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End-of-Year Tax Planning for Individuals
End-of-Year Tax Planning for Individuals 1600 941 smolinlupinco

As we approach the end of the year, it’s important to start thinking about ways to lower your tax bill for 2022. One of the first steps you can check off your list? Determine whether you’ll take the standard deduction or itemized deductions for the year. 

Because of the high standard deduction amounts for this year—$25,000 for joint filers, $12,950 for single filers and married couples filing separately, and $19,400 for heads of household—many taxpayers won’t itemize their deductions. Also, note that many itemized deductions have been reduced or eliminated under current law. 

Those filers that do itemize can deduct medical expenses exceeding: 

  • 7.5% of adjusted gross income (AGI)
  • State and local taxes up to $10,000
  • Charitable contributions
  • Mortgage interest on a restricted debt amount

Unless they exceed your standard deduction, however, these deductions won’t save you money on your taxes. 

Working around deduction restrictions

By applying a “bunching” strategy to either push or pull discretionary expenses and charitable contributions into a tax-advantageous year, some taxpayers may be able to work around deduction restrictions. For example: if you’ll have itemized deductions for this year but not next, consider making two years’ worth of charitable contributions at one time. 

Keep reading for more ideas on how to work around deduction restrictions. 

Postpone income until 2023

By postponing income until next year and accelerating deductions into this year, you can claim larger 2022 tax breaks that are phased out over various AGI levels. 

These include: 

  • Deductible IRA contributions
  • Child tax credits
  • Education tax credits
  • Student loan interest deductions

Postponing income may also appeal to taxpayers with changed financial circumstances who anticipate being in a lower tax bracket in 2023. That said, some individuals may find it beneficial to accelerate income into 2022, especially if they anticipate being in a higher tax bracket next year. 

Convert a traditional IRA into a Roth IRA

Eligible individuals may want to consider converting a traditional IRA into a Roth IRA by the end of the year—particularly those with IRA-invested stocks or mutual funds that have lost value. 

Note that this conversion will increase your income for the current year, potentially reducing tax breaks that would otherwise be subject to phaseout at higher AGI levels. 

Account for the NIIT

For high-income individuals, it’s important to consider the 3.8% net investment income tax (NIIT) on certain unearned income—3.8% of the lesser of net investment income (NII), or excess of modified AGI (MAGI) over a threshold amount.

That threshold amount is: 

  • $250,000 for joint filers or surviving spouses
  • $125,00 for married individuals filing separately
  • $200,000 for others

Your desired approach to minimize or eliminate that 3.8% surtax will depend on your estimated NII and MAGI for the year. Note that NII does not include IRA (or most retirement plan) distributions. 

Defer bonuses

If you anticipate a bonus coming your way this year, it may work in your favor to speak to your employer about deferring it until early next 2023. 

Make qualified charitable contributions from a traditional IRA

Those who will be 70.5 years of age or older by the end of 2022 should consider making this year’s charitable donations through qualified contributions from a traditional IRA. This is especially advantageous for those who don’t itemize deductions. 

As these distributions are made directly from your IRA, the contribution amount is not included in your gross income or deductible on your tax return. 

Account for annual gift tax exclusions

Gifts of up to $16,000 made to each recipient can be sheltered by the annual gift tax exclusion if they are given before the end of the year. 

Need more ideas? Speak with a tax professional

These are just a few of the ways that you can save taxes this year. Contact us to work with a seasoned tax professional who can help you determine the best next steps for your situation.

moving-out-of-state-its-time-to-review-your-estate-plan

Moving Out of State? It’s Time to Review Your Estate Plan
Moving Out of State? It’s Time to Review Your Estate Plan 1600 941 smolinlupinco

If you’re planning a move to a different state, you probably have a long list of items to address: securing vehicle registrations, finding new primary care providers, and updating financial records, just to name a few. 

As you work your way through your to-do list, don’t forget to review your will and other estate planning documents—because a different state likely means different laws. 

State laws for estate planning

While your will is generally valid in any state, it’s worth noting that laws governing wills and most other estate planning documents can vary from state to state. Depending on where you move, you may need to take some extra steps to ensure total enforcement, such as appointing a new executor. 

