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Chris J. Scoggin, Chaston Taxes and Accounting

By Chris J. Scoggin
Chaston Tax & Accounting

First and foremost, let me start this month’s article by saying that we all should continue to take the warnings of the medical experts seriously and let’s use common sense as we adjust to our new reality.

Last month, I wrote about the various stimulus programs that have been passed to help address this unprecedented shock to the American economy. Never before have the engines of business and prosperity been stopped so suddenly. Our lives changed drastically in the matter of just a few weeks.

We were suddenly unable to go to our favorite restaurants and entertainment venues, and most shockingly, many of us were now without work. Customers stopped calling, businesses were closing, and our paychecks stopped being deposited.

Given all that has happened with blinding speed, it is tough to be optimistic. But that is what we have to be. We have to be optimistic that the COVID-19 virus will run its course in the next few weeks, and we can start to visit family and neighbors, gather for a meal at our favorite restaurant and, most importantly, we have to be optimistic that we can go back to work.

While, admittedly, I am taking a forward-looking perspective, it is becoming apparent that this virus has not created the health crises that were initially projected. The predicted number of American deaths has shrunk from the millions to 260,000 to 100,000 to the latest projection of under 60,000.

While this is still an incredible toll in terms of human life, the data are indicating that the worst is behind us for now. So, what can each of us do to ensure the quickest economic recovery possible?

For small businesses, there are several programs that will pay some or all of your payroll, rent and utilities for eight weeks after funding. This program, called the Paycheck Protection Program (PPP), is available to every small business with fewer than 500 employees. The program allows the business to take out a loan based upon 2.5 times average monthly salaries paid. For the amount of this loan that is used over the eight weeks from the date of funding to pay wages and benefits, plus rent, utilities and business mortgage interest, this debt will be forgiven and never need to be repaid.

There are other loan programs that will help a business injured by the coronavirus. The Economic Injury Disaster Loan (EIDL) program will grant a low-interest loan to businesses that have been severely harmed by the recent economic shutdown. These are long-term loans, some as long as 30 years, intended to help the business owner rebuild their business from the ground floor. These EIDL loans have an immediate $10,000 grant to help the business owner keep their doors open until the larger loan has been funded.

For Individuals, each adult over 18 years old (with some exceptions) will be paid up to $1,200 to help every American citizen be able to cover some of the loss of income that might have been caused by the shutdown. If you have a child under age 24 that can still be claimed as a dependent, you will receive an additional $500 in Stimulus Payments.

If you haven’t filed a tax return for 2018 or 2019, you can go to IRS.gov and click on Non-filers: Enter Payment Info Here to ensure you receive your incentive payments as soon as possible.

As this medical crisis begins to wane, please do everything in your power to support your local Maricopa businesses. If you are financially able, try that new restaurant, shop at that store around the corner, call a Maricopa based professional to assist you with your needs.

If you are a Maricopa business that has been searching for a great member of your team, look to hire a new employee that lives here in Maricopa. These are your new customers. These are your neighbors. This is how we recover and this is how we ensure that Maricopa remains a great place to live and work.

ChastonTax.com

As part of the “stimulus” package to reinvigorate the economy during the COVID-19 pandemic, taxpayer rebates and small-business relief are on the way.

This includes Social Security beneficiaries (retirement, disability, survivor) and Supplemental Security Income (SSI) recipients, according to the House Committee on Ways and Means.

“These assistance efforts have been implemented incredibly rapidly for the federal government and should help those who have been negatively affected by the events of the past few weeks.,” said CPA Chris Scoggin of Chaston Tax and Accounting in an InMaricopa column.

The full rebate amounts are $1,200 per adult and $500 per qualifying child. Stimulus payments will be going out in three to four weeks (possibly sooner depending upon how quick the IRS gets these payments issued).

“It is important to file a 2019 or 2018 tax return as soon as possible so the IRS knows where to send the funds,” said Maricopa CPA Richard Weisenberg. “The IRS has pushed back the filing deadline to July 15 as well as for payments. Payments are not due until July 15 for the individual 1040 tax return.”

Everyone is eligible for the full rebate payments as long as they have an SSN and their household income is not too high, according to the Ways and Means Committee. Rebate payments start to phase out at the thresholds of $75,000 single, $112,500 head of household, and $150,000 married.

Small Business Administration loans are also being forgiven and debt-relief offered. There are about $10 billion in grants available in grants for small businesses.

The stimulus package:

  • Requires SBA to provide additional language resources to ensure small business owners can access the resources they need as easily as possible.
  • Includes $265 million in funding for resource partners, including Small Business Development Centers and Women’s Business Centers to provide training and counseling to businesses impacted by Coronavirus.
  • Has a waiver of the WBC matching requirement to alleviate the need to fundraise during the emergency.
  • Includes $10 million for Minority Business Development Agency grants to train and counsel minority-owned firms impacted by Coronavirus.
  • Includes $675 million to provide SBA with the resources it needs to staff up and administer these new and enhanced programs.

Finally, this will increase the number of small businesses that qualify for streamlined bankruptcy process, by nearly tripling the debt cap to $7.5 million to help American small businesses that will need to reorganized due to the COVID-19 pandemic.

“I would highly recommend applying through SBA to get the necessary funds to get through operating expenses (payroll, rent, etc.),” Weisenberg said. “There are many rules you must adhere to in order to get the loan forgiven.”

