As the New Year rolls around, it's always a sure bet that there will be changes to current tax law and 2019 is no different, now that the tax provisions under the Tax Cuts and Jobs Act of 2017 (TCJA) are in full effect. From standard deductions to health savings accounts and tax rate schedules, here's a checklist of tax changes to help you plan the year ahead.
In 2019, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion.
The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2018; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise. As a reminder, personal exemptions have been eliminated through tax year 2025.
In 2019, the standard deduction increases to $12,200 for individuals (up from $12,000 in 2018) and to $24,400 for married couples (up from $24,000 in 2018).
Alternative Minimum Tax (AMT)
In 2019, AMT exemption amounts increase to $71,700 for individuals (up from $70,300 in 2018) and $111,700 for married couples filing jointly (up from $109,400 in 2018). Also, the phaseout threshold increases to $510,300 ($1,020,600 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation.
For taxable years beginning in 2019, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,100. The same $1,100 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2019 must be more than $1,100 but less than $11,000.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2019, a qualifying HDHP must have a deductible of at least $1,350 for self-only coverage (same as 2018) or $2,700 for family coverage (same as 2018) and must limit annual out-of-pocket expenses of the beneficiary to $6,750 for self-only coverage and $13,500 for family coverage.
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2019, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,350 and not more than $3,500, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,650.
Family coverage. For taxable years beginning in 2019, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,650 and not more than $7,000, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,550.
No Penalty for not Maintaining Minimum Essential Health Coverage
Starting in 2019, there is no penalty for not maintaining minimum essential health coverage.
AGI Limit for Deductible Medical Expenses
In 2019, the deduction threshold for deductible medical expenses is 10% percent of adjusted gross income (AGI).
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2019, the limitation is $420. Persons more than 40 but not more than 50 can deduct $790. Those more than 50 but not more than 60 can deduct $1,580 while individuals more than 60 but not more than 70 can deduct $4,220. The maximum deduction is $5,270 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2019, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2019, the foreign earned income exclusion amount is $105,900, up from $103,900 in 2018.
Long-Term Capital Gains and Dividends
In 2019 tax rates on capital gains and dividends remain the same as 2018 rates (0%, 15%, and a top rate of 20%); however threshold amounts have increased: the maximum zero percent rate amounts are $39,375 for individuals and $78,750 for married filing jointly. For an individual taxpayer in the highest tax bracket, 37 percent, whose income is at or above $434,550 ($488,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $39,375 and below $434,550 for single filers).
Estate and Gift Taxes
For an estate of any decedent during calendar year 2019, the basic exclusion amount is $11.4 million, indexed for inflation (up from $11.18 million in 2018). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $15,000.
In 2019, a non-refundable (only those individuals with tax liability will benefit) credit of up to $14,080 is available for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2019, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,557, up from $6,431 in 2018. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Child Tax Credits
For tax years 2018 through 2025, the child tax credit is $2,000 per child. The refundable portion of the credit is $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the child tax credit (e.g., dependents age 17 and older).
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2019. 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. The tax credit is nonrefundable.
American Opportunity Tax Credit and Lifetime Learning Credits
The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return; however, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $116,000 ($58,000 single filers).
Interest on Educational Loans
In 2019, the maximum deduction for interest paid on student loans is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $70,000 ($140,000 for joint filers) and is completely eliminated for taxpayers with modified adjusted gross income of $85,000 ($170,000 joint filers).
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $19,000. Contribution limits for SIMPLE plans increase to $13,000 (up from $12,500 in 2018). The maximum compensation used to determine contributions increases to $280,000 (up from $275,000 in 2018).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $64,000 and $74,000.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $103,000 to $123,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $193,000 and $203,000.
The modified AGI 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.
In 2019, the AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $64,000 for married couples filing jointly, up from $63,000 in 2018; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500 in 2018.
Standard Mileage Rates
In 2019, the rate for business miles driven is 58 cents per mile, up from 54.5 cents per mile in 2018.
