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Year in Review: Tax Changes for Individuals
The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated or modified numerous tax provisions starting in 2018. Here's what individuals and families need to know as they get ready for tax season.
The additional standard deduction for blind people and senior citizens in 2018 is $1,300 for married individuals and $1,600 for singles and heads of household.
Income Tax Rates
Estate and Gift Taxes
Alternative Minimum Tax (AMT)
Pease and PEP (Personal Exemption Phaseout)
Flexible Spending Account (FSA)
Long-Term Capital Gains
Individuals - Tax Credits
Child and Dependent Care Credit
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit and Credit for Other Dependents
Under TCJA, a new tax credit - Credit for Other Dependents - is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit is nonrefundable and covers children older than age 17 as well as parents or other qualifying relatives supported by a taxpayer.
Earned Income Tax Credit (EITC)
Individuals - Education Expenses
Coverdell Education Savings Account
American Opportunity Tax Credit
Lifetime Learning Credit
Employer-Provided Educational Assistance
Student Loan Interest
Individuals - Retirement
Retirement Savings Contributions Credit (Saver's Credit)
If you have any questions about these and other tax provisions that could affect your tax situation, don't hesitate to call.
Recap of Business Tax Provisions for 2018
Here's what business owners need to know about tax changes for 2018.
Standard Mileage Rates
Health Care Tax Credit for Small Businesses
In 2018 (as in 2014-2017), the tax credit is worth up to 50 percent of your contribution toward employees' premium costs (up to 35 percent for tax-exempt employers. For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.
Section 179 Expensing and Depreciation
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 25 cents per mile (same as 2017).
Please call if you have any questions about Section 179 expensing and the bonus depreciation.
Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit remained under tax reform and can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.
SIMPLE IRA Plan Contributions
Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.
Avoid these Five Common Budgeting Errors
When it comes to creating a budget, it's essential to estimate your spending as realistically as possible. Here are five budget-related errors commonly made by small businesses and some tips for avoiding them.
Please call if you need assistance in setting up a budget to meet your business financial goals.
Eight Tax Breaks for Parents
If you have children, you may be able to reduce your tax bill using these tax credits and deductions.
As you can see, having children can impact your tax situation in multiple ways. Make sure that you're taking advantage of credits and deductions you're entitled to by speaking to a tax professional today.
Tax Transcript Email Scam Alert
Taxpayers should be aware of a new round of fraudulent emails that impersonate the IRS and use tax transcripts as bait to entice users to open documents containing malware. The scam is especially problematic for businesses whose employees might open the emails infected with malware as it can spread throughout the network and may take months to remove.
This well-known malware, which is called Emotet, typ[ically tricks people into opening infected documents by posing as specific banks and financial institutions. However, in the past few weeks, the scam has masqueraded as the IRS, pretending to be from "IRS Online." Many of these malicious Emotet emails were recently forwarded to firstname.lastname@example.org.
The scam email carries an attachment labeled "Tax Account Transcript" or something similar, and the subject line uses some variation of the phrase "tax transcript." The exact wording often changes with each version of the malware.
Taxpayers should remember that the IRS does not send unsolicited emails to the public, nor would it email a sensitive document such as a tax transcript (a summary of a tax return). Taxpayers receiving a suspicious email are urged not to open the email or the attachment. If using a personal computer, delete or forward the scam email to email@example.com. If you see these types of emails when using an employer's computer, notify your company's internet technology (IT) department immediately.
In July, the United States Computer Emergency Readiness Team (US-CERT) issued a warning in July about earlier versions of the Emotet, which it has called one of the most costly and destructive malware affecting the private and public sectors.
Retirement Contributions Limits Announced for 2019
Dollar limitations for pension plans and other retirement-related items for 2019 are as follows:
In general, income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver's credit all increased for 2019. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan also increases from $18,500 to $19,000. Contribution limits for SIMPLE retirement accounts for self-employed persons increase in 2019 as well - from $12,500 to $13,000.
The limit on annual contributions to an IRA increases from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.
Here are the phase-out ranges for 2019:
The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
Limitations that remain unchanged from 2018
Don't hesitate to contact the office if you have any questions about retirement plan contributions.
Transition Rule for Rehabilitation Tax Credit
The Rehabilitation Tax Credit offers an incentive for owners to renovate and restore old or historic buildings. Tax reform legislation passed in December 2017 changed when the credit is claimed and provides a transition rule, which is summarized below:
1. The credit is 20 percent of the taxpayer's qualifying costs for rehabilitating a building.
2. The credit doesn't apply to the money spent on buying the structure.
3. The legislation now requires taxpayers take the 20 percent credit spread out over five years beginning in the year they placed the building into service.
