Do You Take A Lump Sum or Annuity Payments For Your Powerball Winnings?

Imagine for a moment that you won the Powerball! Congratulations! When you are about to claim your winnings, CA lottery asked: Do you want a lump sum or an installment payment over 30 years? What do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

With a lump-sum payment, you will need to pay the entire tax right away. With an annuity or installment payment, you will be taxed as you receive your payments every year. Here are some factors to consider in choosing your options:

Lump-sum

1. If you are good with money management and have smart money habits.
2. If you want to have control of the entire winnings and wants flexibility.
3. If you think tax rate is going up.
4. If you can invest the money outside and earn a modest 3-4% return, then you will be way ahead investing a lump-sum payment compared to an annuity.

Annuity or installment payments

1. If you are a big-time spender and you are trying to protect yourself from YOU. Because the annuity is like a yearly guaranteed payments for the next 30 years.
2. If you think tax rate is going down.
3. You are not getting taxed on your investment income, because Powerball is investing your money.
4. If you die prematurely, the future unpaid payments become part of your estate. You can pay the estate tax by buying a life insurance policy to cover the tax bill or Powerball can convert the annuity into a cash lump sum.

So what’s the LowerMyTaxNow strategy? Looking at the factors, I would consider a hybrid approach. I will take the lump sum payment invest it in stocks, bonds, real estate, and in my own annuity or guaranteed payments. That way, I have the best of both worlds!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Should I Include My Kid’s Name On My Home

I got this tax question from a client recently: “Should I include my kid’s’s name on my home?”

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

You see, you might think it’s a good idea to include your kid’s name on the title of your home in case something happens to you. However, that might be a bad idea. Here are five reasons why:

No gain exemption
You are allowed to exclude up to $250,000 of gain on the sale of your home ($500,000 if you are married). However, the exclusion is only available if you owned and used it for at least two out of the last five years. So if your kid does not live in your home for that time period, the portion of his/her gain will be fully taxable.

Home equity risk
If your kid got title to your home as a full or partial owner, a creditor may file a lien on the property for any of your kid’s debts. Worse, your home could be lost if your kid is involve in an accident or a lawsuit.

No control
If you transfer the full title to your kid, your kid will now have 100% control re: your home. If your kid decides to sell the property or take out a loan against your home, you cannot do anything about it.

Medicaid issues
Under some scenarios, if you gift your home to your kid, it could be considered a gift for Medicaid purposes. That means, if you kid subsequently sells your home, you might not qualify for Medicaid benefits in the event of a major long-term health problems.

Gift tax return requirement
If your kid received more than $14,000 of equity in your home as a gift, you need to file a gift tax return. However, regarding the gift tax payable, you can use up your $5.5 million lifetime exemption in order not to pay any gift taxes.

So the question right now is: “What is the LowerMyTaxNow strategy?” If the purpose of the title transfer is for your kid to easily get the home at your death or so your kid can manage your affairs, then I would recommend setting up a living trust, along with powers of attorney, so your kid can manage your financial affairs.

If the reason is to help your kid buy his or her first home, a better way is to lend your kid the money with an IRS-approved interest rate (low and reasonable), and set up a program to give annual gifts in the form of principal forgiveness.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Deduct An Uncollectible Loan

Have you ever loaned money to a family member or a friend that did not pay you back? Do you want to know how you can deduct it for tax purposes?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are four things you need to do in order to deduct the uncollectible loan:

Put it in writing
Treat the loan as if you are lending it to a third-party. For IRS purposes, a valid loan agreement is important, otherwise, the IRS could argue that there was no loan at all — that the money you gave was really a gift.

Set an IRS-approved interest rate
If you loaned money to a family member and charge no interest, you might have some unfavorable tax issues. The best way is to set a rate that is based on the IRS-approved applicable federal rate (AFR). The IRS rates are published in the Internal Revenue Bulletins and can be found at the IRS website www.irs.gov.

Keep all correspondence
Make sure you keep all the emails and letters re: the collection follow-up so you can show that you are putting in the effort to get your money back. You would need this as a support when you file your return.

Issue a 1099-COD (Cancellation of Debt)
If you want a bullet-proof tax support, then issue a 1099-COD Cancellation of debt. That way you can deduct the money loaned as uncollectible debt and your borrower needs to report it as income. It will be considered a short-term capital loss for tax purposes.

So those are the 4 things you need to do: put it in writing, set an IRS-approved interest rate keep all correspondence and issue a 1099-COD (Cancellation of Debt) so you can deduct the uncollectible loan.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Top 3 Reasons Why Trump Won’t Release His Returns

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Have you ever wondered why President Trump does not want to release his tax returns. He claims that you, “don’t care at all” even though he is the first president in more than 40 years not to release his returns. So you might be thinking, what gives? That is a great question! And on this blog, I will discuss the top three reasons why he won’t release his returns. Ready?

