Lately, it feels like everyone is talking about moving for tax reasons.

Lower income taxes. Friendlier states. A fresh start that supposedly comes with a smaller tax bill.

And on the surface, it sounds simple. You move. Your taxes go down. Done.

Except… that’s rarely how it works.

Before boxes are packed or homes are listed, there’s a conversation that needs to happen. Actually, two of them:

1. One with your family
2. One with your tax advisor

Because moving for taxes isn’t just a relocation decision. It’s a long-term financial strategy. And like any strategy, the details matter.

The Big Misnomer: “Once You Move, You’re Done”

One of the most common assumptions we hear goes something like this:

“As long as I move and spend enough time in the new state, I’m fine.”

People often believe there’s a simple rule. Six months and a day. Cut ties. Change addresses. Problem solved.

In reality, some states are far more aggressive than people realize. Having any meaningful presence in your former state — a home, a business, time spent there, even patterns of behavior — can complicate things quickly.

This isn’t about doing anything wrong. It’s about understanding that residency, domicile, and tax exposure don’t always line up neatly with where you sleep most nights.

That’s why this isn’t just a moving decision. It’s a planning decision.

Lower Income Taxes Don’t Always Mean Lower Taxes

Another surprise for many people? Lower income tax rates don’t always translate to a lower overall tax burden.

Here’s why.

When income taxes go down, something else often goes up.

Property taxes. Sales taxes. Local fees. Insurance costs. Even healthcare access and costs can shift dramatically depending on where you land.

For someone on a fixed income or nearing retirement, this matters more than headline tax rates.

If your taxable income is relatively modest, the progressive nature of income taxes may mean you weren’t paying as much as you thought to begin with. In those cases, a jump in property taxes or cost of living can outweigh any income tax savings.

In other words, you might “win” on paper and lose in real life.

This Is a Family Conversation, Not Just a Financial One

Moving for taxes isn’t just about numbers.

It affects:

• Where you spend your time
• Access to family and support systems
• Healthcare providers
• Lifestyle and long-term comfort

These are family conversations first, financial conversations second.

And the financial side needs to support the life you’re trying to live — not force tradeoffs you didn’t anticipate.

Why This Is an Advisory Conversation (Not a Checklist)

There’s no universal rulebook for moving safely and smartly for tax reasons.

What does matter is understanding:

• How states evaluate residency and presence
• How income, property, and other taxes interact
• How your specific income sources are taxed
• How timing and documentation affect your position

There are strategies to reduce risk. There are ways to structure a move thoughtfully. There are also situations where moving for taxes simply doesn’t make sense once everything is considered.

But none of that comes from assumptions or internet advice. It comes from planning.

The Bottom Line

Moving for tax reasons can absolutely make sense. For some people, it’s a smart and strategic move.

For others, it’s more complicated than expected. And in some cases, it’s not cheaper at all.

That’s why the most important step isn’t choosing a destination. It’s having the right conversation first.

If you’re thinking about moving and wondering how it could impact your taxes — or whether it actually helps — don’t go it alone.

This is one of those decisions where a conversation with your tax advisor can save you from surprises later and help you build a game plan that truly works for your life.

Because when it comes to taxes and relocation, clarity upfront beats regret down the road.

The post Thinking About Moving for Taxes? This Is a Conversation You Need to Have First first appeared on Wellman Tax & Business Advisors, Inc..

The year 2025 marks a pivotal moment for taxpayers across the nation as sweeping changes take effect, ushered in by the One Big Beautiful Bill Act (OBBBA) and the delayed implementation of other significant legislative provisions. This update is a must-read for every taxpayer seeking to navigate the tax landscape and optimize their financial strategies. From adjustments in tax rates and tax credits, to expanded deductions and employer incentives, the ripple effects of these changes affect taxpayers in many ways. Understanding these updates is crucial, not only for compliance but also for capitalizing on potential tax savings. Dive into the essential details and ensure you’re fully prepared for the coming tax season.

Standard Deductions Increased

The 2025 inflation adjusted amounts are $15,750 for single and married separate filers, $23,625 for heads of household, and $31,500 for married filing jointly. For 2026, the amounts are $16,100 for single and married separate filers, $24,150 for heads of household, and $32,200 for married filing jointly.

New Senior Deduction

From 2025 through 2028, seniors aged 65 or older can each claim a $6,000 deduction. It phases out for unmarried individuals with a MAGI over $75,000 and for married couples filing jointly over $150,000, reducing by $100 for each $1,000 exceeding these thresholds. Both itemizers and standard deduction filers are eligible. Reported on the new 1040 Schedule 1-A, it is a below the line deduction, but does not reduce AGI.

Qualified Sound Recording Production Expenses

Effective after July 4, 2025, and through December 31, 2028, these expenses are qualified for bonus depreciation.