The Act’s payroll tax provisions have no effect on Social Security’s trust funds:

  • The bill lets employers temporarily delay payment of their share of Social Security payroll taxes. This does not mean they don’t owe those taxes, but rather that they will make the payments in 2021 and 2022. This effectively allows the Federal government to loan these businesses funds to ensure they can continue operating during this crisis.
  • Additionally, certain provisions in the CARES Act, and the recently enacted Families First Coronavirus Response Act, rely on payroll tax credits to provide much-needed support for businesses during this time.
  • None of these provisions change the amount or timing of money deposited into the Social Security trust funds, as the bill replenishes the trust funds from general revenues.
  • They also do not alter the fundamental nature of Social Security as a contributory system where individuals earn their benefits with each paycheck.

 

Al Brandenburg

By Al Brandenburg

Well, here we go again. Another year, another round of trying to keep the IRS from getting the best of you.

The deadline for filing your federal tax return is still a couple of weeks away, but there are plenty of reasons to start your taxes well before April 15. If you’re owed a refund – most taxpayers are – you’ll get your money that much sooner.

Filing early will also reduce the risk that a crook will hijack your refund, because a refund already claimed can’t be stolen. And even if you end up owing the IRS, it’s better to know that now, when you have time to come up with the money, than at 11 p.m. on April 14.

But perhaps the most compelling reason to start now is that filing early will give you enough time to claim all the tax breaks available to you. The Tax Cuts and Jobs Act, now in its second year, nearly doubled the standard deduction, which for 2019 is $12,200 for single taxpayers and $24,400 for married couples who file jointly. Only about 10% of taxpayers will continue to itemize.

Congress has recently enacted a bevy of tax credits and deductions for non-itemizers (Yay!). Overlook them and you could end up paying more to the IRS than you should (Boo!).

Homeowners who have a large mortgage are still good candidates for itemizing. For loans acquired after Dec. 15, 2017, you can deduct interest on a mortgage (or mortgages) of up to $750,000. For loans taken out before that date, you can deduct interest on mortgage debt of up to $1 million.

If you had extraordinary medical costs last year, deducting your unreimbursed expenses could push you into the itemizing pool. However, you’ll only be allowed to deduct a portion of those expenses. For 2019, you can deduct unreimbursed medical expenses that exceed 7.5% of your “adjusted gross income.” If your AGI was $50,000, for example, you would only be allowed to deduct the unreimbursed medical expenses that exceeded $3,750.

The list of eligible expenses is long, ranging from long term care to health insurance copayments to prescription drugs. And if any costs for dental and vision care aren’t covered by your insurance, those expenses are also deductible.

If you’re retired, as most of us are, it’s even more important to start your tax return early. While you’ll probably claim the standard deduction, you could be in for some unpleasant surprises, particularly if you’re a new retiree. The money you’ve scrupulously saved in your 401(k) or traditional IRA will be taxed when you make withdrawals. A portion of your Social Security benefits may also be taxable. That means it’s critical to take advantage of all the tax breaks available to you.

(Sources: AARP, US Federal Tax Code, Kiplinger’s)

Al Brandenburg is director of Maricopa Senior Coalition. He is a master gardener and has a master’s degree from Binghamton University School of Management.


This column appears in the April issue of InMaricopa.

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Chris J. Scoggin, Chaston Taxes and Accounting

By Chris J. Scoggin, CPA
Partner, Chaston Taxes and Accounting

Individuals
Well, the good news is there were no MAJOR changes in tax year 2019. However, the changes from the Tax Cut and Jobs Act (TCJA) that went into effect in tax year 2018 are still causing some confusion with our clients. So just to refresh:

In 2018, the standard deduction was doubled, so most taxpayers now do not need to itemize deductions.

• If you itemize, you can only deduct up to $10,000 of state, local and property taxes.
• The personal exemption was eliminated.
• The Child Tax Credit was doubled to $2,000 per child for ages 16 and under, and $500 for older children and certain other dependents.
Most of these deductions and credits are inflation-adjusted so some of the new tax year 2019 deduction amounts are:
• The standard deduction has increased from $12,000 to $12,200 for Single taxpayers and from $24,000 to $24,400 for married filing jointly.
• For Traditional (tax deductible) and Roth IRA contributions, you can contribute up to $6,000, and if you are 50 or older, the contribution limit is $7,000. These contribution limits may be reduced for higher incomes if you have a retirement plan offered through your employer.

Finally, with the historically low tax rates passed with the TCJA, it is our opinion this MAY provide an opportunity for some taxpayers to accelerate income that will eventually be taxable and pay the tax at this year’s (2019 or 2020) reduced rates, before the rates are likely increased at some point in the future. This strategy can be complicated and should be discussed with your CPA and Financial Planner before implementing.

Business
The Business tax questions we have been asked more than any other are what is QBI, and what is a Specified Service Trade or Business (SSTB). QBI or Qualified Business Income is income generated by a qualified small business that has gross receipts of $25 million or less. QBI allows you to exclude 20% of this income from taxation. This is a huge tax break but it comes with a lot of asterisks!

The first asterisk is this deduction phases out once qualified business income reaches $321,400 (2019) and is totally eliminated when QBI exceeds $421,400. There are some very effective planning opportunities if you feel your business income is at or just over these limits. Feel free to give Chaston Taxes and Accounting a call or talk to your accountant for advice.

Lastly, the most asked question is “What is a Specified Service Trade or Business (SSTB)?”

The QBI Deduction is not allowed for SSTBs. As a broad generalization, this is a business where the principal asset (and revenue generator) is the reputation, skill or effort of the owner(s).

For example, as a CPA and Partner in Chaston Taxes and Accounting, I do not qualify for the QBI deduction. However, if possible, we will ensure you get every deduction allowed under this year’s regulations!

ChastonCPA.com

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CPA Jim Chaston

By James A. Chaston, CPA

CPA Jim Chaston

With the increase in the standard deduction only about 12% of taxpayers will itemize and be able to write off mortgage interest, state taxes, medical and charitable deductions.

