New for 2018
You may have read that the 2018 tax forms will be shorter and easier. This is only partially true.
The new “short form” functions as a summary page that requires additional attachments and schedules. In truth, the 2018 tax return may be longer than last year!
In addition, documentation is still required for everything that appears on the return, as has always been done — meaning it is probably not any easier either.
Income tax rates – The old 10, 15, 25, 28, 33, 35 and 39.6% brackets have been replaced with the new, lower 10, 12, 22, 24, 32, 35 and 37% brackets. However, don’t go spending that refund yet!! Changes to deductions (discussed below) may offset the new lower tax rates.
Standard deduction – increases in 2018 to $12,000 if single, $18,000 if head of household and $24,000 if married. You may still itemize deductions if you choose, but new rules apply to itemized deductions as well.
Personal exemptions – have been eliminated.
Itemized deductions – the 2018 rules place a new $10,000 limit on the amount of state income tax, real estate and personal property taxes that can be deducted on the federal return. There are also new rules with respect to the mortgage interest deduction, potentially limiting the amount of home equity loan interest that is deductible. Finally, many other itemized deductions have been eliminated. Tax preparation fees (except for businesses), unreimbursed expenses (including mileage) and investment fees are no longer deductible.
Donations to obtain college athletic event seating rights – are no longer allowed as a charitable deduction.
Casualty thefts/losses – Stolen cars, jewelry or other valuables, house fires, storm damage, floods, etc. are no longer deductible unless caused by a disaster such as a forest fire, hurricane, tornado, etc. in a federally declared disaster area.
Child tax credit – has increased from $1,000 per child under 17 years old to potentially $2,000 per child. However, income and other limitations may mean the entire credit will not be received. Other family members (dependent relatives that are older than 16) may qualify for a new $500 tax credit. Please call us for details.
529 College savings accounts – can also be used to pay for elementary and secondary private and public education. Limits apply, of course. Withdrawals are tax free, up to $10,000 per year, per student at the federal level. However, this withdrawal may not be tax free at the state level. More information will hopefully be forthcoming soon…
Charity/Qualified charitable distribution – Individuals age 70 1/2 and older can make tax-free transfers of up to $100,000 annually from traditional IRAs directly to charity. The charitable transfers count as all or part of the required minimum distribution but are not taxed and are not added to income. The new tax law preserves this tax saver and makes it more useful. Beginning with 2018 returns, more people will take the larger standard deduction in lieu of itemizing, leading to fewer filers claiming charitable write-offs on Schedule A. The IRA-to-charity strategy continues tax savings from charitable gifts.
Congress has written several new tax laws that impact businesses in 2018 and beyond. We have highlighted a few below:
Depreciation – 100% bonus depreciation is back. Firms can write off the entire cost of qualifying assets that are purchased and placed in service after September 27, 2017. It generally lasts until 2022 and then phases out 20% for each year thereafter. The break applies to new and used assets with lives of 20 years or less.
Like Kind Exchanges – This tax deferral strategy is now only available for real estate located in the United States.
Meals and Entertainment – Entertainment and memberships in country clubs or other social clubs are no longer deductible. Business meals in town, whether with other staff from the firm, clients, vendors, prospective clients or referral sources is 50% deductible but ONLY if business is conducted or a business benefit is reasonably expected. Business travel meals are still 50% deductible if out of town overnight. Best practice is to keep a log of the expenses with dates and business purpose.
Net operating losses – Prior to the new tax laws, net operating losses could be carried back to get refunds of taxes paid in prior years. Now, net operating losses must be carried forward to offset future taxable income.
Sales Tax – Indiana sales tax (7%) is now due from businesses who conduct out-of-state/online transactions in Indiana of at least $100,000 a year or at least 200 yearly transactions.
Domestic production activity deduction – has been eliminated for all businesses.
21% flat tax rate for C Corporations – this flat tax rate replaces the four tax brackets (15, 25, 34 and 35%) that previously existed. C Corporations are not eligible for the 20% Deduction of Qualified Business Income discussed below.
20% Deduction of Qualified Business Income – This one is extremely complicated. It is intended to help flow through businesses (S Corporations, Partnerships, etc.) and sole proprietors, but it is important to note that not every business will qualify. See QBI Flowchart.
The Treasury Department issued its first attempt at explaining the 20% rule — called Proposed Regulations — in August 2018. These Regulations are 186 pages long and full of new terms, definitions, income limitations and rules regarding eligibility. Please call us to schedule an appointment to discuss how the 20% may impact your business.
