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A Gift of Stock:  Information is key when using this tax planning strategy

8/31/2020

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You own some stock that has increased in value. To avoid a possible taxable gain by selling the stock, you wish to give it directly to a child or grandchild. This simple idea has some interesting tax consequences to consider.
 
Value of the gift
 
When you gift stock there are not one, but two values to consider.
 
1.  Gift value. This is the market value of the stock at the time of your gift. Since there is a possible gift tax to you if the value of all gifts given by you to a person during the year is $15,000 or over ($30,000 for a married couple) you will need to calculate this value prior to finalizing your decision to provide the gift.
 
2.  Value (basis) of the stock. You will need to determine the cost to you when you originally purchased the shares. This includes any brokerage or other fees. Provide the date(s) you purchased the stock and these costs to the person who will be receiving the gift.
 
Provide important information
 
Basis is key. Those receiving your direct gift of stock are not required to sell it. But when they do, they will need to know:
  • The original cost of the stock and when it was purchased.
  • The date and fair market value of the stock when it was given.
  • If the giver paid any gift tax.
 
Timing is important. If the recipient of your gift sells the stock right away, the tax rate applied will depend on the length of time the stocks were owned by you. A gain on a stock held one year or less is considered ordinary income. More than one year is a long-term capital gain. The time-frame of this calculation usually goes all the way back to your purchase records.
 
The benefits
 
No taxes. Gifts of stock allow you to avoid paying capital gains tax on the ownership transfer. As long as annual gift amounts to one person are less than $15,000 ($30,000 for a married couple) there is no tax consequence.
 
Lower taxes. In addition, the future sale of the stock could result in lower taxes. This is because long-term capital gains tax rates can be as low as 0% or as high 20%. Short-term capital gains tax rates can be as high as 37%*. Assuming your child or grandchild has lower income than you, the resulting sale creates a potential tax savings. Care must be taken if the gain is high as Kiddie Tax rules could create a tax bite at the parents' tax rate.
 
Kiddie Tax benefit. If the gift stock pays dividends, future dividend income can potentially be taxed at your recipient’s lower tax rate. This technique can be used to provide dividend income without a child having to pay any taxes up to the Kiddie Tax annual limit of $1,100 of unearned income.
 
Gift to anyone. Your gift can be provided to anyone you wish, not just a relative. These gift rules also apply to other investments like mutual funds, land and other property.
 
Some wrinkles
If your stock has a loss it is usually a better idea to sell the stock and take the tax benefit of the loss. If the stock you gift has a fair market value less than your cost, providing the information noted here to the recipient of your gift is even more important.
 
Please ask for help if you are considering a gift of stock or property. If handled incorrectly, your gift could create unforeseen tax consequences. But used in conjunction with other contribution techniques it can be a powerful tax planning tool.
 
* An additional 3.8% Medicare Tax or Net Investment Income Tax may also apply.
 
"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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State Taxing Authorities Are Coming After Your Money

8/24/2020

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States are creating laws that snag taxpayers everywhere

New state tax laws are making more and more taxpayers tax cheats without them realizing it is happening. Think it can't happen to you? Here are some examples.
  • Your small business registers for sales tax in Texas and you receive a letter from some obscure Texas town that says you need to send them a registration fee. Where did this come from?
  • A Florida widower with income marries a retired woman who lived in Utah for nine months. The woman has no income. He has never been to Utah, even to visit. Per Utah tax law he must now pay income tax to Utah on his Florida income if he files a joint federal tax return.
  • A Delaware resident owes Minnesota income tax for consulting work even though she never steps foot in Minnesota. This is because the company who the Delaware resident did work for has a physical presence in Minnesota. The same situation is true in California and other states.
  • You decide to retire in Nevada to enjoy the sunshine. You then receive an audit letter from New York that says you need to pay them income tax, even though you no longer live there. They demand credit card statements, your driver's license and more. You provide the information, yet their demands do not go away.
  • California routinely sends out notices to small businesses throughout the country demanding detailed sales transactions for multiple years for any of their California businesses. If you do not reply, you could be in for an audit from this state.
  • States are creating business fees to capture taxes from out-of-state small businesses. This is to get around national laws that protect interstate commerce. This new category of tax is in addition to income taxes and sales/use taxes.

