Not finding quite everything you need in QuickBooks Online? Here are some handy add-on apps available.
QuickBooks Online may work for you just fine as is. After all, it was designed to meet the needs of the millions of small businesses that want to manage and track their income and expenses, create records and transactions, and run reports to gauge their financial health. QuickBooks Online was also designed to grow along with your business. But there’s no need for Intuit to add internal features to do so. In fact, that would make it too expensive and unwieldy for many companies.
Instead, Intuit has partnered with other small business websites to provides add-ons–applications that extend the usefulness of QuickBooks Online in one or more areas, like accounts receivable and payable, inventory, and expense-tracking. They integrate easily to share data and do the extra work you need. Here are some of them to consider.
You can certainly enter and pay bills using QuickBooks Online. And you can send invoices to customers and receive payments. But adding a connection to Bill.com gives you more advanced options for accounts receivable and payable. Simply send your bills to Bill.com by scanning, emailing, faxing, or taking a picture with your smartphone. The site’s automation tools turn them into digital records and route them through your specified approvers. Once approved, they’re paid electronically or by paper check. Invoices are just as easy to process; customers can pay by using PayPal, credit card, or ACH. Bill.com’s mobile app makes it possible to keep up with invoices and bills while you’re out of the office.
Are your employees still paper-clipping receipts to handwritten expense reports? This method is unnecessarily time-consuming – and often inaccurate. Expensify solves both problems. Your staff can take photos of receipts with their smartphones. Expensify then converts the expense information into coded digital records and submits them for approval based on your company’s policies. Credit card purchases can be automatically imported, too. All data is synchronized with QuickBooks Online in real-time and coded to reflect your preference of QBO’s expense accounts, customers/jobs, etc. Once you’ve approved a report, you can have the money deposited in the employee’s bank account the next day.
TSheets Time Tracking
TSheets employee scheduling software automates tasks that QuickBooks Online doesn’t do: scheduling and remote time-tracking for your hourly employees. Your staff no longer has to fill in paper timesheets. Instead, they can use their smartphones to track their hours and GPS location points. And while Excel is certainly better for creating schedules than paper, TSheets takes over that task, too. After you’ve approved timesheets, that information is sent over to QuickBooks, ready for use in your payroll processing.
Your employees can easily “punch” in and out using their smartphones. TSheets also uses GPS technology so that your staff members’ locations are always known to you.
QuickBooks Online performs some basic inventory management tasks. You can create records for items and use them in transactions, and keep track of the number of items in stock so you know when to reorder (or have a sale). SOS Inventory goes well beyond those capabilities. You can create sales orders, track cost history and serial numbers, and document work-in-progress (WIP). SOS Inventory supports multiple locations and the entire pick/pack/ship process.
You can create thorough customer records in QuickBooks Online and document some of your interaction. But it doesn’t facilitate true Customer Relationship Management (CRM) nor project management. Insightly CRM does both. It lets you build exceptionally thorough customer profiles so that you can view social streams, email history, and any events, opportunities, or events related to them. Its project management features include the ability to track by pipelines or milestones, define contact roles and custom fields, and generate advanced project reporting.
QuickBooks Online Integration Key
All of these apps can work in standalone settings, but their integration with QuickBooks Online and their mobile capabilities create powerful partnerships that help you serve both your customers and your employees in ways that QuickBooks Online alone can’t.
We’re not trying to sell you applications here. Our concern is that you’re getting as much out of QuickBooks itself as you can. We can steer you toward add-on solutions if that seems necessary, but we’re always happy to work with you on getting to know QuickBooks Online better and matching its capabilities to your company’s needs.
Assessing finance charges is a complicated process. But if you have a lot of late payments coming in, you may want to consider it.
There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.
Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.
You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly – or you’ll risk angering customers and creating problems with your accounts receivable.
Setting the Rules
Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.
Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.
Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences.
What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. To, high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?
You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’s Other Income.
The next decision, whether to Assess finance charges on overdue finance charges, needs consideration – and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.
When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?
Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.
Applying the Rules
QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations. Open the Customers menu and select Assess Finance Charges to open this window:
Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.
Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations. Being even a day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balance from the original invoice, as well as the Finance Charge it has calculated.