Required Minimum Distributions (RMD)

Taxpayers must start annual withdrawals from traditional IRAs at age 73. The RMD is calculated by dividing the account’s previous year-end value by the taxpayer’s life expectancy based on the IRS’s Uniform Lifetime Table. In the year a taxpayer turns 73, the RMD can be postponed until April 1 of the following year.

Special RMD rules apply for retirement plans inherited from decedents who died after 2019, specifically for surviving spouses, disabled or chronically ill individuals, and minor children of the account owner. Other beneficiaries must take RMDs until the account is exhausted and it must be totally distributed within 10 years of the decedent’s passing.

No Tax on Tips

From 2025 through 2028, a deduction up to $25,000 is allowed for qualified cash tips in customary tip-receiving occupations, excluding specified service trades. The IRS has provided a list of qualifying occupations in an information release, IR-2025-92, and will also include details in the instructions for 2025 returns. The deduction phases out when AGI is over $150,000 for singles and $300,000 for joint filers, reducing by $100 for every $1,000 over. The deduction applies per return and is available to both itemizers and standard deduction filers.   Employers will include qualifying tips on the employee’s W-2. Taxpayers claim the deduction on the new 1040 Schedule 1-A. It is a below the line deduction that does not reduce AGI.

No Tax on Qualified Overtime

From 2025 through 2028, a deduction of up to $12,500 ($25,000 for MFJ) is allowed for overtime pay exceeding the regular rate as per the Fair Labor Standards Act. Phases out for MAGI over $150,000 (singles) and $300,000 (joint), reducing by $100 for every $1,000 over. Available to both itemizers and standard deduction filers.

Example:

Overtime Hourly Rate: $30.00

Regular Hourly Rate: <$20.00>

Deductible Amount:    $10.00 per eligible overtime hour

For the 2025 tax year, employers can use a reasonable method to estimate the deductible amount of overtime, as the IRS has not yet finalized its forms and guidance. For the 2026 tax year, the IRS is expected to require reporting qualified overtime pay in Box 12 of the W-2 using the code “TT”. Employees claim the deduction on the new 1040 Schedule 1-A as a below the line deduction. It does not reduce AGI.

New Vehicle Loan Interest Deduction

From 2025 through 2028, individuals may deduct up to $10,000 in interest on loans secured by a new personal-use passenger vehicle, assembled in the U.S. and weighing under 14,000 pounds. Excludes family loans and non-personal vehicles like campers. Phases out for incomes between $100,000-$150,000 (single) and $200,000-$250,000 (MFJ). Available to both itemizers and standard deduction filers by filing a new 1040 Schedule 1-A with the vehicle’s VIN. A below the line deduction, it does not reduce AGI.

Adoption Credit Changes

One Big Beautiful Bill Act added a refundable amount. For 2025 the credit is $17,280 with $5,000 refundable. Those inflation adjusted amounts are $17,670 and $5,120 for 2026. Phases out between $259,190 and $299,190 for 2025 and in 2026 between $265,080 and $305,080 for all filing statuses. Any excess can be carried forward 5 years.

Child Tax Credit Increase

One Big Beautiful Bill Act increased the credit amount. In 2025 through 2028 the credit is $2,200 ($1,700 refundable) for dependents under 17. Phases out at $400,000 MAGI for joint filers, $200,000 for others, decreasing by $50 per $1,000 above these limits. A work-eligible SSN is required for the child and one filer.

Environmental Tax Credits Sunset

One Big Beautiful Bill Act terminated most of the environmental credits early. Electric vehicle credits ended after September 30, 2025. Residential clean energy credits, including solar, and home energy efficient improvement credits are no longer available after December 31,2025,

Qualified Small Business Stock (QSBS) Gain Exclusion

C Corporation shareholders can exclude gains from the sale of QSBS, and for QSBS acquired after July 4, 2025, the exclusion rates are 50% after three years, 75% after four years, and 100% after five years of holding the stock. The exclusion cap is raised to $15 million, and the corporation’s asset limit is increased to $75 million, both of which will be adjusted for inflation after 2026. More restrictive exclusions apply to QSBS acquired before July 5, 2025, the most recent being for the period September 28, 2010, through July 4, 2025, providing 100% exclusion for stock held for more than 5 years.

SALT Deduction Limit Increase

For 2025 One Big Beautiful Bill Act increased the deduction limit for state and local taxes (SALT) to $40,000 up from the prior $10,000 limit. However, the SALT limit for higher income taxpayers’ phases down starting at $500,000 MAGI, reaching a $10,000 floor at $600,000. It never drops below $10,000. For 2026 the deductible limit increases to $40,400 and the phase down range goes from $505,000 to $606,333. The deduction limits continues to increase through 2029 and reverts to $10,000 in 2030 and subsequent years.

Expensing Research or Experimental Expenditures

Effective beginning in 2025, domestic expenditures are immediately deductible. Expenses incurred outside the U.S. continue to be amortized over 15-years.

