2018 PERSONAL TAX RETURN INFORMATION PACKETTE

Transcription

1 2018 PERSONAL TAX RETURN INFORMATION PACKETTE Dear Valued Client: As 2018 comes to an end it s time to get all your documents together for your Federal Income Tax Return. It is our hope that this packet will assist you in collecting your documents and calculating your expenses. Please do not hesitate to contact us with questions. Engagement letter... 2 Deadlines and General Information... 3 Information needed to complete your return... 4 Income... 4 Itemized deductions... 6 Adjustments to income... 7 Payments and credits... 7 Personal and dependent information... 7 Health Insurance Proof... 7 Overview of 2018 tax changes... 8 Penalty for not having health insurance... 8 Proof of health insurance... 8 IRA rollovers & contributions... 8 Health Flexible Spending Accounts (FSAs)... 8 Foster care payments... 8 Pell grants and education credits... 8 myra, aka my Retirement Account... 8 Standard mileage rates... 9 Standard deductions... 9 Personal and dependent exemption... 9 Social Security taxes... 9 Child tax credit Family Tax credit Pass-Through entity Deduction Estate & Gift tax applicable exclusion Net Investment Income Tax Self-employment & 2% Shareholder health insurance Year End Tax Planning Tax Tasks for December Vehicle Documentation Form... 14

2 ENGAGEMENT LETTER Subject: Preparation of Your Tax Returns 2018 Dear Valued Client: Thank you for selecting MK Vargas, LLC to assist you with preparation of your tax returns. The enclosed tips, changes, and information are provided for your convenience and will aide you in gathering that data needed to accurately complete your tax returns. When you submit your tax information to us you acknowledge and agree to the following terms and conditions for our services. Your returns will be prepared from information you provide. We may ask for explanation or clarification of some items, but we will not audit or otherwise verify your data. You are responsible for the completeness and accuracy of information used to prepare the returns. Our responsibility is to prepare the returns in accordance with applicable tax laws. Those laws impose penalties on you for substantial understatements of tax, items in the return for which there is not substantial authority, and failure to maintain records required by law. Federal regulations impose significant penalties on us if we are associated with a return that takes a position that has no realistic possibility of success if audited. Some items may require special disclosure to protect you and us from penalties. We will consult with you about any special disclosures we believe necessary. We may observe opportunities for tax savings that require planning or changes in the way you handle some transactions. While an engagement for tax return preparation does not include significant tax planning services, we will share any ideas we have with you and discuss terms for any additional work that may be required to implement those ideas. Our fees for preparing your returns will be based on the time required at our standard rates for such services. Invoices are due when submitted to you. Late charges and interest may be added to past due amounts in accordance with state law and our accounts receivable policy. Your return may be selected for examination by state or federal tax agencies. In that event, we will be available to assist you in defending and explaining the return. That service is not part of our engagement to prepare your returns and would be the subject of a separate agreement for services. We appreciate the opportunity to serve you in this important work. If you have questions about the contents of this letter or the enclosed Organizer, please call us. Sincerely, Mike Vargas Managing Member MK Vargas, LLC pg. 2

3 DEADLINES AND GENERAL INFORMATION Deadlines We make every effort to file your return before or on the deadline, however, any tax data received after the below stated deadlines could cause your individual tax return to be extended. For April 15th - Complete tax documents turned-in by March 15th. For Oct 15th - Complete tax documents turned-in by Sept 15th. Going Paperless and Using Technology During 2019, MKVargas, LLC will continue the task of going paperless. We will always accept your documents in whatever form is most convenient for you. However, if you have no preference, then please consider scanning and ing your documents to our office or utilizing our portal. We are also happy to utilize Dropbox or any document sharing program that you prefer. For those of you that have embraced the smart phone conveniences we suggest you try a scanner app for taking pictures of documents. These apps will convert the photo into a PDF and will straighten and enhance the image. We have tried and like TinyScanner (for android) and Genius Scan (for android and IPhone) has very good reviews. Other Services at MKVargas, LLC We also assist in these additional areas: Financial planning and investment services emphasizing a total planning concept targeted to complete solutions for your financial needs. Mortgage brokering services to assist you in refinancing your current home/building or obtaining a new one. Debt consolidation loans. A full range of insurance services to include life, health, and disability, long term care (a portion of the premium is tax deductible) and tax deferred fixed annuities. Business valuation. IRS Tax Debt & Collection, Tax Resolution. For a comprehensive overview of all the services we offer, please visit our web site at. You can also review valuable personal and business information and as well as links to taxing authorities and other valuable websites Wishing you and your family: Merry Christmas 2018 and a prosperous and Happy New Year 2019! Michael Vargas and Staff pg. 3

