirement accounts. This is true for traditional IRAs (deductible or not) and Roth IRAs. The deadline for this contribution is the same as the tax deadline – April 15, 2020.

There are some stipulations that surround these contributions, which we’re outlining here for your knowledge:

You must have eligible compensation in order to contribute. The definition of compensation is fairly overarching, including wages, salaries, commissions, earnings from a trade or business, alimony, or separate maintenance payments. If your spouse is the sole earner in the family, you may be able to use your spouse’s compensation in order to contribute.

There is a maximum contribution for individuals. For 2019, this amount was increased to $6,000 per year. If you reached age 50 by the end of 2019, you can contribute a catch-up contribution – an additional $1,000.

There are no longer age restrictions for contributions. Prior to the Secure Act (Jeff wrote about this topic in January, link here!), taxpayers were limited by an age cap. This is incredibly helpful with longer life expectancies and older working ages.

Deductibility is determined by a series of rules. In order for your contribution to be deductible, you must not be eligible to participate in a company retirement plan and have an AGI of under $64,000 (single) or $103,000 (married). While Roth IRA contributions have income restrictions and are not deductible, a Roth contribution may be a better choice because the withdrawal can be tax-free down the road in retirement.

A quick tip! If you decide to make your contribution between January 1, 2020 and April 15, 2020, be sure to let your financial institution know which year the contribution should be applied.

Self-Employed Retirement Accounts – Keoghs and SEPs

For these types of retirement accounts, there are additional rules, highlighted below:

The deadline is increased to allow for an extension. This allows taxpayers that extend their tax returns to wait until October 15, 2020 to contribute for tax year 2019. Don’t forget, however, that the tax-deferred compounding earnings don’t occur until you contribute, so don’t delay too long!

The maximum contribution is more flexible than Individual Retirement Accounts. Self-employed persons can contribute up to $56,000 or 25% of the employee’s compensation in 2019.

While we try to communicate the many options for our clients when finalizing tax returns during the spring and summer, we are happy to assist with questions regarding new retirement accounts as you receive and review your tax returns.

Chris Archambault 2/3/20 Chris Archambault 2/3/20

Breaking the Code: New Form W-4 for 2020 – Employee’s Withholding Certificate

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

We’ve had many changes in the last two years since the Tax Cuts and Jobs Act was enacted. Another update is for employees that have their income tax withheld through their paycheck. We want to make sure that you have the latest information on the new Form W-4 for 2020:

Why did they redesign the form?
Since the form was confusing for most taxpayers, the IRS wanted to increase transparency and accuracy in a more straightforward manner. The new form facilitates a more precise withholding number so that taxpayers with withholding won’t be hit with a large tax bill or a surprise refund when they file their taxes. As a reminder – this update doesn’t affect the total amount of tax that a taxpayer will pay, but simply how much of the tax will be withheld throughout the year from paychecks.

What has changed about the form?
The main change from previous W-4s is the elimination of withholding allowances. Instead of claiming these allowances, employees now claim their dependents or other deductions. In essence, it replicates the view of a full tax return. Based on each taxpayer’s job situation, there may be calculations involved, but the idea is to simplify in the long run.

For these reasons, the layout is different – breaking out the form into five main steps:

1. Personal Information

2. Multiple Jobs / Spouse Works

If both spouses work and earn a similar paycheck, employees only need to check a box for the IRS to calculate their appropriate withholding amount.

If you have a slightly more complicated tax situation, you may need to use the IRS estimator for this step, which is found at www.irs.gov/W4App, or use the Multiple Jobs Worksheet. You will need to have your current paystubs handy as well as your previous year’s tax return.

3. Claiming Dependents

For certain income levels with dependent children under age seventeen, you will need to multiply each by $2,000 and other dependents by $500.

4. Other Adjustments

This is comprised of both other income that might not be subject to withholding and other itemized deductions (i.e. mortgage interest, charitable contributions).

5. Signature Requirement

Do I have to fill out the new form?
The new W-4 is required to be filled out for new hires beginning in January 2020. The form is available for existing employees, although not required, if they would like to adjust their withholdings.

Even if you are not required to submit a new W-4, it is a good idea to do a paycheck check-up regularly because major life changes (getting married, having a child, buying a home) can update the recommended withholding amount.

Another consideration is that this change is only for your Federal income taxes. Some states follow the new Federal Form W-4 and other states have their own that should be filled out. In Massachusetts, this form is the MA Form M-4.