Until national leadership provides unified interstate guidance, states will continue to get more aggressive with the creation of new tax laws. This is more prevalent as states struggle with lost revenue due to this year's pandemic. There are even situations where two states can claim tax on the same income and you are stuck in the middle facing double taxation and tax penalties.


This ever-changing landscape requires annual review. This is especially true if you plan to move in the near future. Please feel free to call if you need help.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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How to Protect Your Social Security Number From Theft

8/17/2020

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With the dramatic increase in identity theft, what can be done to protect your Social Security number (SSN) from these would-be thieves? Here are some ideas.
 
Do not carry your Social Security card with you. Your parents were encouraged to do this, but times have changed. You will need to provide it to a new employer, but that is about it.
 
Know who NEEDS your Social Security number. The list of people or organizations who need to have your number is limited. It includes:
 
  • Your employer. To issue wages and pay your taxes.
  • The IRS. To process your taxes.
  • Your state's revenue department. To process your state taxes.
  • The Social Security Administration. To record your work history and track future benefits.
  • Your retirement account provider. To enable annual reporting to the IRS.
  • Banks. To enable reporting to the IRS.
  • A few others. Those who need to report your activity to the government (investment companies, for example).
 
Do not use any part of your Social Security number for passwords or account access. Many retirement plans use your Social Security number to enable you to access their online tool. When this happens, reset the login and password as soon as possible.
 
Do not put your Social Security number on any form. Unless a business has a legal need for your number, do not provide it. Common requestors of this number are insurance companies and health care providers. Simply write, “Not available due to theft risk” in the field that requests your number. If the supplier says they need it, ask them why.
 
Do not note your full Social Security number on any form. If you are required to give out your number, try marking out the first five numbers (i.e. xxx-xx-1234).
 
Do not put your Social Security number on your checks. If requested by the government to place your number on a check to apply a payment, simply put the last four digits on the check.
 
Never give your number out over the phone or in an e-mail.
Remember to periodically check your credit score with the major agencies to ensure your data has not been stolen. Once stolen, it is often difficult to get a new SSN issued.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

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Tax-Free Roth IRA Withdrawal Options.  What every Roth IRA account holder should know

8/10/2020

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Withdrawing funds from your retirement accounts must be done carefully to avoid a potential 10% early withdrawal penalty.
 
Unfortunately, each retirement account type has different rules. Here are some tips for Roth IRAs.
 
Roth IRA basics
 
Roth IRA accounts differ from other IRAs in that your contributions are made in after-tax dollars. If you follow the Roth IRA rules, your withdrawals of any earnings in the account can be tax-free. Generally, to take advantage of the tax-free distribution from a Roth IRA:
 
  • You must be age 59½ or older.
  • You must have had funds in the Roth IRA account for more than 5 years.
  • You must understand what is being distributed (contributions, converted funds or account earnings).
  • You must know your possible tax-free distribution options.
 
If you do not comply with these rules you could be subject to income tax and a 10% early withdrawal (distribution) penalty. But wait! There are ways to avoid getting taxed and the early withdrawal penalty.
 
Roth IRA distribution tips
 
  • Plan around the 10% early withdrawal penalty. Prior to withdrawing funds, ask for help to ensure you know whether you will be subject to the early withdrawal penalty.

  • Remember that contributions have been taxed. What many forget is that your initial contributions have already been taxed. The portion of your early distribution from a Roth IRA account subject to income tax is only the untaxed earnings on your contributions.
 
  • Qualified early withdrawals. If you use the distributions for a qualified reason, you can avoid the early distribution penalty. Some of the more common qualified early withdrawals from a Roth IRA are used for:
 
  • College. If you withdraw Roth IRA earnings to pay for college expenses, you will pay tax on the earnings withdrawn, but you will not be subject to the 10% early withdrawal penalty.
 
  • First-time home buyer. Even if you’ve had your Roth IRA for less than five years, you can withdraw up to $10,000 in Roth IRA earnings tax-free and penalty-free if it is used to buy a first home.
 
  • Account holder disability or death.
 
  • Un-reimbursed medical expenses that exceed your itemized deduction threshold.
 
