Stephen Wallick February 21, 2018 No Comments

Itemized Deductions under the Donald Trump Presidency

When you file your taxes each year, you have the choice of taking the standard deduction or itemizing your deductions. The standard deduction is a preset amount that you are allowed to deduct from your taxable income each year. This amount will vary according to your tax filing status and is adjusted annually. But often, it is more beneficial to itemize your deductions. To get the biggest bang out of your buck, read on to learn when to itemize your deductions and when to stick with the standard deduction.

In President Trump’s new tax outline, itemized deductions are virtually going away except for a few, such as mortgage payments and charitable donations. In the place of itemized deductions, the standard deduction is proposed to double. The intention is to maximize tax savings and simplify the tax code. Good idea, right? Below is an overview of the current rules for itemized deductions.

The Purpose and Nature of Itemized Deductions

Itemized deductions fall into a different category than “above-the-line” deductions, such as self-employment expenses and student loan interest; they are “below-the-line” deductions, or deductions from adjusted gross income. They are computed on the IRS’s Schedule A, and the total is then carried to your 1040 form. Once itemized deductions have been subtracted from your income, the remainder is your actual taxable income. Itemized deductions were created as a social-engineering tool by the government to provide economic incentives for taxpayers to do certain things, such as buy real estate and make charitable donations.

Which Deductions Can Be Itemized?

Schedule A is broken down into different sections that specify each type of itemized deduction. The following is a brief overview of the scope and limits of each category:

Unreimbursed Medical and Dental Expenses 

This deduction is the most difficult to qualify for. Taxpayers who incur qualified out-of-pocket medical and/or dental expenses that are not covered by insurance can deduct expenses that exceed 10% of their adjusted gross income.

Interest Expenses 

Homeowners can deduct the interest that they pay on their mortgages and home equity lines of credit.

Taxes Paid 

Taxpayers who itemize are able to deduct two types of taxes on a Schedule A: Personal property taxes (such as real estate taxes)  and state or local taxes that were assessed for the previous year. However, any refund received by the taxpayer from the state in the previous year must be counted as income if the taxpayer itemized deductions that previous year.

Charitable Donations 

Any donation made to a qualified charity is deductible (within certain limitations). Cash contributions that exceed 50% of the taxpayer’s adjusted gross income (AGI) must be carried over to the next year, as well as non-cash contributions that exceed 30% of AGI.

Casualty and Theft Losses 

Any loss incurred because of a casualty or theft can be reported on a Schedule A; however, only losses in excess of 10% of the taxpayer’s AGI are actually deductible. Also, if a taxpayer incurs a loss in one year and deducts it on taxes, any reimbursement that is received in later years must be counted as income.

Unreimbursed Job-Related Expenses and Certain Miscellaneous Deductions

W-2 employees who incur work-related expenses can deduct the expenses that exceed 2% of their AGI. Work-related expenses include items such as: equipment and supplies, protective clothing, expenses for maintaining a home office, vehicle expenses, dues to professional organizations and professional subscriptions. Certain other miscellaneous deductions are listed in this section as well, such as income tax preparation and audit fees, and any expenses related to maintaining investments or income-producing property. These fees include such items as IRA or other account-maintenance fees, legal and accounting fees, and margin interest.

Other Miscellaneous Deductions

This category of itemized deductions includes items such as: gambling losses to the extent of gambling winnings, losses from partnerships or subchapter S-corporations, estate taxes on income in respect of a decedent, and certain other expenses.

Income Limitations for Itemized Deductions 

Itemized deductions for taxpayers with an AGI above a certain level may be reduced. These levels depend on your filing status. If you’re above this level, you’ll need to complete an Itemized Deductions Worksheet to determine the amount to enter on line 29 of the Schedule A.

Remember to Aggregate 

There are times when the additional deduction from excess medical or job-related expenses will allow itemized deductions to exceed the standard deduction. Do not  assume that you cannot deduct miscellaneous expenses or that you cannot itemize deductions if your itemizable deductions are insufficient, by themselves, for you to qualify.

The Bottom Line 

There are many rules concerning itemized deductions that are beyond the scope of this article. Working with an experienced tax professional can help to ensure those rules are applied to your tax return in your best interest. The Trump Presidency may bring about big changes, but that remains to be seen.

