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Here at Wealth Factory, our research team is dedicated to staying up to date on the latest tax laws – especially given the sweeping, and often unclear changes made in the 2017 Tax Cuts and Jobs Act.
Our goal is to simplify the more than 75,000 page tax code into tangible strategies you can take to your CPA and apply immediately to minimize your tax burden (so you can spend your valuable time creating more value).
As we were putting together this year’s Q3 update for our “Tax Cut” members, we found a few key updates from the IRS that could make a big impact on your bottom line this year…
We also found a timely and sad story of government overreach and injustice in the tax system that shows how critical it is for you as a business owner to understand your rights…
And specifically, your right to pay the least amount of taxes possible.
Those who don’t use the laws to their advantage pay the most. At Wealth Factory, we’re all for paying our fair share of taxes. We just don’t think it’s necessary to leave a tip.
If you agree and want to use the tax system to your advantage, this story along with the Q3 Tax Updates will give you the most important factors you need to look at — starting right now — all while playing by the rules 100%.
What’s Going On Here?
Every summer, Utah has a “Children’s Entrepreneur Market” held by a nonprofit called Libertas Institute. It’s intended for kids as young as 5 to get together and learn about business by buying and selling products and services.
Children come up with original ideas, create them, and then handle all aspects of the business (marketing, sales, money management etc.).
Now, here’s the crazy part.
There’s a law in place (subsection 13 of the state sales tax statute) that protects businesses like these from having to report or pay sales tax, since they’re not engaging in regular business activity.
It’s the same as if your child set up a lemonade stand in front of your house. This law applies to them, and the children at this event.
After years of hosting this spirited event without issue, this year’s event in Spanish Fork, Utah held a surprise:
A city tax collector showed up and insisted that each child pay sales tax revenue. Even kids who didn’t make a penny at the market were told they still have to file tax forms.
Of course, these children have no idea how to file taxes, so these overreaching government bullies are making already busy parents work even harder to report relatively meaningless tax amounts on sales made by children as young as 5 years old.
It’s an ugly situation reminiscent of Ayn Rand’s famous book Atlas Shrugged, depicting a dystopian country where business owners suffer under increasingly burdensome laws and regulations.
Protect Your Business… And Your Profits
Let’s face it, much of what the government does is beyond our control.
As evidenced with the 2017 Tax Cuts and Jobs Act, rules can be created, re-written, and completely reversed at the drop of a hat.
Even stranger, these tax laws can be written so broadly — and even vaguely — that accountants and business owners have to thoroughly study them to get any benefit. Sometimes they even have to make an “educated guess” about whether they can use it or not.
The devil is in the details… and that’s why we keep an eye out for any IRS regulations that could impact your business positively or negatively moving forward.
The 2019 tax year will come to a close soon, and before it does, you should be aware of the NEW changes to the Tax Cuts and Jobs Act that have happened since it’s release.
Here are a few of the biggest ones:
3 Big Updates to the 2017 Tax Cuts & Jobs Act You Need to Know…
#1: Expanded Penalty Relief if Tax Withholding and Estimated Tax Payments Fall Short
One positive thing the IRS has updated is they lowered the threshold for penalty relief to 80% for taxpayers whose federal income tax withholding and estimated payments fall short of their total tax liability for the year.
This usual percentage is 90% to avoid a penalty, and when the relief was originally announced in January 2019, the threshold was 85%.
This means that the IRS is now waiving the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability during the year.
They also released a new “Tax Withholding Estimator” calculator tool here you can use to get an idea of where you stand for the year.
#2: Qualified Opportunity Fund Guidance
“Opportunity Zones” were one of the big changes brought forward in the Tax Cuts and Jobs Act, and investors interested in real estate are excited because they’re a way to pay as little as $0 capital gains tax on a decade of investment returns.
Basically, if you create an “opportunity fund” structure and invest in a qualified “opportunity zone” where the government wants to create economic and job growth, then you can receive significant tax incentives.
The IRS issued new guidance here saying:
“The guidance notes there are situations where deferred gains may become taxable if an investor transfers their interest in a QO Fund. For example, if the transfer is done by gift the deferred gain may become taxable. However, inheritance by a surviving spouse is not a taxable transfer, nor is a transfer, upon death, of an ownership interest in a QO Fund to an estate or a revocable trust that becomes irrevocable upon death.”
They also posted critical details about the holding period and use of the tangible business property.
If you’re interested in Qualified Opportunity Zones, keep reading to see how you can get all the info you need to get started with them.
#3: Charitable Contributions and State / Local Tax Credits
Previously, if a taxpayer contributed $1,000 to a state-run charity, they would receive a tax credit for both their state and federal taxes.
Now, they’ve issued a final notice stating that any taxpayers must reduce their federal charitable contribution deductions by any state or local tax credits they receive.
The IRS states:
For example, if a state grants a 70 percent state tax credit pursuant to a state tax credit program, and an itemizing taxpayer contributes $1,000 pursuant to that program, the taxpayer receives a $700 state tax credit. A taxpayer who itemizes deductions must reduce the $1,000 federal charitable contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300.
This change impacts high-income earners looking to reduce their tax burden by doing good, and it’s something to make sure your CPA is aware of moving forward.
The Easiest Way to Minimize Your Taxes This Year
These are just a few of the changes made that could affect your tax return this year.
We just sent out a quarterly update to our “Tax Cut” members to keep them fully up to date as we move closer to the end of the year.
The business owners who pay the least in taxes are proactive – so if you haven’t already, it’s time to start thinking about how your tax strategy is working this year.
Is there anything you need to do before the New Year to make sure you’re on track with your strategy?
What about planning for next year… are there any new strategies you could use to save even more?
If you’d like some support in making sure you pay the least amount of taxes possible this year, we’re holding a new “Tax Cut Package” sale over the next 2 days.
We include a 3-year tax review to find out where you may have overpaid in the past. This is a huge opportunity to “find money” by applying new strategies to your previous tax returns.
It’s paid off big-time for our founder, Garrett Gunderson, who received $55,596 back from the IRS using this 1 simple strategy.
There’s also all kinds of planning tools to make sure you’re always getting maximum tax savings.
If you want the easiest way to guarantee that you pay the least amount of tax possible this year, then check out our special “Tax Cut Package” here (on sale for the next 2 days only).
That’s it for this week – we look forward to seeing how much you can save in taxes this year.
Build the life you love,
The Builders at Wealth Factory