Along with many of the other changes, we are aware that this may be overwhelming or a bit confusing at first. We are happy to assist with any questions and a paycheck check-up to ensure that your employer is withholding enough taxes going forward.

Chris Archambault 1/1/20 Chris Archambault 1/1/20

Breaking The Code: The SECURE Act

By: Jeffrey M. Krueger, CPA, MSA, CFP®

On December 20th, President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The new law took effect as of January 1, 2020 and puts into place a number of changes for retirement plans and retirees. While the changes are quite modest for most, below is a summary of some of the key changes:

Elimination of the Stretch IRA

Pre-SECURE Act: Funds left in retirement accounts to non-spouse beneficiaries at death could be distributed out over the life of the beneficiary.

Post-SECURE Act: No changes to current inherited IRA owners. For new inherited retirement accounts set up after 2019, beneficiaries will be required to distribute out the funds by the end of the 10th year. Note that no RMDs are required during this time (i.e. the entire balance could be taken out in year 10, or years 8/9/10 to manage the tax implications). Certain exceptions apply for “eligible designated beneficiary”, defined as: a surviving spouse; a disabled individual; someone who is chronically ill; a minor child of the deceased account owner (until they turn 18); and a beneficiary who is not more than 10 years younger than the deceased account owner).

Potential Planning Items:

Estate plans will need to be reviewed.
Trust planning may be simplified through the use of accumulation trusts vs. conduit trusts.
Review tax brackets of IRA holders and beneficiaries to see if Roth conversions make sense.

Increase in RMD Age from 70 ½ to 72

Pre-SECURE Act: Retirees were required to begin taking minimum distributions by April 1 of the year following attainment of age 70.5.

Post-SECURE Act: Retirees will be required to begin taking minimum distributions by April 1 of the year following attainment of age 72. If a retiree had turned 70.5 by 12/31/19, they are required to take the minimum distribution by April 1 of the following year.

Potential Planning Items:

Retirees can defer taking distributions for their retirement accounts for an extra year or two, depending on birth month.

Can Contribute to Traditional IRA after Age 70

Pre-SECURE Act: Individuals were not eligible to contribute to Traditional IRA in the year they attained age 70.5 or any later year.

Post-SECURE Act: If you have earned income, you can contribute to a Traditional IRA. A side effect of a post age 70.5 deductible contribution is that the aggregate amount of these deductions will reduce the annual Qualified Charitable Distribution allowance.

Potential Planning Items:

Review with your CPA to see if worth taking advantage of this deduction.

Multiple Employer Plans for Small Businesses

Pre-SECURE Act: There were various rules for multiple employer plans that were revised. The main rules were the “one bad apple” rule and nexus requirement. Under the “one bad apple rule”, if one employer did not meet plan requirements, the plan would fail for everybody. The nexus mandate required the unrelated employers to have nexus or a common interest, such as being in the same industry.

Post-SECURE Act: The regulations around these plans were eased, to more easily allow small businesses to pool their plans. This, in turn, reduces the cost and administrative burden to employers, in hopes of incentivizing retirement plans to more employees.

The SECURE act also increases the tax credits for business owners’ plan start-up costs for the first three years beginning in 2020 (up to $5,000). There is also an additional credit of $500 for small business plans with an auto-enrollment feature.

Potential Planning Items:

Small business owners who are interested in offering a retirement plan should talk with their CPAs, financial advisors, and third-party administrators to review their options and costs.
Financial Advisors may be able to greatly help their small business clients by having one exceptional, low-cost 401(k) plan that they can offer to any business they work with (or wants to work with them). This could streamline things for advisors and should lead to cost efficiencies for their clients.

Annuities in Retirement Plans

Post-SECURE Act: There were two changes that make it easier to sell annuities inside of qualified plans.

Fiduciary Safe Harbor: Section 204 provides a new safe harbor for selecting an annuity provider, thus lowering the risk of a plan participant from coming back and suing the fiduciary of the plan if the insurance company cannot pay on the annuity promised.
Portability: In short, if a plan wants to take out an annuity option, the participant is no longer required to liquidate the annuity, and instead, can roll it out of the plan “in-kind.”

Potential Planning Items:

Lifetime income annuities can help mitigate longevity risk. Adding these options to retirement plans can help retirees mimic pension like distributions. However, not all annuities are great and some of these products have a greater potential for abuse. Review the options with a qualified, impartial professional.