Stephen Wallick February 14, 2018 No Comments

5 Tax Tips for New Families

More and more Millennials are beginning to get married and have children. No one enjoys tax season, and I bet they don’t either. But here are some tax tips for new families that will help navigate you through the tax process.

1. Make Sure You Have All Your Tax Documents

Some of your tax documents will come via mail, and some may be found online.  Gather them together and keep track of them! Tax documents include: Health Care Statements (1095-A, 1095-B, 1095-C), needed to verify health insurance coverage; and Income/Deduction Statements (W-2, 1098 Forms, 1099 Forms).

2. There Are Many Great Tax Deductions 

There are opportunities to reduce your taxable income. These allow you to reduce your tax liability. Deductions can include the number of children you have (even one born on December 31), day care expenses, property taxes and car registration fees and charitable deductions.

3. Attention, New parents 

Don’t forget about the $1,000 Child Tax credit. This directly reduces your tax bill by $1,000.  This is different than the deduction mentioned above, as it directly reduces your tax bill dollar-for-dollar.

4. Contribute to an IRA or HSA Account

When you contribute to an IRA for retirement or a health savings account for healthcare expenses, you may be eligible for certain tax deductions based on the amount of your contribution and your income level.  When you contribute to an IRA you are preparing for your future, and an HSA account sets aside tax-free money for medical expenses. 

5. Don’t Be Afraid to Ask for Help

If you are in doubt, make sure you contact a tax professional for guidance. It pays to use a knowledgeable tax professional, as they may find credits and deductions that you don’t know you qualify for.

This year, be proactive about your taxes and start now. If you haven’t started organizing your tax documents, it’s better to start early than waiting until the last minute. There are many resources that can help you find the best option.  Call us at 615-326-TAX9 for a free consultation. 

Stephen Wallick February 7, 2018 No Comments

700 New Ways For the IRS To Audit

The IRS is increasing your chances of being audited by adding 700 audit and enforcement personnel. 

IRS enforcement will increase. No one wants to be audited, but the truth is that the tax system needs more audits. Recently, IRS audits of individuals reached an 11-year low. That made many taxpayers happy, of course. Even if you are certain that you filed your taxes properly, providing receipts is maddening, audits often seem dangerous.

The IRS is auditing less than 1% of individual taxpayers. Positive thoughts about the IRS are at an all-time low. But most Americans realize that we must pay taxes and that someone must collect them.  That is where sympathy or understanding for the role of the IRS ends. Recent scandals involving the IRS, evasive responses to Congress, failed approaches to security, and diffidence to the public and legislators have not won the IRS any friends.

Stephen Wallick January 31, 2018 No Comments

8 Ways to Minimize Taxes

Taxes are an integral part of a civilized society; the law requires us to pay our taxes.  But, there’s nothing in the law that says you can’t utilize certain incentives to lower your tax liability.  Here are eight ways to minimize your taxes. The IRS has limits, but use your creativity and the advice of a tax professional to reach those limits.

1. Tax Minimization, NOT Tax Evasion  

The U.S. Supreme Court reminds us that tax avoidance is not illegal, but tax evasion is  Approach those lines, but do not cross them. There are plenty of ways to legally minimize your taxes.

2. Self-Employed or Rental Property Owners

The best options for lowering taxes usually involve being self-employed or owning rental real estate. There is the opportunity to use depreciation, a calculated non-cash expense, to lower your taxable profits from a business or rental property. You can also find ways to legally shift income.

3. Hiring Family Members 

If you are self-employed, you can hire family members, even minor children. This shifts net profit from your tax bracket to someone who may be in a no-tax bracket. This benefit is multiplies if you help the minor child use income to fund a Roth IRA which gives a head start on retirement savings, or provides a tax-free way to save for college.

4. Medical Expenses 

You can also choose to supplement medical expenses through a Medical Expense Reimbursement Plan (MERP) sponsored by your business. Everyone is going to have medical expenses, but through this incentive, you can now get a legal tax subsidy.

5. Minimize Taxes on a W-2

If you are a W-2 employee, the best options are employer-sponsored benefits. Take advantage of any benefit that shifts income to a tax-deferred vehicle, such as employer-sponsored retirement plans and flexible spending accounts for health care.     

