THE TAX IMPLICATIONS OF YOUR SIDE HUSTLE Many taxpayers have side gigs that have a significant impact on their taxable income. From Uber drivers, to carpenter contractors, to horse racing, to manufacturer reps, to part-time real estate agents, to organic beef farms… you name it, and we’ve probably seen it. And from a tax-compliance standpoint, there is an important distinction between hobbies and businesses that are operated with the intention of earning a profit. Understanding this distinction could save you thousands of dollars come April 15th. Hobby Loss Rules: If an activity is not intended to earn a profit, losses from that activity may not be used to offset other income. The ability to deduct losses on your tax return will ultimately be determined by the Internal Revenue Service. If the IRS determines that the taxpayer did not enter into the business activity with a profit motive or that the taxpayer continued losing money in an activity with no intention of ultimately making a profit, the taxpayer will lose the ability to deduct those losses. These rules apply to individuals, partnerships, estates, trusts, and S corporations. Hobby or For-Profit Business? When determining the real intent of the taxpayer’s activity, the Internal Revenue Services will look at a number of factors in assessing whether or not the activity is motivated by profit: whether the activity is conducted in a professional, businesslike manner the qualifications of the taxpayer or the taxpayer’s advisors the amount of time and effort spent by the taxpayer or the competency of the taxpayer’s agents and employees the potential for appreciation of the venture’s assets the taxpayer’s history in operating other businesses the taxpayer’s success or failure with the particular activity the ratio of profits to losses and how that compares to the taxpayer’s investment in the enterprise the financial status of the taxpayer, the economic benefit of the losses, and the taxpayer’s primary source of income the personal pleasure or recreation the taxpayer derives from the activity While the taxpayer must engage in the activity with a genuine profit motive, a “reasonable” expectation of profit is not required if the probability of loss is much higher than the probability of gain. The IRS will likely view all the facts and circumstances to make their decision, but more weight is given to objective facts than taxpayer statements. One simple way to get off the radar screen of the IRS is to show a profit. If the gross income from the activity exceeds deductions for three out of 5 years, the activity is presumed to be conducted for profit. Read more articles Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

Spend some time reviewing your retirement accounts before 2019. Save as PDF Read more articles Share 1 2 HOW TO SAVE YEAR-END REVIEW OF YOUR RETIREMENT ACCOUNTS As we head into the final few months of 2019 you should take some time to review the contribution limits of your retirement accounts and determine if you can make additional contributions before the deadline for 2019. You should also take this opportunity to review your records to make sure you avoid the number one retirement account mistake. Contribution Limits For a 401(k), 403(b) or 457 your maximum contribution for 2019 is $19,000. If you are 50 or older before the end of 2019 you can contribute an additional $6,000 for a total of $25,000 For a traditional or Roth IRA plan your maximum contribution for 2019 is $6,000. If you are 50 or older before the end of 2019 you can contribute an additional $1,000 for a total of $7,000. Remember that this limit applies to each spouse separately. A married couple both over the age of 50 can contribute a total of $14,000 to traditional or Roth IRAs for 2019. For a Simple IRA your maximum contribution for 2019 is $13,000. If you are 50 or older before the end of 2019 you can contribute an additional $3,000 for a total of $16,000. If you are not able to max out your contributions before the end of the year you can continue to contribute until April 15th, or October 15th if you file for an extension. The Number One Retirement Account Mistake One of the biggest mistakes you can make with your IRA or other retirement account is to not have accurate beneficiary forms on record for your account. The beneficiary form identifies who you want to receive the funds in your account after your death. Missing or outdated beneficiary forms can create legal or tax nightmares for your family. These beneficiary forms take precedence over any other legal documents such as a will or divorce agreement, which can result in your funds going to the wrong person, even when it is clear who you intended to receive the funds. In a recent U.S. Supreme Court case, William Kennedy failed to update the beneficiary form for his 401(k) following his divorce. In Kennedy’s divorce agreement with his wife, she agreed to waive her rights to his 401(k), however he never updated the beneficiary form with the account holder. This led to an eight-year legal battle for his daughter, trying to recover the $402,000 he intended her to receive. His daughter ultimately lost when the Supreme Court unanimously decided that the outdated beneficiary form took precedence over the divorce agreement and Kennedy’s will. Had Kennedy simply taken the time to update the beneficiary forms for his 401(k), he would have saved his daughter years of hassle and guaranteed she receive the funds he intended for her. Summary The lesson here is very clear: Whenever there is a major change in your life, make sure that you update the beneficiary forms for all your financial accounts. Major changes would include getting married, having a child, getting divorced or the death of a family member. If you have not reviewed these forms since the last time one of these events took place you should take some time before the end of the year to do so. Read more articles Share Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

