Tax evasion is against the law but tax avoidance is not. We would like to help you minimize your taxes and avoid paying more than you need to.
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.
It is still not too late for you to make an appointment. 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 those changes. Normal responses may 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
- Pass-through owners of sole propiertorships, S Corporations and Partnerships with qualified domestic earned income will be able to take a 20% reduction against taxable income. A $100,000 taxable 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% wage plus 2.5% of the tax basis of depreciable property.
S Corporation owners need to pay themselves a resonable salary–what they would need to pay someone else to do their job.
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. The maximum tax rate on a regular corporation is capped at 21%.
- 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.
- Interest on mortgages used to purchase, acquire or improve a principal residence can continue to deducts 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.
- Beginning in 2018, taxpayers will not be able to deduct more than $10,000 in property and state income taxes. These two limitations do not affect rental properties. If you can, try to allocate part of your property taxes to your business.
- Charitable deductions will now be limited to 60% of AGI (Adjusted Gross Income), not 50%.
- 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.
- 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.
- Deductions for alimony will disappear after December 31, 2018. Alimony will be deductible if you pay in before the end of the year. If you are going through divorce proceedings, try to finalize before year-end.
- New operating losses in 2018 and beyond will only be available to carry foward and not be carried back. NOL’s will also be limited to 80% instead of 100%.
- For businesses: you can only deduct meal expenses away from home and not for entertainment nor recreational expenses. Meals are deductible if paid separately and not part of a package deal for a concert or sporting event.
- Business mileage goes up to 54.5 cents per mile for business owners.
- Casualty losses only if federally declared.
- Moving expenses go away unless for military personnel.
- The Act also suspends all miscellaneous itemized deductions subject to 2% of AGI income floor. Expenses such as uniforms, union dues, and business related business meals as an employee. As an employee, ask your employer to reimburse your business expenses incurred as part of an accountability plan. It is tax deductible for them and tax free to you.
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 January 15, 2019. If late, make the payment anyway. Keep track of both federal and state estimates you paid 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. This is a perennial suggestion for too many who don’t.
- 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.
- Sell stocks that may produce a loss. Taxpayers can deduct up to $3,000 in losses over the gains.
- Buy an SUV or truck that is over 6,000 pounds for business to take bonus depreciation of up to 100% of the cost of the vehicle.
I am now working with Lewis Perkins, CFP® CLU® who takes care of client’s needs for investment and insurance with Indpendent 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