4 INFORMATION NEEDED TO COMPLETE YOUR 2018 TAX RETURN Shown below are the types of tax situations most frequently encountered and the documentation we need to accurately report them on your individual income tax return. Naturally, not all of these will apply to every tax client. If you have any questions regarding the data or information that we need, please call us. Sincerely, MK Vargas LLC Income 1. Wages/tips/other compensation A. All copies of Forms W2, W2C, and W2G for the current year. 2. Interest/dividends A. All copies of Forms 1099-INT, 1099-DIV, and 1099-OID. B. Information on any tax-exempt interest. C. Copy of the loan amortization schedule if you received any interest income from a seller-financed mortgage. 3. Capital gain/loss Sales of Stocks/bonds/mutual funds A. All copies of Forms 1099-B and/or your year-end brokerage statements showing all sales of securities during the year. We also MUST have relevant prior year information to establish your cost basis in the shares sold, including: 1) Date(s) acquired. 2) Original price paid. 3) Information on any reinvested dividends included in the shares sold. 4. Capital gain/loss Sale of you home A. Copies of all settlement statements when the home was originally purchased, sold, or refinanced. B. Information on the cost of any improvements added to the home. C. Any selling or fix up expenses incurred in the home sale. 5. Other capital gains/losses A. Cost information and selling price of any business, rental, or personal property sold during the year. B. If you are a new client, please furnish a copy of last year s tax return detailing any prior depreciation taken on the property sold. pg. 4

5 INFORMATION NEEDED TO COMPLETE YOUR 2018 TAX RETURN Income Con t 6. Self-employment income (Forms can be provided upon request) A. All copies of Forms 1099-MISC B. Income statements or books and records detailing all business income and expenses for the year. C. Cost and date(s) purchased for any equipment or assets placed in service during the year. Assets are items that cost more than $150 and are expected to last 3 years or more. D. Total auto/truck mileage for the year and the portion of those miles used for business purposes. Please let us know if auto was placed in service in (Please use the mileage form at the end of this document). E. If you are claiming expenses for an office in your home, we will also need: 1) The total square footage of your house/apartment and the area used for business purposes. 2) Total of all mortgage interest, property taxes, or rent paid within the year. 3) Totals of bills covering all utilities, hazard insurance or home repairs for the year. 4) A settlement statement on your home to figure depreciation (if applicable). 7. Rental/royalty income (Forms can be provided upon request) A. List of all rental/royalty income and expenses, including any auto mileage attributable to the rental or royalty activity. B. If this is a new rental, we will need a copy of both the settlement statement to determine cost and depreciation. C. Cost information on any improvements made to the rental property and on any appliances, etc. placed in service during the year. D. If you are a new client, please furnish a copy of last year s tax return showing the prior depreciation on the rental property and improvements. 8. IRA/pension/annuity income A. All copies of Forms 1099-R, SSA-1099 (Social Security) and civil service retirement forms. B. Any information on IRA withdrawals rolled over to a new account. 9. Partnership/S-Corporation/Estate & Trust Income A. All copies of Forms K-1 for the current year. pg. 5

