What the Tax Reform Act Means for You
Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017. You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, it may be worthwhile for you to schedule a tax-planning consultation early in the year to ensure you reap the most tax savings possible during 2018. Key changes for individuals: Here are some of the key items in the tax reform act that affect individuals: • Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below). • Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended. • Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples: o Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes. o Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt. o Limit of theft and casualty losses: Deductions are now available only for federally declared disaster areas. o No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone. Tip: If you’re used to itemizing your return, that may change in coming years as the doubled standard deduction and reduced deductions make itemizing less attractive. To the extent you can, make any remaining itemizable expenditures before the end of 2017. • Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019. • Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before. • Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit. • Expands use of 529 education savings plans: Qualified distributions from 529 education savings plans, which are not subject to tax, now include tuition payments for students in K-12 private schools. • Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples). • Kiddie tax: Effective 2018, the “kiddie tax” on children’s unearned income will use the estates and trusts tax rate structure, meaning it will be taxed anywhere from 10 percent to 37 percent. What stays the same for individuals: • Itemized charitable deductions: Remain largely the same. • Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years. • Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest. • Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018. Farewell to the healthcare individual mandate penalty One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years. Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero. NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes. New 2018 tax bracket structures for individuals Single taxpayer Taxable income over But not over Is taxed at $0 $9,525 10% $9,525 $38,700 12% $38,700 $82,500 22% $82,500 $157,500 24% $157,500 $200,000 32% $200,000 $500,000 35% $500,000 37% ? Head of household Taxable income over But not over Is taxed at $0 $13,600 10% $13,600 $51,800 12% $51,800 $82,500 22% $82,500 $157,500 24% $157,500 $200,000 32% $200,000 $500,000 35% $500,000 37% ?Married filing jointly Taxable income over But not over Is taxed at $0 $19,050 10% $19,050 $77,400 12% $77,400 $165,000 22% $165,000 $315,000 24% $315,000 $400,000 32% $400,000 $600,000 35% $600,000 37% ?Married filing separately Taxable income over But not over Is taxed at $0 $9,525 10% $9,525 $38,700 12% $38,700 $82,500 22% $82,500 $157,500 24% $157,500 $200,000 32% $200,000 $300,000 35% $300,000 37% Estates and trusts Taxable income over But not over Is taxed at $0 $2,550 10% $2,550 $9,150 24% $9,150 $12,500 35% $12,500 37% Key changes for small businesses: Here are some of these key items in the tax reform act that affect businesses: • Cuts the corporate tax rate: Corporate tax gets cut and simplified to a flat 21 percent rate, changed from a multi-bracket structure with a 35 percent top rate. • Reduces pass-through taxes: Most owners of pass-through entities such as S corporations, partnerships and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation. • Beefs up capital expensing: Through 2022, short-lived capital investments in such items as machinery and equipment may be fully expensed as soon as they are placed in service, using bonus depreciation. This now also applies to used items instead of only new ones; they just need to be placed in service for the first time in your business. After 2022, allowable bonus depreciation is then lowered incrementally over the next four years. • Strengthens Section 179 deduction: Section 179 deduction limits get raised to enable expensing of up to $1 million, and the phaseout threshold increases to $2.5 million. Section 179 may now also be used on expenses related to improvements to nonresidential real estate. • Nixes the corporate alternative minimum tax (AMT): The 20 percent corporate AMT applied to businesses goes away entirely. • Expands use of cash-method accounting: Businesses with less than $25 million in gross receipts over the last three years may adopt the cash method of accounting. • Reforms international taxation: Treatment of international income moves to the territorial system standard, in which foreign investments are generally only taxed in the place in which they operate. The new laws allow tax deductions for certain foreign-sourced dividends, reduced tax rates for foreign intangible income and reduced tax rates for repatriation of deferred foreign income. • Repeals business entertainment deduction: Businesses will no longer be able to deduct 50 percent of the cost of entertainment, amusement or recreation directly related to their trade or business. The 50 percent deduction for business-related meals remains in place, however. • Modifies several business credits: Several business credits are maintained but modified, including the orphan drug credit, the rehabilitation credit, the employer credit for paid family or medical leave and the research and experimentation credit. • Boosts luxury automobile depreciation: Luxury automobiles placed in service after 2017 will have allowable depreciation of $10,000 for the first year, $16,000 the second, $9,600 the third and $5,760 for subsequent years. This brief summary of the tax reform act is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it. ©MC_4617-TC