That doesn’t mean you shouldn’t donate to charities. The State of Arizona has some tax credit programs that allow you to choose how your tax dollars get used. The following Arizona tax credits reduce your tax liability dollar for dollar. Every dollar you give to the “qualified” charities reduces your taxes by a dollar. You don’t lose any money; just decide where it goes, and your chosen charity gets that additional funding. If you understand this, you will always
take advantage of it. Here are the Arizona state tax credit programs that you can participate in.

• Public Schools Credit
• Private School Tuition Organization
• PLUS Private School Tuition Organization
• Arizona Charities Credit
• Foster Care Credit
• Military Family Relief Fund

In addition, if you itemize your deductions on your federal return you can also take a deduction for these donations.

Here’s how it works. You give $400, the maximum for a married filing joint tax return, to a public school for something that qualifies for the credit. Then, when you file your tax return, you either get that $400 back or your liability is reduced by $400 from the State of Arizona, assuming you have that much in
liability. If you are in the 22% tax bracket for federal income taxes, you save $88 or 22% of the $400 donation from your federal taxes. The result is you give your public schools $400 and get $488 back from the government.

You combine all the credits at the maximum if you file jointly and itemize, and you could get up to $5,940 back from the government while giving $4,869 to your choice of schools and charities depending on your tax bracket (limit for filings other than jointly is $2,435). The overall limit of state tax credit you can claim this year is your state tax liability.

Example: You generated an Arizona tax liability of $5,000, you had $4,800 withheld from your wages, so normally you would owe $200 when you file your tax return. If you make the donations of $4,869, it would reduce your tax liability from $5,000 to just $131 and you would get a refund of $4,669, essentially getting your $4,869 back.

Then you would also get the $4,869 as a deduction on your federal return increased your refund or decreasing what you would owe.

Here’s a closer look at these credits. The credit for a “qualifying charitable organization” is one that spends at least 50% of its budget on services to Arizona residents who receive temporary assistance for needy families’ benefits or are considered low-income households. There is also an additional $500 and $1,000 credit if you give to a qualifying Foster Care Organization. Check AZDOR.gov/sites/default/files/CREDITS_2019_qco.pdf for the most current list of qualifying charities. You must itemize deductions to claim the credit.

The credit for contributions made or fees paid to a public school must be made in support of extra-curricular activities or for character education programs. Fees paid to the school for your own child qualify for the credit. Also, you can just make a general donation whether you have children in the school district or not.

The annual credit limit for someone filing single or head of household is $200 and $400 for a couple filing jointly.

The private school tuition credit must be made to a tuition organization that provides scholarships or grants to qualified schools. Again, anyone can make a donation whether they have a child in the school or not. Most private schools have tuition organizations set up to handle these donations. A good list of
these organizations can be found at AZDOR.gov/sites/default/files/REPORTS_2019_sto-ilist.pdf. The annual credit limit for someone filing single or head of household has increased to $569 for single and $1,138 for a couple filing jointly.

These are non-refundable credits, they offset tax liabilities and allow your withholding to be refunded. Any unused credits may be carried over to future years.

There are several other credits, but many of them are specific to certain circumstances and you should consult your tax advisor to see if you qualify for those credits and your applicability to the credits discussed above.

The donation deadline for these donations for tax year 2019 is April 15, 2020. But make them before December to get the federal write-off also.

James A. Chaston, CPA
520-568-3303 Office
602-617-2449 Mobile
21300 N. John Wayne Parkway, Suite 110

MUSD Board Vice President Ben Owens convinced two other members to vote for a $68 million bond. Photo by Raquel Hendrickson

A Nov. 5 election ballot won’t be asking voters for a $50 million, $65 million or $75 million bond for Maricopa Unified School District. Instead, three of the five members of the governing board opted to compromise for $68 million.

The two dissenting members, Patti Coutré and Joshua Judd, pushed for $75 million.

The bond is for construction of a second high school to mitigate overcrowding and for capital projects for aging buildings, like replacing heating/cooling units and roofs.

Superintendent Tracey Lopeman said a second high school alone will cost around $67-$75 million. The district received $26 million for construction plus funding for land from the state’s School Facilities Board. Under questioning from Coutré, she said a $68 million high school would be a small but comprehensive school that might serve 2,600 students but without some of the programs of the current high school.

Board Vice President Ben Owens proposed the compromise. He said he talked to several people who had signed petitions to put him on the board, and all but one favored the $68 million idea.

Coutré said her constituents stressed the fact they did not like the district continually coming back to them for funds. A $68 million bond, she said, will likely lead to another bond request or capital override in a few years.

Judd, who attended via telephone, warned the board that interest rates will likely rise from the current 3.25 percent to the average 5 percent. He asked for the $75 million with the rate locked in.

“Currently we are at record lows for interest rates,” he said. “The further and further we go out from putting this on the ballot next year, the more we increase the risk of looking at the interest rates which were presented to us when we were given information earlier.”

He said it could cost voters money by not being aggressive now. “I think that’s the most responsible choice. Someone could be conservative now, but it ends up becoming the bad choice two or three years from now when interest rates increase.”

Lopeman said $68 million could result in $20 million left over but not enough to meet all the capital needs.

“We could be at capacity in, say, five years and still have needs,” she said.

“We’re always going to have needs. That’s the nature of the beast, which is great because we’re an awesome district and this is where everybody wants to be,” Anderson said. “But we’re always going to have to keep going back to the voters.”

Anderson said she thinks the state will come through with more capital funding that might help with repairs.

Board President AnnaMarie Knorr said she could see the day in the next five to six years when the district will need another middle school or another elementary school. Though she implored the board to reach a unanimous choice, Coutré and Judd could not agree to do so.