1. Paid “zero” taxes

He reported a billion dollar loss in the 1990s that could have offset all his income for up to 18 years. Being a real estate investor, it gave him the opportunity to apply powerful tax breaks such as depreciation and like-kind exchanges so he can delay, minimize or zero out his taxes. He proudly declared that not paying taxes makes him smart.

2. Potential conflict of interest

With more than 500 businesses according to his financial disclosure form, it will be hard to zero in if there is a conflict of interest in regards to his own financial interest versus the nation’s’ interest without reviewing his tax returns and the supporting documentations. Trump’s tax returns might reveal how much he owes to foreign investors like Russia — and how much his connection undermines American national interests.

3. Proposed tax plan benefit

In reviewing his proposed tax plan, you would start to wonder, how much will he personally benefit? There are three parts of his tax plan that would be a financial windfall for Trump. Here goes:

a. Eliminate alternative minimum tax (AMT) – this prevents rich people from taking advantage of excessive tax breaks. Without the AMT, Trump would have paid just a 3% tax rate in 2005, instead he paid $31 million in AMT taxes.
b. Business tax rate will drop from 35% to 15%. This is called the “Trump Loophole” since he will save millions of dollars annually from his 500+ business entities.
c. Eliminate estate tax permanently – that means his family and heirs will be billion dollars richer if the estate tax is eliminated.

There you have it. Those are the top three reasons why I think President Trump would not release his tax returns.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Know It’s Really The IRS Knocking On Your Door

Have you ever experienced an IRS personnel knocking on your door? That would be one of the most stressful events that you will ever experience. But before you freak out, you need to learn these few things in order not to get scammed.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
For the most part, the IRS will usually contact you through mail delivered by the United States Postal Service.
However, there are special situations in which the IRS will come to a home or business. Such as:
1. Overdue tax bill
2. Get a late tax return
3. Late payroll tax payment
4. Tour a business due to an audit – they will usually call taxpayers to set-up appointments but not without notifying you first.
5. Criminal investigations – they will visit you unannounced while conducting an investigation.

If an IRS rep visits you, he or she will always provide two forms of official credentials:
1. Pocket commission
2. HSPD-12 card

HSPD-12 is a government-wide standard for secure and reliable forms of identification for Federal employees and contractors. You have the right to see these credentials.

When you experience these situations, please keep in mind that the IRS does NOT:

1. Demand immediate payment. They will first mail you a bill that is payable only to US Treasury.
2. Demand that you pay taxes without the opportunity to question or appeal the tax owed. You should also be advised of your rights as a taxpayer.
3. Threaten to bring in law-enforcements to have you arrested for not paying.
4. Revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

There you have it. So next time, when IRS knocks on your door, you would be able to avoid getting scammed.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

The Winners & Losers Of The New Tax Plan

Did you see the news re: the proposed tax plan last Wednesday?

Well, the more important questions are:
What does this new tax plan really mean to you?
And how is this going to affect you?

With proposals like this, they have a lot of work to do, before it becomes final. We don’t know if this is going to pass or if it passes, when it will be considered a law. So with that in mind, I would just tell you the winners and losers with this proposed tax plan. Here goes:

Winners
• Businesses with high tax rates – from 35% corporate income tax to 15%. That’s a tax savings of 20%. So for example you made $1 million in your business, your savings will be $200K.

• High-income earners – income around $470K then your tax rate will drop from 39.6% to 35%. Again, the difference is only 5%. However, if you made $1 million, the tax savings is $50K. But what if you made $1 million, then your savings will be $50K. That’s a huge windfall for the high-income earners.

• Multimillionaires who want “0” estate tax – this would take care of your taxes, if your estate is more than $5.5 million or $11 million for couples. Did you know that estate tax rate can be as high as 40%? So if your remaining estate is $1 million after the exemption, then you still need to pay $400K in death taxes. This is a huge windfall for the rich!

• People who are subject to AMT – AMT mean alternative minimum tax. Now, raise your hand if you think I just said a “greek word”. AMT was designed to keep the rich taxpayers from using loopholes to avoid paying taxes. There are some tax deductions that are added back for AMT purposes, examples are state tax withholding and r/e property taxes. So we can compare between the regular vs AMT tax. And we need to use the higher tax.

• Donald Trump – surprise, surprise! All the items that I just mentioned just now will have a huge impact on Donald Trump’s taxes. He got 564 business entities according to his financial disclosure form and he can take advantage of the 15% tax rate. Do you know why he hates AMT so much? Because on his 2005 leaked return, he paid an extra $31 million in AMT taxes.

Losers
• Upper-middle income people with high state tax rate – because the state tax that you are paying will not be tax deductible under the new proposed tax plan.

• Housing industry – by doubling the standard deduction and removing some of the itemized deductions, you might not be encouraged to buy homes.

• Non-profit and charitable organizations – similar with the housing industry, by doubling the standard deduction, there might be a fewer financial reasons to donate to charity.

