Those of you who have not filed your 2017 tax returns have until October 15th. Penalties for late filings can be significant.
The third quarter estimated tax payments are due September 15th. I encourage you to make these payments, if not in full, partially.
Since the new tax law may significantly affect the amount of taxes due this year, you may want to revisit how much you owe and how much you have already paid.
This week children and adults will be going back to school. Before you know it, the holidays and tax season will be with us again.
It is still not too late for you to make an appointment and come in and review your financial plans and goals with us. Remember we are tax consultants and financial planners.
As previously mentioned, I believe the 2018 tax year may be very difficult because of the changes and not being prepared for them. Normal responses will include…”I didn’t know about these changes”. “When did that happen”?
Here are a number of the major changes that may affect your 2018 filing and tax planning. Remember that this office is here to help you navigate through these changes and make recommendations that can provide accuracy and perhaps lower your tax bill.
2018 IMPORTANT TAX CHANGES
1. Pass-Through owners of sole proprietorships, S Corporations and Partnerships with qualified domestic earned income will be able to take a 20% reduction against taxable income. A $100,000 net income now becomes $80,000. Income is limited to the higher of the two calculations. Rental properties with active participation also qualify.
-50% of your W-2 wages or
-25% of wages plus 2.5% of the tax basis of depreciable property
Rental income for which you are considered to be participating on a regular and continuous basis is eligible for an extra tax deduction of 20% of taxable income
The new tax law added section 199. This deduction allows a 20% deduction of trade or business income not from a corporation. For purposes of this section, S Corporations are not corporations and get this deduction.
2. The deduction is phased out for joint filers with income over $315,000 and single filers over $157,500. If your income is above these amounts, you may want to consider a cash pension plan to bring your income below these amounts.
3. Interest on mortgages used to purchase, acquire, or improve a principal residence can continue to deduct interest on $1,000,000 even if you refinance. Principal or second homes acquired after April 1, 2018 will only be able to deduct interest on $750,000 mortgage. Home equity loan interest will no longer be deductible.
4. Beginning in 2018 taxpayers will not able to deduct more than $10,000 in property and state income taxes. These two limitations do not affect rental properties.
5. Charitable deductions will now be limited to 60% of AGI (Adjusted Gross Income), not 50%.
6. Standard deduction and exemptions for dependents who are married and do not itemize will increase from $13,000 to $24,000. There is no deduction in the future for exemptions. Exemptions and standard deductions are combined.
7. For high income filers, there will be no limitation on your itemized deductions. AMT limitation amounts have been increased so less income will be subject to AMT tax. All rates have been decreased with increased bracket amounts.
8. Deductions for alimony and the penalty for not having health insurance will disappear after December 31, 2018.
9. New operating losses in 2018 and beyond will only be available to carry forward and not be carried back. NOL’s will also be limited to 80% instead of 100%.
10. You can only deduct meal expenses away from home and not for entertainment nor recreational expenses. AICPA has asked for clarification if this also includes items in past for travel and entertainment. Probably not.
11.Business mileage goes up to 54.5 cents per mile for business owners.
12. Casualty losses only if presentially declared.
13. Moving expenses go away unless for military personnel.
14. The Act also suspends all miscellaneous itemized deductions subject to 2% percent of AGI income floor. Expenses such as uniforms, union dues, and business related business meals as employee.
WHAT YOU SHOULD DO:
First of all, we are here to help you.
- Make sure you make all estimated tax payments. The next one is DUE September 15th. If late, make the payment anyway. Keep track of both federal and state estimates you made and the dates. Many times taxpayers will have to pay extra because they did not properly keep track of their estimates. Taxes paid for prior year’s taxes are not estimates.
- If you have a retirement account, add to it if you’re still working.
- If your income has changed significantly, recalculate your tax due. Remember that the IRS expects you to pay taxes in the quarter in which you earned the income. . Especially on real estate sales. Please see us for ideas on how you can avoid or reduce taxes on the sale of your principal residence.
- As a Certified Financial Planner (CFP), I can help you plan your future insurance, and retirement needs in addition to minimizing your taxes. Stop by and have a glass of lemonade.
I am now working with Lewis Perkins, CFP® CLU® who takes care of client’s needs for investment and insurance with Independent Financial Group, LLC as Broker Dealer. Another area of interest has been 1031 exchanges for investment property. He has been working for over 25 years in the field and looks forward to being of assistance to you. He may be reached at 310-453-2121.
Chuck Anderson, C.P.A., CFP