Section 179 Expensing
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1,020,000 of the first $2,550,000 of qualifying equipment placed in service during the current tax year, and is indexed to inflation for tax years after 2018. The deduction was 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. Costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $25,500.
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, 20% in 2026, and 0% in 2027 and years beyond.
Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.
Qualified Business Income Deduction
Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2019, these threshold amounts are $160,700 for single and head of household filers and $321,400 for married taxpayers filing joint returns.
Research & Development Tax Credit
Starting in 2018, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Employee Health Insurance Expenses
For taxable years beginning in 2019, the dollar amount of average wages is $27,100 ($26,600 in 2018). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Business Meals and Entertainment Expenses
The deduction remains at 50% for taxpayers who incur food and beverage expenses associated with operating a trade or business. For tax years 2018 through 2025, however, the 50% deduction expands to include expenses incurred for meals furnished to employees for the convenience of the employer. Amounts after 2025, however, will not be deductible. Office holiday parties remain 100% deductible and employee meals while on business travel also remain deductible at 50%. Also eliminated is the deduction for business entertainment expenses (only meals are deductible at 50%).
Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, in 2019 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $265, and the monthly limitation for qualified parking is $265.
While this checklist outlines important tax changes for 2019, additional changes in tax law are more than likely to arise during the year ahead. Don't hesitate to call if you want to get started with tax planning for the year ahead.
Tax Tips for Older Americans
Everyone wants to save money on their taxes, and older Americans are no exception. If you're age 50 or older, here are seven tax tips that could help you do just that.
1. Standard Deduction for Seniors. If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind.
2. Credit for the Elderly or Disabled. If you and/or your spouse are either 65 years or older--or under age 65 years old and are permanently and totally disabled--you may be able to take the Credit for Elderly or Disabled. The Credit is based on your age, filing status, and income.
You may only take the credit if you meet the following requirements:
Your income on Form 1040 line 38 must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).
The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).
3. Retirement account limits increase. Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,500 in 2018. The amount includes the additional $6,000 "catch up" contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.
4. Early Withdrawal penalty eliminated. If you withdraw money from an IRA account before age 59 1/2 you generally must pay a 10 percent penalty (there are exceptions--call for details); however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty--but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.
5. Social Security Benefits. Americans can sign up for social security benefits as early as age 62--or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). For some older Americans however, social security benefits may be taxable. How much of your income is taxed depends on the amount of your benefits plus any other income you receive. Generally, the more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.
6. Higher Income Tax Filing Threshold. Taxpayers who are 65 and older are allowed an income of $1,600 more ($2,600 married filing jointly and both spouses are 65 or older) in 2018 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $13,600 ($26,600 married filing jointly) or less may not need to file a tax return.
Don't hesitate to call the office if you have any questions about these and other tax deductions and credits available for older Americans.
The Tax Consequences of Losing your Job
If you've lost your job you may have questions surrounding unemployment compensation, severance, and other issues that could affect your tax situation. Here are some answers:
Q: What if I receive unemployment compensation?
A: Unemployment compensation you receive under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you received unemployment compensation, you will receive Form 1099-G, Certain Government Payments (Info Copy Only), showing the amount you were paid and any federal income tax you elected to have withheld.
Types of unemployment benefits include:
- Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Disability payments from a government program paid as a substitute for unemployment compensation
- Trade readjustment allowances under the Trade Act of 1974
- Unemployment assistance under the Disaster Relief and Emergency Assistance Act
You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.
Q: Can I have federal income tax withheld?
A: Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year and you may owe tax when you file your tax return in April.
Q: What if I lost my job?
A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and SNAP (formerly known as food stamps) are not taxable.
Q: What if I searched for a job?
A: Under tax reform, many miscellaneous deductions were eliminated. As such, for tax years 2018-2025, you are no longer able to deduct certain expenses such as travel, resume preparation, and outplacement agency fees incurred while looking for a new job. In prior years, job-seekers were able to deduct these expense-even if they did not get a new job. Moving costs for a new job at least 50 miles away from your home were also deductible; but again, under tax reform, and for tax years 2018-2025, job-related moving expenses are not deductible.
