Archives for March 10, 2019

You Can’t Claim These Tax Breaks Again Until 2025

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The Tax Cuts and Jobs Act made some major changes to the U.S. tax code when this tax reform law passed in 2017. Some of those changes are likely to save you money, including changes to tax brackets and tax rates. But the tax reform law also eliminated or reduced some popular tax breaks.

Because many of the law’s provisions sunset in 2025, the loss of these tax breaks will affect you starting in tax year 2018 and continue for the next several years — but your tax breaks will come back eventually unless the law is changed in the interim.

So which tax breaks can’t you claim again for the next few years? Here are five of them.

1. A deduction for personal exemptions

In 2017, taxpayers were able to claim a personal exemption of $4,050. Personal exemptions could be claimed for the taxpayer, spouses, and dependents. These personal exemptions acted as deductions, so your taxable income would go down for each exemption claimed. This would mean a family of four in 2017 was able to reduce taxable income by $16,200 thanks to these personal exemptions.

Starting in tax year 2018, personal exemptions disappear. While an expanded child tax credit and a higher standard deduction may make up some of the shortfall, this won’t necessarily be the case for larger families who claimed many exemptions in the past. So if you’ve always claimed lots of personal exemptions, don’t be surprised if your taxable income is higher in 2018.

2. Miscellaneous itemized deductions

Before tax reform, a number of deductions were grouped together under the category “miscellaneous deductions.”

These included deductions for appraisal fees for charitable contributions; credit or debit card convenience fees; hobby expenses up to the amount of hobby income; unreimbursed job expenses; investment fees and expenses; and fees for tax advice. You could take this deduction only if all your miscellaneous deductions added up to at least 2% of adjusted gross income, and the IRS has a complete list of all of the “miscellaneous” deductions you could potentially claim. 

You can no longer claim any of these miscellaneous deductions for tax years 2018 through 2025. If you previously got a tax break for all these little nuisance expenses incurred during the year, your taxable income will be a little bit higher for tax year 2018 and beyond.

3. Deductions for moving expenses

Under the old tax rules, taxpayers who relocated due to work could deduct the cost of their moving expenses from taxable income. These expenses had to be claimed on Form 3903, and certain requirements had to be met with regard to the timing of your move in relation to starting work and the distance you moved.

Now, if you relocate for your job, you’re likely out of luck when it comes to a tax deduction. You won’t be able to get a federal tax break no matter how much it cost you to move. However, there is a limited exception for members of the military who relocate and who meet specific requirements. Most taxpayers won’t get to claim this deduction, though, unless they can postpone their move until after 2025.

4. A deduction for theft or losses due to certain casualties

If you’re the victim of theft or suffered bad luck such as fire or flood damage to your home, you could previously be eligible for a deduction for some of the resulting losses not reimbursed by insurance. Starting in tax year 2018, though, Uncle Sam won’t help you defray the cost of your losses unless the damage was caused by a federally declared disaster.

So if you live in a hurricane- or tornado-prone area and suffer unreimbursed property damage because of a declared disaster, you can still deduct for casualty losses in tax years 2018 to 2025. But if you just happen to have an isolated patch of bad luck, there’s no tax break for you.

5. A deduction for alimony

Divorce may get a little more expensive starting in 2018 thanks to a change in the rules on taxes for alimony. Previously, a spouse who paid alimony to his or her ex got to take a tax deduction, and the recipient had to declare the alimony as taxable income — as long as certain requirements were met, such as the recipient and payor living in separate households.

And if you got divorced before Dec. 31, 2018, this rule will continue to apply as long as your divorce settlement agreement was executed before this date. 

For divorces that occurred after the new year, however, alimony payments aren’t tax deductible any more. Since those who have to pay alimony typically have higher incomes than those who receive it — and are thus taxed at a higher rate — the loss of this deduction is likely to have a big financial impact. If you’d prefer the old rules to apply, you’ll have to wait until after 2025 to get a divorce.

4 Crypto Tax Tricks from Deloitte That Will Maximize Your Tax Return

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CCN spoke to Deloitte tax partner Jim Calvin about the problems and strategies associated with cryptocurrency for his clients, particularly when it comes time for them to submit their annual tax returns.