Limit on Business Interest Deduction

In the past, the business interest deduction was generally limited to 30% of a taxpayer’s earnings before interest and taxes (EBIT) and any “floor plan financing interest” for the year. Effective for tax years after 2024 the limit is determined using taxpayer’s earnings before interest, taxes, depreciation, and amortization (EBITDA), which allows many businesses to deduct a higher amount of interest.

However, the One Big Beautiful Bill Act also implements additional, less favorable changes to the business interest deduction for tax years beginning after December 31, 2025. These changes include: 

• Excluding foreign income items from the Adjusted Taxable Income (ATI) calculation, which may reduce the deductible interest amount for multinational companies.
• Largely eliminating the effectiveness of electing to capitalize business interest to avoid the Section 163(j) limitation. 

Small businesses are exempt from this limitation in 2025 if their average gross receipts over the past three years do not exceed $31 million. The amount is inflation adjusted annually and increases to $32 million for 2026.

Minimum Qualified Business Income (QBI) Deduction

Beginning in 2025, taxpayers with at least $1,000 of QBI from actively managed businesses are allowed a minimum deduction of $400.  

Quali?ed Production Property Expensing

To encourage domestic production, the One Big Beautiful Bill Act added a new temporary provision. Nonresidential real property placed in service after Jan 19, 2025, within the U.S. or its possessions can be expensed. The original use of the property must commence with the taxpayer. Construction of the property must begin after January 19, 2025, and before January 1, 2029, and be placed in service before January 1, 2031. This provision is geared to manufacturing, production (limited to agricultural and chemical production) or refining of qualified products. So, any portion of a property that is used for o?ces, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or certain other functions is ineligible for this bene?t.

Don’t limit your thinking to big business and overlook the possibilities for this to apply to small, even mom-pop manufacturing businesses.

Section 179 Expensing Limits Increased

Section 179 allows businesses to immediately expense the cost of qualifying assets such as machinery, equipment, and certain vehicles, although SUVs are limited to a specific deduction cap. This benefits many small and medium-sized business enterprises and provides upfront tax savings and encourages investment. OBBBA substantially increased the limits for Sec 179 expensing. For 2025 the limit was increased to $2.5 million and for 2026, it is inflation adjusted to $2.56 million. However, the deduction phases out dollar-for-dollar when purchases for the year exceed $4 Million in 2025 and $4.09 in 2026.  

A drawback to the Section 179 expensing method is that if the business’ use of the asset drops to 50% or less, some or all the amount deducted may need to be recaptured.

Bonus Depreciation Reinstatement

A 100% bonus depreciation was made permanent by OBBBA and after January 19, 2025, allows businesses to immediately write off 100% of the cost of qualifying assets in the year they are placed in service. This applies to new and used tangible property with a recovery period of 20 years or less, such as machinery, equipment, and certain improvements. This provision is designed to incentivize business investments by accelerating tax deductions, providing businesses immediate financial benefits and improved cash flow. For qualifying property placed in service between January 1, 2025, and January 19, 2025, the bonus depreciation rate was 40%.

Super Retirement Catch Up Contributions

Beginning in 2025 retirement plan catch-up contribution limits have significantly increased for individuals aged 60 through 63. They can now contribute the greater of $10,000 or 50% more than the standard catch-up amount to qualified plans, such as SIMPLE plans, 401(k)s, 403(b) annuities, and 457(b) government plans, but not IRAs. For 2025 the enhanced catch-up is $11,250 except for SIMPLE plans which is $5,250. The enhanced catch-up is inflation adjusted beginning in 2026.

Increased Third Party Network Transaction Reporting Threshold (1099-K)

OBBBA retroactively repeals the American Rescue Plan Act’s lower reporting threshold for Form 1099-K. It restores the threshold to the original $20,000 in gross payments and 200 transactions, effective for tax years beginning in 2022. This change nullifies the lower, phased-in thresholds for 2024 and 2025.

Sec 529 Qualified Funds Usage Expanded

Effective for distributions after July 4, 2025, OBBBA expands the use of Section 529 plans, allowing funds to cover expenses associated with elementary and secondary school and postsecondary credentialing programs. This includes costs related to tuition, fees, books, and other educational expenses for both school levels, as well as expenses for obtaining professional certificates and licenses at the postsecondary level. By broadening the scope of qualified expenses, the OBBBA enhances the flexibility and utility of 529 plans, making them a more versatile tool for families planning educational investments across various stages of learning.

As the 2025 tax landscape unfolds with profound changes under the One Big Beautiful Bill Act and other pivotal provisions, it’s crucial to understand how these new regulations impact your unique financial situation. Navigating these changes can be complex, and personalized advice often makes a significant difference. We invite you to reach out with any questions or for a detailed consultation. Our office is ready to help you interpret these changes and explore strategies tailored to your circumstances, ensuring you maximize potential benefits while maintaining compliance.

