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Behold, the Tax Man Cometh!

The 2020 calendar now has us all squarely in the middle of tax season. Most of you have already received a variety of 1099 and W-2 forms for the 2019 tax year. Some may have already begun the tax planning and tax preparation process. Others may be preparing now. Still others may be dreading it.

In order to help calm your worries and provide suggestions for discussions with your tax professionals, WT Wealth Management asked me to share a few tax tidbits that may help you as you file your 2019 taxes and make plans for your 2020 tax and retirement investment strategy.

Content Quick Links
Retirement Plan Contribution Limits | The Standard Deduction | Retirement Savings in the December 2019 SECURE Act | "Extenders" in the December 2019 SECURE Act | Marginal Tax Rates | Understanding Audit Risk | A Few Tips for Arizona Filers | Your Advisor and Your Tax Professional | Sources


Retirement Plan Contribution Limits

As is often the case, contribution limits for the various retirement plans have been updated for 2020. The table below, summarizing information available on www.irs.gov, highlights some of the most common. If one of your limits has changed, be sure to update your contribution schedule with your financial advisor to take full advantage of these great retirement savings options. And if you are aged 50+ remember to take advantage of the catch up provisions wherever they are allowed.



Please also remember that contributions to Traditional and Roth IRA plans for the 2019 tax year can still be made through April 15, 2020.

The Standard Deduction

One important question when filing your tax return is to determine whether to itemize deductions or take the standard deduction. With the Tax Cuts and Jobs Act of 2017, the standard deduction was increased significantly, leading fewer tax payers than ever to itemize deductions. Many simply couldn't beat the new, higher standard deduction. If you can reach a higher deduction amount by itemizing, then by all means, itemize.

The table below provides information about the standard deduction.


Note: The standard deduction is $1,300 higher for those over 65 or blind / $1,650 if also unmarried and not a surviving spouse.

Retirement Savings in the December 2019 SECURE Act

Congress passed significant changes to retirement savings law through the SECURE Act that was signed into law on December 20, 2019. Some highlights include:3


"Extenders" in the December 2019 SECURE Act

In the same SECURE Act, Congress also addressed certain deductions and credits that had been eliminated or modified with the Tax Cuts and Jobs Act of 2017. These "extenders," which previously existed for many years, were extended retroactively to January 1, 2018 (in other words, it is as though they were never eliminated or modified) and have a new expiration date of December 31, 2020. Really, the only change is to make these "extenders" available once again for a longer period of time. A few of the more familiar highlights include:4


There are a multitude of other, more obscure deductions and credits that were extended. Consult your tax professional to see if any of them apply to your situation (and whether it might be worth the effort and cost to file an amended 2018 return to recover the retroactive tax benefit).

Marginal Tax Rates

For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly).5 The IRS increased 2020 tax rates by an approximate 1.6% inflation adjustment over 2019 rates.

One helpful thing to remember about US tax rates is that they are marginal – meaning that your effective tax rate is a combination of all of the tax rates below your taxable income level. So, as above, a single filer with income over $518,400 doesn't pay a 37% rate on all of their taxable income, but only on that portion of their income above $518,400. They would pay 10% on the first income tier, 12% on the next, 22% on the third and so on until the final tier at 37%. So effective tax rates are generally lower than the marginal tax rates found in tax tables. For your reference, we have provided links to the 2020 and 2019 tax rate schedules, which provide sample calculations showing the difference between marginal tax rates and effective tax rates.

2020 Tax Rate Schedule       2019 Tax Rate Schedule

Understanding Audit Risk

How does the IRS decide which tax returns to audit? Is it entirely random? How likely is it to happen to you? Are there certain things that increase the risk of an audit? The IRS has limited resources and funding, so "only 0.59% of all individual tax returns in 2018 were audited. That's about 1 in 170 returns. So the odds are pretty low that your return will be singled out for review."6

But yes, there are certain things that increase the risk of an audit, including the size of your income, the complexity of your return, the types and amounts of deductions or other tax breaks you claim, the business you're engaged in, whether you take an early distribution from a retirement account, and whether you work or own assets abroad. Although there's no sure way to avoid an IRS audit, it's important to recognize your risk, properly understand and apply the tax breaks you claim, thoroughly document your situation, and have open discussions with your tax professional. While an audit can be inconvenient, if you are prepared to show that you have properly filed your return, it is a manageable process.

A Few Tips for Arizona Filers

Arizona tax laws provide for a number of tax credits and deductions, including: charitable donations to the working poor, foster care, contributions made or fees paid to public and charter schools, contributions to private school tuition organizations (for scholarships to private schools), donations to the Arizona military relief fund, energy credits, and certain contributions to a 529 College Savings Plan. For more information please see: https://azdor.gov/tax-credits or discuss with your tax professional.

Your Advisor and Your Tax Professional

I know that your advisor is well connected professionally with multiple accountants and tax preparers. The closer the relationship between these two important advisors in your financial life, the better they will be able to properly advise you in your important financial decisions. I would encourage you to reach out to your advisor as you work through the tax filing process so that your tax preparer has the best information to help you this year and into the future. If WT Tax Accounting can be of help, your advisor would be happy to make the introduction.

Marina Karpoukhina is the Tax Manager for WT Tax Accounting – a sister-company to WT Wealth Management – that provides tax planning, tax preparation and basic accounting services based out of our Scottsdale, AZ office. Marina was born in Ukraine, where she was educated and trained as a doctor of Neurophysiology. Following one year as a visiting research scientist at the Barrow Neurological Institute and St. Joseph's Hospital and Medical Center in Phoenix, AZ, Marina decided to retrain herself in taxation, accounting and bookkeeping. She has worked in that field since 1997 (23 years now) and has been an IRS Enrolled Agent since 2001. As an IRS Enrolled Agent, Marina is unrestricted as to which taxpayers she can represent, what types of tax matters she can handle, and which IRS offices she can work with on behalf of clients. While most of WT Tax Accounting's work is with Arizona-based clients, they also service clients from all over the country


Sources:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions

2https://www.irs.gov/publications/p501 & https://www.nerdwallet.com/blog/taxes/standard-deduction

3https://www.schwab.com/resource-center/insights/content/significant-retirement-savings-law-changes-are-coming-2020

4http://ataxprof.com/files/Tax-Changes-2019-Extenders.pdf

5https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

6https://www.kiplinger.com/slideshow/taxes/T056-S001-20-irs-tax-audit-red-flags/index.html



Disclosure


WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV.

WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives - thus making the account "separate" and distinct from all others we manage.

An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost.

In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax.

Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon.

WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.

Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly.

WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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