DELOITTE TAX PARTNER SPENDS MORE THAN HALF HIS TIME WORKING ON CRYPTO

Calvin got into cryptocurrency in 2014, when he was based in Asia. He says he began to get questions about Bitcoin from clients, and that he gained a personal interest as the first major crypto winter set in.

“In places like Hong Kong, Singapore, and Bangkok, the financial institutions and individuals wanted to know how to report this stuff for AML/KYC in a thing called FATCA, which is basically bank account reporting to the IRS.”

“On foreign bank account reporting, it depended on how they were holding it. If they were holding it themselves, it didn’t have to be reported. But if it was held on an exchange or by a custodian, then it would have to be reported. Most of the work I ended up doing was related to trading, investing, exchanges, and dealers, moreso than things like mining. I’ve never really done ICO work or centralized coin launches.”

Calvin says that most of his clients have had interest in Bitcoin and Bitcoin Cash.

“Mostly it’s Bitcoin. Occasionally we’ll have clients that hold other things like [Ethereum] or Monero. So it’s mostly issues around things like wash trading and tax straddles.”

Calvin says that he presently spends “more than half” of his time working on crypto topics these days. The biggest question that clients have is regarding “chain splits” such as the one that created Bitcoin Cash. What are the liabilities implied when you receive something for free?

Calvin says it’s like “receiving a free sample in the mail.”

“If you talk to a lot of the tax lawyers that don’t understand the technology, they’ll talk about it like buying a cow that’s pregnant. You really have to understand the technology to receive tax advice on it. […] Why should you be taxed on free laundry detergent that you get in the mail? And some of them are worth taking the risk to claim and then sell. The IRS’ long-standing policy is that only if you claim property that it’s taxable.”

According to Calvin, the hardest thing about accounting in cryptocurrency is the transfer from exchange to exchange. This reporter informed him about Node40’s technology, which automates that process for the user, finding the cost-basis at time of transfer and helping to generate an accurate report for tax purposes. Still, Node40’s product isn’t perfect, and for serious traders with large transaction histories, using an accounting firm like Deloitte is potentially still the best route.

CRYPTO TAX TRICK #1: USING THE HIGHEST COST BASIS

Calvin says the top strategy he’s used for tax accounting as regards Bitcoin is using the highest possible cost basis.

Chainsplits and air drops aren’t taxable until you’ve claimed them and made income on them. Unfortunately, they can be taxed as ordinary income.

“The bad news is probably it would be ordinary income. They seem to be ordinary income because there’s no sale or exchange of an asset to get them. You just get them. But you don’t have to get them. 99% of air drops are junk. 99% of chainsplits are junk. […] It depends on many things. You’d have ordinary income and a loss.”

Calvin says you’re better off to claim your air drops and chainsplits when they actually appreciate because the amount you make on the increase can offset the ordinary income tax, and it’s only taxed at capital gains as to the profits. So if you claim your Bitcoin Cash at $150 and wait to sell it at $2,000, you pay ordinary income tax on the $150 and capital gains on $1,850. You make out better in this respect than attempting to sell air drops and chainsplits at a loss.

“I think a lot of institutional traders don’t claim air drops and chainsplits because they are a risk. The IRS will probably go along with that. Because you don’t have a choice about receiving it.”

CRYPTO TAX TRICK #4: LOST COINS MIGHT BE A THEFT LOSS

Unfortunately, cryptocurrency funds lost to theft may not be deductible.

“The better answer is, it’s a theft loss. It wouldn’t be deductible if it’s a personal asset. Say you bought Bitcoin to buy your morning coffee or something like that. But if it’s on an exchange, it’s very unlikley to be a personal asset. Then it should be deductible if you can show that it was in fact stolen. There were some rulings around Madoff’s Ponzi scheme that say, it’s the same sort of thing, if you had your stuff stolen and you should be able to take the loss.”

He says that if you manage your own private keys, however, you’re going to have more trouble proving the loss than you would with something like the QuadrigaCX scandal.

All four of these tax tricks have yet to meet the real test of usability: court cases. However, Calvin says these are methods he uses to advise clients of Deloitte, one of the largest tax accounting firms in the world.

5 Steps to Maximize Your 401(k) in 2019

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The 401(k) is a popular retirement savings vehicle for a number of reasons, including its prevalence, potential for an employer match, and the income tax advantages — all of which are appealing to workers socking away wages for retirement. There was $5.6 trillion in 401(k)s at the end of last year.