Other Changes

Individuals are now able to pay off $10k of student loans with 529 Plan dollars.
- Potential Planning Item: Individuals may have some state tax savings by contributing to 529 to then pay off student loans. For MA, the $500 in state tax savings over 5 years ($100/year) is likely not worth the administrative hassle.
New exception to early retirement penalty waivers for birth of new child or adoption (up to $5k).
Kiddie Tax will revert to using the parent’s tax rates starting in 2020. The TCJA previously had changed to use trust tax brackets in 2019.
Part-time workers must now be eligible for the retirement plan if they work 500 hours in 3 consecutive years (or 1,000 hours in a single year).
Automatic enrollment percentage increased. Employers can now automatically enroll employees to contribute up to 15% of income (formerly 10%).
Employer contribution-only plans can be adopted after the end of the calendar year.
Qualified medical expense itemized deductions are allowed above 7.5% of AGI (formerly 10%).
Amounts paid to assist with graduate studies or research, such as fellowships or stipends, will be treated as compensation for purposes of making IRA contributions.

Chris Archambault 12/1/19 Chris Archambault 12/1/19

Breaking the Code: Tax-Loss Harvesting

By: Antony T. Khalife, CPA, MST, CFP®

As year-end approaches, one strategy clients should utilize, in conjunction with their investment advisor, is tax-loss harvesting. What is tax-loss harvesting? It is the practice of purposefully selling securities (stocks, bonds, mutual funds, or other investments) that have lost value which triggers the recognition of a capital loss. By realizing those losses, you may offset capital gain income recognized during the year or even ordinary income. Note that there are some areas of caution that also come along with this strategy, which we’ll dive into.

Picking the “Losers”

As of mid-November, the S&P 500 was up about 24% year-to-date. With such a strong market performance, what investments could have lost value? As with any well-diversified portfolio, there will always be securities that have appreciated in value along with others that have depreciated. The key to an effective strategy is to evaluate your current portfolio and specific holdings – consider the following questions: What do you own? Why do you own it? Does it generate income? Are you expecting future gains/appreciation? How does this security fit in with your investment strategy? Is my portfolio diversified? There are a variety of reasons to buy and sell securities that you should keep in mind while also considering your long-term goals and objectives.

Wash-Sale Rules

Now that you have identified the securities with losses, you will want to sell those securities and reinvest the funds. Before you do so, you should be aware of the “wash-sale” rules to ensure the losses you generate are not disallowed. If you sell a security for a loss, there is a 30-day window (before AND after the sale) in which you cannot purchase the same security or a “substantially identical” security. This rule exists to discourage the sale to simply claim a tax loss. If you hold individual stocks, this is relatively straightforward – just do not repurchase the same security. If you like a particular industry or sector, you may reinvest in a similar company (for example – Microsoft vs Apple). This becomes a little more complicated with mutual funds or ETFs. If you repurchase the same security or a “substantially identical” security within the 30-day window, any loss generated will be disallowed as if the sale did not occur in the first place.

What income can I offset with my capital losses?

If you are able to successfully sell securities and realize a capital loss, what income do these losses offset? If you are in a net capital gain position, the losses will offset any other existing capital gains, regardless if the gains are long-term or short-term (same applies to the loss). For example, you have $10,000 of long-term capital gains and realize $4,000 of short-term losses – the net result is $6,000 of long-term gains. The reverse is also true. If the total losses generated exceed your capital gains, you may utilize up to $3,000 of these losses against other/ordinary income. For example, if you have a net capital loss of $7,000 and have W-2 wages of $200,000, up to $3,000 of capital losses will offset your W-2 wage income. The remaining $4,000 of capital loss will carryforward to the next tax year to offset capital gains or ordinary income next year.

Overall, there are a number of reasons to consider tax-loss harvesting. If you have significant capital gains recognized in 2019, you may want to realize losses to offset those gains. If you are trying to rebalance your portfolio with a net zero tax impact, you could identify losses and gains that offset. This strategy should only be employed in any non-qualified investment accounts (after-tax accounts) – harvesting losses in any IRA, 401(k), or other qualified account has no tax benefit. However, you should keep these accounts in mind while reviewing your overall portfolio and diversification as they are all part of your complete financial picture.