6. Investing Strategies

If you have disposable income, you can consider investing in municipal bonds which produce tax-exempt income. Investing in partnerships, like oil and gas exploration, which produce depreciation and losses can also be used to offset your income.

7. Lower Taxes Through Retirement Accounts

 Lowering taxes in the current year is what most people are concerned about, but it’s also advisable to plan ahead for taxes in retirement. If you put aside money in your IRA or company 401(k) you’re lowering your current tax bill. But you’ll find that the IRS will be waiting to take its share when you start taking distributions in retirement. But, you can lower your future tax bill by diversifying where your retirement money is held. By funding or converting other IRA funds to a Roth IRA, you’ll have the option to withdraw funds tax free in retirement or allow them to continue to grow because you won’t have to take a minimum distribution from these accounts.

8. Estate Planning 

Roth IRAs are preferable compared to traditional IRAs.  Roth IRAs are easier to pass on to heirs, and the tax ramifications of traditional IRAs are more detrimental. Because of income threshold limits, you may not directly qualify for opening or funding a Roth IRA, but there are ways to navigate through the rules to fund a backdoor Roth IRA.

Talk to a tax professional about protecting your wealth and estate planning options.

Lisa Gale January 24, 2018 No Comments

Don’t Be the Victim of a Tax Scam

Tax scams are on the rise and people impersonating IRS agents may call and ask for your credit card number or bank account information. BE AWARE. You can also fall victim to a tax scam without ever knowing it.

The following signs could indicate that you’ve been the victim of tax-related identity theft:

  • If your tax return is rejected when you file it, this could indicate that someone has already filed a fraudulent return using your Social Security number to claim a refund.
  • If you receive a letter from the IRS asking whether you submitted a tax return containing your name and Social Security number, this could indicate that someone else has attempted to file using your information.
  • If you receive a W-2 or 1099 from an employer for whom you have not worked, someone may be using your information.
  • If you receive a tax refund for which you did not file, DO NOT CASH IT! This most likely indicates fraud… the IRS does not give away money!
  • If you receive a tax transcript by mail that you did not request, this is a good indication of fraud.  A tax transcript is a document showing most of the line items from your originally filed tax return.

The bottom line is that anyone can become a victim of a tax-scam. Modern technology has provided us many conveniences, but has also provided criminals with countless ways to steal your personal information. So be aware and don’t become prey! Do not give out personal information over the phone or through email. Do not download information-stealing malware onto your computer. If you are at all suspicious, contact the IRS directly by using the information on the official IRS website,

Stephen Wallick January 17, 2018 No Comments

What to Do First When the IRS Contacts You

No one wants to get a call or a letter from the IRS, but DON’T PANIC!

If the contact is via email, it’s fraudulent

Do not respond to the email or click on any links in it. This is an attempt to steal your personal information. Forward the message to, then delete the original email.

The IRS will never make initial contact by phone

The agency will contact you initially via postal mail. However, even if you have already had legitimate contact with the IRS, do not assume that a phone call is legitimate. There are many scams out there.  Even if the caller ID has a Washington, D.C., area code (202) or says “Internal Revenue Service,” do not provide the caller with any information. Say you cannot talk now and will call back shortly. Ask for a name and badge number. Then call the IRS directly using the phone number provided on (800) 366-4484. Only then will you be able to determine if the call was legitimate.

It is also important to understand that the IRS will not threaten arrest you, so any communication stating otherwise is fraudulent. Some people who intentionally commit tax fraud and evasion by purposefully lying to the IRS, underpaying the tax they owe or failing to file a tax return do eventually end up in jail after repeatedly refusing to cooperate with the IRS. However, ordinary taxpayers who have simply made a mistake on their return are not at risk of going to jail.

If the contact is via text message, it’s fraudulent 

As with an email, you should not reply, open any attachments or click on any links in the message. Instead, forward the text to the IRS at (202) 552-1226. If possible, send the IRS a second message with the number from which the fraudulent text originated, then delete the message.

