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CAN I DEDUCT THE WORLD'S MOST EXPENSIVE DRINKS?

With allowable deductions for entertainment and meals becoming more stringent under the Tax Cuts and Jobs Acts, we all have to be careful about what we’re claiming.  We can take a client out to dinner and a show, but have to pay for the dinner separately from the show and make sure we get separate receipts. The meal, including drinks, remains 50% deductible, though.  Just don’t go ordering any of the drinks shown below because the IRS still excludes anything that’s “lavish or extravagant” and these would certainly bring the agents knocking on your door!

According to FinancesOnline.com the top ten most expensive drinks in the world are:

9.  $1000  Kentucky Derby Mint Julep – Served in a silver Tiffany glass with ice from the Arctic Circle, the drink is made with Woodford Reserve bourbon, Mint from Morocco and sugar from the South Pacific.

8.  $1270 – Original Mai Tai – Made with the same original rum, using the same original recipe that was used at Trader Vic’s and the Merchant Hotel this is the only place on Earth that can make this claim

7.  $1500 –  Platinum Passion – Served in a bed at New York’s Duvet Bar, this drink features Ruinart Champagne, honey, Brown sugar, passion fruit and L’esprit de Courvoisier ($6,000/bottle)

6.  $1670 – Ritz-Paris Sidecar – The Cognac bottled between 1830 and 1870 makes this one of the most expensive sidecar cocktails in the world.

5.  $3000 – Sapphire Martini – The Foxwoods Resort Casino boosted the price of this cocktail from $24 when they decided to serve it with a pair of diamond and sapphire earrings on the side.

4.  $4350 – Diamond Cocktail – The price of this cocktail can vary, depending on your selection of jewel to be floated inside. It is a mix of cognacs costing $1000 or more per bottle only made smoother by your selection of rare gemstone.

3.  $10,000 – Martini on the Rock – You’ll need to make a reservation and an appointment with a jeweler at least three days in advance to order this drink at the Algonquin Hotel in New York City

2.  $10,000 – Ono Champagne Cocktail –  With an 18-karat gold necklace, served in a jewel-encrusted glass at the Encore Wynn Hotel in Las Vegas, this cocktail features the rare 1981 Charles Heidsieck champagne, $90,000 Louis XIII Black Pearl Cognac, fresh orange and apricot juice and rose nectar.

1.  $22,600 Diamond Is Forever – Grey Goose Vodka, a lime twist and a one karat diamond have only been served twice at the Ritz-Carlton in Tokyo, but it’s available for those willing to pay the price.

NEW OVERTIME RULES WILL BE VERY COSTLY TO BUSINESS OWNERS IN 2020

In an effort to insure that more money gets into the pockets of employees, the US Department of Labor is changing the rules for the Fair Labor Standards Act (FLSA)  According to the Act, employees covered by the Act must receive overtime pay for working over 8 hours a day, and/or over 40 hours in a workweek at a rate not less than time and one-half their regular rates of pay.

The new federal law, effective January 1, 2020, establishes rules for minimum wage, overtime pay, and child labor.  In order to be exempt from this rule, an employee must now earn $35,568, up from the 2019 amount of $23,660. It is estimated that more than 1.3 million workers will become eligible for about $298.8 million per year.

There are, however, certain employees who, by the nature of their work would be considered exempt from this regulation.  These categories include:

Executives

Administrative Workers

Professionals

Creative Professionals

Computer Employees

Outside Sales Persons

Highly Compensated Employees

Those who would not be exempt are:

Blue Collar Workers

Manual Laborers

Police, Fire Fighters, Paramedics & Other first Responders

There is no limit on the number of hours employees aged 16 and older may work in any week, however, unless they are exempt, they must be paid overtime if they work more than 40 hours.

As an employer, you must carefully review your employees to determine where they fall in the exemptions allowances. You may find some employees changing from exempt to non-exempt, and therefore, they will have to be paid overtime.

There are ways to keep an employee in the exempt category such as raising his or her salary, or providing a bonus that would be counted as income.  They must still pass a “Duties Test” to ensure that their work duties fit the categories set out in the Act. 

It is important that you learn about all the provisions of

the new rule and how it may affect your business.  We can help you do an analysis of your employees and potential overtime costs, and develop a plan for the future.

Why Do I Need To Talk To My Accountant Now? It’s Not Tax Time!

It’s the beginning of Fall…who wants to think about the IRS or Income tax or me, your accountant?  You have enough going on already with the summer ending and getting back into the groove. 

The way to avoid that headache of the year is to talk to us now.  Remember when you actually studied for that test, or did the research for that paper and you got the A?  Well, the early Fall meeting accomplishes the same thing.

