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Use Capital Losses to Offset Capital Gains & Accelerating Your Property Tax Deduction to Reduce Your Tax Bill

Use Capital Losses to Offset Capital Gains

When is a loss actually a gain? When that loss becomes an opportunity to lower tax liability, of course. Now’s a good time to begin your year-end tax planning and attempt to neutralize gains and losses by year end. To do so, it might make sense to sell investments at a loss in 2018 to offset capital gains that you’ve already realized this year.

Now and later

A capital loss occurs when you sell a security for less than your “basis,” generally the original purchase price. You can use capital losses to offset any capital gains you realize in that same tax year — even if one is short term and the other is long term.

When your capital losses exceed your capital gains, you can use up to $3,000 of the excess to offset wages, interest and other ordinary income ($1,500 for married people filing separately) and carry the remainder forward to future years until it’s used up.

Research and replace

Years ago, investors realized it could be beneficial to sell a security to recognize a capital loss for a given tax year and then — if they still liked the security’s prospects — buy it back immediately. To counter this strategy, Congress imposed the wash sale rule, which disallows losses when an investor sells a security and then buys the same or a “substantially identical” security within 30 days of the sale, before or after.

Waiting 30 days to repurchase a security you’ve sold might be fine in some situations. But there may be times when you’d rather not be forced to sit on the sidelines for a month.

Fortunately, there’s an alternative. With a little research, you might be able to identify a security in the same sector you like just as well as, or better than, the old one. Your solution is now simple and straightforward: Simultaneously sell the stock you own at a loss and buy the competitor’s stock, thereby avoiding violation of the “same or substantially identical” provision of the wash sale rule. You maintain your position in that sector or industry and might even add to your portfolio a stock you believe has more potential or less risk.

If you bought shares of a security at different times, give some thought to which lot can be sold most advantageously. The IRS allows investors to choose among several methods of designating lots when selling securities, and those methods sometimes produce radically different results.

Good with the bad

Investing always carries the risk that you will lose some or even all of your money. But you have to take the good with the bad. In terms of tax planning, you can turn investment losses into opportunities — and potentially end the year on a high note.

Accelerating Your Property Tax Deduction to Reduce Your Tax Bill

Smart timing of deductible expenses can reduce your tax liability, and poor timing can increase it unnecessarily. One deductible expense you may be able to control to your advantage is your property tax payment.

You can prepay (by December 31) property taxes that relate to 2018 (the taxes must be assessed in 2018) but that are due in 2019, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to 2019 (they must be assessed in 2019) and deduct the payment on this year’s return. Also, beware of the dollar-amount limitation discussed below.

A big decision

Accelerating deductible expenses such as property tax payments is typically beneficial. Prepaying your property tax may be especially advantageous if your tax rate under the Tax Cuts and Jobs Act (TCJA) is expected to decrease in the next year. Deductions save more tax when tax rates are higher.

But not every tax rate has dropped for the 2018 tax year under the TCJA — the very lowest rate, 10%, has been retained, as well as the 35% rate (though the income brackets for these rates have changed). So, some taxpayers may not save any more by prepaying. Also, taxpayers who expect to substantially increase their income next year, pushing them into a higher tax bracket, may benefit by not prepaying their property tax bill.

Another important point is that, under the TCJA, for tax years 2018 through 2025 the itemized deduction for all state and local taxes is limited to $10,000 ($5,000 for married filing separately).

More considerations

Property tax isn’t deductible for purposes of the alternative minimum tax (AMT). So, if you’re subject to the AMT this year, a prepayment may hurt you because you’ll lose the benefit of the deduction. Before prepaying your property tax, make sure you aren’t at AMT risk for 2018.

Also, don’t forget that, for 2018 to 2025, the TCJA suspends personal itemized exemptions but roughly doubles the standard deduction amounts (for 2018) to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. This may affect your decision on whether to prepay.

Specific strategies

Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2018 (or should consider deferring to 2019)? Contact us. We can help you determine your optimal year-end tax planning strategies.

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SOC reports

A SOC 2 report is an attestation report issued by an independent Certified Public Accounting (CPA) firm, which opines on the design or operating effectiveness of a service organization’s controls and whether one or more of the following five (5) defined criteria and/or principles have been achieved: security, availability, processing integrity, confidentiality and/or privacy.

  • The SOC 2: AT101 (SOC 2) report is most useful for service organizations whose clients do not necessarily rely on the reported controls for financial reporting purposes, but depend on their service organization’s ability to maintain a controlled environment; formerly a SAS 70 report was issued for such service organizations. The SOC 2 report demonstrates to a service organization’s clients the ability of the organization to be independently assessed against one or more of the five (5) AICPA Trust Services Principles:
  • Security: The system is protected against both physical and logical unauthorized access.
  • Availability: The system is available for operation and use as committed or agreed.
  • Processing Integrity: System processing is complete, accurate, timely, and authorized.
  • Confidentiality: Information designated as confidential is protected as committed or agreed.
  • Privacy: Personal information is collected, used, retained, disclosed, and disposed of in conformity with the commitments in the entity’s privacy notice and criteria set forth in Generally Accepted Privacy Principles issued jointly by the AICPA and the CICA.

A SOC 2 report, in addition to one or more of the AICPA Trust Services Principles, may also include criteria defined by management, industry standards or third parties. The criteria must meet the following basic characteristics:

  • Objectivity
  • Measurability
  • Completeness
  • Relevance

The Advanced team provides three main types of SOC 2 Services – SOC 2 Readiness Assessments, Type 1 examinations, and Type 2 examinations. These services can be described as follows:

  • SOC 2 READINESS ASSESSMENT:The objective of a SOC 2 Readiness engagement is to conduct a preliminary assessment and provide guidance that will empower the service organization to successfully prepare for, and achieve, an unqualified opinion on a SOC 2 Type 1 or Type 2 examination (see below). This is accomplished assisting management in selecting relevant control principles, identifying control gaps related to the achievement of control principles for the services being audited, then by providing specific, actionable guidance for improving and maintaining the system of controls. The key deliverable from this engagement is a listing of controls and gaps that detail the elements required to obtain a clean opinion.
  • SOC 2 TYPE 1 EXAMINATION SERVICES:The objective of a SOC 2 Type 1 examination conducted by Advanced is the expression of an opinion about whether the control principles have been effectively designed to meet the requirements defined in the control principles. The engagement is conducted in a manner that establishes the design of the system of controls as of a point in time, and to assist the service organization in improving the capability maturity of its core processes (and ultimately to be prepared to pass a SOC 2 Type 2 examination). The deliverables from the engagement include an Internal Project Monitoring document and a SOC 2 Type 1 report.
  • SOC 2 TYPE 2 EXAMINATION SERVICES:The objective of a SOC 2 Type 2 examination conducted by Advanced encompasses the objectives of a SOC 2 Type 1 examination, and additionally includes an expression of an opinion about whether controls were operating effectively to meet the requirements of the control principles during a specific period of time. The engagement is conducted in a manner that promotes continuous process improvement, and adaptation to changing circumstances in regards to the industry and user organization expectations.
  • AICPA link – Statements on Standards for Attestation Engagements
  • SOC Comparison – PDF

Consistency

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Improvement

Dynamically innovate customer service for state of the art customer.

Branching

Pursue scalable customer service through sustainable potentialities.

Investment Plan

Appropriately empower dynamic leadership skills after business portals.
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