Chris Archambault 11/1/19 Chris Archambault 11/1/19

Breaking the Code: Tax Record Retention

By: Chris Archambault, MBA, CFP®

As clients move, clean out, or generally inquire about what they need to keep on hand, one question we receive quite often is, “how long should I keep my tax documents?” While it may depend on a taxpayer’s individual situation and, in many cases, different types of tax records, the below is a general rule of thumb on maintaining records:

Three Years: In most cases, the IRS generally has three years from the later of the due date of your return (for individuals, April 15) or when the return is actually filed to initiate an audit. It is recommended that you keep all supporting documentation at least three years from filing a return (i.e. W-2’s, 1099’s, support for deductions: charitable contributions, mortgage interest, real estate taxes etc.)

Six Years: The three-year statue is extended to six years if there is under reporting of income by 25% or more. For those who derive the majority of their income as a W-2 employee, this likely is not as applicable. If you are self-employed and receive multiple 1099-MISC or compensation from multiple sources, it may be easier to make an error underreporting and it is suggested to keep records for 6 years from filing to prove there is no under reporting.

Seven Years: If you claim a loss from a bad debt or a worthless security, there is a seven-year time horizon and it is recommended to keep for seven years from filing.

Ten Years: For foreign tax credits / deductions claimed (i.e. you paid taxes to a foreign government on income), there is a ten-year period over which you can change your mind on whether you claim a credit or deduction. For most, a foreign tax credit is most advantageous on foreign investment income from brokerage accounts. The ten-year time horizon is most applicable to those who have significant foreign income or foreign earned income.

Asset Specific Records:
- Retirement Accounts: For a Roth or Non-Deductible IRA, you should keep the records of contributions indefinitely until 3 years after the account is depleted to prove basis.
- Real Estate: For any real estate (personal or rental), you should maintain all records (purchase documents + improvement records) to establish the basis and maintain these records until three years after the property is sold
- Gifted & Inherited Assets: For gifted assets, your basis is that of the donor’s basis and you should maintain these records. For inherited assets, the basis will generally be the FMV on the date of death of the donor and should maintain proper record of this.

Tax Returns: While this article refers to tax records & supporting documentation, as a general rule of thumb, it is a good idea to maintain records of your tax returns indefinitely (as many times there are also non-tax purposes for the returns; for example, a bank may require prior returns to obtain financing, etc.)

Chris Archambault 10/1/19 Chris Archambault 10/1/19

Breaking the Code: Massachusetts Paid Family and Medical Leave

By: Rachel Speigle Dunnigan, CPA, MSA

Today, October 1, 2019, employers will begin deducting additional payroll contributions from their employee’s wages – a maximum of 0.75% split between employers and employees. This contribution will fund Massachusetts’ new Paid Family and Medical Leave which helps workers more easily take care of themselves and their families without facing financial crises. Since there has been a lot of discussion around this topic and some delays in the contribution period and program, we wanted to bring you the up-to-date information on this law.

Who is eligible?
Employees working for a MA business with 15+ weeks of earnings greater than $4,700 in the last year are eligible for benefits.

What benefits do employees receive under the new law?
Employees may be eligible for up to 20 weeks of paid medical leave per year with a serious health condition that incapacitates them from work.

Coverage also includes up to 12 weeks of paid family leave per year for the birth, adoption, or foster care placement of a child, or for a family member with a serious health condition (for conditions relating to military service, benefits may extend to 26 weeks per year).

In aggregate, individuals are eligible for no more than 26 total weeks of paid family and medical leave in a year.

When is an employee able to qualify for these benefits?
The paid leave benefits don’t start until 2021 – medical leave benefits and family leave for bonding with a new child beginning in January; family leave benefits for family members with serious health conditions in July.

I’m an employer, what does this mean for me?
There was a three-month delay from July 1, 2019 for the deductions beginning today for employers to prepare for this change. For businesses with less than 25 employees, the employers do not have to contribute to the state fund (employee-only contributions of 0.378%).

There is also an option to opt-out of the state program, with the state’s permission, if there is a comparable alternative for employees in the private sector. If your business would like to seek this approval, December 20th is the deadline for companies to reach out to the state.

Chris Archambault 9/1/19 Chris Archambault 9/1/19

Breaking the Code: Inverted Yield Curve

By: Jeffrey Krueger, CPA, MSA, CFP®

Over the past several months, there has been a lot of talk in the news over the inverted yield curve. So what is it, exactly? A yield curve is a visual way to view the yield of equal credit quality fixed-interest securities (typically US Treasury securities) against the length of time they have to run to maturity. Typically, the yield curve is upward sloping, a sign that the economy is functioning properly. In this instance, as an investor, the longer you commit funds, the more you should be rewarded for the longer commitment and increased risk. A simplified example: say you have a friend who needs to borrow $100 and they say they’ll pay you back in a week. You may be inclined to lend them that money. If instead, your friend asks to borrow $100 and says they’ll pay you back in 10 years, you may have some additional thoughts as to whether your paths will cross a decade from now, let alone if your friend remembers to pay. Thus, you may charge a higher rate in the second option to be compensated for the added risk.