MUSD is currently under an M&O bond that paid for more teachers, smaller class sizes and technology. The district may ask for a renewal in 2020 or 2021. If this year’s bond passes but there is not enough money for major capital expenditures like rooftops, HVAC and safety measures, the district may ask for a capital override or another bond.

Paul Ulin presented the results of a public opinon survey on a possible bond election to the MUSD Governing Board Wednesday.

A survey conducted in April found  58 percent of contacted Maricopans indicated they would support a $75 million bond for Maricopa Unified School District.

The goal was at least 60 percent.

MUSD is mulling the option of asking voters for a bond to build a second high school. The state has determined Maricopa High School is over-capacity. The district has obtained mobile classrooms to alleviate part of the problem next school year.

A new high school, updates to safety and security at existing schools and new buses would all be part of the bond. The state’s School Facilities Board has already affirmed some money for construction and funding a land purchase.

Primary Consultants LLC was hired to complete the opinion poll, and calls were made April 24-30 to registered voters. Paul Ulan, founder of Primary Consultants, said 401 voters participated with a 5.5 percent margin of error.

When board member Patti Coutré questioned whether that was too small a sample on which to base a decision, Ulan said it was “a good snapshot of where we’re at.” Pollsters made more than 6,000 calls.

Ulan said pollsters gave voters “a pretty lengthy explanation of the bond” and explained what the tax impact would be before asking about support for a $75 million bond. That resulted in the 58-percent approval.

“You’d like to be at 60 percent,” Ulan said. “That’s sort of the magic number.”

Though not yet proposed, a $75 million bond would mean about $14 more per month in property taxes on an average home with a full assessed cash value of $117,000.

Respondents who answered no (31 percent) or unsure (11 percent) were subsequently asked if they would approve a bond of $50 million. That gained $15 percent approval from that group.

When those who still answered no or were unsure about $50 million were then asked if they would support what Ulan called “the bare minimum” $35 million bond, 17 percent said yes.

By the time the bottom number was reached, there was a total of 70 percent among all those polled in favor of a bond of some kind.

“Of course, that makes sense,” Ulan said. “Do you want to pay 10 bucks, eight bucks or five bucks?”

He said there is a core that will oppose any measure that increases their taxes: “I don’t care what it is, I don’t care what the need is, what the amount is, what the cost is, I’m a no.”

Ulan broke down numbers on the $75 million bond responses.

“You see 75 percent of your parents supporting the bond. You would expect that,” Ulan said. “You’d like that to be a little bit higher.”

Eleven of the respondents turned out to be MUSD employees, and 73 percent favored the bond.

Of those polled, 51 percent were men. Ulan said women are usually the majority. Sixty-four percent had lived in the district at least six years.

When respondents were asked their opinion of the current level of property tax, 58 percent said it is just about right, and 33 percent said it was too high. Ulan said the latter was “a little bit of a concern but not an alarming number.”

Of those polled, 154 were Republican, 133 were Democrat and 114 were independent or something else. Among the GOP, 50.6 percent were in favor. Among Democrats, support was 67.7 percent.

The gender gap, Ulan said, was a surprise, with men a little more in favor of the bond (59.7 percent) than women (56 percent). “Typically, women seem to be more supportive of school funding.”

Respondents also indicated the presence of an oversight committee for the bond funds would make them more supportive (60 percent). Knowledge of the Facilities Board’s intention to purchase land for a new high school made 50 percent more likely to support the bond.

“There isn’t a district in the state doesn’t that have capital needs,” Ulan said. “This isn’t Maricopa problem. This is a statewide problem. There aren’t a lot of districts in the state that are growing like you.”

After providing the additional information to voters who had already indicated support for a $76 million bond, that support fell from 58 percent to 55 percent.

“The challenge is, Maricopa is primarily a residential community,” Ulan said. “That means homeowners foot a disproportionate percentage of the tax increase when you’re looking to go out for bond and override elections.”

Ulan said historically bonds are easier to pass than overrides because voters understand the issues of capital projects like buildings and transportation.

For next budget cycle, the district’s estimated capital budget is $2.4 million, with $2.3 million in recommended projects. That leaves $167,034 in reserve.

Financial advisor Mike LaVallee said the state formula will artificially inflate projected tax rates on a possible bond for Maricopa Unified School District. Photo by Raquel Hendrickson

The growth of Maricopa Unified School District mirrors that of many other districts in Arizona recovering from the Great Recession. And that could lead to a communication problem with voters.

MUSD is preparing to ask those voters for a bond to relieve the pressure on an already-overcrowded high school. Over the past five years, the district’s valuation has grown 5.34 percent.

However, the 10-year growth average is only 0.82 percent. By state statute, the 10-year historical average must be used in voter pamphlets to project the growth in assessed value in the tax-impact schedule.

“That’s a big disparity,” said financial advisor Mike LaVallee, a managing director of Stifel, Nicolaus & Company. “Even though you’re adding growth now, it’s not making up for what you lopped off 11-12 years ago.”

Using the 10-year average will produce a tax-rate impact that LaVallee said will be artificially high.

As an example, LaVallee showed the 10-year growth average creating a tax rate of 88 cents on a $50 million bond. For the owner of a home valued at $100,000, that would be an annual cost of $88.24. However, LaVallee said a “more realistic scenario,” based on the five-year average, would be a tax rate of just 55 cents, costing the same homeowner $55.49 instead.

“By law, we have to, in the voter pamphlet, talk about 1A, ‘Here’s what the state says it’s going to be.’ Then we would explain, ‘No, really, it’s going to be 1B for these reasons, X, Y and Z,’” said board member Torri Anderson. “That makes sense. Frustrating, but it makes sense.”