Preparing for 2013 Tax Season
Some changes for the 2013 Tax Season are as follows: The social security payroll deduction rate went up for employees to 6.2% A 0.9% Medicare surtax on earned income kicks in for higher- incomers. This levy applies to wages as well as self- employment income. Singles and head- of households will owe it once total earnings exceed $200,000. Married couples filing joint returns- over $250,000. Marrieds filing separately- $125,000. This surtax applies only to employee's share of Medicare tax, employers DON'T owe it. Employers will withhold the additional medicare tax from the employee's wages, once they reach $200,000. The 3.8% Medicare Surtax on net investment income also begins this year. It applies to unearned income of single filers and heads of household who have modified adjusted gross incomes above $200,000, couples with incomes over $250,000 and single filers- $125,000 The estate and gift tax exemption for 2013 increases to $5,250,000. The tax rate jumps 40%. The annual figt tax exclusion rises to $14,000 per donee. Up to $1,070,000 of farm or business realty can receive discount estate tax valuation. More estate tax qualifies for an installment- payment tax break. If one or more closely held businesses make up greater than 35% of an estate, as much as $572,000 of tax can be deferred, and IRS will charge only 2% interest. Tax rates on high- incomers increase for the first time since 1993. A 39.6% rate now applies to taxable income over $400,000 for singles, $425,000 for heads of household and $450,000 for married couples filing jointly. The 2013 standard deductions rise a bit. Marrieds get $12,000. If one spouse is age 65 or older- $13,400. If both are 65 or older- $14,600. Singles can clain $6,100, $7,600 if they are 65 or older. High incomers resume losing some of their itemized deductions. Write- offs are slashed by 3% of the excess of AGI over $250,000 for singles, $275,000 for head of households, and $300,000 for marrieds. But, the total reduction can't exceed 80% of itemizations. Medical, investment interest, casualty losses, and gambling losses (to the extent of winning) are exempted from this cutback. Personal exemptions increase to $3,900 for filers and their dependants. But, this write- off is phased out for high- incomers by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phaseout. The maximum 401(k) contribution is $17,500 this year, a $500 increase over 2012. The 2013 payin limits for IRAs and Roth IRAs will jump to $5,500, $500 more than last year. The standard mileage allowance for business driving is 56.5 cents per mile. The allowance for travel due to medical or job- related moves is 24 cents. The rate for charitable driving stayed at 14 cents per mile. Source: Kiplinger Tax Letter, September Edition

August 2013 Newsletter

What You Need to Know about the Small Business Health Care Tax Credit

How will the credit make a difference for you?                 

Can you claim the credit?

How do you claim the credit?

Simplified Option

Regular Method

Requirements to Claim the Deduction

1. Regular and Exclusive Use.

2. Principal Place of Your Business.

NEWSLETTER

January, 2013

  

2012 Quick Reference Tax Guide

Taxpayer Tax Return Filing begins 1/30/13

Section 179 expensing

     For 2012, taxpayers may expense up to $139,000 of qualifying property acquired for use in a trade or business.  The deduction phase-out begins at $560,000 on purchases of qualifying property.  Taxpayers who have qualified disaster assistance property may expense up to $239,000, their deduction phase-out begins at $1,160,000.  The SUV limit remains $25,000.

     The 2013 section 179 expensing amounts are set to decrease to $25,000 of qualifying property acquired for use in a trade or business.  The deduction phase-out begins at $200,000 on the purchase of qualifying property.  The SUV limitation will remain the same at $25,000.

     For tax years 2003-2012, taxpayers may make or revoke a section 179 deduction on an amended return without consent of theCommissioner. 

 

 

 

 

 

 

 

 

 

 

Energy efficiency

IRS releases 2009 vehicle deductions

Each year the IRS publishes depreciation limits for business vehicles first placed in service that year. Because 50% bonus depreciation is allowed only for new vehicles, these limits are different for new and used vehicles.