The post One Big Beautiful Bill Act: The Impact of 2025 Tax Overhaul first appeared on Wellman Tax & Business Advisors, Inc..

Under TCJA, the business-meal deduction continues to be 50% of the actual expense. Also remember that business meals must be documented, including the amount, business purpose, date, time, place and names of the guests as well as their business relationship with you.

Great News – For 2021 and 2022 only, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows businesses to deduct 100% of business meal expenses under the following circumstances:

• The food or beverages must be provided by a restaurant. The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule isn’t limited to meals eaten on the restaurant’s premises. Takeout and delivered meals provided by a restaurant are also fully deductible. 
  
• The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business.* 
  
• The expense is not lavish or extravagant under the circumstances.* 
  
• The taxpayer or their employee is present at the furnishing of the food or beverages.* 
  
• The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact.* 

IRS regulations expand on the last requirement by explaining that to be deductible, the food or beverages must be provided to a “person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”

Where food or beverages are provided at an entertainment activity, the food and beverage must be documented separately from the entertainment because entertainment is not deductible. Also, be cautious of the requirement that food or beverages be provided by a restaurant to be eligible for 100% deductibility pending IRS regulations defining what constitutes a restaurant.

*Meals and beverages not provided by a restaurant will be deductible but limited to a 50% deduction of the expense if otherwise meeting the qualifications of a business meal.

If you have questions about how this 100% meal deduction might apply to your business, please give this office a call.

The post Increased Business Meal Deductions for 2021 and 2022 first appeared on Wellman Tax & Business Advisors, Inc..

In spite of (or in some cases, because of) the COVID-19 pandemic, and with near-record-low home mortgage interest rates, the housing market has been booming. September 2020 existing home sales were up 9.4% from August 2020 and 20.9% from 2019, according to the National Association of Realtors. If you sold your home this year or are thinking about selling it, there are many tax-related issues that could apply to that sale. To help you prepare for reporting the sale you may have already made or make you aware of what issues you may face if you are in the “thinking about” stage, this article covers the tax basics and some special situations related to home sales and the home-sale gain exclusion.

Home Sale Exclusion – For decades, Congress has encouraged home ownership, including by providing a tax break for taxpayers selling their homes. Under the current version of the tax code, you are allowed an exclusion of up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 of the 5 years previous to the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion as long as you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property.

2 out of 5 Rule – As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000.

Although this situation is quite rare, if you acquired the home as part of a tax-deferred exchange (sometimes referred to as a 1031 exchange), then you must have owned the home for a minimum of 5 years before the home-gain exclusion can apply.

If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion.

Business Use of the Home – If you used your home for business and claimed a tax deduction—for instance, for a home office, storing inventory in the home or using it as a day care center—that deduction probably included an amount to account for the home’s depreciation. In that case, up to the extent of the gain, the claimed depreciation cannot be excluded.

Figuring Gain or Loss from a Sale – The first step is to determine how much the home cost, combining the purchase price and the cost of improvements. From this total cost, subtract any claimed casualty loss deductions and any depreciation taken on the home. The result is your tax basis. Next, subtract the sale expenses and this tax basis from the sale price. The result is your net gain or loss on the sale of the home.

If the result is negative, the sale is a loss; losses on personal-use property such as homes cannot be claimed for tax purposes. If the result is a gain, however, subtract any home-gain exclusion (discussed above) up to the extent of the gain. This is your taxable gain, which is, unfortunately, subject to income tax. If you owned the home for at least a year and a day, the gain will be a long-term capital gain; as such, it will be taxed at the special capital-gains rate, which ranges from zero for low-income taxpayers to 20% for high-income taxpayers. Depending on the amount of all of your income, the gain may also be subject to the 3.8% net investment income surtax that was added as part of the Affordable Care Act. The tax computation can be rather complicated, so please call this office for assistance.

Another issue that can affect your home’s tax basis (discussed above) applies if you purchased your home before May 7, 1997 after selling another home. Prior to that date, instead of a home-gain exclusion, any gain from a sale was deferred to the replacement home. Although this is now rare, if it matches your situation, the deferred gain would reduce your current home’s tax basis and add to any gain for the current sale.

Prior Use as a Rental – If you previously used your home as a rental property, the law includes a provision that prevents you from excluding any gain attributable to the home’s appreciation while it was a rental. The law’s effective date was the beginning of 2009, which means that you only need to account for rental appreciation starting in that year. This law was passed to prevent landlords moving into their rentals for 2 years so that they could exclude the gains from those properties. Prior to the law change, some landlords had done this repeatedly.

