December 2018 2018 YEAR- END TAX PLANNING TIPS Year- End Planning fr Incme Taxes is Critical! Phase One f Tax Refrm Has Becme Law 2018 is cming t a clse; hwever, yu still have time t avid big surprises at tax- time next year. We suggest that yu start year- end planning nw by finding time t read thrugh this newsletter as sn as yu can. It's filled with tax- saving ideas, many f which wn't wrk if yu wait t lng. Tax Refrm Tax legislatin was signed int law in late 2017 prviding little pprtunity fr planning fr 2017. Cngress is cnsidering Tax Refrm 2.0. which if successfully passed, may make many f the Tax Cuts and Jbs Act prvisins permanent allwing fr additinal planning pprtunity s in the cming years. The IRS Has Been Quite Active n the Regulatry Frnt During 2018, the IRS issued a number f majr regulatins, rulings and ther guidance that impact yur tax picture. We keep up with these rules in rder t assist yu with tax planning and tax preparatin. There is still guidance needed n sme issues and we mnitr these n a daily basis. 2019 Deadline April 15, 2019 will be the 2018 Tax Deadline fr Mst Individual Taxpayers and C crpratins. March 15, 2019 will be the deadline fr calendar year S crpratins and partnership returns. Sme Cmmn Tax Law Prvisins in 2017 are Nt Allwed in 2018 Qualified Principal Residence Indebtedness Exclusin is n lnger available. In additin: The Tuitin and Fees Deductin and the Mrtgage Insurance Premiums were als nt extended int 2018 and will n lnger be an adjustment r a deductin n the Frm 1040 return. A New Lk t Our Tax Return The 2018 Frm 1040 is structured as a pstcard with six additinal schedules which may be required, t file a crrect and cmplete return. N wrries, we are prepared t prvide yu with utstanding service in 2019 fr yur 2018 return and lk frward t making the prcess as easy as pssible.
2018 TAX PLANNING NEWSLETTER PAGE 2 Imprtant Items fr 2018 Mileage Rates, Health Cverage and Retirement Reminders Standard Mileage Rates fr 2018 The ptinal standard mileage allwance fr wned r leased auts (including vans, pickups r panel trucks) fr business travel taking place in 2018 is 54.5 per mile. The 2019 standard mileage rates are expected t be annunced by the IRS in early December. Charitable and Mving Standard Mileage fr 2018 14 cents fr charity 18 cents fr medical and mving expenses Reprting Changes in Circumstances If yu purchased health insurance cverage thrugh the Health Insurance Marketplace, yu may be receiving advance payments f the premium tax credit in 2018. It is imprtant that yu reprt changes in circumstances t the Marketplace, s yu get the prper type and amunt f premium assistance. Sme f the changes that yu shuld reprt include changes in yur incme, emplyment, r family size. Advance credit payments help yu pay fr the insurance yu buy thrugh the Marketplace. Reprting changes will help yu avid getting t much r t little premium assistance in advance. The Affrdable Care Act mandates individuals and their dependents t have health insurance that includes minimum essential cverage r pay a penalty. Sme taxpayers will qualify fr an exceptin frm this individual mandate ; thers already have The fllwing tax prvisins were eliminated: Persnal exemptin deductins are suspended. The Tax Cuts and Jbs Act Individuals qualifying cverage btained thrugh the individual market, thrugh a gvernment- spnsred exchange r thrugh an emplyer- prvided plan; still thers have cverage thrugh a gvernment prgram such as Medicare r Medicaid. The tax year 2018 will be the last year that penalties will apply fr nt having minimum essential cverage. Thugh the penalty has been repealed fr 2019, minimum essential cverage still applies. Plan t participate in yur emplyers flexible spending accunt r HSA Between nw and 2019 business will ffer enrllment in flexible spending accunts and health savings accunts. These plans allw yu t pay fr ut f pcket medical expenses n a pre- tax basis. Emplyer spnsred retirement accunts Annually review yur ability t participate in yur emplyer