- If you choose not to apply finances charges to a customer because he or she has provided a good reason for the late payment, be sure the box in the Assess column is unchecked.
- If you want to change the finance charge due for a valid reason, you can type over the amount in the last column. This would be a rare occurrence and should be exercised only after consulting with us.
Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.
When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.
We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.
As just about every investor knows, it’s not what your investments earn, but what they earn after taxes that counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and any applicable state and local taxes, your investments’ returns in any given year may be reduced by 40% or more.
For example, if you earned an average 6% rate of return annually on an investment taxed at 24%, your after-tax rate of return would be 4.56%. A $50,000 investment earning 8% annually would be worth $89,542 after 10 years; at 4.56%, it would be worth only $78,095. Reducing your tax liability is key to building the value of your assets, especially if you are in one of the higher income tax brackets. Here are five ways to potentially help lower your tax bill.1
Invest in Tax-Deferred and Tax-Free Accounts
According to Webtaxonline tax-deferred accounts include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs), and annuities. Contributions to these accounts may be made on a pretax basis (i.e., the contributions may be tax deductible) or on an after-tax basis (i.e., the contributions are not tax deductible). More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to non-qualified annuities, Roth IRAs, and Roth-style employer-sponsored savings plans are not tax deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have held the account for at least five years and meet the requirements for a qualified distribution.
Pitfalls to avoid: Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA, or annuity may be subject not only to ordinary income tax but also to an additional 10% federal tax. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company. Also, if you have significant investments, in addition to money you contribute to your retirement plans, consider your overall portfolio when deciding which investments to select for your tax-deferred accounts. If your effective tax rate — that is, the average percentage of income taxes you pay for the year — is higher than 12%, you’ll want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That’s because withdrawals from tax-deferred accounts generally will be taxed at your ordinary income tax rate, which may be higher than your long-term capital gains tax rate (see “Income vs. Capital Gains”).
Income vs. Capital Gains
Generally, interest income is taxed as ordinary income in the year received, and qualified dividends are taxed at a top rate of 20%. (Note that an additional 3.8% tax on investment income also may apply to both interest income and qualified (or non-qualified) dividends.) A capital gain or loss — the difference between the cost basis of a security and its current price — is not taxed until the gain or loss is realized. For individual stocks and bonds, you realize the gain or loss when the security is sold. However, with mutual funds, you may have received taxable capital gains distributions on shares you own. Investments you (or the fund manager) have held 12 months or less are considered short term, and those capital gains are taxed at the same rates as ordinary income. For investments held more than 12 months (considered long term), capital gains are taxed at no more than 20%, although an additional 3.8% tax on investment income may apply. The actual rate will depend on your tax bracket and how long you have owned the investment.
Consider Government and Municipal Bonds
Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. An investor in the 32% federal income tax bracket would have to earn 7.35% on a taxable bond, before state taxes, to equal the tax-exempt return of 5% offered by a municipal bond. Sold prior to maturity or bought through a bond fund, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.
Pitfalls to avoid: If you live in a state with high state income tax rates, be sure to compare the true taxable-equivalent yield of government issues, corporate bonds, and in-state municipal issues. Many calculations of taxable-equivalent yield do not take into account the state tax exemption on government issues. Because interest income (but not capital gains) on municipal bonds is already exempt from federal taxes, there’s generally no need to keep them in tax-deferred accounts. Finally, income derived from certain types of municipal bond issues, known as private activity bonds, may be a tax-preference item subject to the federal alternative minimum tax.
Look for Tax-Efficient Investments
Tax-managed or tax-efficient investment accounts and mutual funds are managed in ways that may help reduce their taxable distributions. Investment managers may employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends, and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.
Pitfalls to avoid: Taxes are an important consideration in selecting investments but should not be the primary concern. A portfolio manager must balance the tax consequences of selling a position that will generate a capital gain versus the relative market opportunity lost by holding a less-than-attractive investment. Some mutual funds that have low turnover also inherently carry an above-average level of undistributed capital gains. When you buy these shares, you effectively buy this undistributed tax liability.
Put Losses to Work
At times, you may be able to use losses in your investment portfolio to help offset realized gains. It’s a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized capital losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” capital losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years, subject to certain limitations.