Other Helpful Information
Social Security tax is calculated on earnings up to the following limits:
2019 = $132,300
2018 = $128,400
2017 = $127,200
Social Security benefits can be received before full retirement age but may be limited when wages reach:
2019 = $17,640
2018 = $17,040
2017 = $16,920
You CANNOT deduct donations to politicians, political campaigns, political action committees, political parties, “Go-fund-me” accounts or individuals.
You CAN only deduct donations to “Qualified Charitable Organizations”, also known as 501(c)3 organizations. We recommend that you document your donations by check or credit card, and request a letter of receipt from the charity showing the amount date and amount donated. Donations of cash are difficult to defend if you are audited by the IRS.
Non-cash donations (clothing, household items, etc.) should be itemized and valued by you at the time of the donation. We recommend that you take pictures of items you donate as documentation and get a receipt from the charitable organization.
Donations valued at $5,000 or more require an appraisal.
Donations of automobiles, artwork and shares of stock have special rules. Please call us if you plan to donate one or more of these items.
Do I need to pay quarterly tax estimates?
If your tax withholdings from your paycheck, pension or retirement accounts, etc. will cover your tax liability for the year, then you will likely NOT have to pay quarterly tax estimates.
However, if you believe your tax withholdings will leave you owing tax next April, then quarterly estimated tax payments MAY be necessary to avoid costly interest and penalty charges assessed by the IRS and any state where you must file.
The amount of your estimated tax payments depends on your income levels. We would be happy to assist in calculating your estimates.
Contribution limits for: 2019 2018 Traditional & Roth IRAs Contributions $6,000 $5,500 Catch-up Contributions for participants age 50 or older $1,000 $1,000 401(k), 403(b), 457 Plans Contributions $19,000 $18,500 Catch-up Contributions for participants age 50 or older $6,000 $6,000 SIMPLE IRA plans Contributions $13,000 $12,500 Catch-up Contributions for participants age 50 or older $3,000 $3,000 Qualified plans annual compensation limit $280,000 $275,000 Maximum annual amount $56,000 $55,000
Contribution limits for: 2019 2018 Self Only $3,500 $3,450 Family $7,000 $6,900 Catch-up Contributions for participants age 55 or older $1,000 $1,000
Standard mileage rates for an automobile used for:Business purposes
2019 – 58.0 cents per mile
2018 – 54.5 cents per mile
2017 – 53.5 cents per mileMedical or moving purposes
2019 – 20 cents per mile
2018 – 18 cents per mile
2017 – 17 cents per mileCharitable purposes
2019 – 14 cents per mile
2018 – 14 cents per mile
2017 – 14 cents per mile
The gain on the sale of your personal residence is NOT taxable if:
- The gain is less than $250,000 if filing single
- The gain is less than $500,000 if married filing joint
- If, during the 5-year period ending on the date of the sale, you have owned the home for at least 2 years (the ownership test),
- and if, during the 5-year period ending on the date of the sale, you lived in the home as your main home for at least 2 years (the use test),
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. Call us for details on this exclusion.
What is Form W-4?
Your employer needs you to complete Form W-4 so they can accurately withhold federal taxes from your paycheck.
When should I complete Form W-4?
Your employer will have you complete Form W-4 when you start a new job. You should consider updating this form each time your personal or financial situation changes – marriage, divorce, birth of children, landing a promotion with a raise or other increase in income.
How many allowances should I claim on Form W-4?
The number of allowances you claim depends on your personal and financial tax situation.
In general, the fewer allowances you claim, the more federal income tax your employer will withhold and your take home pay will be less. If you claim more allowances, your take home pay will increase because your employer will withhold less federal tax. This sounds great, but be careful. If you have too little tax withheld from your paychecks, you may owe taxes when you file your return next April. In addition, you may also owe interest and penalties for having too little withheld. Please call us if you have questions.
If you are a victim of identity theft, the Federal Trade Commission recommends these steps:
- File a complaint with the FTC at identitytheft.gov
- Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
- Contact your financial institutions, and close any financial or credit accounts opened without your permission or tampered with by identity thieves.
If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these additional steps:
- Respond immediately to any IRS notice; call the number provided or, if instructed, go to IDVerify.irs.gov.
- Complete IRS Form 14039, Identity Theft Affidavit, if your efiled return rejects because of a duplicate filing under your SSN or you are instructed to do so. Use a fillable form at IRS.gov, print, then attach the form to your return and mail according to instructions.
- Continue to pay your taxes and file your tax return, even if you must do so by paper.