Glenn Carlson, E.A.
t: 415.519.1728 • f: 650.437.1040

tax preparation
audit representation
tax planning

Tax News

Important 2020 Tax Dates

January 15: 4th quarter estimated tax payment for 2019 due.
January 31: W2s and 1099s due to employees/contractors.
February 15: Brokerage and financial documents due to account holders (hahaha).
March 15: Calendar year partnership and S corporation returns due.
April 15: Individual and corporate tax returns due.
April 15: 1st quarter estimated taxes due.
June 15: 2nd quarter estimated taxes due.
September 15: 3rd quarter estimated taxes due
October 15: Individual returns on extension due.
January 15, 2021: 4th quarter estimated taxes for 2019 due.

Important Tax Changes

Retirement Planning: Starting in 2020 anyone with earned income can contribute to an IRA; the age limit of 70½ has been repealed.

Beginning in 2020 mandatory IRA distribution age has been raised to 72.

IRAs inherited from people other than your spouse must now be distributed within 10 years of death. This does not affect IRAs inherited before 2020.

Stipends and fellowships are now considered income for IRA contributions.

Up to $5,000 may be withdrawn from a retirement plan without penalty for up to one year after birth or adoption of a child. The amount withdrawn is still taxable, but without penalty, and if redeposited within 60 days of withdrawal is not even taxable.

College & Children: As a qualified educational expense you may now withdraw from a 529 plan up to $10,000 during your lifetime to repay student loans of an account beneficiary (or their siblings) without tax or penalty.

A 529 may now be used tax free to pay for an approved apprenticeship program.

Those rare children with high interest, dividends or capital gain income are once again retroactively taxed at their parent’s tax rates instead of the potentially higher trust tax rates.

The tuition and fees deduction has been retroactively restored from 2018-2020.

Other: The deduction for mortgage insurance premiums has been retroactively restored (income limits permitting).The deduction for medical expenses has been restored to a lower 7.5% threshold. The credit for installing an electric car charger has been restored.

Digital Currancies -- The IRS' Latest Obsession

Over the last couple years, the IRS has ramped up its enforcement of compliance with crypto/virtual/digital currencies (Bitcoin, Litecoin, Ethereum, Dash, etc). The IRS believes most taxpayers who own these currencies fail to report their taxable transactions, and so in 2019 letters were issued to taxpayers with known virtual currency accounts. Starting this year all taxpayers are required to affirmatively declare on their return if they engaged in any virtual currency transactions during the year (similar to the foreign bank account questions). Intentionally failing to report taxable income can have severe consequences. Be sure to provide us with all information concerning your digital currency transactions during the year.

Your Annual Tax Journey

As the "road map" below highlights, preparing a tax return is just the first step in what can be a long process once it hits the IRS.

Tax Payer Road Map

California Here I Come ... or go?

There's a lot of talk of the exodus from our increasingly crowded, expensive, sky-high taxes of a State. But does the data bear that out? Or is the ingress of the young and tech-savvy still on the ascendent?

According to the annual study by United Van Lines, as reported by the Tax Foundation, California falls in the middle of our national mobility with a 6.9% net population egress in 2019. So where are people really moving from? Illinois, New Jersey, and New York. And they're moving to Vermont, Oregon, and Idaho. Interesting.

Donating to Charity on the California Tax Return

If you look at Page 4 of the California Form 540, the entire page is dedicated to a list of approved charities you can donate to via the tax return. Donations made will reduce your overpayment/refund and the Franchise Tax Board will remit the donation to the Fund immediately. It is quick and easy and, if you itemize, tax deductible on your next year's Federal and California return (i.e. contributions made on your 2019 tax return filed in 2020 are deductible on your 2020 tax return filed in 2021). Keep in mind the donation is irreversible; it cannot be revoked or amended once the return is filed, even if later changes to the return are made.

Here is a list of the Form 540 charities and the amounts donated to them in 2019 through taxpayer returns:

Alzheimers Disease Fund – $545,000
Breast Cancer Research Fund – $421,000
Cancer Research Fund – $472,000
California Firefighters Memorial Fund – $274,000
California Peace Officers Memorial Fund – $141,000
California Sea Otter Fund – $327,000
California Senior Advocacy Fund – $89,000
Emergency Food for Families Fund – $482,000
Keep Arts in School Fund – $272,000
Native Wildlife Rehabilitation Fund – $255,000
National Mental Health Alliance – $140,000
Protect Our Coasts and Oceans – $358,000
Prevention of Animal Homelessness and Cruelty Fund – $276,000
Rape Kit Backlog Fund – $301,000
Rare and Endangered Species Fund – $547,000
Schools Not Prisons – $184,000
School Supplies for Homeless Children Fund – $519,000
State Parks Protection Fund – $482,000
Suicide Prevention Fund – $224,000

Who Pays Income Taxes Anyway?

The top 25% of all taxpayer earners paid 84% of all income taxes collected in 2017
(to be in top 25% your 2017 adjusted gross income exceeded $80,921)
The top 10% of all taxpayers paid 70.1% of all income taxes collected
($145,135 puts you in the top 10)
The top 5% of all taxpayers paid 59.1% of all income taxes collected
(top 5% means rich, right? Well, $208,053 put you in such rarified air)
The top 1% of all taxpayers paid 38.5% of all income taxes
(the oft maligned 1%ers, with income of $515,371+ are obviously doing okay)
Taxpayers reporting AGI under $83,689 in 2017 paid 13.9% of all income taxes collected, and those reporting under $41,740 (half of all tax returns filed) paid 3.1%
(taxfoundation.org) latest IRS compiled data is from 2017

So, who pays the fairest share?

Who's Preparing Your Taxes?

Do you realize that in 47 states there is no oversight, minimum or continuing education standards, nor any proof of competency required of anyone charging to prepare tax returns (the "paid preparer"). The gal who used to cut my hair had to demonstrate more competency in order to be licensed than tax preparers in most states, and her mistakes grew back!

Of course, for those of you who engage the services of an enrolled agent, this has never been an issue. EAs have already passed an extremely comprehensive three part examination on the tax code and regulations, ethics, tax calculations and application for individuals, businesses and any other entity with a filing requirement. Furthermore, we must complete no less than 72 hours of ongoing education every three years (90 hours for NAEA/CSEA members). The IRS recognizes "Enrolled Agent" as the only designation with proven expertise in ALL areas of taxation.

Fighting An IRS Audit: You're On The Clock

There's nothing worse than seeing a letter in the mail box from the IRS. Actually there is something worse — doing nothing. One very important thing you should be aware of: When the IRS sends out a notice to you, the clock is ticking. Failure to respond escalates matters and, eventually, it's like not showing up in court ... BAM! Guilty! You have rights to dispute IRS claims, but they must be used within very specific timeframe's. Here's a LINK to a great article discussing the IRS timeline for its notices and collections processes. Remember: Anything from the IRS in the mailbox means call your enrolled agent today.