Q: What if my employer went out of business or into bankruptcy?
A: Your employer must provide you with a W-2 Form showing your wages and withholdings by January 31. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over into another qualified retirement plan or IRA.
If you've experienced a job loss and have questions about how it affects your tax situation, help is just a phone call away.
Employers Beware: Identity Theft and W-2 Scam Alert
The 2019 tax season is quickly approaching and with it an increase in identity theft and W-2 scams. Small business identity theft is big business for identity thieves. Just like individuals, businesses may have their identities stolen, and their sensitive information used to open credit card accounts or used to file fraudulent tax returns for bogus refunds.
Furthermore, employers also hold sensitive tax data on employees, such as Form W-2 data, which also is highly valued by identity thieves and often used to file fake tax returns. Therefore, it is important for small businesses to take some important steps to protect themselves and their employees.
Stolen Employer Identification Numbers (EINs) have long been used by identity thieves to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also use EINs to open new lines of credit or obtain credit cards and are now using company names and EINs to file fraudulent returns.
The fraudulent filings apply to partnerships as well as estate and trust forms and the IRS has identified an increase in the number of fraudulent Forms 1120, 1120S and 1041 as well as Schedules K-1.
Signs of Potential Identity Theft
Businesses, partnerships and estate and trust filers should contact the IRS if they experience any of the following:
- Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file.
- An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS.
- An unexpected receipt of a tax transcript or IRS notice that doesn't correspond to anything submitted by the filer.
- Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.
Be on Guard against W-2 scams
Both public and private sector employers are targets for these W-2 scams, which in recent years have become one of the more dangerous email scams for tax administration. These emails appear to be from an executive or organization leader to a payroll or human resources employee. It may start with a simple, "Hey, you in today?" and, by the end of the exchange, all of an organization's Forms W-2 for their employees may be in the hands of cybercriminals—putting workers at risk for tax-related identity theft.
Because payroll officials believe they are corresponding with an executive, it may take weeks for someone to realize a data theft has occurred. Generally, the criminals are trying to quickly take advantage of their theft, sometimes filing fraudulent tax returns within a day or two.
This scam is such a threat to taxpayers that the IRS has established a special reporting process.
Reporting Fraud Schemes:
- 1. Email email@example.com to notify the IRS of a W-2 data loss and provide contact information. In the subject line, type "W2 Data Loss" so that the email can be routed properly. Do not attach any employee personally identifiable information data.
- 2. Email the Federation of Tax Administrators at StateAlert@taxadmin.org to get information on how to report victim information to the states.
- 3. Businesses/payroll service providers should file a complaint with the FBI's Internet Crime Complaint Center (IC3.gov). Businesses/payroll service providers may be asked to file a report with their local law enforcement agency.
- 4. Notify employees so they may take steps to protect themselves from identity theft. The Federal Trade Commission's www.identitytheft.gov provides guidance on general steps employees should take.
- 5. Forward the scam email to firstname.lastname@example.org.
Steps Employers can take to Protect Sensitive Information
Employers are urged to put steps and protocols in place for the sharing of sensitive employee information such as Forms W-2. One example would be to have two people review any distribution of sensitive W-2 data or wire transfers. Another example would be to require a verbal confirmation before emailing W-2 data. Employers also are urged to educate their payroll or human resources departments about these scams.
Don't hesitate to contact the office if you believe you were a victim of identity theft or any other tax scam. Help is just a phone call away.
Like-kind Exchanges are Limited to Real Property
The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. One tax provision that taxpayers should be aware of is that like-kind exchanges are now generally limited to exchanges of real property. Here's what you need to know:
Effective January 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible.
Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or investment. Real property, also called real estate, includes land and generally anything built on or attached to it. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.
A transition rule in the new law allows like-kind treatment for some exchanges of personal or intangible property. If the taxpayer disposed of the personal or intangible property on or before December 31, 2017, or received replacement property on or before that date, the exchange may qualify for like-kind exchange treatment.
