Tax Changes for 2018 tax year

Here is a summary of the tax changes for individuals and businesses that go into effect for 2019.

FOR INDIVIDUALS

The standard deduction has increased for 2018.  (see below)

Filing Status       Standard Deduction for 2018    Change From 2017

Single                                      $12,000                        +$5,650

Married filing jointly               $24,000                        +$11,300

Head of household                $18,000                        +$8,650

Married filing separately      $12,000                         +$5,650

Medical expense deduction

The threshold for the medical expense deduction is lowered to 7.5 percent of adjusted gross income for regular tax and Alternative Minimum Tax purposes. It reverts back to 10 percent in 2019.

The SALT cap

The state and local tax deduction is capped at $10,000. This includes both state income or sales taxes and property taxes. State efforts to do workarounds for the limit through state charitable contributions with state income tax credits may not work due to IRS proposed regulations limiting the charitable deduction to the extent of any state or local tax credits. This also impacts pre-existing state charitable contribution programs. If the taxpayer can allocate part of the SALT to a business, that portion escapes the cap.

Charitable contributions

The deduction limit is increased to 60 percent of AGI. There is no deduction if the contribution secures athletic event seating rights. 

Taxpayers will need contemporaneous substantiation for any contribution of $250 or more, even if the charity has reported contribution to IRS.

Miscellaneous itemized deductions

The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and hobby expenses.

The Child Tax Credit

For 2018, the CTC has increased from $1000 to $2000 for qualifying children. To claim the increased child tax credit in 2018, taxpayers will need Social Security numbers for every qualifying child.

Qualifying relative credit

There is a new $500 deduction for a qualifying relative. The taxpayer ID number is sufficient for this credit, which can apply to a child that does not qualify for the CTC.

The Affordable Care Act

The individual mandate is still required for 2018 -- it expires for 2019.

Mortgage interest deduction

Be careful of any mortgage modification that included cash out, even if just for closing costs – it may result in loss of the grandfathered $1 million debt limit and become a $750,000 debt limit. No home equity interest deduction can be claimed unless you can document the expenses to buy, build or improve the home.

Moving expenses

The deduction and exclusion are gone for everyone -- except members of the Armed Forces.

Miscellaneous itemized deductions

The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and hobby expenses.

The 20 percent deduction for owners of pass-through businesses

The deduction is claimed on the new Line 9 on the draft Form 1040. There is a need to determine qualified business income, and taxpayers may also need to determine if theirs is a specified service trade or business, if there are W-2 wages, and the unadjusted basis of qualified property immediately after acquisition.

For owners of partnerships and S corporations, business information should be provided in Box 20 of Form K-1.

FOR BUSINESSES

Business expenses

There are higher expense limits for capital purchases under Code Sec. 179 and bonus depreciation (currently 100 percent). 

Be careful, however – higher expense is likely to reduce the 20 percent deduction for owners of pass-through businesses.

Entertainment and meal expenses

There is no deduction for entertainment expenses. The 50 percent deduction for meal expenses survives if the taxpayer can identify the meal expense separately from the entertainment expense.

Paid family and medical leave

There is a new credit for paid family and medical leave.

Out-of-state sellers

Many states have implemented the Supreme Court’s Wayfair decision requiring out-of-state sellers to collect sales tax.

This is only a summary f some of the changes that go into effect in 2019.

If you have questions, feel free to contact me at here to book a 15-minute consultation or email me at colorsconsulting@gmail.com

Three Year-End Tax Tips to Help You Save

Although the year is almost over, you still have time to take steps that can lower your  taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the IRS for you to consider:

1. Start a filing system.  If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
2. Make Charitable Contributions.  If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2016. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2016 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.
   
   Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.
   
   Contribute to Retirement Accounts.  You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2016. On the other hand, you have until April 15, 2017, to set up a new IRA or add money to an existing IRA and still have it count for 2016.
3. 
   The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.

Need Help with Your Taxes?

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Health Care Basics

The Affordable Care Act requires that a taxpayer and each member of their family either has qualifying health insurance coverage for each month of the year, qualifies for an exemption, or makes an individual shared responsibility payment when filing their federal income tax return. Some moderate-income taxpayers may also qualify for financial assistance to help cover the cost of health insurance purchased through the Health Insurance Marketplace. Taxpayers will fall into one or more of the following categories:

• Check the box. Most taxpayers will simply check a box on their tax return to indicate that each member of their family had qualifying health coverage for the whole year. No further action is required.

Qualifying health insurance coverage includes coverage under most, but not all, types of health care coverage plans. Taxpayers can use the chart on IRS.gov/aca to find out if their insurance counts as qualifying coverage.

• Exemptions. Taxpayers may be eligible to claim an exemption from the requirement to have coverage. Eligible taxpayers need to complete the new IRS Form 8965, Health Coverage Exemptions, and attach it to their tax return. Taxpayers must apply for some exemptions through the Health Insurance Marketplace. However, most of the exemptions are easily obtained from the IRS when filing a return.

• Individual Shared Responsibility Payment. Taxpayers who do not have qualifying coverage or an exemption for each month of the year will need to make an individual shared responsibility payment with their return for choosing not to purchase coverage. Examples and information about figuring the payment are available on the IRS Calculating the Payment page.
• Premium Tax Credit. Taxpayers who bought coverage through the Health Insurance Marketplace should receive Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace by early February. This form should be saved because it has important information needed to complete a tax return. 

If the Form 1095-A is not received by early February, contact the Marketplace where coverage was purchased. Do not contact the IRS because IRS telephone assistors will not have access to this information.
Taxpayers who benefited from advance payments of the premium tax credit must file a federal income tax return. These taxpayers need to reconcile those advance payments with the amount of premium tax credit they’re entitled to based on their actual income. As a result, some people may see a smaller or larger tax refund or tax liability than they were expecting. Use IRS Form 8962, Premium Tax Credit (PTC), to calculate the premium tax credit and reconcile the credit with any advance payments.
The IRS has set up a special section at IRS.gov/aca with more information about the Affordable Care Act and the 2014 income tax return.
Alternatively, low-and moderate-income taxpayers can get help meeting this health-care requirement and filing their return for free by visiting one of the more than 12,000 community-based tax help sites staffed by more than 90,000 volunteers that participate in the Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) programs. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov.

The IRS urges all taxpayers, especially those claiming the premium tax credit, to make sure they have all their year-end statements in hand before they file their return. This includes Forms W-2 from employers, Forms 1099 from banks and other payers, and, for those claiming the premium tax credit, and Form 1095-A from the Marketplace. Doing so will help avoid refund delays and the need to file an amended return later.