s retirement plan. Starting t save early fr retirement can insure yur ability t successfully retire. Nt taking advantage f emplyer matches can be cstly. Cnsider electing peridic autmated increases in yur cntributins. Many plans ffer this feature. Save early and ften. Review yur asset allcatin annually in yur accunts t make certain yur investments are cnsistent with yur risk tlerance and timeline t retirement. The phase- ut f itemized deductins based n adjusted grss incme (AGI) is suspended. Itemized deductin fr hme equity interest (ther than debt used t buy, build r imprve) is n lnger allwed. The hme mrtgage interest deductin debt limit is reduced t $750,000 ($375,000 MFS) with certain exceptins. Itemized deductin fr miscellaneus itemized deductins subject t the 2% flr are n lnger allwed. Persnal casualty lss and theft deductins are eliminated unless the lss is incurred in a federally declared disaster area. The mving expense deductin and incme exclusin is allwed nly t members f the Armed Frces (r their spuses r dependents). N charitable cntributin deductin is allwed fr a payment t a higher educatinal institutin in exchange fr
2018 TAX PLANNING NEWSLETTER PAGE 3 the right t purchase tickets r seating at an athletic event. Alimny is nt deductible by the payer nr includible in incme by the recipient fr agreements entered int after December 31, 2018. Effective fr 2019, the shared respnsibility payment under the Affrdable Care Act fr nt having minimum essential health insurance cverage is zer. In additin, the fllwing changes were made t the law: The threshld fr deducting medical expenses is 7.5% f AGI fr all taxpayers fr 2017 and 2018. In 2019 that will change t 10%. The itemized deductin fr state and lcal taxes is limited t $10,000 ($5,000 MFS). (This limit includes bth state and lcal incme taxes and real prperty taxes.) The Child Tax Credit increased t $2,000 per qualifying child and the phase- ut threshld increased. There is a new Family Tax Credit f up t $500 fr dependents wh are nt a qualifying child fr purpses f the Child Tax Credit. Fr the charitable cntributin deductin, the percentage f AGI limitatin fr cash t public charities and certain ther rganizatins increased frm 50% t 60%. The estate and gift tax exemptin amunt increased t $11,180,000. The lng- term capital gain and qualified dividend incme maximum tax brackets n lnger fllw the tax brackets fr regular incme tax purpses. The parent s rate is n lnger used t calculate the kiddie tax. Instead, taxable incme attributable t net unearned incme is taxed at the estates and trusts tax rates fr bth rdinary incme and net capital gains. The 2018 alternative minimum tax (AMT) increased the exemptin and phase- ut ranges. Filing Status Exemptin Phase- Out Single/Head f Husehld $70,300 $500,000 - $781,200 Married Filing Jintly/Qualifying Widw(er) $109,400 $ 1,000,000 - $1.427,600 Married Filing Separately $54,700 $ 500,000 - $718,800 2018 Estate and Trust Incme Tax Brackets $0 t $2,550 10% $2,551 t $9,150 24% $ 9,151 t $12,500 35% $12,501 and ver 37%
2018 TAX PLANNING NEWSLETTER PAGE 4 The 2018 standard deductins were increased as fllws: Single r Married Filing Separately $12,000 Married Filing Jintly r Qualifying Widw(er) $24,000 Head f Husehld $18,000 The 2018 Individual Tax Rates have als been mdified under the new law. Year- End Tax Planning Mves fr Individuals Here are a few key tax- saving mves that might save yu sme mney Estimated Incme Tax: If yu receive incme that s nt subject t withhlding, yu may need t pay estimated tax. This may include incme such as self- emplyment, interest, r rent. If yu expect t we a thusand dllars r mre in tax, and meet ther cnditins, yu may need t pay this tax. Yu wuld nrmally pay the tax fur times a year. Check with us and we can help yu figure ut hw much estimated tax yu may need t pay. The final estimated tax payment fr 2018 is due n January 15, 2019. Cnvert t a Rth IRA: If yu want t remain in the market fr the lng term, a Rth IRA might be better fr yu than a traditinal IRA. Prviding that yu are eligible t d s, cnsider cnverting yur traditinal IRA mney