There are times, however, when the curve’s shape deviates from the normal upward slope. This seems counterintuitive as it would mean long-term investors are settling for lower returns than short-term investors, yet long-term investors are assuming more risk. The reasoning an investor might do that is if they believe rates will fall lower or are really concerned about the near-term, and thus want to lock in the current rate.

So, what happens if there is an inverted yield curve? Well if you are a lender, you are disinclined to lend money over a longer duration since the return is too low relative to the short term. Therefore, you will likely tighten up lending standards and only lend long-term to the most creditworthy people, while instead preferring to lend shorter term loans that have less risk and provide a similar/better interest rate.

Unfortunately, borrowers are less motivated to borrow capital short-term. With similar interest rates, a rational borrower would rather borrow at the same rate (or less) for a longer time period. This conflict tends to result in consumers hoarding cash and not investing. As lenders get squeezed paying higher short-term deposit rates and earning a lower interest rate on their loans, credit standards continue to increase and less borrowing and investing occur.

This downward cycle can lead to a downturn in the economy and, at times, a recession. Although an inverted yield curve does not guarantee the U.S. economy will go into a recession, every recession over the last 50 years has been preceded by an inverted yield curve. Note that there can be a lag, sometimes up to two years, before the slowdown arrives. It should also be pointed out that the yield curve is only one piece of a larger economic puzzle, along with the usual caveat that “past performance is no guarantee of future results.”

Whether the inverted yield curve signals an economic downturn or ends up being brushed aside, there are some positive items to consider:

Refinance your mortgage: As long-term interest rates plummet, so do mortgage rates. Mortgage rates are close to 5-year lows. If you haven’t refinanced in the last year, it may be a good time to review.

Take advantage of short-term savings rates: As short-term rates rise, many high yield savings accounts are paying +2%. These are some of the best rates we’ve seen in a long time to optimize your cash.

Income-producing assets may increase in value: As long-term interest rates decrease, it becomes harder to generate the same amount of income with the same capital. For example, a rental property generating $40,000 a year in profit would be equivalent to a $1,000,000 position at a 4% rate of return. If you can only generate a 2.5% rate of return, you would need a position of $1,600,000 to replicate the income.

Review asset allocation: Now is likely a good time to revisit your risk tolerance with your trusted advisors. How would you feel if there was a significant drop (+20%) in your portfolio? Similarly, certain sectors have performed better over the last decade than others. A good advisor will have monitored and rebalanced, but it doesn’t hurt to check that it aligns with your preferred allocation.

Chris Archambault 8/1/19 Chris Archambault 8/1/19

Breaking the Code: Medical Expense Deduction

By: Rachel Speigle Dunnigan, CPA, MSA

We receive a lot of inquiries about itemized deductions, but many questions surround the topic of medical expenses.

The medical expense deduction remained in place post-TCJA (Tax Cuts and Jobs Act) with a few updates. For tax year 2019, individuals can deduct medical expenses that exceed 10% of their adjusted gross income (AGI).

Who is eligible for this deduction?
Since this deduction is only available for individuals who are itemizing their deductions, it is now even more difficult to utilize because of the increased standard deduction. Another important item to note is that the deduction is only available for expenses actually paid in a tax year. That means that if you had surgery in December 2018 and paid for the surgery in January 2019, those surgical expenses are only eligible for your 2019 tax return.

Which medical expenses are deductible?
The IRS allows taxpayers to deduct the following as qualifying medical expenses: preventative care, dental and vision care costs, treatment, surgeries, psychologist and psychiatric visits, prescription medications, medical appliances like hearing aids, glasses and contact lenses, false teeth, and hearing aids, and even guide dogs! And don’t forget about your commute – bus fare, parking, and mileage on your car is an allowed deduction as well. For 2019, the mileage deduction is 20 cents per mile.

Additional deductions include medically required home renovations. For example, installing a ramp, modifying stairways, or lowering cabinets may be deductible only if the revamps do not increase the value of the home. If an improvement does increase the value of the home, the deduction is limited to the difference between the medical expense and the increase in home value.