If the contact is via postal mail, it may or may not be legitimate

There have been fraudulent IRS notices sent via mail. The IRS uses form CP2000 to inform taxpayers of proposed IRS adjustments to their returns. These notices are challenging to authenticate, but it can be done. Here are a few clues to help you discriminate: fake CP2000 forms have an illegitimate IRS address; they ask the taxpayer to make the check payable to the IRS rather than the United States Treasury (which is how you make out a check to the genuine IRS); they instruct the taxpayer to send payment immediately and dispute it later. The real IRS allows taxpayers to dispute claims of unpaid taxes first and pay after an agreement is reached.

DO NOT ASSUME that an IRS letter requesting payment or personal information is legitimate. Instead, go to and search for the relevant notice or form number and read the IRS’s page “Understanding Your IRS Notice or Letter.” You can also call the IRS directly at (800) 829-1040 to inquire about a letter’s legitimacy.

How can your business benefit from the new Trump tax plan?

President Trump has signed the Tax Cuts and Jobs Act. This legislation will provide incredible opportunities to both Individual and Businesses. The law is effective in 2018.

The new legislation simplifies the individual tax process but adds tremendous complexity to small businesses.

The new law is very much pro-business with the reduction in tax rates, increased depreciation allowances, and the 20% deduction for Qualified Business Income for Partnerships, S-Corps and Sole Proprietors. .

If your business files a Schedule C, Form 1065 (Partnership return), or 1120-S Corporation, you could greatly benefit from this tax legislation if you take action now.

How will the new Trump Tax Legislation affect your business? from Steve on Vimeo.

Stephen Wallick January 10, 2018 No Comments

Be Aware of the Latest IRS Scams

You may wonder how IRS scammers go about stealing your personal information. Well, your personal information is everywhere: on unencrypted hard drives; USB drives; in the cloud; social media; filed with your employer, financial institution. tax preparer, and even the IRS itself. Because income tax returns contain so much valuable personal information, they are a highly desirable target for hacking by identity thieves.

IRS Scammers Use Psychological Manipulation

Scammers take advantage of people’s fear of the IRS! They use is to pressure taxpayers into providing sensitive information by phone, email or postal mail. In addition, they can infect computers with malware that enables them to access people’s files, track keystrokes via links and attachments in emails, or by impersonating tax preparation companies. You can’t possibly prevent all types of tax-related fraud, but you can educate yourself about the latest tax scams so you are less likely to become a victim.

Phone Scams 

Many scammers are carrying out their schemes by phone. They convince callers that they are legitimate IRS employees by using false caller IDs, using false IRS employee badge numbers (or even real ones), and already being in possession of key information about their targets. The IRS refers to these scammers as “aggressive and sophisticated.”

These callers try to convince taxpayers to send immediate payment through a preloaded debit card, gift card or wire transfer. These methods prevent victims from getting their money back, even if they discover they’ve been scammed. Scammers may even ask their targets to hold up their credit cards to the camera in their phones or computer, in order to get their payment information. If the taxpayer doesn’t pay, these callers may threaten arrest, driver’s license suspension, business license suspension or, in the case of immigrant targets, deportation. Scammers may claim that you haven’t paid a nonexistent federal student tax, penalties related to the Affordable Care Act, or back taxes. These scammers are successful enough that they’ve managed to steal millions of dollars from unsuspecting taxpayers over the last few years.

Email Scams

Email scams are another major threat. Scammers will use the IRS logo or tax software company logo. These emails can look quite official, but don’t be fooled! The email may be about your expected refund, your filing status, missing personal information, or e-File PIN. Links in these emails direct you to websites that also look legitimate. By clicking on these links, you are giving the scammers access to all your personal information. These links may also contain malware that can give scammers access to your files or track your keystrokes without your knowledge. You may as well take out a billboard with your personal information on it! Be aware of these scams! Protect yourself and your information!

Stephen Wallick January 3, 2018 No Comments

Does Extending April 15 Deadline Increase Odds of an IRS Audit?

Instead of rushing to April 15 to file your taxes, you can go on extension.  Does filing an extension increase your odds of audit?

Everyone can get six extra months by filing (electronically or by mail) an extension. You need to pay what you owe–the extension is to file your return not to pay–but there are good reasons to take the extension.

First, going on extension gives you more time to think. Use the time to gather your records and get professional advice.  File accurately so you don’t have to amend later. Amended returns often come about because people rush. File once correctly so you don’t have to do it again.