2018 TAX PLANNING NEWSLETTER PAGE 5 invested in stcks (r mutual funds) int a Rth IRA. Keep in mind, hwever, that such a cnversin will increase yur adjusted grss incme fr 2018. Defer Incme t 2018: Pstpning incme is als desirable fr thse taxpayers wh anticipate being in a lwer tax bracket next year due t changed financial circumstances r tax rate changes. Charitable Cntributins: When making cntributins f cash, check, r ther mnetary gift, regardless f amunt, yu must maintain a bank recrd r a written cmmunicatin frm the charity. If the cntributin is $250 r mre, yu must maintain a cntempraneus written receipt frm the charitable rganizatin. Cnsider gifting appreciated stck held lng- term t yur favrite charity. Balance Stck Gains and Lsses: If yu have taken lsses n stck sales in 2018 and yu have investments that have appreciated in value, yu shuld cnsider selling if yu believe the values have peaked, and thereby ffset gains with yur pre- existing lsses. It might be advisable fr us t meet t discuss year- end trades yu shuld cnsider making. Accelerate deductins int 2018 t lwer yur 2018 tax bill: This strategy might enable yu t claim larger deductins, credits, and ther tax breaks fr 2018 that therwise are phased ut ver varying levels f adjusted grss incme (AGI). These include child tax credits, higher educatin tax credits, and deductins fr student lan interest. Cnsider using a credit card t pay deductible expenses t increase yur 2018 deductins even if yu dn t pay the credit card bill until after year end. Pay First Quarter Educatin Expenses Early: The Lifetime Learning Credit and American Opprtunity Credit are available fr 2018. Paying the first quarter f 2019 educatin expenses may increase the educatin credit, but planning is necessary. Cntact us t see if yu can benefit. Sell Passive Activities with Suspended Lsses: If yu wn an interest in a passive activity with suspended passive lsses, sale f the activity befre year end will prduce deductible lsses that will reduce yur taxable incme. Call us t discuss this cmplicated strategy. Dn t Frget Yur Required Minimum Distributins: Take required minimum distributins (RMDs) frm yur IRA r 401(k) plans (r ther emplyer- spnsred retired plan) if yu have reached age 70 ½. Failure t take a required withdrawal can result in a penalty f 50% f the amunt f the RMD nt withdrawn. Charitable IRA Rllvers: Individuals 70 ½ and lder can make charitable IRA rllvers up t $100,000 per year. These distributins satisfy yur required minimum distributin requirement. These distributins d nt result in taxable incme, nr d they result in tax deductins. Fr taxpayers wh dn t nrmally itemize deductins they create a tax benefit, as yu effectively get a deductin fr the entire cntributin, resulting in a significant tax savings. Let us d the math n this tax strategy. Make Annual Gifts t Individuals: Cnsider making gifts t family and ther heirs. The annual gift tax exclusin fr 2018 is $15,000. Yu can make gifts f this size r less t an unlimited number f individuals. Cnsider strategies like helping children and grandchildren fund ROTH IRA s as a way t transfer wealth. In additin, paying qualified higher educatin expenses (tuitin) directly fr smene is nt subject t the annual gift exclusin limits. Update Yur Will r Trust: If yu haven t updated yur estate planning in recent years nw is the time. Cnsider the unique needs f heirs, including special needs trusts. Cnsider making discunted lifetime gifts t reduce the value f yur estate, if yu anticipate yur estate will be subject t estate tax. Gifts t heirs using family limited partnerships can facilitate the use f discunts. Taxpayers with significant estates shuld als cnsider gifting the wnership f life insurance plicies t avid paying estate tax n the value f a life insurance plicy. Cnsider remembering yur favrite charities in yur estate plans. Please cnsider including us in yur discussins with yur attrney.