Ineligible medical expenses include general overall health purchases, cosmetic surgery, insurance premiums from some employer-sponsored health insurance plans, non-prescription drugs and medicine, or any expenses that received prior reimbursement.

What are some alternative solutions if I am under the 7.5% floor or am not itemizing my deductions?
Many individuals are not able to take medical expense deductions unless there is a major medical occurrence in a particular tax year. If you are aware that you may have large medical expenses in the future, it may be beneficial to “bundle” your expenses so that they all occur in the same year.

There are also other tax-beneficial planning options that can be utilized regarding health care costs. If an individual is on a high-deductible health plan, investing in a health savings account (HSA) may be a good solution. The contributions are tax-deductible an withdrawals are tax-free as long as they are used for qualified medical expenses. These contributions are maxed out at $3,500 for individuals ($7,000 for families) in 2019.

While we hope no one needs to leverage these medical deductions, please reach out if you have any further questions regarding your individual tax situation.

Chris Archambault 7/1/19 Chris Archambault 7/1/19

Breaking the Code: Summer Tax Tips for Families

By: Rachel Speigle Dunnigan, CPA, MSA

Summer is great for spending time outdoors, relaxing with family and friends, and taking advantage of those well-earned vacation days. But don’t zone out too much! We’ve compiled a few ideas for families and parents with young children so that you don’t get to the end of August without utilizing some great money savers.

Ice Cream Shops and Lifeguards
If your ambitious child decided to get a summer job, there are a few things they should know before they get to scooping mint chocolate chip or saving lives like Wendy Peffercorn.

When they start their new job, they will be asked to fill out a Form W-4. If they will not earn income over $12,000 in 2019, they can choose to be exempt from Federal withholding any tax (for Massachusetts - $8,000), as they will not need to file a tax return. This ensures that your child keeps all of the income they’ve earned without needing to file a tax return the following year for that pesky refund. More money in the pocket for mini-golfing!

If they plan to make over that threshold of $12,000 or they have unearned income greater than $1,050 – interest, dividends, or capital gains – they will need to file a tax return so should claim 0 or 1 withholding allowance. This will minimize the sticker shock of having a balance due during the tax season.

An item of note for the golf caddies and waitresses, the hopefully large tips that your child receives is considered taxable income too! These tips should be tracked and included on a tax return if they are required to file one.

Start Saving Early
Another great idea for kids with summer jobs is to start contributing to a Roth IRA. The only requirements in order to be eligible to contribute include earning income from a job, regardless of age. This money can come from their earnings or can be given to them by their parents to invest. The contributions are limited to the amount they earned during the year with a maximum of $6,000 for 2019.

This can make a big difference when you consider the time value of money! Starting retirement savings early means that your child can withdraw the contributions and earnings tax-free in many years when they turn 59½. It is also a fantastic opportunity to teach them about saving money and investing in their future!

Daycare and Summer Camps
Some kid-free hours and a tax credit on your 2019 taxes? Sign us up! If you have child under age 13 and you’re paying a daycare center, babysitter, summer camp, or other care provider for childcare, you may qualify for a tax credit. This credit may amount to up to 35% of the qualifying expenses of $3,000 for one child or up to $6,000 for two or more children.

This credit does come with some stipulations: both parents must be working or actively looking for work; only day camps are eligible; expenses for supplies for camp do not apply; and will need either the child care provider’s Social Security number (for an individual) or an employer identification number.

Regardless of how your family chooses to spend their warm weather weekends or vacations, we all hope you have a safe and enjoyable summer!

Chris Archambault 6/1/19 Chris Archambault 6/1/19

Breaking the Code: Gambling Winnings

By: Jeffrey Krueger, CPA, MSA, CFP®

Growing up, I’ve always been fascinated with gambling. Playing card games was common at family gatherings for both quarters and bragging rights. Anything involving numbers, money and competition was more than enough to keep me entertained.

When I turned 21, my dad introduced me to Foxwoods Casino. While I tried unsuccessfully at different games and ended a loser, I was able to hit on a slot machine for an amount big enough to earn me a Form W-2G (tax form stating gambling winnings) at the end of the year. Upon filing my taxes at the end of the year, gambling winnings and losses are reported as such for a casual gambler:

All gambling wins are reported as income on Line 21 of Schedule 1. Gambling losses are allowed as an itemized deduction, dollar for dollar against the gain, but cannot exceed gambling wins for the tax year. (Note that state taxes have different rules regarding the deductibility of gambling losses.)

