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In this edition
June 18, 2019

IRS Continues Campaign to Encourage Taxpayers to do a Paycheck Checkup

Consider the Tax Advantages of Qualified Small Business Stock

Podcast: How to Keep Your Organization’s Tax Exempt Status

Ensuring Your Long-Term Care Policy is Tax-Qualified
IRS Continues Campaign to Encourage Taxpayers to do a Paycheck Checkup
The Internal Revenue Service just launched a special week-long campaign encouraging taxpayers to do a Paycheck Checkup now to make sure they are having the right amount of tax taken out of their paychecks for 2019.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers. Most TCJA changes took effect in 2018. As a result, some taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year. For that reason, taxpayers may need to raise or lower the amount of tax they have taken out of their pay throughout the year.

To help them do that, the IRS urges everyone to do a Paycheck Checkup using the Withholding Calculator available on .  

Who should do a Paycheck Checkup?
Though doing a Paycheck Checkup is a good idea every year, for many people, it’s even more important this year. This includes anyone who:

  • Expected to owe less tax or get a bigger 2018 tax refund.
  • Has a major life change this year such as having a child, has a dependent older than 17, or has a relative who has become a dependent.
  • Has a two-income family.
  • Has two or more jobs at the same time or only works part of the year.
  • Claims credits like the Child Tax Credit.
  • Itemized deductions in the past.
  • Has high income or a complex tax return. 

If this may affect you in any way, please read more about how to do a Paycheck Checkup in this issued notification from the IRS by clicking the linked button below:
Consider the Tax Advantages of Qualified Small Business Stock
While the Tax Cuts and Jobs Act (TCJA) reduced most ordinary-income tax rates for individuals, it didn’t change long-term capital gains rates. They remain at 0%, 15% and 20%.

The capital gains rates now have their own statutory bracket amounts, but the 0% rate generally applies to taxpayers in the bottom two ordinary-income tax brackets (now 10% and 12%). And, you no longer must be in the top ordinary-income tax bracket (now 37%) to be subject to the top long-term capital gains rate of 20%. Many taxpayers in the 35% tax bracket also will be subject to the 20% rate.

So, finding ways to defer or minimize taxes on investments is still important. One way to do that — and diversify your portfolio, too — is to invest in qualified small business (QSB) stock.

QSB Defined

To be a QSB, a business must be a C corporation engaged in an active trade or business and must not have assets that exceed $50 million when you purchase the shares.

The corporation must be a QSB on the date the stock is issued and during substantially all the time you own the shares. If, however, the corporation’s assets exceed the $50 million threshold while you’re holding the shares, it won’t cause QSB status to be lost in relation to your shares.

Two Tax Advantages

QSBs offer investors two valuable tax advantages:

Up to a 100% Exclusion of Gain .  Generally, taxpayers selling QSB stock are allowed to exclude a portion of their gain if they’ve held the stock for more than five years. The amount of the exclusion depends on the acquisition date. The exclusion is 100% for stock acquired on or after Sept. 28, 2010. So, if you purchase QSB stock in 2019, you can enjoy a 100% exclusion if you hold it until sometime in 2024. (The specific date, of course, depends on the date you purchase the stock.)

Tax-free Gain Rollovers .  If you don’t want to hold the QSB stock for five years, you still have the opportunity to enjoy a tax benefit: Within 60 days of selling the stock, you can buy other QSB stock with the proceeds and defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

More to Think About

Additional requirements and limits apply to these breaks. For example, there are many types of businesses that don’t qualify as QSBs, ranging from various professional fields to financial services to hospitality and more. Before investing, it’s important to also consider nontax factors, such as your risk tolerance, time horizon and overall investment goals.

Contact us to learn more.
Contact: Holly Pett, CPA
Direct: 262.404.2109
 Podcast: How to Keep Your Organization’s Tax Exempt Status
There are many organizations that operate like they are tax-exempt, even though they are not. There are many factors that may contribute to this. Listen to this five-minute podcast with Jeff Dvorachek to learn more about these factors.
Ensuring Your Long-Term Care Policy is Tax-Qualified
A long-term care insurance policy supplements your traditional health insurance by covering services that assist you or a loved one with one or more activities of daily living. Such activities include eating, bathing, dressing, toileting and transferring (in and out of bed, for example).

Long-term care coverage is relatively expensive, but it may be possible to reduce the cost by purchasing a tax-qualified policy. Generally, benefits paid in accordance with a policy are tax-free. In addition, if a policy is tax-qualified, your premiums are deductible (as medical expenses) up to a specified limit if you qualify.

To qualify, a policy must:

  • Be guaranteed renewable and noncancelable regardless of health,
  • Not delay coverage of pre-existing conditions more than six months,
  • Not condition eligibility on prior hospitalization,
  • Not exclude coverage based on a diagnosis of Alzheimer’s disease, dementia, or similar conditions or illnesses, and
  • Require a physician’s certification that you’re either unable to perform at least two of six ADLs or you have a severe cognitive impairment and that this condition has lasted or is expected to last at least 90 days.

It’s important to weigh the pros and cons of tax-qualified policies. The primary advantage is the premium deduction. But keep in mind that medical expenses are deductible only if you itemize and only to the extent they exceed 10% of your adjusted gross income for 2019, so some people don’t have enough medical expenses to benefit from this advantage. It’s also important to weigh any potential tax benefits against the advantages of nonqualified policies, which may have less stringent eligibility requirements.
Contact: Charles Wendlandt, CPA
Direct: 715.384.1986
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