TAX REFORM I TAX CUTS AND JOBS ACT. TaxSmarter.com. Austin Song Former IRS Agent Lecturer, Author and Entrepreneur

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1 TAX REFORM I TAX CUTS AND JOBS ACT 2 Introduction Austin Song Former IRS Agent Lecturer, Author and Entrepreneur 16 years of progressive experience, awarded one of the top IRS recognitions for his achievements during his 5-year tenure as a team with Criminal Investigators. His book How to Become an IRS Tax Professional can be purchased on Amazon books. In New Jersey, he offers CE courses at Rutgers University In New York, he offers CE courses at Fordham University, Hunter College and Queens College. He also offers CE courses to Tax professionals at University of Baltimore, University of Colorado. Austin Song earned his Master s in Taxation at the University of Washington in Seattle, WA and his Bachelors in Accounting at Indiana University in Bloomington, IN. 1

2 3 Objectives After you complete this orientation, you will: Understand the key tax law changes under TCJA Analyze a tax return under TCJA Standard Deduction Personal exemption Child Tax Credits Health Care (ACA) Topics will be covered at II (Next webinar) 20% Pass-Through Deduction for Qualified Trade or Business (eg. Sch-C) Analyze more tax returns under TCJA Sch A items Sch- C items Register at www. (201)

3 Tax Rates and Brackets INCOME - ABOVE THE LINE AGI - STANDARD / ITEMIZD TAXABLE INCOME x TAX RATE TAX LIABILITY (AFTER CREDITS/TAX ADJUMT) To determine regular tax liability, an individual uses the appropriate tax rate schedule. Old law. Under pre-act law, individuals were subject to these tax rates: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. New law. These new tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Tax Rates and Brackets MARRIED INDIVIDUALS FILING JOINT Not over $13,600 10% of taxable Income Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050 Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400 Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000 Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000 Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000 Over $600,000 $161,379 plus 37% of the excess over $600,000 3

4 Standard Deduction Increased Pre-Act law. The standard deduction amounts, indexed to inflation, were to be: $6,500 for single individuals and married individuals filing separately, $9,550 for heads of household, and $13,000 for married individuals filing jointly (including surviving spouses). New law. The standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for single individuals. Personal Exemptions Suspended Pre-Act law Personal exemptions generally were allowed for the taxpayer, the taxpayer s spouse, and any dependents for the amount of $4150 each New law personal exemptions is effectively suspended by reducing the exemption amount to zero. 4

5 State and Local Tax Deduction Limited Pre-Act law, taxpayers could take itemized deduction several types of taxes paid at the state and local level, including real and personal property taxes, income taxes, and/or sales taxes. New law, State and local income, war profits, and excess profits are not allowable as a deduction. state, local, and foreign property taxes, and State and local sales taxes, are deductible only for business or rental. However, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) Foreign real property taxes may not be deducted. Capital Gains Provisions Conformed Pre-Act law, the adjusted net capital gain of a individual taxpayer is taxed at maximum rates of 0%, 15%, or 20%. New law. The Act generally retains present-law and the breakpoints that exist under pre-act law. 15% breakpoint is $77,200 for married joint, $51,700 for heads of household, $2,600 for trusts and estates, and $38,600 for single. The 20% breakpoint is $479,000 for married joint, $452,400 for heads of household, $12,700 for estates and trusts, and $425,800 for single. 5

6 Child Tax Credit Increased Pre-Act law, a taxpayer could claim a child tax credit of up to $1,000 per qualifying child under the age of 17. Individual Taxpayer Identification Numbers (ITINs) were also accepted for each qualifying child on their return. New law, the child tax credit is increased to $2,000. SSN required. No credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child s SSN. Child Tax Credit phase out Pre-Act law, the aggregate amount of the credit that could be claimed phased out by $50 for each $1,000 of AGI over $75,000 for single filers, $110,000 for married filers, and $55,000 for married individuals filing separately. New law, Phase-out. The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) Non-child dependents. In addition, a $500 nonrefundable credit is provided for certain non-child dependents( or Child with ITIN). 6