At the end of the year you’ll be getting paperwork from contractors, and you need to keep an eye out for certain things.  You’ll also need to be sending out certain tax forms to those who may have done work for you. We can guide you through what to look out for.

We can also help review your quarterly payments for your estimated taxes to make sure they’re up to date so as to avoid any penalties that may be applied.  At this point, you should know if you need to make any additional payments before the end of the year so you won’t get any surprises that will cause that major headache.

The two most important reasons to see us now are to see if there are any end of the year moves you can make and review your business’s finances. You may be able to lower your tax bill with a purchase or a donation and after a review of your finances, we will be able to tell you what you can afford.  We will also provide you with a snapshot of what’s going on with your business; and we can discuss possible deductions you’ll be able to take on your return and what documentation you’ll need; another headache prevention tool.

There’s really not much to it; 45 minutes of your time now to prevent that knot in your belly in April!

Give us a call today.

Year End Tax Planning Tip

 

As we near the end of year here are a few last-minute tax saving tips:

  1. Do you think you’re going to owe federal income tax for the year? Increase your tax withholding, especially if you think you may be subject to an estimated tax penalty.  Steps to take: ask your employer to increase your withholding for the remainder of the year to cover any possible shortfall. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding in 2018.
  2. Are you 70 ½? – at this age you are generally required to start taking a required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans. Take any distributions by the date required. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.
  3. Have you maxed out your Retirement savings for the year? For 2018, you can contribute up to $18,500 to a 401(k) plan ($24,500 if you’re age 50 or older) and up to $5,500 to a traditional or Roth IRA ($6,500 if you’re age 50 or older). The window to make 2018 contributions to an employer plan generally closes at the end of the year, while most IRA’s allow you until the due date of your federal income tax return (not including extensions) to make 2018 IRA contributions. Why should you do this? Because maxing out your contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.
  4. Need help? Call us! – There’s a lot to think about when it comes to tax planning. It only makes sense to talk to a tax professional who can evaluate your situation and help you determine if any year-end moves make sense for you.

Reduce or Eliminate Your Capital Gains

The capital gains rates have changed in 2018 for the first time in a long time.  Rates have been lowered and there are plenty of ways to avoid paying this tax!

New Rates

First let’s take a quick look at the new rates because I many of you will find them even lower than in recent years!

  • 0% applies to married filing joint (MFJ) taxpayers with income up to $77,200.  If you are single, the earnings limitation is $38,600.
  • 15% for MFJ taxpayers with income between $77,201 – $479,000.  Single income is $38,601 – $425,800.
  • 20% applies to MFJ incomes in excess of $479,000 and singles in excess of $425,800.
  • Additional 3.8% – the net investment tax is added to the above for couples with income over $250,000 and single filers over $200,000.

This effectively means a married couple can have total income of $101,200 after considering the $24,000 standard deduction and still qualify for a 0% capital gains rate!

Tax Tips

Next we want to review some tax tips to take advantage of these new rates:

  • Sell and Increase Basis – Consider taking advantage of the new capital gains rates by selling enough stocks to still apply for the 0% rate and then reinvest in the same stocks to obtain an increased basis.
  • Gift Appreciated Stock to Your Family – Give up to $15,000 to your children or grandchildren.  This will result in them taking your lower basis but when then sell the stock they most likely qualify for the 0% capital gain tax rate.
  • Pay for Family Member’s College – fund a 529 plan with stocks and they not only grow tax-free but any withdrawals use for education expenses avoid capital gains.
  • Fund Your Retirement Healthcare Expenses – Contributions to a health savings account fur future expenses result in tax-free growth and avoid capital gains when withdrawn to pay for medical expenses.
  • Give to Charity – Donate appreciated securities to a donor-advised fund to get the tax deduction for the fair market value of the stock and pay no capital gains tax.
  • Buy a New Home – Exclusion of capital gains of $500,000 MFJ and $250,000 for others still apply for you or primary residence.
  • 1031 Exchange – Use this strategy to defer capital gains for real estate assets. Other uses have been eliminated in 2018.
  • Die – Ok admittedly this does not sound like a great option but any securities held until you die are passed on to your heirs at the current fair market value and no capital gains tax is avoided.

Oh Where Oh Where Did My Deductions Go?

The Tax Cuts and Jobs Act gave breaks to many, but those that itemized deductions will be surprised to find out that a lot of things they have been used to deducting are no longer allowed in 2018 and that might result in a tax sticker shock when their returns are prepared.