For new business cars purchased in 2009, the first-year limit is $10,960; for used cars, it’s $2,960. After year one, the depreciation limits are the same for both new and used vehicles purchased in 2009: $4,800 in year two, $2,850 in year three, and $1,775 in all following years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year End Tax Review

August 2013 Newsletter
Give Tax Records a Mid-Year Tune-up this Summer During the summer, you may not think about doing your taxes, but maybe you should. Some of the expenses you’ve paid over the past few months might qualify for money-saving tax credits or deductions come tax time. If you organize your tax records now, you’ll make tax filing easier and faster when you do them next year. It also helps reduce the chance that you’ll lose a receipt or statement that you need. Here are some tips from the IRS on tax recordkeeping. • You should keep copies of your filed tax returns as part of your tax records. They can help you prepare future tax returns. You’ll also need them if you need to file an amended return. • You must keep records to support items reported on your tax return. You should keep basic records that relate to your federal tax return for at least three years. Basic records are documents that prove your income and expenses. This includes income information such as Forms W-2 and 1099. It also includes information that supports tax credits or deductions you claimed. This might include sales slips, credit card receipts and other proofs of payment, invoices, cancelled checks, bank statements and mileage logs. • If you own a home or investment property, you should keep records of your purchases and other records related to those items. You should typically keep these records, including home improvements, at least three years after you have sold or disposed of the property. • If you own a business, you should keep records that show total receipts, proof of purchases of business expenses and assets. These may include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices. Also include credit card receipts, sales slips, canceled checks, account statements and petty cash slips. Electronic records can include databases, saved files, emails, instant messages, faxes and voice messages. • If you own a business with employees, you should generally keep all employment-related tax records for at least four years after the tax is due, or after the tax is paid, whichever is later. • The IRS doesn’t require any special method to keep records, but it’s a good idea to keep them organized and in one place. This will make it easier for you to prepare and file a complete and accurate return. You’ll also be better able to respond if there are questions about your tax return after you file. Reduce Your Taxes with Miscellaneous Deductions August 5, 2013 If you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses. You may benefit from this because a tax deduction normally reduces your federal income tax. Here are some things you should know about miscellaneous deductions: Deductions Subject to the Two Percent Limit: You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as: • Unreimbursed employee expenses. • Expenses related to searching for a new job in the same profession. • Certain work clothes and uniforms. • Tools needed for your job. • Union dues. • Work-related travel and transportation. Deductions Not Subject to the Two Percent Limit. Some deductions are not subject to the two percent of AGI limit. Some expenses on this list include: • Certain casualty and theft losses. This deduction applies if you held the damaged or stolen property for investment. Property that you hold for investment may include assets such as stocks, bonds and works of art. • Gambling losses up to the amount of gambling winnings. • Losses from Ponzi-type investment schemes. Many expenses are not deductible. For example, you can’t deduct personal living or family expenses. Report your miscellaneous deductions on Schedule A, Itemized Deductions. Be sure to keep records of your deductions as a reminder when you file your taxes in 2014. If you are a small employer. . . with fewer than 25 full-time equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of employee health insurance premiums . . .then there is a tax credit that may put money in your pocket. What You Need to Know about the Small Business Health Care Tax Credit How will the credit make a difference for you? For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively. Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year. Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments. There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return. Can you claim the credit? Now that you know how the credit can make a difference for your business, let’s determine if you can claim it. To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year. Let us break it down for you even more. You are probably wondering: what IS a full-time equivalent employee. Basically, two half-time workers count as one full-timer. Here is an example, 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20. Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10 – the number of FTEs – and the result is your average wage. The average wage would be $20,000. Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less. How do you claim the credit? You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941. If you are a small business, include the amount as part of the general business credit on your income tax return. If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so. Don’t forget … if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit. Home Office Deduction If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes. Simplified Option For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simpler option for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners. This new simplified option can significantly reduce recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. Regular Method Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. Requirements to Claim the Deduction Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction: 1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room. 2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers. Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus: • Your business use must be for the convenience of your employer, and • You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. For a full explanation of tax deductions for your home office refer to Publication 587, Business Use of Your Home. In this publication you will find: • Requirements for qualifying to deduct expenses (including special rules for storing inventory or product samples). • Types of expenses you can deduct. • How to figure the deduction (including depreciation of your home). • Special rules for daycare providers. • Tax implications of selling a home that was used partly for business. • Records you should keep • Where to deduct your expenses (including Form 8829, Expenses for Business Use of Your Home (PDF), required if you are self-employed and claiming this deduction using the regular method). The rules in the publication apply to individuals.