6 INFORMATION NEEDED TO COMPLETE YOUR 2018 TAX RETURN Itemized deductions 1. Medical expenses A. All medical expenses you paid during the year, including any auto mileage for medical purposes. B. Any insurance reimbursements for these expenses. 2. Taxes you paid A. Any state or local income taxes. B. Any foreign income tax paid or withheld from your investments. C. Real estate taxes paid during the year. Please furnish a copy of your paid tax receipt or your annual mortgage company Form 1098 showing the property taxes paid. D. If you purchased or leased a motor vehicle in 2018 then please provide the Bill of Sale showing the sales tax. 3. Interest/points paid A. Copies of ALL Forms 1098 from your mortgage company(s). B. A copy of the loan amortization statement if the mortgage interest was paid to an individual. We will also need the individual s full name, address, and Social Security number. C. Copies of any settlement statements showing points (loan origination fees) paid by you or the seller on the purchase or refinance of your home. 4. Charitable contributions A. List of all cash contributions showing: 1) Date(s) donated. 2) Name of charity. 3) Amount donated. B. For non-cash contributions, we must have the following: 4) Date(s) donated. 5) Name, address and Tax ID of charity. 6) Value of item(s) donated. We CANNOT estimate the values for you. C. Any auto mileage or out-of-pocket expenses for charity work (form attached). 5. Casualty/theft losses A. Cost information on the items involved and the amount of any insurance reimbursement. pg. 6

7 INFORMATION NEEDED TO COMPLETE YOUR 2018 TAX RETURN Adjustments to income 1. IRA/SEP IRA contributions Amount you contributed/will contribute to your IRA/SEP IRA for the current tax year. 2. Self-employed health insurance Amount paid during the year for your health insurance premiums if you re selfemployed. 3. Medical savings account Amount contributed to your Medical Savings Account (MSA) for the current year. Payments and credits 1. Estimated tax payments A. Amounts of quarterly estimated tax payments made for the current tax year. NOTE: Quarterly payments to the IRS are due on 4/15, 6/15, 9/15, and 1/15 of the following year. So, any payment you made in January of the current year most likely applies to your prior year s tax liability! B. Amount you paid with the automatic extension to file request Form Child/dependent care credit A. Proof of Residence to claim Earned Income Credit, Child Tax Credit, and/or Education Credit (s). B. Total amount paid during the year for care. The amounts paid to each provider need to be listed separately. C. The number and names of the individuals receiving the care. D. All providers information shown below. NOTE: You cannot take the credit without furnishing all of this information to the IRS! 1) Name(s) of providers. 2) Address (es) of providers. 3) Social security or Employer ID number for each provider. Personal and dependent information 1. Dates of birth and Social Security numbers (or ITINs) for yourself and spouse. 2. Dates of birth and Social Security number (or ITIN) for all claimed dependents. NOTE: The IRS now requires a taxpayer identification number for all dependents, even newborns. If not furnished, the exemption will be denied! Health Insurance Proof 1. A Form 1095 from your employer, your health insurance company, or the marketplace. Without this form you may have to make a Shared Responsibility Payment (aka Health Insurance Penalty). pg. 7