Form 1099-S – Usually, the settlement agent—typically an escrow or title company—prepares IRS Form 1099-S, Proceeds from Real Estate Transactions, which reports the home seller’s name, tax ID number, proceeds of the sale, date of the sale, etc. This form is provided to both the IRS and the seller. Note that this form only includes information from the sale; it doesn’t provide any basis information to the IRS. Sometimes, sellers think that if the home sale gain exclusion eliminates all of their gain from the sale of their home, they don’t need to report the transaction on their tax return. Unfortunately, this thinking could lead to correspondence (i.e., a bill for tax due) from the IRS as it attempts to match the sales price shown on the 1099-S to the seller’s tax return. To avoid this interaction with the IRS, you should report the home’s sale on your income tax return for the year of the sale; in doing so, you will be including your basis and exclusion information for the IRS.

Records – Assets worth hundreds of thousands of dollars, including your home, need your attention, particularly regarding records. When figuring your gain or loss, you will, at a minimum, need the escrow statement from the purchase, a list of improvements (not maintenance work) with receipts, and the final escrow (settlement) statement from the sale. If you encounter any of the issues discussed in this article, you may need additional documentation.

A few other rare home-sale rules are not included here. As you can see, home-sale computations and tax reporting can be very complicated, so please call this office if you need assistance.

The post Sold or Thinking of Selling Your Home? first appeared on Wellman Tax & Business Advisors, Inc..

• Medical Deductions Retained by the Tax Reform Law
• Adjusted Gross Income Floor Dropped to 7.5%
• The Standard Deduction
• Bunching Medical Deductions
• Unusual Medical Deductions
• Medical Dependents
• Divorced Parents

Note: The is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

The Act’s final version retained the itemized deduction for medical expenses even though the original House version would have done away with this deduction altogether.

The medical deduction was not just retained; its adjusted gross income (AGI) floor was lowered from 10% to 7.5% for 2017 and 2018 (after which it returns to 10%). The AGI floor is meant to eliminate deductions for minor medical costs by only allowing those that are in excess of the given percentage of your AGI.

Here is where it gets a little complicated. Because medical deductions are itemized, to get any benefit from them, your itemized deductions must exceed the new standard deduction, which is $24,000 for a married couple filing jointly (or for a surviving spouse with a dependent child), $18,000 for a head of household, and $12,000 for anyone else.

Retaining the medical deduction is a necessary for the families of disabled individuals and for senior citizens who require extraordinary care. Without this deduction, those groups could have been saddled with enormous medical costs without any tax relief. However, this deduction is not just for disabled individuals, senior citizens, and their families. Regarding medical bills, you never know what will happen in the future.

Bunching Deductions – One strategy that works well for itemized deductions is to bunch deductions. That means paying as much of your medical expenses as possible in a single year so that the total will exceed the AGI floor and so that your overall itemized deductions will exceed the standard deduction.

Being Aware of Medical Deductions – Being aware of what is and is not deductible as a medical expense can also help you to maximize your medical deductions. Unreimbursed costs such as those from doctors, dentists, hospitals, and medical insurance premiums are deductible. The following is a list of some deductible medical expenses that you may not be aware of:

• Adoptive children’s pre-adoption medical costs
• Prescriptions for birth control pills
• Chiropractors
• Christian Science practitioners
• Decedent’s medical costs
• Adult diapers
• Drug-addiction rehabilitation costs
• Egg-donation expenses
• Elderly devices
• Medical equipment and supplies
• Fertility enhancements
• Guide dogs
• Household nursing services
• Impairment-related home modifications
• In vitro fertilization costs
• Lactation aids
• Lead-based paint removal
• Learning-disability tuition expenses
• Medical-related legal fees
• Meals from inpatient care
• Medical-conference expenses
• Medicare premiums
• Nonhospital institution costs
• Nursing-home expenses
• Organ-donation costs
• Smoking-cessation programs
• Sterilization expenses
• Weight-loss programs (limited)

Some of the foregoing have special requirements, so please call if you have any questions.

Under certain circumstances, you may even be able to deduct the medical expenses that you pay for others.

Medical dependents – This applies only if you had a dependent (a qualified child or other relative) either at the time the medical services were provided or at the time the expenses were paid. For medical purposes, an individual can be a dependent even if his or her gross income precludes qualification as a dependent.

Divorced parents – A child of divorced parents is considered a dependent of both parents for the purpose of medical expense, so each parent can deduct the medical expenses that he or she pays for the child.

If you have questions related to the deductibility of specific medical expenses or about how such deductions apply to your tax situation, please give this office a call.

The post Medical Deductions & The New Tax Law first appeared on Wellman Tax & Business Advisors, Inc..

Here is how this provision, if utilized, plays out on a tax return:

(1) The IRA distribution is excluded from income;
(2) The distribution counts towards the taxpayer’s RMD for the year; and
(3) The distribution does NOT count as a charitable contribution.

At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer with itemized deductions lowers his or her adjusted gross income (AGI), which helps for other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses, passive losses, taxable Social Security income, and so on. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.