Pitfalls to avoid: A few down periods don’t necessarily mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to ups and downs. However, if your outlook on an investment has changed, you may be able to use a loss to your advantage.
Keep Good Records
Keep records of purchases, sales, distributions, and dividend reinvestment so that you can properly calculate the basis of shares you own and choose the shares you sell in order to minimize your taxable gain or maximize your deductible loss.
Pitfalls to avoid: If you overlook mutual fund dividends and capital gains distributions that you have reinvested, you may accidentally pay the tax twice — once on the distribution and again on any capital gains (or under-reported loss) — when you eventually sell the shares.
Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time. For more information about the tax aspects of investing, consult a qualified tax advisor.
Example does not include taxes or fees. This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.
QuickBooks Online was built to work with transactions downloaded from your online financial institutions. Here’s how to work with them.
The ability to import transactions from financial institutions into QuickBooks Online is definitely one of the best things about the site. You may have even signed up for that very reason.
By now, you’ve probably already set up at least one connection. But are you using all of the QuickBooks Online’s account tools? There’s a lot you can do once you’ve imported in data from your bank or credit card provider with the help of an accountant. Before you start managing your own money, look for Accountants to get help fast.
We’ll explore these features in this column and the next.
If you’re a new subscriber, you may not have established these critical links yet. It’s an easy process. Start by clicking the Banking link in the left vertical navigation pane. In the upper right corner, click Add Account and enter the name of your financial institution if it’s not pictured. Then follow the instructions you’re given on the screen. These can vary depending on the bank or credit card provider, but you’re always at least asked to enter the user name and password that you use to log into each online.
Need help with this? Let us know.
Viewing Your Transactions
Once you’ve made a successful connection, you’ll be returned to the Bank and Credit Cards page. You should see a card-shaped graphic at the top of the screen for each account you’ve linked. Click on one. The table that opens is not your account register. The view here defaults to For Review, which refers to transactions you’ve downloaded. The All tab should also be highlighted; we’ll get to Recognized transactions later.
When you first download transactions into QuickBooks Online, before you’ve done anything with them, many will appear under For Review.
There’s a lot going on here, so don’t be surprised if you’re confused. Review each transaction by clicking on it. QuickBooks Online will have guessed at how it should be categorized, but you can change this by opening the list in the category field and selecting the correct one. It’s critical that you get this right since it will have an impact on reports and income taxes. If you need to split it between multiple categories, click on that button found to the right. If the transaction is Billable, check that box and choose a customer from the drop-down list. If you don’t see this box, click the gear icon in the upper right and select Account and Settings | Expenses. Check to see that Make Expenses and Items Billable is turned On (click on Off, then check the appropriate box to turn it on).
Next, determine how you want to process the transaction by clicking on one of the three buttons at the top of the transaction box. Do you want to accept it and add it to that account’s register? Do you want QuickBooks Online to Find (a) Match for it (like a payment that matches an invoice, for example)? Or, do you want to transfer it to another account? Once you’ve made one of these three selections, the transactions that you’ve added or matched will move under the In QuickBooks tab (where you can still Undo them) and will be available in the account’s register.
You can save time by using QuickBooks Online’s Batch Actions tool or even with DPS Accounting .
Say you run across some duplicate or personal transactions that you don’t want to appear in the current account’s register. Check the box in front of each, then click the arrow in the Batch Actions box. Select Exclude Selected. They’ll then be available under the Excluded tab. You can also Accept or Modify multiple transactions simultaneously by using this tool.
So far, you’ve been viewing All your transactions. Click on Recognized to the right of it. These are transactions that are already familiar to QuickBooks Online because they’ve appeared before and/or have been matched, or because you’ve created Bank Rules for them (we’ll address that concept next month). You’ll need to address these the same way you did the transactions in the For Review section; you can either Add or Transfer them.
If you’re new to QuickBooks Online, this may all sound pretty complicated. It can be at first. But once you’ve worked with downloaded transactions for a while, you’ll understand the flow much better. If you’re not clear on the process from the start, it can lead to trouble. Contact us at your convenience. We’d be happy to sit down with you and go through it all using your own company’s data; the familiarity may help.