The extension is automatic – no IRS approval required. You just get the extra six months, period. But the extension is to file, not to pay. Make your payment and use the time to make your return accurate and complete.

Going on extension also allows for corrected Forms 1099 and K-1. You may be waiting for Forms K-1, gathering documents or seeking professional advice. But even if you have all your forms and are ready, what if you receive a K-1 or 1099 after you file?

The earlier you file, the greater the risk you will receive corrections. Going on extension makes it less likely that you will be surprised by a tardy corrected K-1 or 1099. You may as well file once and file correctly.

Some people say that going on extension increases audit risk. Some people say exactly the opposite. But there is no hard evidence to support either theory. It is worth saying it again: there is no increased audit risk to going on extension. All taxpayers worry about IRS audit risk. Opinions vary and there are many old wives’ tales about what triggers an audit. However, it is unlikely that going on extension increases IRS audit risk.

Going on extension is easy. To extend, you can mail a Form 4868, ask your return preparer, use commercial software, or do it yourself electronically. For more guidance, IRS tax topic 304 covers extensions of time to file your Tax return.

If you need an extension, give us a call.  We are happy to file this form for you free of charge. 

Stephen Wallick December 27, 2017 No Comments

Large Tax Refunds Can Be Harmful to Your Financial Health

Fallacy of a Fat Tax Refund

Many people think of a large tax return as “found money,” or money that is forgotten because it isn’t seen in a pay check. Others use it to save for a “big ticket” purchase. However, from a financial perspective, it means that you paid more than you had to. A large refund is also a lost opportunity to invest money. Often, tax professionals boast about getting people large returns, but I believe the best value for you is paying as little as possible. I believe the goal of a tax professional should be reducing your overall tax liability, not getting you a large refund.

Is that how the tax thing works? 

I’ve had people sitting across my desk from me, asking this question. It can be difficult to explain why one wouldn’t want a large tax refund. It is important to know that income is taxed differently than wealth. The ultimate goal should be to reduce your tax liability to the point where you pay as little as possible and get no refund. If you pay less in taxes, you can enjoy yourr money throughout the year or use it to build your savings.

Can a large refund be harmful? 

Has your tax preparer ever talked to you about an IRA? This is a beneficial was to reduce taxable income. It is referred to as tax planning. Some people may not be aware may that if they are a W-2 employee, they can request their withholding be adjusted by a specific dollar amount. You can request that this amount be deducted from your check and placed in a n IRA. If you are withholding at a higher rate than necessary, making this change will not lower your gross income, and you will be building savings rather than helping the IRS.

The average tax refund in 2016 was $2,945, so approximately $250 per month was being held by the IRS with no future benefit for the taxpayer.  where that taxpayer received no return and no future retirement benefits. This money is better invested in that account that will grow, tax-free, for your future.

There’s even the potential to earn free money

Many employer-sponsored retirement plans offer a matching contribution up to 50%. So, if you contribute $10,000, your employer will contribute $5,000.  The tax code encourages investing for the future by offering these tax incentives, but it is estimated that fewer than 50% of people who have the opportunity to invest in employer-sponsored retirement plans actually do so. Don’t be one of those people who misses this opportunity!

Behavioral economists use the term “mental accounting” to refer to the people who use large tax refunds as “found money.” But consider this: If the average taxpayer took the $2,500 average refund and invested each year it in an employer-matching retirement fund, a 6% net return over 40 years would result in a $600,000 retirement fund! Now ask yourself, which would you rather have?

Tax Refund or College Planning?

Have you wondered how you’re going to pay for the high cost of college for your child or grandchild? Rather than receiving a large refund, you can invest in one of the many tax-advantaged savings tools, such as a special fund used for qualified education programs. These funds are similar to an IRA in that it is tax-free growth and there is no tax liability if used for qualified education programs.

Rainy Day Funds

Do you have a rainy-day fund? Are you saving for the future? If not, that extra money that is being withheld from your paycheck can be better used to help build one. A Roth IRA offers tax deferral on any earnings deposited into the account. Withdrawals from this account can be considered tax-free if they meet certain restrictions. However, withdrawals before the age of 59 may result in a 10% tax penalty.

Tax laws are always changing and have the potential to impact tax-free retirement funds. It is a good idea to consult a tax professional before investing in or making withdrawals from such accounts.