8 OVERVIEW OF 2018 TAX CHANGES Shown below are the 2018 tax changes that are most likely to affect our tax clients. Naturally, not all of these will apply to every tax client. If you have any questions regarding these changes or rumors of other changes you may have heard about, please call us. Sincerely, MK Vargas LLC Penalty for Not Having Health Insurance The Shared Responsibility Payment (aka: health insurance penalty) continues in There are still several exemptions available, but for most people the penalty is the greater of: $695 per adult plus $ per child on the tax return. OR 2.5% of your Adjusted Gross Income Proof of Health Insurance Beginning in 2015 all taxpayers who have health insurance will be issued a Form 1094-A, 1095-B or C. You will need to watch the mail for this form and provide it with all of your other tax documents to avoid The Shared Responsibility Payment. IRA Rollovers IRS has limited the number of times that a taxpayer can withdraw money from one IRA and moves it to another IRA. Starting in 2017 you can only do this once in a 12 month period. Taxpayers can still use trustee-to-trustee transfers as often as they wish. Health Flexible Spending Accounts (FSAs) Beginning in 2016, taxpayers who roll over up to $500 from an FSA into the next plan year will be ineligible to participate in a Health Savings Account (HSA) for the year into which they rolled over from a general purpose FSA. Foster Care Payments If a taxpayer is paid to give non-skilled medical support services and care for a person, living in their home, who has physical, mental or emotional issues, and they receive payments from the state or certified Medicaid provider, those payments can likely be excluded from their taxable income. Previously, a relative could not be considered a foster child, and the income could not be excluded. Pell Grants and Education Credits Pell Grants can now be allocated as living expenses. Doing so may increase the amount of education expense, such as tuition, that clients can use to claim one of the education credits. My RA, aka my Retirement Account These new introductory retirement accounts are now being offered through employers. The My IRA, or my Retirement Account, charges no fees and offers modest, guaranteed growth. That s a plus for risk-averse clients and those who are new to investing. They can start a My RA with just $25 and add as little as $5 at a time. When their accounts are worth $15,000, they must roll them over into privatesector Roth IRAs. The My RA program ended on September 17, pg. 8

9 OVERVIEW OF 2018 TAX CHANGES Standard mileage rates for Business cents per mile Medical cents per mile Charitable Activities cents per mile Standard deduction amounts Standard deduction has roughly doubled for all filers. Tax Filing Status 2017 Standard Deduction Single $6,350 $12,000 Married filing Jointly $12,700 $24,000 Married filing Separately $6,350 $12,000 Head of household $9,350 $18,000 Qualifying Widow(er) $12,700 $24, Standard Deduction Updated Deductions Moving expenses are no longer tax deductible under the new tax reform law. Entertainment deduction for Business is no longer tax deductible. Itemized Deductions The SALT deduction (which stands for state and local taxes): Under new law you cannot exceed $10,000 for all the income, state, and local property taxes combined. Miscellaneous deductions previously subject to the 2% AGI: not allowed, suspended under new law until The deduction for charitable contributions that can be contribute in any one year increased from 50% to 60% of adjusted gross income. Personal casualty or theft: The new tax bill only allows taxpayers to claim the deduction if the loss occurred during a federally declared disaster, through Personal Exemptions Personal and dependent exemptions have been suspended through Social Security Taxes For self-employed: the first net income of $128,400 is taxed at 15.30% (12.40% for Social Security and 2.90% for Medicare). For net income that is more than $128,400 only the Medicare tax applies. For employees and employers: Social Security Tax is 6.20% for employer and 6.20% for employees for the first $128,400. Medicare Tax is 1.45% for both employers and employees regardless the income amounts. Additional 0.9% Medicare tax applies to FICA wages and selfemployment income exceeding: $ 200,000 if single, head of household, or qualifying widow(er) with child $ 250,000 if married filing jointly $125,000 if married filing separately pg. 9