4. The law eliminates the 10 percent rehabilitation credit for pre-1936 buildings.
5. A transition rule provides relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions:
6. Taxpayers should use Form 3468, Investment Credit, to claim the rehabilitation tax credit in addition to a variety of other investment credits.
Please call if you have any questions about this tax credit.
Depreciating Farming Business Property
Farmers and ranchers should be aware of changes in how they depreciate their farming business property. These changes took effect in 2018 as a result of tax reform legislation passed in December 2017.
Depreciation is an annual income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over the time that they use it. When figuring depreciation, there are a number of factors that should be taken into consideration such as wear and tear and deterioration of the property, as well as whether it is now obsolete.
Here are nine facts about these tax law changes to depreciation that could affect farmers and their bottom line:
1. New farming equipment and machinery is five-year property. For property placed in service after December 31, 2017, the recovery period is shortened from seven to five years for machinery and equipment.
2. The shorter recovery period does not apply to grain bins, cotton ginning equipment, fences, and other land improvements.
3. Used equipment remains seven-year property.
4. Property used in a farming business and placed in service after December 31, 2017, is not required to use the 150-percent declining balance method. Farmers and ranchers must continue to use the 150-percent declining balance method for property that is 15 or 20 years old to which the straight-line method does not apply and for property that the taxpayer elects.
5. New and certain used equipment acquired and placed in service after September 27, 2017, qualifies for 100 percent first-year bonus depreciation for the tax year in which the property is placed in service.
6. A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These amounts ($1 million and $2 million) will be adjusted for inflation for taxable years beginning after 2018.
7. The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017. The bonus depreciation percentage for qualified property that a taxpayer acquired and placed in service before September 28, 2017, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.
8. The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after September 27, 2017, as long as certain requirements are met.
9. Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more. This provision applies to tax years starting in 2018 and refers to property such as single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain land improvements.
Questions? Don't hesitate to call.
Take Retirement Plan Distributions by December 31
Taxpayers born before July 1, 1948, generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by December 31.
Known as required minimum distributions (RMDs), typically these distributions must be made by the end of the tax year, in this case, 2018. The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2018 RMD, this amount is on the 2017 Form 5498, IRA Contribution Information, normally issued to the owner during January 2018.
A special rule allows first-year recipients of these payments, those who reached age 70 1/2 during 2018 to wait until as late as April 1, 2019, to receive their first RMDs. What this means that those born after June 30, 1947, and before July 1, 1948, are eligible. The advantage of this special rule is that although payments made to these taxpayers in early 2019 (up to April 1, 2019) can be counted toward their 2018 RMD, they are taxable in 2019.
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by December 31. So, for example, a taxpayer who turned 70 1/2 in 2017 (born after June 30, 1946, and before July 1, 1947) and received the first RMD (for 2017) on April 1, 2018, must still receive a second RMD (for 2018 by December 31, 2018.
The RMD for 2018 is based on the taxpayer's life expectancy on December 31, 2018, and their account balance on December 31, 2017. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. For a taxpayer who turned 72 in 2018, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than ten years younger and is the taxpayer's only beneficiary. If you need assistance with this, don't hesitate to call.
Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions; however, there may be a tax on excess accumulations. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.
For more information on RMDs, please contact the office.
New Depreciation Deduction Benefits Business
Tax reform legislation passed in December 2017 included numerous changes that affect businesses this year. One of them allows businesses to write off most depreciable business assets in the year they place them in service. Here are five facts to help businesses better understand this deduction:
1. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property.
2. Machinery, equipment, computers, appliances, and furniture generally qualify.
3. The 100-percent depreciation deduction applies to qualifying property acquired and placed in service after September 27, 2017.
4. Taxpayers who elect out of the 100-percent depreciation deduction for a class of property must do so on a timely filed return.
5. The IRS has issued proposed regulations with guidance on what property qualifies and rules for qualified film, television and live theatrical productions, and certain plants.
For more details about the 100-percent depreciation deduction or electing out of claiming it, please call.
Tax Due Dates for December 2018
Employees who work for tips - If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.
Corporations - Deposit the fourth installment of estimated income tax for 2018. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.
Employers Social Security, Medicare, and withheld income tax - If the monthly deposit rule applies, deposit the tax for payments in November.
Employers Nonpayroll withholding - If the monthly deposit rule applies, deposit the tax for payments in November.
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