Not only do you need to navigate different state laws, but you also need to stay abreast of changes, because state laws for estate planning often undergo reforms. In order to achieve the desired results and avoid forfeiting certain tax benefits—or, in a worst-case scenario, having your documents deemed obsolete—it’s important to stay up-to-date on current policies. You’ll also want to consider the impact of the new state tax on your pensions and other retirement plans. 

Review before you move

To simplify the process in the long term, we recommend reviewing your estate plan before you make the move to a different state. That way, you can determine whether any changes need to be made and revisit your documents accordingly. 

Need help? Contact us to work with an experienced tax professional.

are-tax-free-bonds-really-free-of-taxes

Are Tax-Free Bonds Really Free of Taxes?
Are Tax-Free Bonds Really Free of Taxes? 1600 941 smolinlupinco

While investing in tax-free municipal bonds generally provides tax-free interest, you may still encounter tax consequences. Keep reading to learn more about the potential tax and other financial consequences of investing in tax-free bonds.

Purchasing tax-exempt bonds

There are no immediate tax consequences for purchasing a tax-exempt bond for its face amount, whether on the initial offering or in the market. If you buy a tax-exempt bond between interest payment dates, however, you will owe the seller any accrued interest since the most recent interest payment date. 

The amount of interest accrued is then treated as a capital investment and will be deducted as a return of capital from the following interest payment. 

Is interest included in income?

Generally speaking, interest received on a tax-free municipal bond will not be included in gross income—but it may be used for alternative minimum tax (AMT) purposes. Tax-free interest may be appealing, but it’s important to note that compared to an otherwise equal taxable investment, a municipal bond may pay a lower interest rate. What really matters is the after-tax yield. 

The after-tax yield for a tax-free bond is typically equivalent to the pre-tax yield. Alternatively, the after-tax yield for a taxable bond is determined by your interest amount after accounting for the increase in your tax liability due to annual interest payments—which is based on your effective tax bracket. 

Taxpayers in higher brackets tend to be more interested in tax-free bonds, since excluding interest from income offers a greater benefit. Taxpayers in lower brackets, however, may find that the tax benefit from excluding interest from income may not adequately make up for a lower interest rate.

While not taxable, municipal bond interest still shows on a tax return. This is because tax-exempt interest is taken into account when determining the amount of taxable Social Security benefits (and other tax breaks). 

Tax-exempt bond interest and the NIIT

Another tax advantage of tax-exempt bond interest is that it is exempt from the 3.8% net investment income tax (NIIT). 

This is imposed on the investment incomes of individuals whose adjusted gross income exceeds:

  • $250,000 for joint filers
  • $125,000 for married filing separate filers
  • $200,000 for other taxpayers 

What about retirement accounts?

Because the income in your traditional IRA or 401(k) isn’t currently taxed, it generally isn’t logical to hold municipal bonds in those accounts. Once you start taking distributions, however, the entire amount withdrawn may be taxed. 

For those who want to invest retirement funds in fixed-income obligations, it’s typically a good idea to invest in higher-yielding taxable securities. 

Consult with a tax professional

Before investing in tax-free municipal bonds, it’s important to fully understand the tax implications—and those mentioned above are only some of the tax consequences. If you need assistance understanding and applying tax rules to your situation, contact us to work with a knowledgeable tax advisor.

© 2022

work-opportunity-tax-credit-how-can-you-benefit-as-an-employer

Work Opportunity Tax Credit: How Can You Benefit as an Employer?
Work Opportunity Tax Credit: How Can You Benefit as an Employer? 1600 941 smolinlupinco

In today’s tough job market, the Work Opportunity Tax Credit (WOTC) may benefit employers—particularly those who hire workers from targeted groups who often face barriers to employment. 

In September, the IRS issued updated information on the WOTC pre-screening and certification process. To meet the pre-screening requirements for job applicants, both applicants and employers must complete a pre-screening notice (Form 8850, Pre-Screening Notice, and Certification Request for the Work Opportunity Credit) on or before the day a job offer is made. 

Which new hires qualify employers for the WOTC? 

To be eligible for the WOTC, an employer must pay qualified wages to members of targeted groups. 