LaVallee called himself a K-12 specialist, but he also worked with the former Maricopa Fire District on bond elections before the city incorporated. He also worked with MUSD previously on refinancing debt and bond elections.

The assessed valuation history of the district “is so important as it relates to bonding capacity and tax-rate calculations,” he said. Bonding capacity is determined by the assessed value.

In 2009-10, before the recession fully impacted the area, the full cash assessed value was $441,000. By 2013-14, it was down to $224,000. Then the district grew again.

Now, the most recent estimate from Pinal County has the assessed valuation at $390,000, a growth rate over last year of 10.88 percent.

“That’s a very healthy growth number,” LaVallee said.

The limited assessed property value, on the other hand, determines all tax rates, including bonds. It is called limited because it is restricted by formula.

“If somebody’s property value grew market value year-by-year 8 percent, the tax value can only grow by 5,” LaVallee said. “Every property, existing homeowner, existing business can only grow tax value by 5 percent a year, even if they grew at 10 or 7 or 12. It will keep carrying over every year, but it will be capped at 5 percent.”

He said the message to the community needs to recognize what the voter pamphlet will show but explain what the real rate will be. He said that kind of outreach will be up to a pro-bond committee.

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By James A. Chaston, CPA

Changes to Individual Taxes

Taxpayers either take itemized deductions or the standard deduction whichever is greater. In 2017, the standard deduction for a married couple was $12,700, for 2018 it is now $24,000. As a result, most people that used to itemize

now will just claim the standard deduction. Which also means, that your mortgage interest, state taxes, charitable deductions, work related expenses and medical expenses will provide NO TAX BENEFIT when you claim the standard deduction. Singles are half of Marrieds and Heads of Household is 75% of Marrieds.

Personal Exemptions, which in 2017 provided a deduction for each person and dependent of $4,050 is now gone. It has been replaced by an increased or new dependent credit. For dependents 16 and under, the credit increased to $2,000 from $1,000 and the phaseout of this credit increased from $110,000 to $400,000 which means that for many two income homes, they will actually get this credit now. For dependents over age 16, there is a new $500 credit per dependent.

Mortgage interest is only deductible for proceeds that go directly to purchase or improve the property, proceeds that pay for other items are not deductible and you must prorate the deductible and nondeductible portion, this includes wrapping refinance costs into the new loan, interest for these costs are no longer deductible. Only interest for loans up to $750,000 for up to two properties is deductible, loans above this is not deductible.

Work Related Expenses are no longer deductible for those that can still itemize deductions.

State Taxes paid are limited to $10,000 for those that can still itemize deductions. This is only for Federal Taxes, Arizona

did not change the standard deduction, it is still $10,336, so many taxpayers will claim the standard deduction for Federal, but still have to track and file itemized deductions for Arizona.

Alimony, moving expenses, investment expenses, casualty losses, union dues, tax preparation fees all no longer deductible.

 Changes to Small Business Taxes Small Business Owners get a 20% deduction for Qualified Business Income, this is quite convoluted and not as straight forward as you might think, talk to a tax professional about this one. But basically, if you make $50,000 of qualified business income you get a $10,000 deduction and pay tax on $40,000, not $50,000.

Entertainment is no longer tax deductible, but just recently the IRS clarified that business meals are still 50% deductible.

Depreciation changes, for the most part you can depreciate 100% of equipment purchases and much more on vehicles than prior years.

Like-kind exchanges only available for Real Property and more clarification that they are not available for fix and flips.

Cash Basis is available for all companies with less than $25 Million in gross sales and they can automatically change back.

Flat rate for C Corporations of 21%.


This column appears in the November issue of InMaricopa.

By Hollace Lyon 

Hollace Lyon (submitted photo)

You’ve probably heard about the recent increase in secondary property tax rates in Maricopa as a result of the Legislature’s change to desegregation-related school funding. There’s been a lot of good talk about the merits of the funding, but I’d like to talk about process and priorities.

I believe real fiscal responsibility means not only protecting taxpayer dollars, but actually providing taxpayers what they are paying for, and that’s been a chronic problem with our Legislature. Yes, we should care whether the deseg dollars are being spent wisely, but we should also care that all students have an opportunity for equity and access. To that end, I’d rather see our Legislature stop encouraging the siphoning away of over $1 billion in vouchers and private school tax credits with no accountability, instead of chasing down $200 million state-wide in desegregation funds. How about taking a serious look at the almost $14 billion in annual tax giveaways increased every year since the 1990s, now nearly 1.5 times the state budget.

Don’t get me wrong, I believe there are legitimate reasons for tax incentives. But those incentives should deliver a return on investment— a principle that should guide our expenditure of all precious taxpayer dollars.

Instead, Senator Steve Smith decries desegregation funds as “unfair to taxpayers.” What is “unfair to taxpayers” is diverting the funding they pay to improve schools and roads, not fixing those schools and roads, and then forcing the counties and cities to raise more taxes to actually get it done. Prop. 301 inflation funding and Highway User Revenue Fund (HURF) monies are just two examples. Another is the Legislature’s “funneling of $25 million away from our 911 center fund” and, you guessed it, forcing funding responsibility down to localities. You’re now paying twice for the same service.  Maricopa Councilwoman Nancy Smith noted recently, “I have a big concern with the common practice that our legislators have of balancing the budget on the backs of cities and counties,” when she was talking about yet another example.

Rather than looking for more ways to cut funding to our district schools, state lawmakers ought to be finding ways to provide them stable, dedicated funding. After all, one of their primary constitutional responsibilities is to “provide for the establishment and maintenance of a general and uniform public school system” across the state. Yes, they must also balance the budget. But they have many tools at their disposal without continually shifting costs down onto the backs of our small businesses and citizens, the ones who ultimately end up paying for it.