• Middle-class taxpayers – the first 70% of the low-income population will not be paying nor will be filing taxes with this new plan. While the top 1% will have a huge windfall. And the middle-class will be squeezed in between and will be the one who will be paying the tax.

Now what? Are you confused yet? Here’s my advice to you:

• Turn your hobby into a business and
• Structure yourself as “self-employed”.

Why? Because self-employed will be taxed at 15% while an employee will be taxed at a higher tax rate of 35%.

Again, let me repeat, this is a tax proposal and we have no idea what will happen. But there’s one thing I know though, Trump’s proposed tax plan isn’t going to be easy. In the words of film director Martin Scorsese, there’s no such thing as simple. Simple is hard.

How Will The New Tax Plan Affect You?

Did you see the news re: the proposed tax plan? You might be thinking, what does this really mean? And how is this going to affect me?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

The White House presented the new tax plan last Wednesday. And compared to what I’ve discussed last November, 2016, there were not a lot of surprises. Now, the thing with a proposal is, they have a lot of work to do, before it becomes final. Because as of right now, we don’t know if this is going to pass or if it passes when it will be a law. So with that in mind, I would not tell you about the highlights but would tell you instead the winners and losers with the proposed tax plan. Here goes:

Winners
• Businesses with high tax rates – from 35% corporate income tax to 15%
• High-income earners – income around $470K then your tax rate will drop from 39.6% to 35%
• People with creative CPAs – this might open up a tax loophole since taxpayers might want to be structured as an S-corporation or LLC instead of employees.
• Multimillionaires who want “0” estate tax – this would take care of your taxes, if your estate is more than $5.5 million or $11 million for couples.
• People who are subject to AMT – the one who will benefit the most are high-income earners that have deductions subject to AMT adjustments (meaning you need to add back your deductions because you are not getting any tax benefits for AMT purposes).
• Donald Trump – surprise, surprise! All the items that I just mentioned just now will have a huge impact on Donald Trump’s taxes.

Losers

• Upper-middle-income people with high state tax rate – because the state tax that you are paying will not be tax deductible.
• Non-profit and charitable organizations – with the new proposal, the charitable deductions will be limited.
• Taxpayers – national revenue would decrease by $6.2 trillion over a decade. That means a large increase in the national debt or huge decrease in federal spending.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Last Chance To Claim Your 2013 Refund

Have you filed your 2013 tax returns yet? If you have not filed yet – STOP, and make sure you listen to this so you don’t lose your refund.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

According to the IRS, if you are one of the nearly one million taxpayers who failed to file a return for 2013, then you are in danger of losing your refund. Tax law provides a three-year period limit beginning from the tax due date to claim a refund when no return is filed. That means, since your 2013 tax return due date was April 15, 2014, you are given up to three years from the due date, to file on or before the April tax deadline – April 18 of this year – or the chance to claim the refund is gone for good.
Now here’s the twist, for a refund – there’s a three-year limit, but if you owe money – there’s no time limit until you file your taxes. So what’s the LowerMyTaxNow tax strategy? File your 2013 tax returns before April 18.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Avoid A Tax Scam

Do you know someone who got victimized by a tax scam? I got to tell you, for the victim, it’s pretty scary! Since by the time you figured out that something is not right, the IRS imposter already cleaned your wallet! So how can you avoid it?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Fake IRS phone call is one of the most common scams. You need to be careful of phone calls or voicemail messages from someone who claims to be from the IRS. Often these criminals will say that you owe money and they will demand immediate payment. Other times, they will lie to you and say you have a refund. They will ask for your bank information over the phone.

So in order for you not to fall for these scams, here are some tips that you can use:

IRS will NOT:
• Call you demanding that you pay them right now. IRS usually correspond via mail.
• Demand payment without giving you the chance to ask question or appeal the amount you owed.
• Ask for your debit or credit card numbers over the phone.
• Require you to pay your taxes with a prepaid debit card.
• Threaten to contact your local police to arrest you for non-payment of taxes.
• Threaten you with lawsuit.

If you don’t owe or think you don’t owe any tax, you should:
• Contact the Treasury Inspector General for Tax Administration or TIGTA. You can go to www.treasury.gov/tigta and use the TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
• Report what happened to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your report.

To summarize, tax scams usually reach it’s peak during tax season. So, in order for you not to fall for these scams, please review and use the tips that I’ve discussed so you can avoid being a victim.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Did Your Name Change Last Year?

Did you get married, divorced or adopted a child last year? If yes, please make sure you do this important step, before filing your taxes.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

If you or your dependent had a name change last year, please notify the Social Security Administration (SSA) before you file your taxes with the IRS. If the name on your tax return does not match the SSA records, the IRS is likely to notify you about the mismatch. How does that affect you? Well, your expected refund could be delayed. So if you had a name change due to marriage, divorce, or child adoption, please file Form SS-5 with the SSA to update your information.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.