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If you’re new to QuickBooks Online, there’s a lot you need to understand about dealing with downloaded transactions out the gate. Let us help.
When you download transactions into QuickBooks Online, the site sometimes automatically “matches” them to existing entries. We’re here to explain and help you navigate this. Tired of reviewing downloaded transactions one by one in QuickBooks Online? Click on the Batch Actions button to explore this feature. We can show you how.
QuickBooks Online often guesses at how downloaded transactions should be categorized. You should always check these for accuracy, and we can show you how.
‘Tis the season for making resolutions and setting goals. Try exploring these three areas to dig deeper into QuickBooks Online.
By now, many New Year’s resolutions have already been made – and broken. Though they’re usually created with the best of intentions, they’re often just too ambitious to be realistic.
For example, you might decide to learn more about QuickBooks Online and keep up with your accounting chores more conscientiously in 2019. That’s hard to quantify. How will you know if you achieved that goal?
Instead, why not pick three (or more) specific areas and focus on them this month? We’ll get the ball rolling for you by making some suggestions.
Explore the QuickBooks Online mobile app:
Yes, QuickBooks Online itself is already mobile; you can access it from any computer that has an internet connection and browser. But you probably don’t always lug a laptop around when you’re away from the office, and you’re sometimes at locations were using it wouldn’t be practical. But you can always pull out your smartphone and fire up the QuickBooks Online app, available for both iOS and Android.
No matter how small your smartphone (this image was captured on an iPhone SE), you can still do your accounting tasks using QuickBooks Online’s app.
QuickBooks Online’s app replicates a surprising percentage of the features found on the browser-based version. You can create, view, and edit invoices, estimates, and sales receipts for example, as well as see abbreviated customer and vendor records. Your product and service records are available there, including tools for recording expenses on the road.
Create a budget for one month:
Budgets are intimidating. That’s one reason why some small businesses don’t create them. So instead of trying to estimate what your income and expenses will be for an entire fiscal year, just build a budget for one month. In QuickBooks Online, you’d click the gear icon in the upper right, then select Budgeting. Click Add budget in the upper right to open the New Budget window.
Give it a name, like “February Budget,” and select FY2019. Leave the Interval at Monthly, and open the Pre-fill data? menu to click on Actual data – 2018 (if you have data from last year). Then click Create Budget in the lower right corner. Look at last year’s February numbers and estimate how they might change in 2019. Replace the old numbers with your new ones.
Creating a framework for a budget in QuickBooks Online is easy.
We’re suggesting you try it for just one month, so you get a feel for how this tool works. And that experiment will probably leave you with some questions. We can help you go further and complete an annual budget.
Customize your sales forms:
Every piece of paper and email you send to your customers contributes to their impression of you. Are you presenting an attractive, consistent image of your business to them? QuickBooks Online can help with this. It offers simple (for the most part) tools that allow you to modify the boilerplate forms offered on the site – without being an experienced graphic designer.
Start by clicking on the gear icon in the upper right and selecting Your Company | Custom Form Styles. Unless you’ve done some work in this area before, the screen that opens will have just one listed entry: your Master form, the one that comes standard in QuickBooks Online. To see what you can do, click Edit at the end of that line. Your four options are:
- Design. This section contains links to modifications you can make to your sales forms’ visuals. You can, for example, add a logo or color and change the default fonts.
Want to change your logo or other elements of your sales forms? QuickBooks Online has the tools.
- Content. Do you want to add or remove the standard columns (Date, Quantity, etc.) displayed on your invoices? You can do so by checking and unchecking boxes.
- Emails. QuickBooks Online sends email messages with forms; you can edit them here.
- Payments. This is a reminder that QuickBooks Online supports online payments, which can help you get paid faster.
There’s more you can do to make your sales forms look professional and polished. We can help you with these tools – and any others you want to explore to expand your use of QuickBooks Online. It’s a new year, and who knows what might come your way over the next 12 months? Contact us if you want to prepare for the new accounting challenges that 2019 might present.
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Did you resolve to grow your understanding of QuickBooks Online in 2019? We can help you explore new features.
Go mobile in 2019: Download the QuickBooks Online app for your smartphone. You’d be surprised at how much it can do for you while you’re on the go.