If you think that this tax provision may affect you and would like to explore its possibilities, please call us.

The post Take Advantage of the IRA-to-Charity Provision first appeared on Wellman Tax & Business Advisors, Inc..

Remember that when establishing FMV, any value you claim can be challenged in an audit and that the burden of proof is with you (the taxpayer), not with the IRS. For substantial noncash donations, it might be appropriate for you to visit your charity’s local thrift shop or even a consignment store to get an idea of the FMV of used items.

The next big issue is documenting your contribution. Many taxpayers believe that the doorknob hanger left by the charity’s pickup driver is sufficient proof of a donation. Unfortunately, that is not the case, as a recent United States Tax Court case (Kunkel T.C. Memo 2015-71) pointed out. In that case, the court denied the taxpayer’s charitable contributions, which were based solely upon doorknob hangers left by the drivers who picked up the donated items for the charities. The court stated that “these doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.”

The IRS requires the following documentation for noncash contributions based on the total value of the donation:

• Deductions of Less Than $250 – A taxpayer claiming a noncash contribution with a value under $250 must keep a receipt from the charitable organization that shows:
  1. The name of the charitable organization,
  2. The date and location of the charitable contribution, and
  3. A reasonably detailed description of the property.

  Note: The taxpayer is not required to have a receipt if it is impractical to get one (for example, if the property was left at a charity’s unattended drop site).

• Deductions of at Least $250 But Not More Than $500 – If a taxpayer claims a deduction of at least $250 but not more than $500 for a noncash charitable contribution, he or she must keep an acknowledgment of the contribution from the qualified organization. If the deduction includes more than one contribution of $250 or more, the taxpayer must have either a separate acknowledgment for each donation or a single acknowledgment that shows the total contribution. The acknowledgment(s) must be written and must include:
  1. The name of the charitable organization,
  2. The date and location of the charitable contribution,
  3. A reasonably detailed description of any property contributed (but not necessarily its value), and
  4. Whether or not the qualified organization gave the taxpayer any goods or services as a result of the contribution (other than certain token items and membership benefits).

  If the charitable organization provided goods and/or services to the taxpayer, the acknowledgement must include a description and a good-faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so, and in this case, the acknowledgment does not need to describe or estimate the value of the benefit.

• Deductions Over $500 But Not Over $5,000 – If a taxpayer claims a deduction over $500 but not over $5,000 for a noncash charitable contribution, he or she must attach a completed Form 8283 to the income tax return and must provide the same acknowledgement and written records that are required for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include:
  1. How the property was obtained. (for example, purchase, gift, bequest, inheritance, or exchange),
  2. The approximate date the property was obtained or—if created, produced, or manufactured by the taxpayer—the approximate date when the property was substantially completed, and
  3. The cost or other basis, and any adjustments to this basis, for property held for less than 12 months and (if available) the cost or other basis for property held for 12 months or more (this requirement, however, does not apply to publicly traded securities).

  If the taxpayer has a reasonable case for not being able to provide information on either the date the property was obtained or the cost basis of the property, he or she can attach a statement of explanation to the return.

• Deductions Over $5,000 – These donations require time-sensitive appraisals by a “qualified appraiser” in addition to other documentation. When contemplating such a donation, please call this office for further guidance about the documentation and forms that will be needed.

Caution: The value of similar items of property that are donated in the same year must be combined when determining what level of documentation is needed. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, privately traded stock, land, and buildings. For example, say you donated $5,300 of used furniture to 3 different charitable organizations during the year (a bedroom set valued at $800, a dining set worth $1,000, and living room furniture worth $3,500). Because the value of the donations of similar property (furniture) exceeds $5,000, you would need to obtain an appraisal of the furniture to satisfy the substantiation requirements—even if you donated the furniture to different organizations and at different times during the year. The IRS has strict rules as to who is considered a qualified appraiser.

To help you document some of these noncash contributions, you can download a fillable Noncash Charitable Contribution statement. The statement includes an area for the charity’s agent to verify the contribution and a check box denoting whether the qualified organization provided any goods or services as a result of the contribution. Although not specifically blessed by the IRS, this statement includes everything needed for noncash contributions of up to $500—provided, of course, that you and the charitable organization’s representative accurately complete the form.

Do not include items of de minimis value, such as undergarments and socks, in the deductible amount of your contribution, as they specifically are not allowed.

Please call this office with any questions about documenting or valuing your noncash contributions.

The post Proving Noncash Charitable Contributions first appeared on Wellman Tax & Business Advisors, Inc..

What is an Asset Sale?

When selling a business as an asset sale, the important thing to understand is that the seller actually retains possession of the legal entity that represents the business. What the buyer is purchasing are the individual assets that the company holds. Those can include things like equipment and fixtures, but also extends all the way up to trade secrets, telephone numbers of customers and business contacts, inventory items and more.

