SMALL BUSINESS TIPS Quarterly: Oct 17 Avoid Taxes On Your Reimbursed Employee Expenses If your business has employees then you likely have to reimburse them for out-of-pocket expenses they incur periodically. Reminder: If your business is a S or a C Corporation then you are considered an employee of the corporation, and are subject to the same reimbursement policies as any other employee. When accounted for properly, employee expense reimbursements are deductible to you as the employer, and tax-free to the employee. However, when these reimbursements are not accounted for correctly the IRS can reclassify them as wages, making the full amount subject to both employer and employee payroll taxes as well as income taxes for the employee. To avoid paying taxes on the expense reimbursements you pay to your employees follow these guidelines. There are four requirements that must be met in order to reimburse your employee’s expenses without creating taxable wages for them: Legitimate business expense. You can only reimburse your employees for expenses that serve a legitimate business purpose. Reimbursing your employees for meals from an out of town business trip is a legitimate business expense but reimbursing your employee for a night out with their spouse over the weekend would be considered taxable wages to them. To maintain the tax advantaged status of your employee expense reimbursements you should document the business purpose of each expense. Proof of expense. Before you can reimburse your employee’s expenses you must receive proof from them that the expenses were paid. The substantiation requirements for reimbursed expenses are the same as your ordinary business expenses. Receipts for purchases and mileage logs are the best way to substantiate your business expenses. Refund excess reimbursements . If you reimburse your employee for an amount greater than the expenses they incurred the excess amount will become taxable wages to the employee if not returned within 120 days. Reimburse expenses in a timely fashion . Expenses must be reimbursed in a timely fashion to avoid being reclassified as wages. The IRS states that timeliness is determined by the facts and circumstances of each situation. However, to provide additional guidance the IRS lays out circumstances in which reimbursements will always be considered timely: Reimbursements paid in advance within 30 days before the expense in incurred Substantiation of expenses provided to employer within 60 days of payment Returns of excess payments within 120 days of receipt Expense Reports While a formalized expense report is not required by the IRS to reimburse employee expenses, it is the best way to ensure that you are meeting the four criteria outlined above. If you have employees or if you are the owner of an S or C corporation we would encourage you to have your employees or yourself fill out expenses reports on a regular basis to reimburse out-of-pocket expenses. You can download our expense form template to use in your business either as an Excel worksheet or a PDF. Download Excel File Download as PDF Previous Article

At Monotelo Advisors we work hard to free up cash flow by helping you minimize your federal tax liability, giving you more money to reinvest into your future. TAX EXPERTISE Monotelo believes there is a better way to help you secure your financial future. It starts by improving your cash flow, then focusing on the budget and retirement savings to help you take charge of a future filled with peace and financial security. Our mission is to make a difference with meaningful and actionable financial solutions that positively impact our client's lives. We do this by integrating the tax component into all our discussions - freeing up cash flow that allows our clients to live the lives they want to live. 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. And 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 REAL ESTATE AGENTS As a real-estate agent you are uniquely positioned to manage how much you pay in taxes. While the new tax code just made things better for you, it made things significantly more complicated. How you organize your affairs and structure your business will have a direct impact on your tax bill come April 15th. LEARN MORE PRIVATE CLIENTS LEARN MORE INDIVIDUALS 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

Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. One step away to save on your taxes. Schedule a quick 10-minute, no-obligation consultation. UNLOCKING the Missed Deductions of a Home Office Small-business owners should not miss the benefit of a home office deduction out of fear of a tax audit. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. This means an increasing number of small-business owners are working from home, and eligible to claim a home office deduction. When Properly implemented, this deduction can make a significant difference in your tax liability. WHAT CONSTITUTES A HOME OFFICE? In order to claim a deduction for a home office the IRS requires that a designated space be used exclusively and regularly for business. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. Exclusively used for business means it cannot ever be used for personal reasons during the tax year, this includes any type of storage for personal items. Although the office is to be used only for business, the tax code does not mandate that it be a separate room, it can be part of a room - walls are not a requirement. The office must also be used on a regular basis for business. HOW TO DEDUCT EXPENSES FOR THE HOME OFFICE There are two different methods you can use to claim a home office deduction, the actual expense method and the simplified method. ACTUAL EXPENSE METHOD The actual expense method allows you to deduct all direct expenses and a portion of any indirect expenses. Direct expenses are any expenses incurred specifically for the home office, such as painting the office or putting in new carpet. Indirect expenses include any expenses incurred for the home such as mortgage interest, property taxes and utilities. To claim these indirect expenses you need to determine the portion of the expenses that relate to the home office. This can be calculated by dividing the square footage of the office by the square footage of the house. You can also claim depreciation or a rent deduction for the part of the home used for business purposes. On the downside, when you sell the home any depreciation taken needs to be recaptured. This can be an unpleasant surprise come tax time. When using the actual expense method, detailed records and supporting documentation must be kept for all expenses. SIMPLIFIED METHOD If you prefer not to maintain records of these expenses, you can still take a home office deduction using the simplified method. The simplified method is calculated by simply multiplying the square footage of the office by $5 per square foot (up to 300 sq. ft.). The advantage to this method is the IRS does not require you to keep any records that are required by the actual expense method. The main drawback of the simplified method is that you will not be able to deduct your actual expenses if they exceed the allowance of the simplified method. The best solution is to keep track of all of your expenses and then determine at the end of the year which method will provide the greater deduction. MILEAGE Regular commuting to and from work is not a deductible expense, however travel between your primary office located in your home to your second office is classified as business miles that are deductible. This does not mean that you can set up a "home office" to deduct your regular commuting miles. It means that if your home office is where you conduct the majority of your business, you can deduct any mileage to a secondary location. Setting up a home office can potentially create several thousands of dollars in deductible mileage each year. TAKE AWAY Even the smallest home office can unlock significant deductions if the expenses are properly accounted for using either the actual or simplified method. It is very important that the space be used exclusively for business purposes. Save as PDF

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Making the most of your itemized deductions under the Tax Cuts and Jobs Act. Save as PDF Read more articles Share 1 2 HOW TO SAVE Summary One of the goals of the tax reform was to simplify the filing process. While this goal may have been achieved for some taxpayers, maximizing your tax deductions in 2018 requires more creativity and critical planning than ever before. With the increased standard deduction and the additional restrictions on itemized deductions, the actual tax benefit of many expenses has been greatly reduced. By implementing some of the strategies discussed in this article you can continue to realize meaningful tax savings from these expenses. MAXIMIZING YOUR DEDUCTIONS IN LIGHT OF TAX REFORM The Tax Cuts and Jobs act of 2017 signaled the largest tax reform in decades. The law includes numerous changes to both personal and corporate taxes. We discussed the most important changes relevant to you a few months ago in Five Changes to Be Aware of Under the 2018 Tax Reform . One of the most promoted aspects of this plan was the doubling of the standard deduction to $24,000 for joint filers and $12,000 for single filers. While this may provide additional tax savings and simplify filing for some taxpayers, it also reduces the potential tax savings provided by certain expenses such as medical expenses, charitable donations, or home mortgage interest. As a result of these changes, certain tax strategies are more valuable than ever to make the most of your expenses. Health Savings Accounts Medical expenses have always had a high threshold to meet before they will provide a tax benefit. Generally, medical expenses can only be deducted when they exceed 10% of your adjusted gross income(this was temporarily reduced to 7.5% for 2017 and 2018), and even then only the portion that exceeds that threshold can be deducted. This means that if you earn $100,000 and you have $12,000 in medical expenses you will only be able to deduct $2,000. With the increased standard deduction, you will have a harder time taking advantage of your medical expenses even when you manage to exceed the 10% threshold. The best way to bypass these heavy requirements for medical expenses is to set up a Health Savings Account. An HSA allows you to save up to $7,000 per year for medical expenses and deduct the full amount, without worrying about the 10% threshold or itemizing deductions. For more information on HSAs you can read Avoiding the 10% Threshold for Medical Expenses . Charitable Contributions If you make significant charitable contributions each year you may want to consider setting up a donor-advised fund to maximize your tax benefits. A donor-advised fund is a separate account that you make contributions to and then distribute those funds to the charity of your choice. How does this help you with your taxes? With a donor-advised fund you receive the tax deduction when you contribute to the fund, not when you make distributions to charitable organizations. This allows you to maximize your deduction by contributing a large amount to the fund in one year and spreading the distributions over 2 or more years. By properly staggering your contributions to the fund you can avoid the limitations on your deduction created by the increased standard deduction. For more information on how a donor-advised fund could reduce your taxes please contact us. Home Office Deduction If you run your own business or if you own rental property then you may be eligible to take a deduction for a home office. This will allow you to deduct a portion of your mortgage interest, real estate taxes, utilities and home-owners insurance. While this deduction is not new for 2018, the potential benefits it provides are greater than ever due to the increased standard deduction likely limiting the benefits of itemizing your mortgage interest and real estate taxes as a personal deduction. For more information on the home office deduction you can read Unlocking the Missed Deductions of a Home Office . 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.

What requirements do you need to meet to avoid capital gains taxes on the sale of your home? TAX IMPLICATIONS of Selling Your Home Save as PDF Read more articles Share Ownership Test: You need to have owned the home for at least 24 months out of the last 5 years leading up to the date of the sale. If you are married, only one spouse needs to own the property. Residence Test: You must have used the property as your primary residence for at least 24 months out of the last 5 years. These 24 months are not required to be consecutive. If you are married each spouse must meet this test to qualify for the full exclusion. Lookback Test: You cannot have taken the exclusion for the sale of another property in the last 2 years. If you meet these three requirements, then you can exclude up to $250,000 ($500,000 if married and filing a joint return) in capital gains from the sale of your home. If you have capital gains in excess of the exclusion amount you will be required to pay taxes on the excess amount. Partial Exclusion If you do not meet the above requirements you may still be eligible for a partial exclusion if you sold the house for one of the following reasons: Work-Related Move: If you or your spouse get a job that is at least 50 miles further from your house than your previous job you can qualify for the partial exemption. Health-Related Move: If you move to obtain medical treatment for yourself or a family member, or to provide medical or personal care for a family member suffering from a disease or injury. Unforeseeable Events: You or your spouse: Dies Gets divorced or legally separated Gives birth to two or more children from the same pregnancy Becomes eligible for unemployment compensation Becomes unable to pay basic living expenses for the household due to a change in employment status. If one of these special circumstances applies to you then you can receive a partial exemption based on the percentage of the 2-year residence requirement that you meet. Example: One year after purchasing your home, you or your spouse gives birth to twins and you decide to sell your home to find a larger home. Even though you do not meet the 2-year ownership and residence requirements, you can receive a partial exclusion of the capital gains since the move was due to the birth of twins. In this case your exclusion would be one half of $500,000 since you resided in the house for 1 of the 2 required years. Exclusion of Gains on Home Sale Before any large financial decision, you should ask yourself “What are the tax implications of this?” Failing to consider the tax impact on some decisions can lead to an unpleasant surprise come tax season. Fortunately, the sale of your personal home is a financial event where you can generally expect favorable tax treatment. That is because the tax code allows you to exclude up to $500,000 in capital gains when selling your primary residence, provided you meet certain requirements. So what are capital gains? Capital gains are any profits from selling personal property above the original purchase price. If you purchase a painting for $10,000 and later sell it for $15,000 you have capital gains of $5,000, which can be taxed at rates up to 20%. However, when you sell your primary residence you can avoid the capital gains tax on the sale if you meet the following three requirements: Summary Our homes are one of the few assets that we own that have the potential to appreciate. If you own your home and live in it for more than 2 years before you sell it, you can exclude up to $500,000 of the gains from your taxable income. If you do not meet the 2-year requirement you may still be eligible for a partial exclusion if one of the provided special circumstances applies to you. 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.