Making a difference with meaningful and actionable financial solutions that positively impact our clients' lives. Get Started SMALL BUSINESS OWNERS If you are a small-business owner, there is a high probability that you are paying more tax than what is required. The key to lowering your tax bill is not in finding a competent CPA to file your tax returns, it's in finding an expert with a disciplined process to help you plan your future. LEARN MORE Financial Planning If you are a small-business owner, there is a high probability that you are paying more tax than what is required. The key to lowering your tax bill is not in finding a competent CPA to file your tax returns, it's in finding an expert with a disciplined process to help you plan your future. LEARN MORE Tax Expertise Click here to access the tools and articles designed to help you manage your taxes and your finances while giving you confidence to take the steps needed to prepare for a future filled with peace, hope, and financial security LEARN MORE CONTACT US Submit

JANUARY 2017 MONOTELO QUARTERLY GREAT NEWS FOR SMALL BUSINESS owners who have struggled to provide health care coverage to their employees! NEW HEALTH PLANS FOR SMALL BUSINESSES small businesses chose not to provide health benefits to their employees. Fortunately, there is now a solution for small businesses. Starting January 1, 2017 small businesses with fewer than 50 employees can set up a qualified small employer health reimbursement arrangement and start helping their employees with their health insurance. This new plan allows you to deduct the cost of the insurance as an expense, and allows you to provide this benefit to your employees, tax free. PUTTING THE PLAN IN PLACE The steps below outline the necessary process you need to follow to cover your employee's health insurance and other medical costs: You need to provide written notice to your employees of the plan before March 12, 2017 (or 90 days before the beginning of the year in 2018 and beyond). This notice should include: The Amount of the employee's permitted benefit for the year. A notice that the employee must notify any health insurance exchange to which the employee applies of the benefit received. A warning that if the employee is not covered under minimum essential coverage for any month, any reimbursements they receive will be included in gross income and subject to tax. Have your employees submit proof of coverage as a request for reimbursement. Once the employees has submitted proof of coverage, reimburse the expense either as a separate payment or as an additional amount included in payroll but not subject taxes. Include the tax free benefit on the employee's W-2 for the year as a separate item from gross wages. The IRS is expected to make a provision for this when it revises form W-2 for 2017. Using this process, you can reimburse medical costs up to $4,950 for an individual, or $10,000 for a family. There have been a lot of changes to healthcare in the last several years, and these changes can make it difficult to figure out the best way to handle your own healthcare as well as the healthcare of your employees. With the implementation of the Affordable Care Act, many small businesses found that providing health insurance to their employees was either too complicated, or too expensive. As a result, many October 2016 Save as PDF August 2017

Second Act Planning Retirement Readiness Course Join us for one of the following weeks where we review the steps to prepare and thrive in your "Second Act," where your retirement can be so much more than a life of leisure. Week 1: Highlight Your Passions, Skills, and Gifts. Famous baseball player Yogi Berra once said, “If you don’t know where you are going, you will end up somewhere else.” This course focuses on identifying your desired outcomes for the next phase of life and the preparation needed to get there. Topics include change/transition, articulation of personal values, and an understanding of your current and potential financial reality. Week 2: Engage Your Mind and Body According to Socrates, “the secret of change is to focus all of your energy not on fighting the old but on building the new.” This course focuses on how to optimize Social Security and Medicare to increase the security of your retirement years. We will also explore how to establish new physical, intellectual, emotional, and social habits for this next phase of life. Week 3: Reflect on Your External and Internal Codes Intellectual elite, Albert Einstein, once said the hardest thing in the world is to understand the income tax code. The course focuses on how to navigate the US tax code to your advantage with tax-efficient planning and tax-efficient retirement distributions. We will also address estate planning issues and end with an assessment of the internal codes (e.g., rules) that might be limiting all you are intended to be. Week 4: Originate Your Next Act Today American tennis groundbreaker, Arthur Ashe, said: “Start where you are, use what you have, do what you can.” This course focuses on investing what you have to generate a viable return for the future. Subjects discussed include investment risk/return, fixed-income security features, and articulation of the concepts that will inform your decisions in the future. To participate in one of the four classes, email Michael Baumeister at michael@monotelo.com and indicate which class you would like to be a part of, or submit the form below.