How are things going with your 2019 budget? If you don’t have one yet, let us show you how QuickBooks Online simplifies this critical task.
QuickBooks Online’s sales forms (like invoices) may work fine for you. Do you know, though, how they can be customized to fit the image of your business? Ask us.
You’ve finally found a buyer for the rental property, land, or business you’ve been trying to sell but the buyer doesn’t have enough cash to pay the full purchase price in a lump sum. So you agree to an installment sale. The buyer will make a partial payment now and pay you the balance over several years, with interest. The deal’s done, now what about your taxes?
Pay as You Go
Because you’ll receive the payments over more than one tax year, you can defer a portion of any taxable gain realized on the sale. You’ll report only a proportionate amount of your gain each year (plus interest received) until you are paid in full. This lets you pay your taxes over time as you collect from the buyer.
Reduce Surtax Exposure
If your AGI is typically under the threshold, recognizing a large capital gain all in one year could put you over the top, triggering the additional 3.8% tax. By reporting your gain on the installment method, you may be able to stay under the AGI threshold and minimize your tax burden.
The installment sale method isn’t available for sales of publicly traded securities and certain other sales. And you have the option of electing out of installment sale treatment and reporting your entire gain in the year of sale. Electing out may be advantageous under certain circumstances: for example, if you have a large capital loss that can offset your entire capital gain in the year of sale. Contact your tax advisor for information that pertains to your particular situation.
Investing in residential rental properties raises various tax issues that can be somewhat confusing, especially if you are not a real estate professional. Some of the more important issues rental property investors will want to be aware of are discussed below.
Currently, the owner of a residential rental property may depreciate the building over a 27½-year period. For example, a property acquired for $200,000 could generate a depreciation deduction of as much as $7,273 per year. Additional depreciation deductions may be available for furnishings provided with the rental property. When large depreciation deductions are added to other rental expenses, it’s not uncommon for a rental activity to generate a tax loss. The question then becomes whether that loss is deductible.
$25,000 Loss Limitation
The tax law generally treats real estate rental losses as “passive” and therefore available only for offsetting any passive income an individual taxpayer may have. However, a limited exception is available where an individual holds at least a 10% ownership interest in the property and “actively participates” in the rental activity. In this situation, up to $25,000 of passive rental losses may be used to offset nonpassive income, such as wages from a job. (The $25,000 loss allowance phases out with modified adjusted gross income between $100,000 and $150,000.) Passive activity losses that are not currently deductible are carried forward to future tax years.
What constitutes active participation? The IRS describes it as “participating in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense.” Examples of such management decisions provided by the IRS include approving tenants and deciding on rental terms.
Selling the Property
A gain realized on the sale of residential rental property held for investment is generally taxed as a capital gain. If the gain is long term, it is taxed at a favorable capital gains rate. However, the IRS requires that any allowable depreciation be “recaptured” and taxed at a 25% maximum rate rather than the 15% (or 20%) long-term capital gains rate that generally applies.
Exclusion of Gain
The tax law has a generous exclusion for gain from the sale of a principal residence. Generally, taxpayers may exclude up to $250,000 ($500,000 for certain joint filers) of their gain, provided they have owned and used the property as a principal residence for two out of the five years preceding the sale.
After the exclusion was enacted, some landlords moved into their properties and established the properties as their principal residences to make use of the home sale exclusion. However, Congress subsequently changed the rules for sales completed after 2008. Under the current rules, gain will be taxable to the extent the property was not used as the taxpayer’s principal residence after 2008.
This rule can be a trap for the unwary. For example, a couple might buy a vacation home and rent the property out to help finance the purchase. Later, upon retirement, the couple may turn the vacation home into their principal residence. If the home is subsequently sold, all or part of any gain on the sale could be taxable under the above-described rule.
Sooner or later, you may decide to sell the property you inherited from a parent or other loved one. Whether the property is an investment, an antique, land, or something else, the sale may result in a taxable gain or loss. But how that gain or loss is calculated may surprise you.
When you sell the property you purchased, you generally figure gain or loss by comparing the amount you receive in the sale transaction with your cost basis (as adjusted for certain items, such as depreciation). Inherited property is treated differently. Instead of cost, your basis in inherited property is generally its fair market value on the date of death (or an alternate valuation date elected by the estate’s executor, generally six months after the date of death).
