Whats New in 2018 that Affects You -TCJA

New tax brackets for 2018

Rate

Single

Married filing jointly 

(and surviving spouses)

Heads of household

Married filing separately

10%

Up to $9,525

Up to $19,050

Up to $13,600

Up to $9,525

12%

$9,526–$38,700

$19,051–$77,400

$13,601–$51,800

$9,526–$38,700

22%

$38,701–$82,500

$77,401–$165,000

$51,801–$82,500

$38,701–$82,500

24%

$82,501–$157,500

$165,001–$315,000

$82,501–$157,500

$82,501–$157,500

32%

$157,501–$200,000

$315,001–$400,000

$157,501–$200,000

$157,501–$200,000

35%

$200,001–$500,000

$400,001–$600,000

$200,001–$500,000

$200,001–$300,000

37%

Over $500,000

Over $600,000

Over $500,000

Over $300,000

Alternative minimum tax (AMT)

When the AMT is triggered, the taxpayer must add back certain items and recalculate their tax at an established flat rate. They will pay the higher of the two amounts. If you paid AMT last year but do not owe it now, you may be eligible for a credit. Note that  these exemption  amounts are $70,300 for single filers, $109,400 for married filing jointly and $54,700 for married  filing separately. 

New standard deduction

The standard deduction was raised for all taxpayers in 2018.Those filing individually or as married filing separately will  see a standard deduction of $12,000 while those filing jointly  will see a deduction of $24,000.The standard deduction is $18,000 for taxpayers filing as head of household.

Tax laws affecting higher-income taxpayers

Tax reform suspended the overall limit for itemized  deductions for tax years 2018-2025.

Net investment income tax (NIIT)

 - NIIT is a 3.8% tax on a broad range of income sources such as interest, dividends, capital gains, rental and royalty income, non-qualified annuities and passive business revenue. It affects  individuals, estates and trusts above certain   income levels.

-Taxpayers are subject to NIIT if their modified adjusted income  exceeds $250,000 married filing jointly, $200,000 single or head of household and $125,000 married filing separately.

Taxpayers are subject to an additional 0.9% Medicare surtax on wages and self-employment income in excess of $250,0000 for married filing jointly, $200,000 single or head of household and $125,000 for married filing separately.

For the 0.9% additional Medicare surtax, withholding is required only on wages above $200,000. If a couple’s combined income exceeds   $250,000, it’s possible no Medicare surtax was withheld if each spouse earned below $200,000. This may result in under-withholding (and possible penalties). Ask your CPA whether you should pay estimates.

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Tax benefits and obligations

Higher education costs

•         American opportunity tax credit (AOTC): up to $2,500 of federal tax credits for expenses related to a four-year degree, and $1,000 of this is refundable

•         Lifetime learning credit: up to $2,000 per tax return for qualified tuition and related expenses

Child and dependent care costs

•         Child tax credit: provides up to $2,000 per qualifying child under 17

•         Child and dependent care tax credit: provides a credit of 20–35% of the cost of care up to $3,000 for one or $6,000 for two or more children under age 13, or a spouse or other dependent who is incapable of self-care

Charitable tax planning

There are many tax planning opportunities related to charitable giving even with the increase in the standard deduction. Working with a CPA on timing charitable deductions — consider bunching them in alternating years for example — is more important than ever

·         Evaluate both tax and philanthropic goals when making contributions.

·         Consider donating appreciated property (especially securities you are considering selling).

·         Consider a donor-advised fund to help with timing/control of contributions.

·         Donation for services are usually not permitted (although out-of-pocket expenses related to services rendered are normally deductible).

·         Contributions specified for certain individuals are not deductible (even if the related organization is a qualified charitable organization).

·         Be aware of record keeping and contemporaneous acknowledgment requirements.

·         Note any quid pro quo statements included on   acknowledgments received.

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Don’t forget FSAs or HSAs!

There are ways to reduce your taxable income by making contributions to a flexible spending account to payout-of-pocket medical expenses or contributing to a health savings account (HSA). Your insurance plan will determine which applies. This provides a way to obtain a tax benefit for paying medical expenses, since taxpayers can only deduct unreimbursed  medical/dental expenses that exceed 7.5% of adjusted gross income


Looking forward: What can you do to minimize taxes?

Planning for ways to minimize taxes is an ongoing process. Here are some items to consider:

•         Maximize your retirement plan contributions to minimize income. For tax year 2018, the limit for 401(k)s (if you are under age 50) is $18,500. The limit is $24,500 if you are age 50 or older.

•         Take full advantage of employer-sponsored programs   that allow you to set aside pre-tax dollars for child care or medical expenses.

•          Ask your CPA whether you will likely be subject to the AMT and how to minimize the impact.

•          Shift to investments that are not subject to NIIT  (e.g., exempt bonds).

•          Offset any capital gains by harvesting losses in your taxable brokerage account.

Your CPA can advise you more on these and other strategies.

Self-employed or own a business?

Tax planning for your business is more important than ever with the new tax law. Be sure that your books and records are in good order (or contact your CPA for bookkeeping assistance) so you can review planning opportunities with your CPA.

Purchases of equipment

•      Bonus depreciation — A deduction of 100% of the cost     of qualified property can be deducted in the first     year of acquisition. In 2023, this percentage will decrease 20% until it becomes 0% in 2027.Used property is now included as qualified     property.

•      Section 179 — For tax year 2018, businesses can deduct   up to $1million of business property (computers, office furniture.) placed in service during the tax year. This deduction now includes the purchase of certain    improvements to commercial real property.

Deduction for business income

Some businesses will qualify for a 20% deduction of qualified

Business income

Health insurance

Evaluate your health insurance options to determine if you are eligible for a deduction for self-employed health insurance premiums (medical, dental or long-term care  plans).

Retirement plans

Consider establishing a qualified retirement plan, such as:

·         SEP IRA: May contribute up to the lesser of25% of net   income or $55,000

·         401(k):   Employee deferral plan, plus profit sharing

component

Meals and entertainment expenses

Expenses defined as entertainment are no longer deductible. However, business meals that meet certain criteria will still be deductible (generally 50% of the expense) as they have been in the past. Make sure that you have these items segregated in your books and records.


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