Imagine if instead of dictating from on high, our state lawmakers believed in collaborating with schools districts, cities, and counties. Imagine, if they did their jobs without concern for who got the credit.  Imagine…then vote with that end in mind.  Rewarding their behavior just emboldens it.  Send them the signal that it’s time for a new approach.

Hollace Lyon is a Democrat candidate for LD11 House of Representatives.

 

Submitted by Rep. Mark Finchem

Mark Finchem (submitted photo)

On Aug. 15, a news release was circulated by the City of Maricopa that claimed, “The Arizona Legislature Increased your Taxes,” going on to say, “the Arizona Legislature passed and the Governor signed Senate Bill 1529, which significantly changed school funding in selected districts across the state.” At least the press release got that part right, but a significant element of the truth was conspicuously missing.

For decades school districts have received “Desegregation supplemental funding” from both local property taxes (by way of the Primary Property Tax) and from the State General Fund. SB 1529, moved the desegregation supplemental funding from the Primary Property Tax load, to the Secondary Property Tax load, making those school districts who have been collecting Desegregation supplemental funding from the state, accountable for the use of the money to school district residents affected.

When the Legislature first began supplementing local school districts with gap-funding it was an arrangement to ease the strain on local budgets caused by the taxpayer approved 1 percent Property Tax Cap, and the arrangement was to be temporary. Over the years, the urgency to solve segregation was replaced with a sense of entitlement continuation, even though the money was intended to end segregation. In the case of MUSD, the only reason the State has funded desegregation is to address Maricopa’s property tax collection, that is over the 1 percent tax cap. Those school districts that are not over the 1 percent Property Tax Cap, and are under an OCR order to desegregate have never received money from the State, (Phoenix Union is an example). This a problem because the Pinal County and City of Maricopa governmental bodies have made it a problem with their spending habits.

During the 2016 Legislative Session, LD-11 Representatives Vince Leach and Mark Finchem asked about questions generated by the State Auditor General posed to then MUSD School Superintendent Steve Chestnut, “Where is $1,000,000 annually sent to MUSD going; what are you spending it on since after all of these years you have not achieved ‘unitary status’ (desegregation?” His response was short and illustrative of the condition of financial management in many school districts. He simply said, “I don’t know.” In fact, the Superintendent had to check with the Office of Civil Rights to find out how the money was supposed to be spent.

If desegregation has not ended, one is left to ask the tough question, why not? Is it a lack of political will? Or is it that desegregation has been achieved, but the school districts want to keep the tap open and taxpayer money flowing without accountability?

The News Release [also] claims, “The State Legislature passed a law that instituted a secondary property tax without putting it to a vote of those affected, which we believe is illegal and unconstitutional.” This is not a new tax, it is a tax moved from on funding source to another, putting the responsibility for funding on the community that uses the school system, and not other communities that do not have a segregation compliance problem with the U.S. Department of Justice (DOJ), Office of Civil Rights (OCR).

The truth is that with SB 1529, Arizona’s poorer, rural counties are no longer be asked to pay for the inability of allegedly segregated school districts to achieve desegregation, called “unitary status’ by the DOJ, OCR. It is important to emphasize, the money has been set aside for the highly specific purpose of desegregation. And while the News Release claims, “The responsibility for this new tax lies with the State Legislature and the Governor,” the real responsibility lies with the body that spends the money, not with the one that provides the funding.

The salient question for the residents of the City of Maricopa to ask is, “Why has MUSD desegregation not been achieved, is it because of a lack of political will to make the changes needed to desegregate?” Could it be that desegregation has already been achieved and the money is now redirected to another use? Or is it just shear incompetence on behalf of those who are supposed to be stewards of the public funds?

SB 1529 has corrected an inequity, namely taxation without representation. Arizona City residents don’t want to pay MUSD taxes for desegregation when they have precious few dollars for their own children education. It is indeed curious that the Board of Supervisors should have been told by their staff that not all the Desegregation Districts have a 1-percent cap tax problem, and that no state money flows to them thru the supplement, but only to those districts that are evading the vote of the voters that came from SB 1080, a vote to limit taxation on property to 1 percent.

Might it have something to do with the county rate of 3.75 percent (among the highest in the state) and the City of Maricopa at 5 percent (very high if not the highest city rate), leaving only 1.25 percent for CAC and MUSD to fight over?  We, of course, know they don’t–so all collectively go over the 1 percent cap-leaving the shortage for the rest of the state taxpayers to make up.  And the State gets the blame because local taxing jurisdictions can’t or won’t curtail spending?

The time has come for residents of the district to hold their locally elected school board officials, City and even County elected officials accountable for what they are doing with the tax dollars that they have been entrusted with.

Additional information can be found at http://www.arizonatax.org/sites/default/files/publications/position_papers/deseg_handout_1.pdf


Mark Finchem, a Republican, represents LD 11 in the Arizona House of Representatives.

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The City of Maricopa issued a statement that lashed out against state lawmakers this week, blaming the Legislature and Gov. Doug Ducey for tax increases expected to show up on the next property tax bill for Maricopa homeowners.

The raise in secondary property taxes in Maricopa will cost approximately $45 per $100,000 of assessed home value, according to a City Hall press release published Aug. 15.

The release was published on behalf of the City of Maricopa, Pinal County and Maricopa Unified School District, said City Manager Rick Horst.

What does the tax do?

The local tax pays for desegregation funding utilized by MUSD to hire qualified teachers, implement extra support for English Language Learners and other programming.