As my losses exceeded the winnings during that trip, the losses could zero out the gains. However, as a 21-year-old, my itemized deductions (state and local taxes, mortgage interest, charitable contributions) did not exceed the standard deduction ($5,450 at the time). Therefore, I was not able to use the losses to offset the income and had to pay taxes on top of it. It was a lose – lose situation. With the increased standard deduction of $24,000, this situation became more common for individuals in 2018 under the new tax law.

Even if a taxpayer was able to zero out the gambling income, there are still other unintended consequences of gambling winnings as a result of the effect on adjusted gross income:

•   Increasing taxability of social security benefits
•   Increasing Medicare premiums
•   Disallowing certain credits and deductions

Had I known then what I know now, there is an alternative way that could have saved my 21-year-old self some financial pain. The IRS has stated that gambling winnings are not a true win until the gambling session is completed. A gambling session starts when you make your first wager of the day for a specific type of game and ends when the last wager of the day (no later than midnight) is made on the same type of game.

As an example, say you play roulette in the morning, take a break midday, and resume later in the afternoon. In the eyes of the IRS, that is still the same session.

Alternatively, if you play roulette in the morning and take a break to play slots, those would be different sessions. If you then play roulette later in the afternoon of the same day, you are still on that day’s session for roulette purposes, with a different session for slots.

For tax purposes, you would then tabulate your gambling sessions. Any gambling sessions with a net gain are included in income. Any gambling sessions with a net loss are then allowed as an itemized deduction. Let’s look at numbers to make our point:

From the information in the table, using the gambling sessions, we would show $350 in total income (combining all net gains from all sessions) and would also be able to use $200 of the loss in session 2 as an itemized deduction if the taxpayer files a Schedule A for their deductions.

As with most tax related items, documentation is crucial and a log of your sessions is required. However, a little extra work can be the difference in making sure you keep more of your winnings from Uncle Sam.

Chris Archambault 5/1/19 Chris Archambault 5/1/19

Breaking the Code: Qualified Small Business Stock Exclusion

By: Rachel Speigle Dunnigan, CPA, MSA

If you periodically support small businesses by investment, you may be eligible for a tax break that has, until recently, been relatively unfamiliar to most taxpayers. Also known as Section 1202, this creates opportunities for individuals to exclude up to 100 percent of the gain on sale or exchange of Qualified Small Business Stock (QSBS) from their income.

In order to qualify for this potential exclusion, the Qualified Small Business must meet a few rules.

Active Business Test
The corporation must have at least 80% of its assets involved in active conduct of qualified trade or business. While the IRS does not have a strict definition of what type of businesses do qualify, they provide examples of businesses that do not qualify. These include real estate investment trusts, regulated investment companies, services in the health, law, engineering, architecture, or accounting fields, and hotel or restaurant businesses, among others.

C Corporation
The corporation must be a domestic C Corporation with stock issued after August 10, 1993. In order to qualify for the exclusion, the stock is required to be acquired directly at original issue. The QSBS itself can be held by an individual or through a partnership.

$50 Million in Assets
In order to be a Qualified Small Business, the business must actually be small. The corporation’s assets cannot exceed $50 million before and directly after the stock is issued. This potential exclusion is available at the Federal level but may need to be reviewed for possible state gain exclusion as the treatment varies by state.

Time and Date Restraints
Any QSBS must be held for at least five years before selling to potentially exclude gains on the sale. There are some options for reinvesting the proceeds of the stock if the stock is not held for five years, but we will assess this on a case by case basis. Additionally, there are exclusion waves from when the stock was acquired: If acquired on or before Feb. 17, 2009, only 50% of the gain may be excluded. If acquired on or between Feb. 18, 2009 and September 27, 2010, only 75% of the gain may be excluded. Any acquisitions after September 28, 2010 are eligible for 100% gain exclusion.

You might be thinking – why haven’t I heard of this before?! The original law was not permanent and the five year required holding period had not yet been realized (based on the first tranche of eligibility) so many individuals dismissed the exclusion. After many amendments and updates in recent years, the gain exclusion has become much more favorable and prominent. Additionally, prior to the Tax Cuts and Jobs Act of 2017, the Alternative Minimum Tax minimized the overall benefit of the gain exclusion.

If you believe that you may have some stock that could qualify as QSBS, please reach out and we’ll be happy to look at your individual tax situation.