An asset sale usually does not include any cash-based assets and the seller actually retains any long-term debt obligations that the business holds along with the legal entity of the business itself. However, normalized net working capital is also usually one of the assets that is handed over from seller to buyer in this type of a sale. This can include certain elements like accounts receivable, accounts payable, accrued expenses and more.

What is a Stock Sale?

With a stock sale, on the other hand, the buyer is really purchasing the shareholder’s stock of the seller directly. Even though the assets and liabilities that are transferred as a result of this type of sale tend to be very similar to an asset sale, the seller is also getting the legal entity or stake in the business at the exact same time. In a stock sale, any particular asset or liability that the buyer doesn’t expressly want will either be distributed (in the case of assets) or paid off entirely (in the case of liabilities) prior to the sale being completed.

An important difference between an asset sale and a stock sale is that in a stock sale, no separate conveyance of individual assets is required for the sale itself to be completed. This is largely due to the fact that the original title of each asset rests within the corporation, meaning that both are transferred from seller to buyer at the exact same time.

Who Benefits From Each Type of Sale?

Once you understand a little more about the differences between an asset sale and a stock sale, you must also understand which benefits in each type of situation. As is common with most business decisions, the different parties involved will usually favor one or the other depending on which side of the fence they fall on. Buyers tend to prefer asset sales, for example, as it affords them certain tax benefits that they won’t get from a stock sale. Sellers, on the other hand, tend to prefer stock sales because it often makes them less responsible for certain future liabilities that may present themselves like product liability claims, employee lawsuits and even benefit plans.

Perhaps the biggest reason why an asset sale is preferred from the point of view of the buyer is because the company’s depreciable basis regarding its assets is highly accelerated. An asset sale typically gives a higher value for assets that depreciate quickly. A particular piece of equipment that the business owns, for example, likely has a three- to seven-year shelf life. At the same time, lower values are given to certain assets that amortize much more slowly. Goodwill, for example, is generally considered to have a 15-year shelf life. This generates additional tax benefits on behalf of the buyer, doing a lot to reduce taxes as quickly as possible and thus improving the overall cash flow of the company during the first few years of its life. Buyers also tend to prefer asset sales because it’s much, much easier to avoid any potential liabilities like contract disputes or product warranty issues as a result.

This doesn’t mean that asset sales are universally easier for buyers, however. Certain types of assets are inherently hard to transfer due to certain issues like legal ownership and any third party consent that may be required. Intellectual property, for example, would likely require the seller to obtain some type of consent that can slow down the process of a sale dramatically.

One of the major reasons why sellers tend to prefer stock sales is because all of the proceeds they get from the sale are taxed at a much lower capital gains rate. When dealing with C-corporations, corporate level taxes are avoided entirely. Also, in a stock sale the seller is usually less responsible for any future liabilities – a products liability claim officially becomes the problem of the buyer at that point.

The Popularity of Asset Sales versus Stock Sales

According to research, approximately 30 percent of all business sales in the last few years were stock sales. It’s important to keep in mind, though, that this number varies wildly based on the size of the company that is being sold. Larger companies have a much higher chance of being stock sales than asset sales.

Regardless of whether you’re a buyer or a seller, it is always important to consult with your business partners, your legal representatives and your accounting professionals throughout all points of the process to help make sure that you’re making the most informed decision possible. The need to understand exactly what you’re buying, how you’re buying it and what it means for the future is of paramount importance, regardless of which party you belong to.

The post Asset Sales Versus Stock Sales: What You Need to Know first appeared on Wellman Tax & Business Advisors, Inc..

• Conversion Timing
• Why Convert?
• When to Convert?
• Undoing a Conversion
• Issues to Consider Before Making the Decision

The tax provision that allows taxpayers to convert a Traditional IRA to a Roth IRA is a great tax-planning tool when used properly, and timing is everything.

To make a conversion, you must pay income taxes on the amount of the traditional IRA converted to a Roth IRA. So why would one want to do that? Well, the answer is that Roth IRAs enjoy tax-free accumulation and distributions, whereas the earnings in and contributions made to a traditional IRA are fully taxable whenever they are withdrawn. (An exception is if the contributions to the traditional IRA were treated as non-deductible. In that case, each distribution is nontaxable or partly nontaxable if only some of the contributions had not been deducted.)

So, you might consider converting during a year in which your income is abnormally low or a year in which your income might even be negative due to abnormal deductions or business losses. Under such cases, you might even be able to make a conversion tax-free. Keep in mind that you do not have to convert the entire amount in the traditional IRA; rather, you can choose any amount you wish to convert to fit your circumstances, and with proper tax planning, you can substantially minimize the conversion tax and the tax on your future retirement benefits.

You might also consider a conversion at a time when the IRA value is low due to a decline in the stock market, like the dip in stock values that occurred in September this year when the Dow index dropped from the low 18,000s to close to 16,000.