Properties are of like-kind if they're of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.
A like-kind exchange is reported on Form 8824, Like-Kind Exchanges, which taxpayers must file with their tax return for the year the taxpayer transfers property as part of a like-kind exchange. This form helps a taxpayer figure the amount of gain deferred as a result of the like-kind exchange, as well as the basis of the like-kind property received if cash or property that isn't of like kind is involved in the exchange. Form 8824 helps taxpayers compute the amount of gain you must report.
For more information about this and other tax reform changes, please contact the office.
Standard Mileage Rates for 2019
Starting January 1, 2019, the standard mileage rates for the use of a car, van, pickup or panel truck are as follows:
- 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018
- 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018.
- 14 cents per mile driven in service of charitable organizations.
The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.
Prior to tax reform, these optional standard mileage rates were used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. However, it is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. Please call if you need additional information about these and other special rules.
If you have any questions about standard mileage rates or which driving activities you should keep track of as the new tax year begins, do not hesitate to contact the office.
All employers - Give your employees their copies of Form W-2 for 2018 by January 31, 2019. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting by January 31.
Employees - who work for tips. If you received $20 or more in tips during December 2018, report them to your employer. You can use Form 4070, Employee's Report of Tips to Employer.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in December 2018.
Individuals - Make a payment of your estimated tax for 2018 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2018 estimated tax. However, you do not have to make this payment if you file your 2018 return (Form 1040) and pay any tax due by January 31, 2019.
Employers - Nonpayroll Withholding. If the monthly deposit rule applies, deposit the tax for payments in December 2018.
Farmers and Fisherman - Pay your estimated tax for 2018 using Form 1040-ES. You have until April 15 (April 17 if you live in Maine and Massachusetts) to file your 2018 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2018 return and pay any tax due by March 1, 2019, to avoid an estimated tax penalty.
Employers - Federal unemployment tax. File Form 940 for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 11 to file the return.
Farm Employers - File Form 943 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 11 to file the return.
Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more from 2018 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 11 to file the return.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2018. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 11 to file the return.
Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2018 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 11 to file the return.
Payers of Gambling Winnings - If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W-2G.
Employers - Give your employees their copies of Form W-2 for 2018. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee.
Businesses - Give annual information statements to recipients of certain payments made during 2018. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date only applies to certain types of payments.
Individuals - who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2018 by January 31. Filing your return and paying any tax due by January 31, 2019, prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 15, 2019 (April 17 if you live in Maine or Massachusetts).
Health Coverage Reporting - If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
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.
Personal exemptions are eliminated for tax years 2018 through 2025.
The standard deduction for married couples filing a joint return in 2018 is $24,000. For singles and married individuals filing separately, it is $12,000, and for heads of household, the deduction is $18,000.
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
In 2018 the top tax rate of 37 percent affects individuals whose income exceeds $500,000 ($600,000 for married taxpayers filing a joint return). Marginal tax rates for 2018 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. While the tax rate structure remains similar to prior years (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status under tax reform.
Estate and Gift Taxes
In 2018 there is an exemption of $11.18 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.
Alternative Minimum Tax (AMT)
For 2018, exemption amounts increased to $70,300 for single and head of household filers, $109,400 for married people filing jointly and for qualifying widows or widowers, and $54,700 for married taxpayers filing separately.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is limited to $2,650 per year in 2018 (up from $2,600 in 2017) and applies only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.
Long-Term Capital Gains
In 2018 tax rates on capital gains and dividends remain the same as 2017 rates (0%, 15%, and a top rate of 20%); however, threshold amounts are different in that they don't correspond to the tax bracket structure as they did in the past. For example, taxpayers whose income is below $38,600 for single filers and $77,200 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $425,800 ($479,000 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Miscellaneous deductions exceeding 2% of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage. Business owners are not affected and can still deduct business-related expenses on Schedule C.
Individuals - Tax Credits
In 2018 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $13,810 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.