  • Substantially equal periodic payments. These must be made over the defined life-expectancy of the IRA holder using specific rules to avoid the early withdrawal penalty.
 
  • No minimum withdrawal requirements. The Roth IRA rules do not require you to take money out when you reach a certain age. This means you can have an estate-planning strategy to never withdraw the funds in your Roth IRA. While the funds would be considered part of your estate, your heirs could withdraw the funds tax and penalty-free.
 
  • Keep separate accounts. The taxability of a withdrawal can be complicated. Are you withdrawing contributions, converted funds or earnings? How long have the funds been in the Roth IRA? Because Roth IRA distribution rules can be complex, if you convert funds from another retirement account into a Roth IRA, do so in a separate account. It will then be easier to understand the impact of a withdrawal from the account.
 
If you have questions regarding your situation, speak to an advisor prior to taking any withdrawals from a Roth IRA or other tax-advantaged retirement plan.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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What taxpayers should do if they get a letter or notice from the IRS

8/5/2020

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Every year the IRS mails letters or notices to taxpayers for many different reasons.
Here are some do’s and don’ts for taxpayers who receive one:
 
  • Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do.
 
  • Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.
 
  • Don’t reply unless instructed to do so. There is usually no need for a taxpayer to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment. IRS.gov has information about payment options.
 
  • Do take timely action. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Acting timely could minimize additional interest and penalty charges.
 
  • Do review the information. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return and keep it for their records.
 
  • Do respond to a disputed notice. If a taxpayer doesn’t agree with the IRS, they should mail a letter explaining why they dispute the notice. They should mail it to the address on the contact stub included with the notice. The taxpayer should include information and documents for the IRS to review when considering the dispute. People should allow at least 30 days for the IRS to respond.
 
  • Do remember there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling the agency.
 
  • Do avoid scams. The IRS will never contact a taxpayer using social media or text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
0 Comments

Taxable or Not Taxable?  Some of these items may surprise you.

8/3/2020

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There are a number of areas in the tax code that cause confusion as to the taxability of money received. Here are some of the most common areas of confusion.
 
Unemployment compensation. Unemployment compensation is typically required to be reported as taxable income. Because of the pandemic, millions of taxpayers could now be facing a tax surprise with their unemployment income. There are historic cases where federal and state taxing authorities are authorized to exempt unemployment income from taxation, so this is an area worth watching for possible future legislation.
 
Free services. Receiving free services is almost always taxable as ordinary income under IRS barter regulations. You should report the fair market value of services received as income on your tax return. If you exchange services, you can deduct allowable business expenses against the value of the services provided. So if you are trading goods or services, now is the time to be tracking this information.
 
Illegal activities. Even income received from illegal activities is taxable income and must be reported. The IRS even states that stolen items should be reported at the fair market value on the date the thief stole the item.
 
Jury duty pay. This is taxable as ordinary income. Yes, even doing your civic duty can be a taxable event.
 
Legal settlements. A general rule of thumb with legal settlements is to consider what the settlement replaces. If the settlement replaces a taxable item, like lost wages, the settlement often creates taxable income. This area is complex and often requires a detailed review.
 
Life insurance proceeds. Life insurance proceeds paid to you because of the death of an insured are generally not taxable. There are, however, a number of exceptions to this general rule. For example, you could have taxable income if you receive benefits in installments above the value of the life insurance policy at time of death or if you receive a cash payout of a policy.
 
Prizes. Most prizes received should be reported as ordinary income using the fair market value of the item received. This area has been a major surprise to contestants on game shows, along with celebrities who have received large gifts at events like the Academy Awards.
 
Alimony. Alimony is taxable to the person who receives it and deductible to the person who pays it for divorce decrees prior to 2019. For all divorces finalized after 2018, alimony is neither deductible by the person who paid it nor deemed additional income by the person receiving it. So be aware of these new rules if you are considering a change to old divorce decrees. Make sure you have proper documentation as part of a divorce decree to support your tax position.
 
Child support. Child support is not taxable to the person who receives it on behalf of the dependent. It is also not deductible for the person who pays it.
Some of these areas can be complicated, so please call to discuss if any of these situations apply to you.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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Monarch Accounting Group Inc
145 Tower Drive, Suite 10
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


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