But with so many people using 401(k) plans, it’s worth asking if they are really making the most out of all a 401(k) retirement plan has to offer. After all, you only want to retire once and you don’t want to leave any money on the table. Here are five ways to maximize your 401(k) this year.

1. Employ tax-efficient asset location

Traditional 401(k) plans, which means they are non-Roth accounts, come with two major tax advantages: Contributions and investment gains are not taxable until you withdraw the money. The contribution is tax-deductible, so it lowers your taxable income in the year you make it which saves you taxes today. Then, investment gains are tax-deferred, so more money gets reinvested back into your portfolio, growing your nest egg.

One way to make the most of the tax deferral is by being aware of asset location, which is different from asset allocation. Asset location refers to putting tax-inefficient investments like those with high trading volume (such as actively managed mutual funds) or those that pay out a lot of interest or yield (such as high-yielding bonds and real estate investment trusts, or REITs) in places that don’t tax the gains, like a 401(k).

By housing tax-inefficient investments in a 401(k) and rather than a regular brokerage account, you avoid the income tax levied on the interest and earnings of your investments. Accounts outside of the 401(k) are good places for index funds that are usually tax-efficient, or individual stocks that are also tax-efficient — meaning you don’t trade them a lot and don’t incur taxable gains. Maximizing a 401(k) means making the most out of a 401(k)’s tax deferral by using that as a place for your tax-inefficient investments. 

2. Avoid fees

You may not see a bill for investment services, but fees are debited from your 401(k) mutual funds every day. Fees are a drag on your return, which means less profit for you and a smaller nest egg in the long-run.

When choosing investments inside your 401(k), it’s a good idea to know what the fees are. You can check with the fund administrator or read the required summary plan document that every 401(k) has. Some active mutual funds are more expensive than others. Fund families like Vanguard or T. Rowe Price usually are inexpensive, while other active mutual fund fees can be egregious. Try to keep 401(k) mutual fund fees below 1%.

5. Check your beneficiaries

As with any other account, make sure the beneficiaries are up to date. This may sound like mundane common sense, but our lives have a way of changing, and you want to make sure your primary and contingent beneficiaries are current. This is especially true for 401(k)s left behind at a previous employer which are sometimes forgotten. 

The 401(k) is a great place to save for retirement, and if you maximize all of what the plan offers, your money can work smarter and harder. 

Ask lots of questions before buying an annuity

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After years of declining sales, annuities are hot again.

Part of the reason for the resurgence is that rising interest rates are increasing annuity payouts.

But much of the credit for the rebound goes to the demise last year of the fiduciary rule — the U.S. Department of Labor rule that would have required brokers and others to put clients’ financial interests ahead of their own when giving retirement-account advice.

Annuities can provide a valuable income stream in retirement, especially for those without a traditional pension.

Kiplinger’s often recommends the plain-vanilla type to retirees: an immediate income annuity that can generate enough income along with Social Security and, perhaps, a pension to cover basic living expenses.

But other types — namely, variable and indexed annuities — are complicated and often carry high fees or commissions.

Some planners recommend variable annuities to high-income savers who have maxed out their 401(k)s and IRAs and want another tax-deferred investment. Indexed annuities are often pitched as a way for older investors to potentially enjoy some of the upside of the market without losing principal.

“Variable and fixed indexed annuities are the most complex, opaque and conflict-ridden, because they pay the people recommending the annuities the highest commissions and give them other types of perks,” said Micah Hauptman, counsel with the Consumer Federation of America.

The more complex flavors of annuities are often on the menu at free dinners staged by financial professionals to attract new clients. A free-dinner seminar can be a legitimate way for companies to prospect for clients and for consumers to learn about a new product or strategy, said Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority. “If you go to one of these pitches, go with an open mind. But don’t go with your checkbook open,” she said.

Anyone offering you an annuity should review your finances and goals first, and only then determine if an annuity would work for you. Kashif Ahmed, a certified financial planner in Bedford, Mass., says you should be asking, “What hole in my plan is this going to solve?”

Before investing in an annuity, ask about fees and the penalties for pulling out of the contract early. Ask how the adviser is being compensated by the insurer, including any sales incentives, because that could be a big driver behind the annuity recommendation.