Chris Archambault 4/1/19 Chris Archambault 4/1/19

Breaking the Code: Mortgage Interest Deduction

By: Antony T. Khalife, CPA, MST, CFP®

The Tax Cuts and Jobs Act (TCJA) has resulted in questions from taxpayers regarding many tax provisions and deductions, including home mortgage interest. We would like to summarize the main points for one of the most common deductions that taxpayers take advantage of.

Is home mortgage interest still deductible?
Yes – home mortgage interest is still deductible on your primary and secondary (vacation) homes. For all loans on home purchases made after December 14, 2017, you may only deduct the interest on loan values & debt up to $750,000, regardless of the interest rate. For all purchases prior to December 14, 2017, the interest is deductible for loans with a value of $1,000,000.

What if my loan value exceeds the allowed limitation?
If the loan value exceeds the allowed limitation, there is a formula to pro-rate the allowable interest deduction based on the total outstanding loan balance relative to the applicable loan limit. For example, if you had a loan balance of $1,500,000 for a home purchased December 20, 2017, then only 50% of the interest paid would be deductible ($750,000 limit).

If I have a home equity loan or line of credit, is that interest still deductible?
If the home equity loan or line of credit was used to “buy, build, or substantially improve” your home, then the loan would be treated similar to a traditional mortgage. The aggregate value of all loans and mortgage cannot exceed the limits referenced above, depending on when the home was purchased.

What happens if I refinance my loan after December 14, 2017?
If the original loan and home purchase was made prior to December 14, 2017, then the “old” $1,000,000 loan value still applies for any refinances to obtain a lower rate or change in term. Please note that you would not be able to obtain additional loan proceeds or “cash out” using the old limit – it would apply to your current existing loan balance only.

Is the mortgage interest limit applicable to business (rental) properties?
The limit only applies to the primary and secondary residence and does not apply to any properties used exclusively for business purposes.

The provisions of the TCJA are set to expire on December 31, 2025, including the suspension of interest paid on home equity lines or lines of credit. At that time, barring any changes, the tax laws will revert to the prior limits.

Chris Archambault 2/1/19 Chris Archambault 2/1/19

Breaking the Code: Meals & Entertainment

By: Rachel Speigle Dunnigan, CPA, MSA

As we gear up for the 2018 tax season, we wanted to highlight a few changes under the Tax Cuts and Jobs Act (TCJA) relating to business meals and entertainment deductions. We’re covering some general FAQs surrounding these new laws below:

Can I still deduct the expenses of a business lunch after golfing?
While the golf portion of the day is nondeductible as an entertainment expense, you can still deduct 50% of food and beverage as long as the expenses are related to the trade or business. The IRS has clarified these rules with the following requirements: any business expenses must be ordinary and necessary; may not be lavish or extravagant; the taxpayer, or an employee of the taxpayer, must be present; the food and beverages must be provided to a current or potential business contact; and the portion relating to these meal expenses must be separately stated from any nondeductible entertainment expenses. These same rules apply to any expenses incurred relating to business meetings (i.e. quarterly sales meetings and stockholders’ meetings) as well.

I heard that the fringe benefit deductions are going away. What gives?
Unfortunately, many of these deductions are being phased out. Employee food and beverage expenses (de minimus and for the convenience of the employer) are now subject to a 50% limit on deductions and will not be deductible after 2025. Examples of these two categories include coffee/snacks provided by the employer or overtime meals. Some other fringe benefits that are nondeductible for 2018 are qualified transportation benefits and moving expense reimbursements.

We like to reward some employees with an expense-paid vacation. How is that going to be treated?
Under TCJA Law, expenses treated as compensation are still fully deductible. Similarly, any recreational expenses for all employees (holiday parties, summer outings, etc.) are still fully deductible. No change here!

My employees travel a lot – and like entertainment while they eat!
Employee travel meals are still 50% deductible; no change from pre-TCJA law. All entertainment expenses, including sporting event tickets, country clubs, theatres, etc., are no longer deductible even if they apply to trade or business expenses.

If you think that you might be affected by this update to the tax law, please reach out with your specific facts and circumstances and we would be happy to provide further guidance.

Chris Archambault 1/1/19 Chris Archambault 1/1/19

Santa is coming to town!

The Krueger kids (Emma & James) met Santa over the weekend - with neither seeming too thrilled about it! Emma asked Santa for a kitchen toy set, while James is hoping for some toy cars. Santa may gift them a 529 college savings plan too, if they’re on the nice list!