2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

III.) SMALL BUSINESS OWNERS If you own a business, consider the following strategies to minimize taxes: n Defer income – If your business uses the cash method of accounting, you can defer billing and collections for products until year-end. If you use the accrual method, you can delay shipping products or delivering services. n Accelerate Expenses – If you are a cash basis taxpayer, consider accelerating expenses by paying for business n Employ Your Child – If you are self-employed, consider employing your child to work in the family business. The child will be taxed at their rate on earnings (earnings are not subject to Kiddie Tax). Wages paid by sole proprietors to children age 17 or younger are exempt from Social Security, Medicare and federal unemployment taxes. Make sure wages paid are reasonable given the child’s age and work skills. n Home Office Deduction – The TCJA suspended the home office deduction for employees who work from home. However, this deduction still applies if you are self- employed and have a home office that is used primarily for business activities. n Acquire Assets – Acquiring business assets may be a good tax planning strategy depending on your business situation. For assets with a useful life of more than one year, you generally must depreciate the cost over a period of years, depending on asset type. As a part of TCJA, the following favorable provisions were revised and made available for depreciating fixed assets, thus maximizing deductions: v Section 179 Expensing Election – This election allows you to deduct 100% of the cost of qualifying assets rather than recovering them through depreciation. The maximum amount that can be expensed for 2019 is $1.02 million. This amount is reduced (but not below zero) by the amount by which the cost of total qualifying property exceeds $2.55 million. v Bonus Depreciation – The TCJA establishes a 100% first-year deduction for qualified assets placed into service through December 31, 2022, with a recovery period of 20 years or less. This provision applies to both new and used property and was expanded to include qualified film, television and live theatrical productions. (For the period January 1, 2023 – December 31, 2026, bonus depreciation is scheduled to be gradually reduced). expenses by year-end. Credit card payments are deductible in the year charged rather than paid.

IV.) MEDICAL DEDUCTIONS For 2019, medical expenses can be deducted to the extent the expenses exceed 10% of adjusted gross income (increased from 7.5% in 2018). Eligible expenses include health insurance premiums (if not deducted elsewhere on your income tax return), long-term care insurance premiums (subject to limitations), medical and dental services, and prescription drugs. You may also deduct expenses paid for medical care of a child for whom you provide more than half of total support. Planning Opportunities: n Since individuals generally use cash basis accounting, medical expenses must be paid in the year incurred in order to be deductible. Credit card payments are deductible in the year charged, rather than paid. Be aware, however, that prepayment of medical services in advance of the year services are actually rendered may not accelerate the deduction. n Consider bunching elective medical procedures into alternating years (for services and purchases for which timing is within your control, without negatively impacting your or your family’s health) if it will help you exceed the 10% floor and if you have enough total itemized deductions to benefit from itemizing. V.) MORTGAGE INTEREST For tax years 2018-2025, the TCJA reduces the limit on mortgage debt incurred after December 15, 2017, from $1 million to $750,000. Interest on debt incurred prior to December 15, 2017, but refinanced later, is deductible to the extent the new debt does not exceed the original debt. Furthermore, the TCJA suspends the prior provision that allowed up to $100,000 of interest on home equity debt to be treated as deductible qualified residence interest. Planning Opportunities: n Keep track of how and when you spend proceeds of a loan. For example, if you used a portion of your mortgage debt to acquire business assets, that portion is deductible as trade or business interest or as investment interest expense. n Elect out of treatment of debt secured by a qualified residence. This election allows you to characterize interest expense on home equity debt under the specified interest tracing rules and to preserve an otherwise nondeductible expense. (Continued)

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