10 OVERVIEW OF 2018 TAX CHANGES Child Tax Credit The Child Tax Credit under 2018 tax reform is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit). The refundable portion of the credit is limited to $1,400. The earned income threshold for the refundable credit is lowered to $2,500. The beginning credit phaseout for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents. The child must have a valid SSN to qualify for the $2,000 Child Tax Credit. Proof of Residence to claim Earned Income Credit, Child Tax Credit, and/or Education Credit (s). Credit for Other Dependents (Formerly Family Tax Credit) The credit for other dependents is a new $500 personal tax credit: The credit is worth $500 for each qualifying dependent. The credit is nonrefundable. It is claimed on line 12 of the 2018 Form Phaseout begins for taxpayers with AGI of $200,000 ($400,000 for joint filers). This phaseout applies in combination with the new child tax credit. Unlike the child tax credit, the dependent does not require a valid SSN (a ITIN or ATIN will suffice) for the taxpayer to claim the credit for other dependents. Education Credits American Opportunity Credit, Lifetime Learning Credit and Student Loan Interest deduction are still in place. Credit phases out for taxpayers with higher incomes. America Opportunity Credit can only be taken 4 times during the life of any particular student. Other credits are available after all four American Opportunity Credits have been utilized. One significant change is that the bill expands the available use of funds saved in a 529 college savings plan to include levels of education other than college. In other words, if you have children in private school, or you pay for tutoring for your child in the K-12 grade levels, you can use the money in your account for these expenses. Capital Gains The TCJA retains the 0%, 15%, and 20% rates on long term capital gains and qualified dividends. However, for , these rates have their own brackets that are no longer tied to the ordinary income brackets. As a general rule, short-term capital gains are taxed at maximum 28%. Pass Through entity Deduction (Deduction for Qualified Business Income) Under the new law, taxpayers with pass-through businesses will be able to deduct up to 20% of their qualified business income from sole proprietorship, LLC, partnership, and S Corporation. There are phaseout income limits that apply to "professional services" business owners such as lawyers, doctors, and consultants, which are set pg. 10

11 OVERVIEW OF 2018 TAX CHANGES at $157,500 for single filers and $315,000 for pass-through business owners who file a joint return. Please consult your tax advisor for each individual situation. For more comprehensive tax reform details please see our What is new Summary. Estate & Gift Tax Applicable Exclusion The estate tax already applied to a small percentage of households. Essentially, the 40% estate tax rate applied only to the portion of an estate that was valued at $5.59 million or more per individual, or $11.18 million per married couple. The new tax law doubles these exemptions. Now, for 2018, individuals get a $11.18 million lifetime exemption and married couples get to exclude $22.4 million. Net Investment Income Tax In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469). A new net investment income tax is effective January 1, The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income and their Modified Adjusted Gross Income (MAGI) exceeds a certain applicable threshold amounts. Individuals The Net Investment Income Tax (NIIT) applies in the case of an individual, at a rate of 3.8 percent on the lesser of: The net investment income or The excess of modified adjusted gross income over the following thresholds: $250,000 for married filing jointly or qualifying widow(er) with dependent child. $125,000 for married filing separately. $200,000 in all other cases. Self-employed & 2% Shareholder Health Insurance If you are self-employed and make a profit on your Schedule C you can deduct 100% of the premiums that you paid as an adjustment to your income. Health insurance purchased through an employer does not count. For example, if you have a regular W-2 job and also have a business, but you get your health insurance from your W-2 job, then it does not qualify. If you buy your health insurance through your spouse s W-2 job, then it does not quality. Partnerships and corporations have special rules, especially for 2% or more partner and shareholder. Contact our office and set up a consultation to establish the most advantageous program for your situation. Michael Vargas and Staff pg. 11

12 TAX TASKS FOR DECEMBER If you want to save on next year s taxes, it is recommended you start planning in December. Here are some tasks to consider before year-end to minimize your 2018 tax bill. Sincerely, MK Vargas LLC Increase Expensing for Your Business Up to $1,000,000 can be written off via Section 179 expensing for property placed in service before Dec 31, Section 179 expensing allows you to buy equipment for your business and expense the entire amount up to $1,000,000 versus a smaller amount via depreciation. If you use a cash accounting method then you can prepay expenses like advertising, insurance and property taxes. Balance Gains and Losses Tally up your investment winners and losers for Then, determine whether it makes sense to take tax losses by selling your unattractive stocks. If your losses exceed your gains, you can deduct up to $3,000 in capital losses ($1,500 for married couples filing separately) against your other income. Losses in excess of $3,000 can be rolled over into subsequent years. Defer Income If you are self-employed or have sideline income, consider deferring income into 2018 by delaying billing. Employees do not have a choice of when they are paid, but if you are in line for a year-end bonus, you might ask your employer to hold off until January. It only makes sense to defer income if you expect to be in the same or lower tax bracket next year. Pay Personal Mortgage Interest & Property Taxes If you itemize deductions give you more tax saving than standard deductions, consider paying your January 2019 mortgage payment by Dec 31, 2018, to deduct the interest this year. If you pay your property taxes directly to the county then they are likely not due until January. Consider paying them in December so that you can claim the deduction in Make Charitable Contributions Giving money to a charity is a great way to save on taxes and help others. If you itemize, your contribution is tax deductible. Just be sure to get your donation postmarked or in the hands of your favorite charity by Dec 31, and to obtain a receipt for donations of $250 or more. Contribute the Maximum to Your Retirement Accounts If you have not contributed the maximum to your tax deferred 401(k) retirement savings account, some employers allow you to catch up for the current year. For 2018, you can contribute a maximum of $18,500. If you are over 50 years of age by the end of the tax year catch up contribution of additional $6,500 allowed. pg. 12