A salesperson might receive 5 percent or 6 percent of the sale, or opt for a slightly smaller percentage up front and get a trailing commission of, say, 0.25 percent annually for the life of the annuity, says Ashley Foster, a certified financial planner in Houston.

Also, check out the background of the adviser selling the annuity. At https://brokercheck.finra.org, you can review the record of brokers selling variable annuities.

Here’s what our readers think of the Google Pixel 3 and 3XL

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As it turns out, people don’t care much about the notch.

With last year’s release of the Pixel 3 and 3 XL Google answered the call of competing smartphones by adding some significant software upgrades, and subtle hardware changes, to its flagship line-up. Aside from the addition of the controversial notch to the XL, the Pixel’s body didn’t change much from previous iterations; the company also switched to a glass back and provided a full HD+ HDR screen. Indeed, most of the real developments were on the software side. While these were substantial enough to wow reviewer Cherlynn Low and earn the phones scores of 90 and 89 respectively, users were less enthusiastic.

When it comes to the design of the phone, users were split between admiring its premium feel and having concerns about its durability. Lyubomir says the 3 is “light, very well balanced and the frosted back feels entirely different to what I imagined. It’s really soft and if I didn’t know better I wouldn’t guess that it was glass.” Brett agreed, stating he “really likes the size and weight of the Pixel 3. Google nailed it here.” User mk2 felt the 3 XL’s build quality was “much improved over the 2XL, this thing is premium, through and through.”

The screen also earned praises. Warren thought it “absolutely gorgeous,” while Lyubomir said it had a “much brighter screen” and the colors were “much more vibrant without being oversaturated.” mk2 said, “The first thing I noticed on the 3XL is the massive improvement that the screen represented in comparison to my 2XL.”

However, users also encountered some minor drawbacks. Lyubomir said the metal frame of the 3 “picks up fingerprints and grease a lot more than I expected.” Bryson concurred, noting the glass back “is extremely susceptible to deposition of material, making it appear that the back is scratched.” Nathan had a similar experience with his 3 XL, writing “the frosted glass can scratch easily which is too bad,” while El said “my old 6P felt much sturdier due to its aluminum body.”

A surprising trend amongst the XL reviews was that no one seemed bothered by the (admittedly large) notch. David said it “isn’t as big of an eye sore as you might expect. You don’t notice it 99 percent of the time.” El concurred, sharing “after about an hour of actual use, the notch pretty much disappeared for me. It never gets in the way of any app I’ve used.”

Users were more divided over the battery life. Some, like Stephen, found it phenomenal, while others like Matthew felt “the main negative” of the phone was its weak endurance. Dave said a single charge “will last me all day with moderate use,” and Tom added the 3 “will make it through the day on single charge (including three-plus hours of Waze with my daily commute while listening to Podcasts).” However, Jeffrey “noticed significant battery drain” leading him to assume “I’m not doing some things right.” Brett felt the runtime was “ho-hum and could be better,” while Tim said his “one complaint for the devices has been standby battery life.”

But most users were also appreciative of the wireless charging. Chris considered it “a plus if you have the home base or a vehicle that has that capacity.” El was pleased to “finally have wireless charging,” and felt it “makes up for the glass body.” Opticron said the wireless charging “brings charging options back up to par even if high power wireless charging requires a dock (yuck).”

On the software side, the camera updates were easily the standout component for users. Vincenzo, a 3 XL owner, exclaimed “WOW. This is where the phone excels.” Rob said the camera is “bang on awesome,” and Stephen, a self-described former professional photographer, doesn’t “even take one of my good cameras to events with me” because of the powerful camera. Likewise, Pixel 3 users were also impressed: Tom enjoyed its photo capabilities “more than my Samsung S7,” while Opticron said the new features were “pretty amazing for low light photography and enhanced zoom.” David found “from low light shots to portraits to shot selection, the myriad of photo features add up to a top tier experience.”

Other popular software features included the gesture controls, which El deemed “really easy to use.” David agreed, saying “the Gesture Controls get a lot of hate, but I find it quick and intuitive.” Another aspect of the handset that impressed users was the squeeze feature to activate Assistant, which Bill loved on the 3 XL and Matthew felt was “much quicker and easier to activate” on the 3.