7 DEPENDENTS Qualifying Child Relationship Age (19 or 24 if student) Qualifying Relative Not a Qualifying Child Member of Household Test* Residence (6 months<) Gross Income (<$4,050) Support (Provided more than 50% of support) Citizenship (US Citizen or resident) *Social is rqrd. Joint Return (Not married filing joint return*) Dependent Taxpayer (Can t claim anyone as dependent) ITINs Taxpayer Identification Numbers Social Security Number (SSN) Employer Identification Number (EIN) Individual Taxpayer Identification Number (ITIN) For non-residents Must file W-7 with the tax return Tax Preparer Identification Number (PTIN) 7

8 HEALTH CARE Pre-Act law, the Affordable Care Act (also called the ACA or Obamacare ) required that individuals who were not covered by a health plan that provided at least minimum essential coverage were required to pay a shared responsibility payment (also referred to as a penalty) with their federal tax return. Unless an exception applied, the tax was imposed for any month that an individual did not have minimum essential coverage. New law, the amount of the individual shared responsibility payment is reduced to zero as of Jan 1, (Code Sec. 5000A(c), as amended by Act Sec ) This repeal is permanent. The Act leaves intact the 3.8% net investment income tax and the 0.9% additional Medicare tax, both enacted by Obamacare. Due Diligence Requirements for Claiming Head of Household Any person who is a tax return preparer for any return or claim for refund, who fails to comply with certain regulatory due diligence requirements imposed by regs with regard to determining the eligibility for, or the amount of, an earned income credit, a child tax credit, a additional child tax credit, or an American opportunity tax credit, must pay a penalty. (Code Sec. 6695(g)) The base amount of the penalty is $500; for 2018, as adjusted for inflation under Code Sec. 6695(h), the penalty is $520. New law. the Act expands the due diligence requirements for paid preparers to cover determining eligibility for a taxpayer to file as head of household. A penalty of $500 (adjusted for inflation) is imposed for each failure to meet these requirements. 8

9 Head of Household Higher deductions, lower tax bracket 3 rules: Paid for more than half of keeping up the home Lived with a qualifying person for more than 6 months Unmarried Filed separate return Paid more than 50% of cost of keeping up a home Spouse did not live at home in the last 6 months of the year Home was the main home for child/stepchild Must be able to claim exemption for the child Ok if can t claim exemption because of Form Next Webinar Webinar II Analyze other tax payers Sch A items Sch- C items 20% Pass-Through Deduction for Qualified Trade or Business The amount of the pass-through deduction is equal to the lesser of A or B, where: A. Is 20% of qualified business income; and B. Is the greater of 50% of W-2 wages paid, or 25% of W-2 wages paid + 2.5% of unadjusted basis of qualified property. (201)

10 19 Now for the Best Part Your Questions us at Register at (201) AFSP (201)

11 21 AFSP What is AFSP? q Annual Fiscal Season Program requires voluntarily complete 18 Continuing Education credits q Pass the Final Exam given by the CE provider Why It s Important? q Your Name and Credentials on IRS website q Represent your Client -means you protect your business AND your clients q Add a new title to your name IRS strongly recommends all Tax Preparers be in compliance Representation privileges with IRS (201) AFSP Requirements How to Complete AFSP Course 18 Continuing Education credits 10 Federal Taxes 2 Ethics 6 AFTR - Final Exam is required for 6 AFTR Final Exam rate 70% or above given by CE provider We offer a combination of Live and Self-Study courses-18ce Take Live Course In class or Webinar Take Online Self-Study (201)

12 23 AFSP How to complete Take Live Course In class or Webinar AFTR Final Exam Review or Seminar Take Online Self-Study Take the Self-Study course means taking the Quiz for courses on Federal taxes, ethics, AFTR followed by Final Exam Avg 5 questions per one credit 100 questions for final exam You need to score 70% to earn credits and pass final exam (201)