2018 TAX PLANNING NEWSLETTER PAGE 6 Year- End Tax Planning Mves fr Businesses & Business Owners Here are a few key tax- saving mves fr yur business: The 179 limit fr 2018 is $1,000,000 fr purchases f qualifying assets. The new law expands the definitin f 179 prperty t include certain depreciable tangible persnal prperty used predminantly t furnish ldging r in cnnectin with furnishing ldging. Bnus Depreciatin: the new law increases the bnus depreciatin percentage frm 50 % t 100 % fr qualified prperty acquired and placed in service after Sept. 27, 2017, and befre Jan. 1, 2023. The bnus depreciatin percentage fr qualified prperty that a taxpayer acquired befre Sept. 28, 2017, and placed in service befre Jan. 1, 2018, remains at 50 %. Special rules apply fr lnger prductin perid prperty and certain aircraft. The definitin f prperty eligible fr 100 % bnus depreciatin was expanded t include used qualified prperty acquired and placed in service after Sept. 27, 2017, if certain factrs apply. Call us t see if yu culd benefit frm this change. Business Tax Prvisins Changes: ü There is n lnger a separate tax rate fr persnal service crpratin s (PSCs). ü The tw- year carryback prvisin fr net perating lsses (NOLs) has been eliminated except fr certain lsses, farming and casualty insurance cmpanies. In additin, the net perating lss deductin (NOL) is limited t 80% f taxable incme. ü There is n meals and entertainment deductin fr membership dues r activities generally cnsidered t be entertainment, amusement r recreatin. ü Alternative Minimum Tax (AMT) fr C crpratins has been repealed. ü All taxable incme f a C crpratin is taxed at a flat rate f 21%. ü The 70% dividends received deductin is reduced t 50%. The 80% dividends received deductin is reduced t 65%. ü An individual taxpayer generally may deduct 20% f qualified business incme frm a partnership, S crpratin, r sle prprietrship. In the case f a partnership r S crpratin, the deductin applies at the partner r sharehlder level. The deductin is disallwed fr specified service trades r businesses when taxable incme exceeds the threshld amunt. ü The depreciatin limitatins fr luxury autmbiles have been increased. Like Kind Exchanges have been mdified: Befre yu trade in r exchange prperty fr similar prperty, cntact us. Changes in the like kind rules may have a negative impact. Repeal f the Dmestic Prductin Activities Deductin: The Tax Cuts and Jbs Act repealed this deductin. Changes in Accunting Methds: The Tax Cuts and Jbs Act expands whm may use varius accunting methds. TCJA expands the universe f taxpayers wh can use varius accunting methds by increasing the grss receipts threshld ("grss receipts test") under which thse methds may be used. TCJA increases the limit fr the grss receipts test t $25 millin fr using the cash methd f accunting (including the use by farming C crpratins and farming partnerships with a C crpratin partner). Successin Planning: If yu plan t exit r transitin yur business t new wnership, it will pay t d sme tax planning well in advance. Nt nly can tax planning be financially rewarding, but a well thught ut tax plan can give yu peace f mind. We can help yu create a cmprehensive, integrated strategy that addresses business financial planning, persnal financial planning, management successin, an estate plan and a plan fr wnership transitin. S Crpratin Electin: Cnsider incrprating and electing S Crpratin status r, if yur business is already incrprated, cnsider switching frm C t S crpratin status. Ding s will avid duble taxatin. Once yur business cnverts frm C t S status, a 5- year perid must pass befre a future sale r liquidatin can cmpletely escape duble taxatin. Call t discuss whether cnverting t S crpratin makes sense.
2018 TAX PLANNING NEWSLETTER PAGE 7 2018 Year- End Tax Tips Nt all these tips based n current tax rules will apply in yur particular situatin but yu r a family member are likely t benefit frm many f them. The sner yu call us fr an appintment, the mre time we will have t meet, find specific actins that will benefit yu and yur family and get yu started n yur year- end tax saving mves. An Imprtant Tax Tip That Apples All Year What t d if yu receive a suspicius IRS- related crrespndence? If yu receive an email claiming t be frm the IRS that cntains a request fr persnal infrmatin, taxes assciated with a large investment, inheritance r lttery. Dn't reply. Dn't pen any attachments. They can cntain malicius cde that may infect yur cmputer r mbile phne. Dn't click n any links. Frward the email as- is t IRS at phishing@irs.gv. Dn't frward scanned images because this remves valuable infrmatin. Immediately delete the riginal email. Cntact ur ffice immediately befre initiating any cntact with the IRS, r smene claiming t be an IRS emplyee whether yu receive a phne call, letter, email, text r fax. Thank Yu! Yur business is appreciated. Call us t discuss tax planning. We thank yu fr yur referrals! 513-882- 3530 ACCOUNTING PAYROLL TAX PREPARATION INVESTMENT ADVISOR 513.882.3530