These basis rules can greatly simplify matters, since old cost information can be difficult, if not impossible, to track down. Perhaps even more important, the ability to substitute a “stepped up” basis for the property’s cost can save you federal income taxes. Why? Because any increase in the property’s value that occurred before the date of death won’t be subject to capital gains tax.
For example: Assume your Uncle Harold left you stock he bought in 1986 for $5,000. At the time of his death, the shares were worth $45,000, and you recently sold them for $48,000. Your basis for purposes of calculating your capital gain is stepped up to $45,000. Because of the step-up, your capital gain on the sale is just $3,000 ($48,000 sale proceeds less $45,000 basis). The $40,000 increase in the value of the shares during your Uncle Harold’s lifetime is not subject to capital gains tax.
What happens if a property’s value on the date of death is less than its original purchase price? Instead of a step-up in basis, the basis must be lowered to the date-of-death value.
Capital gains resulting from the disposition of inherited property automatically qualify for long-term capital gain treatment, regardless of how long you or the decedent owned the property. This presents a potential income tax advantage since the long-term capital gain is taxed at a lower rate than short-term capital gain.
Be cautious if you inherited property from someone who died in 2010 since, depending on the situation, different tax basis rules might apply.
Many people are taking a closer look at buying long-term care insurance to protect themselves and their families — just in case. If you are thinking about buying long-term care insurance, you’ll be interested to know that, within limits, premiums paid for qualified policies are deductible as an itemized medical expense. For 2019, premiums for qualified policies are tax-deductible to the extent that they, along with other unreimbursed medical expenses, exceed 10% of your adjusted gross income.
The typical long-term care insurance policy will pay for the nursing home, home care, or other long-term care arrangements after a waiting period has expired, reimbursing expenses up to a maximum limit specified in the policy. Eligibility for reimbursement usually hinges on the covered individual’s inability to perform several activities of daily living, such as bathing and dressing.
Premiums are eligible for a deduction only up to a specific dollar amount (adjusted for inflation) that varies depending upon the age of the covered individual. The IRS limits for 2019 are:
|Long-Term Care Insurance Premium Deduction Limits, 2019|
|40 or under||$420|
Source: Internal Revenue Service
These limits apply on a per-person basis. For example, a married couple over age 70 filing a joint tax return could potentially deduct up to $10,540 ($5,270 × 2). Keep in mind, however, that, for individuals under age 65, itemized medical expenses are deductible only to the extent that they, in total, exceed 10% of adjusted gross income (AGI).
As everyone’s situation is different, consider contacting your tax and legal professionals to discuss your personal circumstances.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v
Individuals who plan to take distributions of appreciated employer stock from their tax-qualified retirement plan accounts may receive favorable tax treatment by using a “net unrealized appreciation” (NUA) strategy.
This strategy involves taking a “qualifying” lump-sum distribution of employer stock from a qualified plan upon separation from service or another “triggering event” (such as reaching age 59½) and paying ordinary income taxes on only the plan’s cost basis in the stock. NUA is the difference between the shares’ cost basis and their market value at the time of distribution.
When the stock is eventually sold, taxes will be due on the appreciation at distribution at long-term capital gains rates (currently a maximum of 20% for those in the top regular tax bracket) regardless of how long the employer securities may have been held in the plan. Any further appreciation is taxed at either the short-term or long-term capital gains rate, depending on the holding period.
If your plan assets consist primarily of employer stock, consider using the NUA strategy for part of the distribution and rolling over the remaining shares to an IRA. You could then sell the shares in the IRA and buy a more diversified mix of investments.
A Few Considerations
Could you benefit from the NUA strategy? While it can reduce the taxes you pay, it’s not appropriate for everyone. Think about these factors as you make your decision.
Time frame. This strategy provides the most benefit when stock won’t be sold for several years.
Taxes. The NUA strategy may be less beneficial if tax rates change or your tax rate declines in retirement.
Diversification. No matter which strategies you employ, it’s important to maintain an adequately diversified portfolio.
To learn more about tax rules and regulations for investments, give us a call today. Our knowledgeable and trained staff is here to help.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v