These groups include:

  • Temporary Assistance for Needy Families (TANF) program recipients
  • Veterans
  • Ex-felons
  • Designated community residents
  • Vocational rehabilitation referrals
  • Summer youth employees
  • Families in the Supplemental Nutritional Assistance Program (SNAP)
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Long-term unemployed individuals

Note that the WOTC is generally limited to eligible employees who begin work prior to January 1, 2026. 

Additional WOTC rules and requirements

The WOTC is worth up to $2,400 for each eligible employee, with $4,800, $5,600, and $9,600 for certain veterans and $9,000 for long-term family assistance recipients. 

Additional requirements to qualify for the tax credit include: 

  • Each employee must have completed at least 120 hours of service for the employer
  • Employees must not be related or have previously worked for the same employer
  • Summer youth employees must be paid for services performed in any 90-day period between May 1 and September 15

Work with our tax professionals

There are some cases in which an employer may choose to not claim the WOTC—and some circumstances where the rules may not allow its allocation. Most employers hiring from targeted groups, however, can benefit from the tax credit. 


Contact us to work with an experienced tax advisor and determine the best next steps for your situation.

why-auditors-prefer-to-assess-fraud-risks-face-to-face

Why Auditors Prefer to Assess Fraud Risks Face-to-Face
Why Auditors Prefer to Assess Fraud Risks Face-to-Face 1600 941 smolinlupinco

Due to AICPA auditing standards—namely the Clarified Statement on Auditing Standards (AU-C) Section 240, Consideration of Fraud in a Financial Statement Audit—financial statement auditors are required to evaluate and assess fraud-related material misstatement risks and determine appropriate responses. 

Keep reading to learn why it’s important to conduct in-person interviews when evaluating fraud-related misstatement risks. 

What to expect in an audit inquiry

A crucial aspect of the audit process is asking fraud-related questions. Specific areas of inquiry include: 

  • Whether management is aware of any fraud—actual, suspected, or alleged 
  • Management’s identification, assessment, and response tactics regarding fraud risks 
  • The results of any fraud risk assessments 
  • Any previously identified fraud risks
  • Transaction, account balance, or disclosure classes likely to contain a fraud risk
  • Any communications regarding fraud risk identification and response processes, including sharing views on appropriate and ethical business practices and behavior with employees  

Each audit requires a separate interview, as fraud risks can vary by accounting period. 

The importance of nonverbal communication

While the pandemic resulted in a number of audit procedures being done remotely, auditors are returning to face-to-face fraud risk interviews for more effective evaluations. 

Psychologists estimate that 55% of communication is body language—meaning that in an in-person interview, auditors can pick up on nonverbal cues they may have otherwise missed in a virtual setting. In addition to the words being spoken, tone and inflection, and the speed of response, auditors can also keep an eye on the interviewee’s physical comportment. 

The auditor will look for signs of stress as the interviewee is answering questions—for example, long pauses before responding, starting over mid-explanation, sweating profusely, or fidgeting. 

An additional benefit of face-to-face interviews is that they allow for immediate follow-up. While in-person meetings are ideal, they aren’t always a viable option. In these cases, video or phone calls are the next best thing.

Work with us

External audits are an important tool for identifying fraud risks. While they’re not guaranteed to detect all unethical behavior, they often deliver results. According to Occupational Fraud 2022, companies who had financial statements audited were able to detect fraud 33% faster—and lost one-third less from fraud—than those who hadn’t.

Our team can help you with the audit process by providing services tailored to your unique needs. By anticipating the type of information we’ll ask for, from questions to source documents, you can help streamline our fraud risk assessment process. When you provide prompt responses, we can ensure that your audit stays right on schedule. Contact us to learn how we can help. 

does-your-income-warrant-extra-taxes

Does Your Income Warrant Extra Taxes?
Does Your Income Warrant Extra Taxes? 1600 941 smolinlupinco

If you’re a high-income taxpayer, you may need to pay two extra taxes: a 3.8% net investment income tax (NIIT), and an additional 0.9% Medicare tax on wage and self-employment income. 

Keep reading to learn more about these taxes and what they might mean for you. 