13 TAX TASKS FOR DECEMBER You may be able to open a traditional or Roth IRA and deduct the full $5,500 ($6, if you are age 50 or older). Maximize your IRA contributions if you are not age 70.5 or older during the tax year and if you have earned income of at least that amount. If you are married and file jointly, you may each contribute up to $5,500 ($6,500 if your age is 50 or older) to an IRA as long as your combined earned income covers the contributions up to $11,000 or $13, If you are an active participant in an employer-sponsored plan for 2018, you still may be qualified for tax deduction the full $5,500 ($6,500 if your age is 50 or older) if you are a single filer and have a modified AGI of $74,000 or less ($121,000 or less for couples filing jointly). If you are a married individual filing separate return, your deductibility will phase out as your AGI reaches $11,000. The maximum IRA deduction for an individual, who is not an active participant in an employer sponsored plan, but whose spouse is an active participant will start phasing out at AGI of $189,000. If your AGI is $199,000 or more, you cannot take a deduction for the contribution to a traditional IRA. Update Flexible Spending Accounts Many companies offer flexible spending accounts that enable you to set aside pretax dollars for qualified health care costs. If you have a health care flexible spending account, be aware that you forfeit any money left unspent in your account at the end of the year. As long as you expend money on eligible heath care items by Dec 31, you can be reimbursed from your account after year-end. Order extra contact lenses or schedule an extra dental cleaning. Health Saving Accounts Investigate the availability of High Deductible Health Plan (HDHP) coverage combined with a Health Savings Account (HSA). Contributions to the HSA are tax deductible and withdrawals to pay medical expenses are not taxed. You can sign up for HSAs with Banks, Credit unions, or Insurance companies. Shift Income In 2018, you and your spouse together can gift up to $30,000 of assets free of federal gift tax to each of your children. The benefit of shifting the income on those assets to children under 18 is limited since unearned income beyond $2,000 is taxed at the parents marginal rate. But for children 18 and older, all Income (earned and unearned) is taxes at the child s marginal rate. Organize Your Tax Records Organizing your tax records and paperwork early give you time to request copies of any missing documents and makes it less likely that you will miss valuable deductions when you file your 2018 tax return. If you are unsure of the documents you need to complete and support your tax return or to take advantage of the tax savings opportunities, consult your tax advisor. pg. 13

14 Vehicle Mileage Documentation Provided I/we certify that we have written evidence to substantiate business usage of the vehicles below: For Self-employment Vehicle Description Date placed in service Total 2018 Miles 2018 Business Miles For Employee Business Expenses Vehicle # Mileage Used for Employer Vehicle # Mileage Used for Employer Employer Reimbursement(s) For Rental Property Activity Vehicle # Mileage Used for Employer For Charitable Purposes Vehicle # Mileage Used for Employer For Medical Purposes Vehicle # Mileage Used for Employer Signed by Taxpayer Date Spouse Date Mileage for 2018 Business 54.5 cents a mile Charitable - 14 cents a mile Medical -18 cents a mile 7 VEHICLE MILEAGE DOC doc