Nearly 20 Arizona school districts receive this money to aid in compliance with an order from the U.S. Department of Education Office for Civil Rights to remediate alleged or proven racial discrimination, according to statute.

MUSD has received desegregation funding since approximately the late 1990s, according to one school official.

The new law shifts the cost burden, previously assigned to taxpayers statewide, to homeowners who live in school districts that receive desegregation dollars.

It’s an issue complicated by Arizona’s complex tax system that mandates a 1 percent property tax cap. The state used to backfill those funds cut off by the cap. Now it’s up to resident homeowners.

Local pushback against the tax

The city says the shift in responsibility is unlawful because voters didn’t get a say.

Nancy Smith (City of Maricopa photo)

“The state Legislature passed a law that instituted a secondary property tax without putting it to a vote of those affected, which we believe is illegal and unconstitutional,” the press release stated.

Mayor Christian Price deferred comment on the subject to Councilmember Nancy Smith.

Smith said Pinal County, the City of Maricopa and Arizona school districts, including MUSD, will analyze the possibilities of legal options to appeal the tax.

Other alternative solutions include restructuring school funding and more dialogue with state legislators.

“We simply ask our state Legislature to come to the table with us to increase communication and allow us to help solve complex issues,” Smith said.

Smith has been a vocal critic of the Legislature, which, she said, often balances its budget “on the backs of towns, cities, counties,” and now school districts.

Smith said those decisions by the state force local governments to determine how to adapt increased costs passed down to them, often taking the form of tax increases.

“We believe it is disingenuous when we hear statements that indicate that our state budget has been passed without raising taxes, when in truth a portion of their budget has been passed to local governments,” Smith said.

The Pinal County Board of Supervisors approved the tax unanimously during a special meeting Wednesday – with some reluctance. 

 “I join with my fellow electeds in the City of Maricopa and Maricopa Unified School District as far as protesting this particular new tax,” said Supervisor Anthony Smith, husband of Nancy Smith. 

State lawmakers double down on tax legality

Senate Bill 1529, signed by Ducey and passed by the Legislature in May, alleges secondary property taxes “levied pursuant to this subsection do not require voter approval.”

State Rep. Mark Finchem (LD 11) maintained the tax’s legality in an opinion piece sent to InMaricopa Thursday.

Mark Finchem (submitted photo)

“This is not a new tax, it is a tax moved from one funding source to another, putting the responsibility for funding on the community that uses the school system, and not other communities that do not have a segregation compliance problem with the U.S. Department of Justice Office of Civil Rights,” Finchem wrote.

Desegregation funding has long been a thorn in many state lawmakers’ sides, with previous, unsuccessful efforts to alleviate the state’s funding portion in the past.

“This issue was on the table long before the now very successful 20×2020 was finalized,” said Rep. Vince Leach (LD 11) regarding Ducey’s teacher salary-raise plan included in this year’s state budget.

Leach suggested lowering local government spending and tax rates to fix the problem.

Sen. Steve Smith

State Sen. Steve Smith (LD 11) questioned how districts spend the money and whether those funds are necessary.

Smith said a solution to the tax debacle is simple: Strike out desegregation funding.

“It’s a bad tax that the local level should eliminate and get rid of it altogether,” Smith said.

MUSD: Desegregation funds crucial to success for every student

Superintendent Tracey Lopeman

District officials said the funding keeps classroom sizes manageable, provides

programming that aids in closing student achievement gaps and is necessary for teaching positions that primarily serve English Language Learners.

The district receives approximately $1.29 million annually in desegregation monies that fund the salaries of about 25 teachers throughout nine schools, according to Superintendent Tracey Lopeman.

“It would be devastating if we lost that funding,” Lopeman said.

Sales tax set to be implemented April 1

The RTA plans are aimed at widening State Route 347 and establishing an east-west corridor.

Pinal County and the Regional Transportation Authority filed a legal response Monday to an injunction request filed by the Goldwater Institute over a transportation sales tax.

The tax and the transportation infrastructure improvements it is meant to fund (Props 416/417) were approved by county voters in November. The Goldwater Institute, a conservative thinktank based in Phoenix, filed suit in December against the county, the RTA and the Arizona Department of Revenue. Plaintiffs are listed as Arizona Restaurant Association, county resident Harold Vangilder and On Sight Shooting owner Dan Neidig.

The suit [read it here] challenges the legality of the tax and also claims it exceeds the county’s authority “by creating a new tax classification.”

“The problem is the tax is so complicated and confusing that nobody really knows what is taxed and how,” Timothy Sandefur, Goldwater vice president, said at the time.

After the defendants filed a response in January, the plaintiffs asked the court for a preliminary injunction, hoping to stop the implementation of the tax on April 1. They said collecting the tax while the suit is still being decided would cause irreparable injury and hardship. [Read the motion here.]

The case is in Maricopa County Superior Court in front of Judge Chris Whitten.

In responding to Goldwater’s motion, the defendants called the claims of voter confusion “apparitional.” The response [read it here] also stated the plaintiffs failed to meet the requirements for injunction.

“This lawsuit is nothing more than a post-election attack by those who failed to convince voters to oppose the transportation tax at the election,” Board of Supervisors Chairman Todd House stated. “The voters spoke clearly about the need for improved transportation infrastructure in the Pinal region last November while also expressing their willingness to pay an additional sales tax that amounts to about $7.33 per month per household.”

There is continuing uncertainty over the legal ramifications if the court does not grant the preliminary injunction to halt the start of tax collection on April 1 but Whitten later rules against the RTA. The county cannot proceed with RTA plans until the case is settled.


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Home values are on the rise in Maricopa, signaling more revenue gains for the city despite lower property taxes.