3.8% NIIT

In addition to income taxes, the NIIT applies to your net investment income. This tax affects taxpayers with adjusted gross income (AGI) exceeding the following: 

  • $250,000 for joint filers
  • $200,000 for single taxpayers and heads of household
  • $125,000 for married individuals filing separately 

If your AGI is above this threshold, the NIIT applies to the lesser of: 

  • Your net investment income for the year, or
  • The excess of your AGI over the threshold amount for the tax year 

What incomes are subject to the NIIT? 

Net investment incomes subject to the NIIT include interest, dividends, annuities, royalties, rents, property sale net gains, and passive business income. This does not include wage income and active trade or business income, or tax-exempt income tax such as bond interest. 

After considering your income needs and investments, you may want to consider switching some of those taxable investments over to tax-exempt bonds. 

How does the NIIT apply to home sales? 

If you sell your primary residence, you may be able to exclude up to $250,000—or $500,000 for joint filers—in your income tax, which will not be subject to the NIIT. If your gain exceeds that amount, however, it will be subject to tax. This also applies to gain from selling a vacation home or other secondary residence. 

Note that distributions from retirement plans such as pension plans and IRAs are not subject to the NIIT. However, if these distributions push your AGI above the threshold, they can cause other income types to be taxed. 

Additional 0.9% Medicare tax

In addition to the 1.45% Medicare tax that applies to all wage earners, some high wage earners are subject to an additional 0.9% Medicare tax. This applies to wages that exceed: 

  • $250,000 for joint filers
  • $125,000 for married individuals filing separately
  • $200,000 for all others 

Note that this tax only applies to employees—not employers. 

The employer must begin withholding the additional 0.9% Medicare tax once their employee’s wages for the year reach $200,000. However, if the employee (or the employee’s spouse) has additional wage income from another job, this may prove insufficient. Instead, the employee may file a new W-4 with the employer to request extra income tax withholding. 

How does the extra Medicare tax affect self-employment income? 

In addition to the regular 2.9% self-employment Medicare tax, the additional 0.9% Medicare tax applies to self-employment income for the tax year that exceeds the same amounts as wage earners—note, however, that the $250,000, $125,000, and $200,000 thresholds are modified according to the self-employed taxpayer’s wage income. 

Work with our tax advisors

Income taxes can be complicated, especially when they vary from year to year. Is your income high enough that you owe these extra taxes? Contact us to discuss your taxes and their implications with a qualified tax professional.

© 2022

end-of-year-tax-planning-ideas-for-small-business-owners

End-of-Year Tax Planning Ideas for Small Business Owners
End-of-Year Tax Planning Ideas for Small Business Owners 1600 941 smolinlupinco

As we approach the last few months of the calendar year, it’s time to start thinking about ways to reduce your small business taxes. 

Deferring income and accelerating deductions to minimize taxes—the standard year-end approach—will likely give your business the best results. This also applies to bunching deductible expenses into this year and next to minimize their tax value. 

That said, those expecting to be in a higher tax bracket may get better results with an opposite strategy—for example, pulling income into the current year to be taxed at lower rates, while deferring deductible expenses until next year to offset higher-taxed income. 

Some additional ideas include: 

QBI deduction

Non-corporation taxpayers may be entitled to a qualified business income (QBI) deduction of up to 20%. If taxable income is higher than $340,100 for married couples filing jointly, or half that amount for others, the deduction may be limited (and phased in) based on: 

  • Whether the taxpayer is involved in a service-type business such as law, health, or consulting
  • The amount of W-2 wages paid by the business 
  • The unadjusted basis of qualified property held by the business, such as machinery and equipment

By deferring income, accelerating deductions to keep income under the thresholds, or increasing W-2 wages before the end of the year, taxpayers may be abe to to keep some or all of the QBI deduction. 

Cash vs. accrual accounting

Taxpayers must satisfy a gross receipts test in order to qualify as a small business. For 2022, this means that average annual gross receipts can’t exceed $27 million during a three-year testing period—ot that long ago, that amount was only $5 million. 