President Trump is promoting his tax reform as a tax break for the middle class. We conducted an analysis to see how this reform would impact our clients. HOW COULD THE PROPOSED TAX REFORM AFFECT YOU? President Trump announced his proposal for tax reform last month. Similar to the changes he was proposing last year while on the campaign trail, this plan is being promoted as a tax break for the middle class. Hoping this might be true, we ran some analysis to see how the proposed changes would affect you, our clients. A typical Monotelo client is a married couple with one child making $115,000 per year. Experts differ on how much you have to earn to fall into this camp, but a wider definition would simply exclude the poorest 20% and the wealthiest 20% of earners. If you accept the definition of the middle class as the "middle 60%," that would describe families making between $50,000 and $140,000 per year. So we feel that our typical client fits pretty well into the middle class. Our analysis showed that the proposed changes would negatively impact 80% of our clients by causing a significant tax increase to our families. The average increase would be an additional $2,300 in federal income taxes paid to the government. It should also be noted that we had to make a few assumptions to conduct the analysis, as various aspects of the plan have yet to be finalized. CHANGES AFFECTING OUR CLIENTS So why is a proposal that is intended to lower taxes for the middle class actually raising them for our small cohort of taxpayers? We have highlighted a few of the proposed changes below: ITEMIZED DEDUCTIONS AND THE STANDARD DEDUCTION One of the biggest promises of this plan is the nearly doubling of the standard deduction to $12,000 for single filers and $24,000 for married filers. While this means a bigger deduction for those who claim the standard deduction, the plan would hinder those who choose to itemize their deductions by eliminating the lions' share of these tax breaks, including deductions for state and local taxes, real estate taxes, and job-related expenses. This means that a majority of our clients will now no longer be able to itemize and will instead need to rely on the standard deduction. EXEMPTIONS AND THE CHILD TAX CREDIT The current tax code provides an additional deduction of $4,050 for the filer, spouse, and each dependent listed on the return. This "Personal Exemption" deduction would be eliminated altogether under the proposed reform. To help mitigate the loss of this deduction, the proposal would increase the child tax credit from its current maximum of $1000 per child. Although the exact amount of the increase has yet to be announced, most estimates predict an increase of $500. While this would lessen the blow of the lost exemptions, it would not fully offset the tax increase for most individuals. TAX BRACKETS Currently there are 7 tax brackets, with 10% being the lowest and 39.6% being the highest. Under the proposed model the brackets would be simplified to 12%, 25% and 35%. While the income ranges for these new brackets have not been specified, it is likely that the 12% bracket would replace the current 10% and 15% brackets, with the 25% bracket being extended to a higher income range. These simplified brackets are unlikely to make a material difference for anyone currently at or below the 25% bracket. The largest difference for individuals in this range will be the changes to itemized deductions and personal exemptions. IT REMAINS TO BE SEEN what aspects of this plan will actually become law, but in the meantime you should be aware of the possible ramifications if it goes through in its current form. If the plan gets passed as it is currently proposed, we expect four cohorts of taxpayers to be negatively impacted: Families with two or more children who own their home Taxpayers who have a significant mortgage payment Taxpayers in high income tax states like New York and California Generous taxpayers who give a meaningful portion of their income to charity If you are in this category, then tax planning may be a necessary component of your future plans..... Save as PDF 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.