Those examples demonstrate when timing might be right for a conversion. On the flip side, if you converted earlier in the year, you could end up paying taxes on an amount that has declined in value due to the market downturn and wish you hadn’t converted. Well, the good news is that you can undo a conversion.

A taxpayer who converts a traditional IRA to a Roth IRA during 2015 can back out of the conversion by recharacterizing the Roth IRA as a traditional IRA any time up to the extended due date of the 2015 return. This involves transferring the converted amount (plus earnings or minus losses) from the Roth IRA back to a traditional IRA via a direct (trustee-to-trustee) transfer.

Everyone’s financial circumstances are unique and other issues to consider are:

• Are there enough years before retirement to recoup the conversion tax dollars through tax-free accumulation?
• Will you be in a lower or higher tax bracket in the future?
• Where would the money to pay the conversion tax come from? Generally, it must be from separate funds. If it is taken from the IRA being converted, for individuals under age 59½, the funds withdrawn to pay the tax will also be subject to the 10% early-distribution penalty in addition to being taxed.
• It might be appropriate for you to design your own custom conversion plan over a number of years rather than converting everything at once.

Conversions can be tricky! If you are considering a conversion, it might be appropriate to call for an appointment so that this office can help you properly analyze your conversion options.

The post Traditional to Roth IRA Conversions – Should You? Did You? Wish You Hadn’t? first appeared on Wellman Tax & Business Advisors, Inc..

• Capital Gains and Losses
• Roth IRA Conversions
• Recharacterizing a Roth Conversion
• Minimum Required Distribution
• Annual Gift Tax Exemption
• Expensing Allowance (Sec 179 Deduction)
• Self-employed Retirement Plans
• Increase Basis

For the past few years, year-end tax planning has been challenging due to the lateness of action by Congress. This year is no different because of uncertainty over whether Congress will extend any of the many expired or expiring tax provisions. However, regardless of what Congress does later this year, solid tax savings can still be realized by taking advantage of tax breaks that are still on the books for 2015. For individuals and small businesses, these include:

• Capital Gains and Losses – You can employ several strategies to suit your particular tax circumstances. If your income is low this year and your tax bracket is 15% or lower, you can take advantage of the zero percent capital gains bracket benefit, resulting in no tax for part or all of your long-term gains. Others, affected by the market downturn earlier this year, should review their portfolio with an eye to offsetting gains with losses and take advantage of the $3,000 ($1,500 for married taxpayers filing separately) allowable annual capital loss allowance. Any losses in excess of those amounts are carried forward to future years.
• Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting your traditional IRA into a Roth IRA. Even if your income is at your normal level, with the recent decline in the stock markets, the current value of your Traditional IRA may be low, which provides you an opportunity to convert it into a Roth IRA at a lower tax amount. Thereafter, future increases in value would be tax-free when you retire.
• Recharacterizing a Roth Conversion – If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the value of those assets may have declined due to this summer’s market drop; and, as a result, you will end up paying more taxes than necessary on the higher conversion-date valuation. However, you may undo that conversion by recharacterizing it, which is accomplished by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA. This must be done via a trustee-to-trustee transfer. You can later (generally after 30 days) reconvert to a Roth IRA.
• Don’t Forget Your Minimum Required Distribution – If you have reached age 70 1/2, you must make required minimum distributions (RMDs) from your IRA, 401(k) plan and other employer-sponsored retirement plans. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.
• Take Advantage of the Annual Gift Tax Exemption – Although gifts do not currently provide a tax deduction, you can give up to $14,000 in 2015 to each of an unlimited number of individuals without incurring any gift tax. There’s no carryover from this year to next year of unused exemptions.
• Expensing Allowance (Sec 179 Deduction) – Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2015, the expensing limit is $25,000. That means that businesses that make timely purchases will be able to currently deduct most, if not all, of the outlays for machinery and equipment. Note: There is a good chance the Congress will increase that limit before year’s end and after this newsletter has gone to press, so watch for further developments.
• Self-employed Retirement Plans – If you are self-employed and haven’t done so yet, you may wish to establish a self-employed retirement plan. Certain types of plans must be established before the end of the year to make you eligible to deduct contributions made to the plan for 2015, even if the contributions aren’t made until 2016. You may also qualify for the pension start-up credit.
• Increase Basis – If you own an interest in a partnership or S corporation that is going to show a loss in 2015, you may want to increase your investment in the entity so you can deduct the loss, which is limited to your basis in the entity.

Also keep in mind when considering year-end tax strategies that many of the tax breaks allowed for calculating regular taxes are disallowed for alternative minimum tax (AMT) purposes. These include deduction for property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for mortgage interest, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, accelerating payment of these expenses that would normally be made in early 2016 to 2015 should – in some cases – not be done.

The post It’s Time for Year-End Tax Planning first appeared on Wellman Tax & Business Advisors, Inc..