Compared to previous years, more small businesses are now able to use the cash accounting method for federal tax purposes, rather than accrual accounting. Cash method taxpayers may find that by holding off billings until next year, paying bills early, or making select prepayments, it is easier to defer income. 

Section 179 deduction

As a small business taxpayer, you may want to consider making expenditures that qualify for the Section 179 expensing option. Expensing is typically available for depreciable property—other than buildings—including equipment, off-the-shelf computer software, interior building improvements, HVAC, and security systems. 

For 2022, the expensing limit is $1.08 million with an investment ceiling of $2.7 million. This means that many small and medium-sized businesses will be able to deduct most or all of their expenditures for machinery and equipment—and that deduction isn’t prorated for the amount of time an asset is in service. If you place eligible property in service by the end of 2022, you can claim a full deduction for the year. 

Bonus depreciation

If qualified improvement property, machinery, and equipment is purchased and placed in service this year, businesses can generally claim a 100% bonus first-year depreciation deduction. 

As with the Section 179 deduction, this full write-off is an option regardless of how long those qualifying assets are in service in 2022. 

Develop a year-end tax plan with us

Tax rules can be complex, so it’s best to consult with a professional before acting. Contact us to work with an experienced tax professional to develop the best tax-saving strategies for your business.

© 2022

lowering-risks-through-stress-testing

Lowering Risks Through Stress Testing: A Smart Consideration
Lowering Risks Through Stress Testing: A Smart Consideration 1600 941 smolinlupinco

The economic rollercoaster that ensued after the pandemic began in early 2020 put many businesses through the wringer. While companies seemed financially stable on the surface, their financial statements revealed significant unpreparedness for the challenges they faced. 

Stress testing your organization can provide a comprehensive look at how well your financial position can withstand a crisis. This is an invaluable insight to avoiding difficult situations in the future. And if the last two years have taught us one thing, it’s to expect the unexpected.

Stress testing focuses on assessing your business’s ability to navigate an economic crisis, and it typically includes these three steps: 

1. Identify What Risks Your Company Faces

In a stress test to evaluate threats your organization might face in the future, the following five risks are examined:

  • Operational
  • Financial
  • Compliance
  • Reputational
  • Strategic

Operational risks that must be stress tested include any liabilities that deal with the inner workings of your company such as how you would deal with natural disaster impacts. It’s important to assess how your company manages its capital to evaluate both financial and fraud risk. Compliance risks are especially worrisome, since they involve issues that could bring regulatory agencies to your doorstep. Strategic risks cover your company’s ability to adjust its market focus to react to changes in consumer markets.  

2. Risk Management Planning

Knowing your business risks is the first step. The next step is meeting with your management team to educate yourselves about these threats, the financial implications, and how well your business can absorb their impact. Be sure to get your team’s perspective on the liabilities you’ve identified, including any others they are concerned about, along with any possible financial consequences.

From that point forward, you and your team can collaborate and develop an effective risk mitigation plan. For example, if your facility is located in a part of California frequently impacted by forest fires, having a disaster recovery plan is essential to making sure that your business can survive such an event. Or, you might consider having a succession strategy in place in case a key stakeholder in your firm becomes disabled or passes away suddenly. This could include taking out additional life insurance and training team members on the duties of other colleagues.

3. Evaluate Your Plan Regularly

Risk management is not a one-and-done process. It involves continuous adaptation to new risks that could emerge and updating your plan when old threats become a non-issue. Try to conduct reviews annually with your team and consider what updates are necessary. You should request feedback on recently implemented risk management plans and any potential changes that are needed based on that review. 

We’re Here to Help

Stress tests help recognize the blind spots that hide threats to your company’s future financial performance. With the marketplace becoming more volatile, we cannot stress enough the importance of this exercise. Indeed, there is always risk in running a business, however, those that take extra steps to prepare often handle the unexpected better than others. Reach out to us if you would like additional assistance in conducting a stress test on your company’s risk preparedness to recognize and protect against any discovered vulnerabilities. 