A negative theme running through many of these user reviews was the prevalence of bugs and glitches before the December software update rolled out. Users found their camera software unusable across multiple apps; Alan said “I was traveling abroad to Switzerland, and every time I wanted to get a shot [I saw a] black camera screen.” Meanwhile Amy discovered “the camera wouldn’t work in any third-party apps — Instagram, Snapchat, my banking app, etc. All useless.”

Call quality was also an issue. Thomas noticed an “electrical clicking/buzzing noise in earpiece when on calls,” while Jeremiah heard an “occasional electric feedback sound during calls from the top speaker.” Rosie complained, “I can hear my caller fine, most of the time, but to them, I often sound robotic or I cut out completely. I constantly have to repeat myself. Other times it sounds like the line has gone dead.” Karamijt likewise had “a lot of issues with reception, with the phone cutting in and out making it difficult to have a conversation on the phone that’s longer than two minutes.” Beverly stated she’s “had lots of issues with the speakers.”

Fortunately, it appears the December bug fixes solved most, if not all, of these issues. mk2 said their speakers “rattled a little before the update” but with the latest update “sound great.” David likewise stated the speaker issues and memory management were fixed by the security patch. But there’s no doubt the problems influenced the scores users gave the smartphones: Ryan, who experienced a screen defect and camera issues felt the 3 XL was “hard to recommend.” And Beverly said she “really, really wants to love this phone!!! I just wish it wasn’t so buggy.”

Despite these snags, many users felt there was still plenty to love about the new Pixels, with 3 user David claiming “I came to the Pixel 3 from iOS, and I’m not sure I could ever go back.” bassdude7 stated he was so glad “someone is still making high-end phones that you can use with one hand,” and technologiq said they “enjoyed my Pixel 3 XL far more than the Samsung S8+ and S7 Edge that I had before it.”

Bill said what he likes most about his 3 XL is “is that it has all native apps,” and kurohouou gushed “I love the vanilla Android OS and I know I’ll always have the latest OS/Security updates.” Rob was also enthusiastic: “I was wanting a pure Android experience and the Pixel 3 XL delivers it. It’s fast, clean, and for the most part gives me what I’m looking for.” Truyen summed up their experience with the 3 XL by saying “the Android OS experience on this phone is hard to beat.”

Facebook is using AR to bring a massive mural to life

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The 2,200 square foot piece is being created by local artists at SXSW 2019.

With all the controversy surrounding Facebook right now, it’s easy to forget that the company actually does plenty of good for people across the world. At SXSW 2019, Facebook’s Art House hopes to show that with a 2,200 square foot mural, which will be gifted to the community in Austin, Texas.

To make this happen, Facebook teamed up with non-profit organizations HOPE (Helping Other People Everywhere), Out Youth, Yes Mentoring and Todos Juntos to commission 15 local artists and groups to create a large-scale piece that will live in downtown Austin for the next six months. They will be joined by members of Facebook Artists in Residence (AIR), a program Facebook founded to provide resources to artists and help them show off their work at the company’s campuses.

The mural is still a work in progress, but by the time it’s done in a couple of days, people who come across it will have a chance to bring it to life using augmented reality. By scanning a QR code that’s part of the mural with the camera inside the Facebook app, you can experience various AR effects that the artists want you to see. And since the mural consists of multiple art pieces turned into one, the augmented reality effects will be different based on the area you’re scanning. Facebook worked on a similar project two years ago, which it called The World’s First Augmented Reality Art, but that was on a much smaller scale than this 2,200 square-foot mural.

Down the road, the company plans to expand its “AR/T” program to other places in the US and abroad, as it looks to work with more local artists and developers on ways to put a technology twist on their art. “We feel really strongly about the value of the analog, like the materials,” Jessica Shaefer, head of public programming and partnerships at Facebook’s Art Department, told Engadget. She said these type of projects are about finding ways to integrate “the spirit and value of the handmade” through the Facebook Camera and AR, a technology the company sees as a big part of its future.

Beyond that, Shaefer said, Facebook wants to keep finding ways to connect local artists with their communities, particularly those who are part of programs like its Artists in Residence program. “This is a manifestation of what Facebook does, bringing people together in real life,” she said. “Facebook got us here, and the ultimate goal is convening.”

Facebook desperately needs positive PR to improve its damaged reputation. Gifting the Austin community a mural won’t make people forget about its data privacy problems, but it’s a start.