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TAX IMPACT OF THE PAYCHECK PROTECTION PROGRAM Small businesses that have their Paycheck Protection Program loans forgiven are likely to lose the deduction on their PPP expenses according to new guidance from the Internal Revenue Service. The wage and business expenses that companies use to qualify for loan forgiveness will not be deductible according to an IRS notice published last Thursday. “This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.” The new guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling from the shutdowns caused by the coronavirus. The law states that the forgiven loan will not be taxed as debt forgiveness, but it did not specify whether companies could write off the expenses they covered with the stimulus money. The tax code permits companies to write off business expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income. While the ruling adds to the list of challenges that businesses face, it is reasonable for the IRS to tell small businesses that they can’t write off expenses on income that was never taxed in the first place (no double-dip!). It is possible that the deduction for these PPP expenses could be reinstated. Since the IRS issued the notice several senators have spoken out against it stating that it is contrary to the intent of the PPP and that a fix could come in subsequent legislation. However, until such legislation is passed, be aware that you will not be able to deduct any expenses covered with funds from a forgiven PPP loan. Small businesses have reported numerous issues in trying to apply for the funds, which restarted last Monday after the initial round of funding ran out after just 13 days. Round 2 of the program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs. It is designed to encourage companies to keep their people away from the unemployment line, and fully engaged in the workforce.

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WHITE PAPER INTRODUCTION STARTING OVER, AND OVER (SOO)! The SOO case is about a young Realtor who started her real estate career right out of college. With a strong desire to be in the industry, she began her real estate career as an administrative assistant, and worked her way into a sales position at a local real estate office in the Northwestern corridor of the US. After building a successful business in the Northwest, she had to make a life changing decision. Should she follow her fiancé to the Midwest, while he attended medical school? Or should she stay in the Northwest and continue to grow her business? Judy decided to take the challenge and build a second real estate business in the Midwest. She joined a traditional platform with a 60/40 split. Her business grew quickly, but she did not like the idea of giving such a large percentage of her commissions to her broker. Judy found a niche office with minimal overhead expenses where she was able to switch to a 90/10 commission split. She now had two locations that were generating significant income for her, and because of her ambition and hard work, Judy was recognized with the Rising Star Award in 2016. THE CHALLENGE Within three years of her move to the Midwest, her business was grossing $150K in revenue annually, and she was paying 32% of her income in state, federal income and wage taxes. On top of her growing tax bill, her fiancé’s school loans were rapidly increasing and there was growing concern over how long it would take to pay back the loans when the government was taking such a large piece of her commissions. Was there anything they could do to increase their cash flow and start paying down his school loans? In the middle of our dialogue over how Monotelo helps Realtors® reduce their tax liability, Judy and her fiancé got married and decided to move back to the Northwest as soon as he finished school. Her new husband had a nice position lined up in the medical field, and Judy was planning to pick up her Northwest-based real estate business where she left off. With the addition of her husband’s new salary, the likelihood of being pushed into a higher tax bracket was high. Combining the high federal income tax bracket with the self-employment tax and state income tax, they were going to be paying close to 50% of every marginal dollar to the federal government as her business income grew. Save as PDF THE SOLUTION Judy and her husband struggled with the decision to implement our strategy, because of the added complexity of their move back home. After considerable thought, they decided to move forward and implement our recommendations in the fall of 2016. The Monotelo team made sure Judy’s real estate business was properly structured to apply the tax code in the most efficient way possible. By changing the way Judy received income and structuring her new business to take advantage of provisions in the revenue code, Monotelo reduced her tax liability by $8,000. The increased cash flow had a significant impact on their ability to start paying down her husband’s outstanding student loans. What a relief! More White Papers WLW: Win One, Lose One, Win One CWS: Could-A-Would-A-Should-A JSZ: Junior Sam Zell

TAX ISSUES LIBRARY TAX CREDITS AND DEDUCTIONS FOR COLLEGE TUITION An overview of the tax credits and deductions available to you for qualified college expenses. Download TAX IMPLICATIONS OF TRANSFERRING A VEHICLE TO YOUR BUSINESS What you should know about deducting vehicle expenses for a personal vehicle vs. a vehicle owned by your corporation Download I’m Ginger Add your content or connect to a database. Adopt Me