First, of all I want to thank each of you for working with us again this year in helping you file your 2017 tax returns.
I have valued your friendship over the years. Next week is the 4th of July holiday where we celebrate our founding as a free and independent country. The greatest country in the world. The more I travel with Rotary on humanitarian trips the more I appreciate and love our freedoms, opportunities and quality of life. Enjoy your family and friends. Love them. We are so very fortunate and blessed to live here.
I believe the 2018 tax year may be our most difficult yet. Not only because of the changes but because many will not be ready for the changes.
Here are a number of the major changes that may effect your 2018 filing and tax planning. Remember that this office is here to help you navigate through these changes and make recommendations that can lower your tax bill.
2018 Important Tax Changes
1. Passthrough 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 where you are considered as 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.
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 interest on loans 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 and 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 entertainment nor recreational expenses. AICPA has asked for clarification if this also includes items in pass for travel and entertainment. Probably not.
11.Business mileage goes up to 54.5 cents per miles 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.
1. Make sure you make all estimated tax payments. The next one is DUE September 15tH. If late, make the payment anyway.
2. If you have a retirement account add to it if you’re still working.
3. 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 them.
4. 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. 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