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
For tax years 2018 through 2025, the Child Tax Credit increases to $2,000 per child, up from $1,000 in 2017, thanks to the passage of the TCJA. The refundable portion of the credit increases from $1,000 to $1,400 - 15 percent of earned income above $2,500, up to a maximum of $1,400 - so that even if taxpayers do not owe any tax, they can still claim the credit. Please note, however, that the refundable portion of the credit (also known as the additional child tax credit) applies only when the taxpayer isn't able to fully use the $2,000 nonrefundable credit to offset their tax liability.
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)
For tax year 2018, the maximum earned income tax credit (EITC) for low and moderate-income workers and working families increased to $6,431 (up from $6,318 in 2017). The maximum income limit for the EITC increased to $54,884 (up from $53,930 in 2017) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Individuals - Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2018. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit
For 2018, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.
Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2018, the modified adjusted gross income threshold at which the Lifetime Learning Credit begins to phase out is $112,000 for joint filers and $56,000 for singles and heads of household.
Employer-Provided Educational Assistance
As an employee in 2018, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.
Student Loan Interest
In 2018 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels.
Individuals - Retirement
For 2018, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $18,500 ($18,000 in 2017). For persons age 50 or older in 2018, the limit is $24,500 ($6,000 catch-up contribution).
Retirement Savings Contributions Credit (Saver's Credit)
In 2018, the adjusted gross income limit for the saver's credit for low and moderate-income workers is $63,000 for married couples filing jointly, $47,250 for heads of household, and $31,500 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). Also of note is that starting in 2018, the Saver's Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you're the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.
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
The standard mileage rate in 2018 is 54.5 cents per business mile driven.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). In 2018 this amount is $53,200.
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
Contribution limits for SIMPLE IRA plans increased to $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2018. The maximum compensation used to determine contributions is $275,000.
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.
- 1. Not Setting Goals. It's almost impossible to set spending priorities without clear goals for the coming year. It's important to identify, in detail, your business and financial goals and what you want to achieve in your business.
- 2. Underestimating Costs. Every business has ancillary or incidental costs that don't always make it into the budget. A good example of this is buying a new piece of equipment or software. While you probably accounted for the cost of the equipment in your budget, you might not have remembered to budget time and money needed to train staff or for equipment maintenance.
- 3. Forgetting about Tax Obligations. While your financial statements may seem adequate, don't forget to set aside enough money for tax (e.g., payroll and sales and use taxes) owed to state, local, and federal entities. Don't make the mistake of thinking this is "money in the bank" and use it to pay for expenses you can't afford or worse, including it in next year's budget and later finding out that you don't have the cash to pay for your tax obligations.
- 4. Assuming Revenue Equals Positive Cash Flow. Revenue on the books doesn't always equate to cash in hand. Just because you've closed the deal, it may be a long time before you are paid for your services and the money is in your bank account. Easier said than done, perhaps, but don't spend money that you don't have.
- 5. Failing to Adjust Your Budget. Don't be afraid to update your forecasted expenditures whenever new circumstances affect your business. Several times a year you should set aside time to compare budget estimates against the amount you spent, and then adjust your budget accordingly.
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.
- 1. Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. Qualifying dependents must have a valid Social Security Number. This credit is refundable, which means you may a refund even if you don’t owe any tax.
- 2. Credit for Other Dependents: This is a new tax credit under tax reform and is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer. This credit is nonrefundable.
- 3. Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 while you work or look for work. To claim this credit you will need to accurately track your child care expenses.
- 4. Earned Income Tax Credit: The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.
- 5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
- 6. Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution, which starting in 2018, includes primary and secondary schools as well as colleges and vocational schools. Contributions are not deductible; however, qualified distributions generally are tax-free.
- 7. Higher Education Tax Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credits are education tax credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income.
- 8. Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income, so you do not need to itemize your 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 email@example.com.
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 firstname.lastname@example.org. 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:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
- For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $193,000 and $203,000, up from $189,000 and $199,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
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
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan remains unchanged at $6,000.
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:
- The taxpayer owned or leased the building on January 1, 2018, and the taxpayer continues to own or lease the building after that date.
- The 24 or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.
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.