We all think we know about the cost of health care. According to Fidelity, the average 65-year-old couple in 2020 will need nearly $300,000 for medical expenses over the course of their retirement. And that number does not address the potential for long-term care needs. There is a common misconception that once you get on Medicare, your health care costs will be all taken care of. What most people eventually discover is that Medicare doesn’t cover everything. And what it does cover typically comes with a copay or a deductible. The Costs Behind Medicare There are 2 primary parts to Medicare. Part A covers hospitalization, while Part B covers doctors, therapies, chemotherapy, etc. While Medicare Part A is free, many people fail to realize that Medicare Part B comes with a monthly premium. Part B premiums for most people in 2021 are $148.50 per month and the premiums rise for higher-earners. The premium for higher earners is called the income-related monthly adjustment amount, known as “IRMAA”. If you get hit with IRMAA for Part B, you’ll also have to pay IRMAA for Part D, the private part of Medicare that offers prescription drug coverage if you are enrolled. You could end up paying an extra $434 per month ($356.40/month for Part B and $77.10/month for Part D), depending on your taxable income from two years ago. If you’ve had a life-changing event and your income has gone down from two years ago we can help you. Reach out to us and we should be able to make a difference for you on your IRMAA premiums. Once you’re on Medicare, you will have copays and deductibles for Parts A and B. On top of the copays and deductibles, there is no out-of-pocket maximum with Medicare. You heard that correctly! You can have unlimited expenses with original Medicare. This is where Medicare Advantage and Medicare Supplement Plans come into play. These plans can help by setting a limit on spending, but this is also where things can get confusing. And this is the point where most couples should turn to a Medicare expert to guide them to a wise course of action. Prescription Drugs It’s relatively easy to find the list of drugs that Medicare does not cover (go to Medicare.gov for this info). But what about drug costs? Many retirees fail to understand the impact that drug costs will have on their long-term financial plans because they fail to understand how the drug plans are set up. While many drugs are covered by Medicare, more costly drugs can cause a balloon payment after several months of coverage, sometimes referred to as the “donut hole.” With the “donut hole” and catastrophic coverage issues, there is no cap on prescription drug expenses. And some manufacturers’ programs become off limits once you go on Medicare. For Example: Part D deductible: $435. Initial coverage limit: $4,130. Catastrophic threshold: $6,550. You have a medication that costs $1,376.67 and your copay is $100. Your first three doses cost you $300, but the total spent was $4,130, and you are now in the “donut hole.” The next time you pick up your medication, your cost goes from $100 to $344.17 because you are now responsible for 25% of the cost of the drug (25% * $1,376.67 = $344.17). You only spent $300 on your first three prescription fillings, you are already into the “donut hole,” and you don’t get out of the donut hole until you’ve spent $6,550. After you’ve spent the entire $6,550, your costs will drop to 5% of the cost of the drug ($68.80 per dose). That means prescribed medications could cost over $10,000 a year, and that’s on the drugs that Medicare includes in the drug plan. So what should you do to help mitigate the costs of medical care today? A traditional asset manager might suggest you hold cash aside for these expenses. An insurance agent might tell you to buy a long-term care policy. An accountant may suggest that lowering your taxable income through medical expenses could help cover some of the costs of Medicare. Our job at Monotelo is to help you develop a Durable Cohesive Plan of Action, and take all of these issues into account to comprehensively address your healthcare needs in retirement. Read more articles THE COST OF HEALTHCARE IN RETIREMENT 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.

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Monotelo Advisors Inc Tax Planning Engagement Letter Heading 1 Thank you for choosing Monotelo to assist you with your tax planning needs. Tax planning is a strategic approach to managing finances that aims to minimize tax liability and maximize savings. By organizing income, expenses, investments, and expenditures efficiently, individuals and businesses can take full advantage of tax benefits, deductions, and credits. Effective tax planning not only reduces the amount of taxes owed but also contributes to better financial health by freeing up resources for savings, investments, and future growth. This engagement letter outlines the scope of our services, your responsibilities, and our commitment to providing you with accurate and timely solutions. By agreeing to this letter, you authorize Monotelo to prepare a tax plan that will help to reduce your short-term and lifetime tax liability. We look forward to working with you to ensure that you retain more of your hard-earned money.