Here are a few of the gone but not forgotten:

  • Moving expenses – this used to be able to be deducted even if you did not itemize.
  • Personal exemptions – in the past you could deduct $4,050 per family member.
  • Home equity loan interest – this is not longer allowed for new home equity loans and the total amount of home debt now cannot exceed $750,000.
  • Casualty and theft losses – this is now limited to property damaged in disaster areas declared by the President.
  • Charitable contributions – this has been tightened to eliminate the value of athletic tickets received for your donation, In the past this was not required.
  •  Job expenses – unreimbursed work expenses are no longer allowed.
  • Tax preparation fees –  these have been eliminated as well as tax software and preparation subscriptions and books.
  • Investment advisory fees – many taxpayers who were previously able to deduct these as well as IRA fees and investment books and subscriptions are no longer able to deduct these costs.

Charitable Giving and Deductions – what to consider in 2018

Everyone has probably already heard complaints about the new tax law’s effect on charitable deductions. Experts agree that higher standard deduction in 2018 will result in millions of taxpayers who will no longer find it advantageous to itemize deductions (charitable or other types) on their federal tax returns. For those who will still itemize, lower tax rates mean deductions carry less value. In 2018, the standard deduction will almost double to $12,000 for single filers and $24,000 for joint filers.  Because some popular deductions were reduced or capped (think state and local taxes as well as home mortgage interest), many folks will find their total allowable itemized deductions will come in lower than the standard deduction. What does that mean for those who will no longer realize any tax benefit from itemizing charitable deductions? And what changes affect those who still should itemize their charitable donations in 2018?

What do you want first? The good news or the not-so-good news?

It’s short so here is the good news first: charitable donations remain deductible under the Tax Cuts and Jobs Act. The rules are largely the same with only a few changes.

  1. Charitable cash donation limit increased. The percentage limit for charitable cash donations by an individual taxpayer to public charities and certain other organizations increases from 50% to 60% of their adjusted gross income (AGI). See Line 37 on IRS Form 1040.

That about does it for the good news.  Now the not-so-good news:

  1. Deductions for Certain Payments to College Athletics. Taxpayers can no longer deduct payments made to a college or college athletic department (or similar) in exchange for athletic event tickets or seating rights at a college stadium.
  2. Charitable Standard Mileage Rate Frozen.  The charitable standard mileage rate will no longer be adjusted for inflation. So for 2018, the rate remains a lousy 14 cents per mile.  As in previous years, if a taxpayer itemizes, they can still deduct the costs of gas and oil directly related to getting to and from the place where they volunteer. As an alternative to making those calculations and keeping those records, they have the option to instead deduct 14 cents for each mile traveled using a personal vehicle. That rate, however, compares unfavorably to the IRS standard mileage rate of 54.5 cents per business mile and 18 cents for medical and moving deductions. These rates each increased one cent over 2017 rates as a result of inflation.

Why a little tax planning is now more important than ever

If you have benefited from itemizing charitable contributions in previous years and are worried about how the changes might impact you in 2018, don’t panic just yet.  There is a bit more good news. Doing a bit of advanced planning with a tax professional will still allow you to realize significant tax savings from your charitable giving. This is because the Tax Cut and Jobs Act did not change some of the biggest (but lesser known) tax advantages for charitable donations. These include:

  1. Donations of appreciated stocks or bonds.  By donating appreciated stocks or bonds, rather than cash, one still avoids capital gains taxes regardless of whether or not a donor itemizes. If a donor doesn’t want to change their current investments, they just utilize the cash they planned to donate to buy the same bonds or stocks to replace those donated. The new or replacement assets would then have 100 percent basis, which in the simplest terms means no capital gains taxes are due on any past increase in the value of donated assets. This creates a “win-win” for both the donor and charity as it eliminates any taxes that might be due while increasing the amount available for charity by as much as 20 percent.
  2. Using donor-advised funds.  Donor-advised funds were also unaffected by the Tax Cuts and Jobs Act. Per Wikipedia, a donor-advised fund is “a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals.” These funds allow givers to deposit dollars into them in one year, but then spread out gifts to charities they designate over a period of several years. This is an effective strategy for individuals who may wish to itemize deductions the first year (the year they contribute to the fund), but may instead want to take the standard deduction in the second or future years.
  3. Qualified charitable distributions.  Donors that are 70 ½ years of age or older can continue to donate to a charity directly from an IRA. Known as a “qualified charitable distribution”, this method of giving is better than a deduction because the income is never reported to the IRS and the gift counts towards the required minimum distribution the donor must withdraw each year.  The tax savings is not contingent on whether or not the donor is itemizing deductions on their federal return; it remains the same either way.

Have questions about the 2018 changes? Need to talk to a tax professional about your charitable giving plans or developing your tax strategy? Please feel free to contact us today to schedule your appointment.