© 2022

using-a-split-annuity-as-a-balanced-approach-to-retirement-and-estate-planning

Using a Split Annuity as a Balanced Approach to Retirement and Estate Planning
Using a Split Annuity as a Balanced Approach to Retirement and Estate Planning 1600 941 smolinlupinco

Maintaining your standard of living while trying to preserve your wealth for loved ones is a tightrope walk, something you’re probably aware of if you’re close to retiring or already enjoying this milestone in life. Finding a balance between these two goals is especially challenging since your retirement years could span decades. A way to maintain your income stream and hold onto financial assets is by investing in a split annuity.  

The Basics of an Annuity

In a nutshell, an annuity is an investment contract with tax advantages that you hold with an insurer or financial services company. You have the option to pay your premiums annually or by lump sum, and your service will pay over a set term or a lifetime in return. 

For purposes of the split annuity strategy covered below, we’ll highlight “fixed” annuities. These typically provide participants with a guaranteed minimum return rate. There are other annuities options, including “variable” and “equity-indexed,” which are more volatile but have significant upside potential compared to fixed products. 

Annuities can fall into two categories: immediate or deferred. Immediate annuities give you payouts immediately, whereas deferred options begin paying at a predetermined future date. 

Another consideration for annuity earnings is that they are tax-deferred. This means they will increase in value, tax-free until paid or withdrawn. Every payment will have a portion dedicated to standard income tax rates, and the remainder is considered a tax-free return of principal (premiums). 

Deferred annuities tend to grow faster than comparable accounts because of their ability to accumulate earnings on a tax-deferred basis. This perk offsets the modest interest rates they usually offer.

Another feature of annuities that make them attractive is the flexibility of reallocating or withdrawing funds according to your circumstances. Keep in mind that you may have to pay early withdrawal or surrender charges depending on how much you take and at what point this occurs in the annuity’s lifecycle.

Understanding the Split Annuity Strategy

Split annuities are not a single product, but rather two that are often funded by a single investment source. Most split strategies will involve using some of your funds to purchase an immediate annuity, making fixed payments over a specific term, such as 15 years. The funds you have left over then get invested in a deferred annuity that won’t pay out until the initial period has ended. 

The outcome is that once your immediate annuity term has ended, you will have accumulated enough earnings in your deferred annuity to equal what you originally invested. Essentially, if set up correctly, your split annuity will create a fixed income stream for several years that preserves your principal. 

Once the term has ended, reassess what options you have available. For instance, you might decide to have your deferred annuity start sending you payments, reinvest in another split annuity, withdraw a portion of the entire cash value it holds, or consider another investment option altogether. 

If you’d like to learn more about split annuities, reach out to us. We are eager to help you determine the best strategy for your retirement situation. 

© 2022

4 Essential Estate Planning Documents College-Aged Children Need
4 Essential Estate Planning Documents College-Aged Children Need 1600 941 smolinlupinco

If your child is off to college this year, have you already set up a basic estate plan for them? If not, you’re part of the majority that answers “no” to this question. Fortunately, with summer break already here, you can take this time to sit down with an estate planning attorney to create a plan.

With your child free from school obligations, you can bring them along to learn about the importance of this process and sign off on the necessary documentation before returning to campus this fall. 

Four essential estate planning documents your child should have before next semester

If your child is college-bound, the following four estate planning documents are crucial for them to have:

  1. Last Will and Testament: Even though your son or daughter is only in their late teens or early twenties, having a will drawn up is important. This document handles how their assets should be distributed and can take care of other situations, like guardianship of your grandchild. 
  2. Financial Power of Attorney: This is another essential document that legally empowers you or your spouse to handle your child’s finances on their behalf. You can create a form with “durable” powers should your child become incapacitated. 
  3. Health Care Power of Attorney: If your child cannot make health care decisions on their own due to incapacitation, a health care power of attorney allows your child to appoint someone to do so on their behalf. 
  4. HIPAA Authorization: The Health Insurance Portability and Accountability Act (HIPAA) authorization is essential in making crucial healthcare decisions for your child. This power of attorney option authorizes physicians and other healthcare providers to share information regarding your child’s medical conditions and diagnoses. Without this document, informed decisions about your son or daughter’s condition are difficult.

Contact us right away if you and your child would like to create an estate plan that covers the essentials. We welcome the opportunity to help your family gain peace of mind knowing that your child’s best interests are protected.

© 2022

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