The Maricopa City Council passed the 2017-18 operating budget June 20, and among its revenue items the city has indicated an increase of more than $400,000 dollars in property tax revenue despite effective rates actually shrinking.

The primary property tax rate of 4.7845 percent ($4.7845 per $100 of assessed value) will remain the same, according to budget documents, while the secondary property tax rate will fall from 1.69 percent to 1.40 percent ($1.40 per $100 of assessed value).

This positive assessment, City of Maricopa Finance Director Brenda Hasler said, is a result of rising home values.

“Due to increased property values, the overall amount the City is proposing to collect will increase,” Hassler said.

According to the Pinal County Assessor’s office, the primary property tax is to be used for “basic maintenance and operation of a county, city or school.”

Secondary property taxes are used to pay for “bonded indebtedness of a local jurisdiction, voter approved overrides of tax limits, and taxes levied by special taxing districts.”

For Maricopa, the excess primary property tax revenue will be spent primarily on public safety, City Manager Gregory Rose said. This is largely due to the fact that fire and police make up the largest budgetary expenditures and not because the city has a mandate to spend it on specific services.

“All of the funding that will be received for property taxes will be used for general services,” Rose said. “So, they won’t be dedicated to one specific department, although public safety makes up about 61 percent of the budget.”

Those general services, Rose added, include the addition of several positions to the police and fire departments as well as positions in the accounting and permitting departments at City Hall.

For the previous fiscal year (2016-17), the city took in $10,992,790 from primary property taxes and $3,732,776 in secondary property taxes for a combined total property tax revenue of $14,725,566.

In 2017-18 the city has budgeted for revenue of $11,704,000 from primary property taxes and $3,426,003 from secondary property taxes for a combined collection of $15,130,003.

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It’s budget season, a time of changes, but those changes won’t include a hike in local property tax rates.

The City of Maricopa’s primary tax rate will remain at 4.7845. With this week’s tentative budget adoption, the Pinal County rate is expected to stay at 3.8699. But that doesn’t mean more money won’t be rolling in.

In fact, Maricopa expects to collect 4.2 percent more in its levy. 

“The tax rate for property owners in the City of Maricopa will remain the same,” said Maricopa Finance Director Brenda Hasler. “Due to increased property values, the overall amount the City is proposing to collect will increase.”

During the current fiscal year, Maricopa’s tax levy was $10.99 million. With the new fiscal year, that levy will be around $11.7 million. Primary property taxes on a $100,000 home will increase from $459.30 to $478.45.

The city will have a mandated Truth in Taxation Public Hearing on the primary property tax rate June 20 at 7 p.m. at City Hall.

Meanwhile, the county’s budget has decreased by $3.6 million. About 49 percent of the Pinal County general fund comes from property taxes. In the county budget, 60 percent of all revenue goes to the Sheriff’s Office, the County Attorney’s Office and the courts.

The tentative budget totals $406 million.

Of property tax that is collected by Pinal County, about 25 percent goes to the county. The rest goes to school districts, Central Arizona College, municipalities and other taxing entities.

“What we are doing is putting a ceiling on our final budget,” Assistant County Manager Leo Lew said.  “The total budget number cannot go up from here.  But there is some flexibility to be able to reallocate money and shift money around if we need to before adoption of the final budget.”

Lew also stated that Pinal County saw a 3.2 percent growth in new construction valuation, a slight increase in existing property valuation and excise tax collections. 

The Board of Supervisors will vote on the final budget on July 12, with the adoption of the tax levy rates coming on Aug. 21. 

By Jim Chaston

1.    Congress has gotten serious about correct Employee vs. Independent Contractors classification and increased penalties drastically. Penalties can be more than 100 percent of payments for misclassified employees. Listen to a tax professional, not other business associates and friends. Classification is based on behavioral control, financial control and a relationship test; NOT a written contract.

2.    Identity Theft is a huge issue. Congress changed the deadlines for filing W-2s and 1099s up to Jan. 31 instead of Feb. 28. This is so the IRS can match W-2s and 1099s to tax returns before they issue refunds.  Refunds were delayed until Feb. 15 this year because of fraudulent returns and identity theft.

3.    The annual required election to expense repairs and small equipment – Repairs and Small Equipment Regulation – has increased from $500 to $2,500 with election on tax return.

4.    Section 179 Depreciation is $500,000 for 2016.

5.    You can still get a tax credit for implementing a retirement plan in your company for up to 50 percent of the cost of implementation.

James A. Chaston CPA


This column appears in the March issue of InMaricopa.

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“The tax rate for property owners in the City of Maricopa will remain the same,” explains City of Maricopa Finance Director Brenda Hasler. “Due to increased property values the overall amount the City is proposing to collect will increase.”

The fiscal year 2015-16 property tax rate was $4.7845 per $100 of net assessed value which resulted in a primary tax levy of $10,522,453.  For fiscal year 2016-17, the City of Maricopa is maintaining the property tax rate at $4.7845 per $100 of net assessed value. However, due to the increase in the net assessed value of residential property within the City of Maricopa, the total primary tax levy will increase to $10,998,701, a 2.4 percent increase from the 2015-16 fiscal year.

The Truth in Taxation Public Hearing is scheduled for Tuesday, June 21, 2016 at City Hall at 39700 W. Civic Center Plaza Maricopa AZ, 85138 at 7 p.m. A copy of the City’s tentative budget is available for review at the front desk of City Hall and the Maricopa Public Library located at 41600 W. Smith-Enke Road Building #10 Maricopa, AZ 85138, and on the City’s Financial Services homepage at www.maricopa-az.gov.

This proposed increase is exclusive of increased primary property taxes received from new construction. The increase is also exclusive of any changes that may occur from property tax levies for voter approved bonded indebtedness or budget and tax overrides.