Thursday, January 4, 2018

Tax Cuts and Jobs Act - Individual Changes


The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Here's a look at some of the important elements of the new law that have an impact on individuals. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025.
·        Tax rates. The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed.
·        Standard deduction. The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. These figures will be indexed for inflation after 2018.
·        Exemptions. The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change.
·        Child and family tax credit. The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer's dependents who are not qualifying children.
·        State and local taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018.
·        Mortgage interest. Under the new law, mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out after December 31, 2017.  For acquisition debt incurred on or before December 15, 2017, the limitation is still $1 million.  And there is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.
·        Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income.
·        Medical expenses. Under the new law, for the 2017 and 2018 tax years, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.
·        Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.
·        Alternative minimum tax (AMT) exemption. The AMT has been retained for individuals by the new law but the exemption has been increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers and over $500,000 for all others.



As you can see from this brief overview, the new law affects many areas of taxation. If you wish to discuss the impact of the law on your particular situation, please contact your tax preparer at (219) 769-3616, or email them, with your questions.

Wednesday, December 13, 2017

Business Year-end Tax Moves



Even though the end of 2017 is near, it is not too late to get your business into the best possible tax position for the new year.  Here are some year-end tax moves to consider:

Consider vehicle purchases. There are several tax deductions available if you own a vehicle for business use. General expenses can be tax-deductible, including fuel, oil changes, general repairs and even new tires. Depreciation, insurance and interest on a business car loan are also tax-deductible expenses. While there are special limits to the amount that can be depreciated for most vehicles each year, the benefits can often outweigh the costs

Update the office. A fresh coat of paint and new office furnishings not only make your place of business more comfortable, they also provide another tax deduction. How you handle deducting these expenses will vary depending upon whether you own or lease your office space.

Reward your staff. If you have sufficient cash flow, giving your staff a year-end bonus is a great way to let them know you appreciate them. It's also tax-deductible.

Treat a client. If there are clients you haven't contacted in a while, it's a good time of the year to take them out for a nice (not lavish) breakfast or dinner and deduct 50 percent of the meal. Who knows, you may be able to generate some new business while you collect a tax benefit.

Update your skills. Attend a workshop or conference to improve your professional skills. While there are some limitations, many travel, lodging and out-of-pocket expenses related to professional training are tax-deductible.

Plan for the future. If you don't already have some type of retirement plan for yourself and your employees in place, now may be a good time to set one up. There are tax credits and other incentives available to employers who start a retirement plan. Employer contributions to the plan are usually tax-deductible. There are a variety of plans available depending upon the kind of business you do, each with their own rules and regulations.

Call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.


2017 Year-end Tax Planning Tips


Tax Reform
As of this date, tax reform for 2018 is in process and uncertain.  However, both the US House of Representatives and the US Senate have drafted bills that remove or severely limit the deduction of state and local taxes, presumably effective as of January 1, 2018.  Individuals who have 4th quarter 2017 state estimated payments due in January 2018, or expect to have balances due with their 2017 income tax returns, may want to pay toward those liabilities prior to December 31, 2017.  (The Federal tax benefit of this strategy may be limited or eliminated for individuals subject to the alternative minimum tax on their 2017 income tax returns).

Investment Income
Though the markets have been up strongly this year, your investment portfolio may have a few lemons in it. By using the tax strategy of tax-loss harvesting, you may be able to turn those lemons into lemonade. Here are some tips:

Tip #1: Separate short-term and long-term assets. Your assets can be divided into short-term and long-term buckets. Short-term assets are those you've held for a year or less, and their gains are taxed as ordinary income. Long-term assets are those held for more than a year, and their gains are taxed at the lower capital gains tax rate. A goal in tax-loss harvesting is to use losses to reduce short-term gains.

Tip #2: Follow netting rules. Before you can use tax-loss harvesting, you have to follow IRS netting rules for your portfolio. Short-term losses must first offset short-term gains, while long-term losses offset long-term gains. Only after you net out each category can you use excess losses to offset other gains or ordinary income.

Tip #3: Offset $3,000 in ordinary income. In addition to reducing capital gains tax, excess losses can also be used to offset $3,000 of ordinary income. If you still have excess losses after reducing both capital gains and $3,000 of ordinary income, you carry them forward to use in future tax years.

Tip #4: Beware of wash sales. The IRS prohibits use of tax-loss harvesting if you buy a "substantially similar" asset within 30 days before or after selling it at a loss. So plan your sales and purchases to avoid this problem.

Tip #5: Consider administrative costs. Tax-loss harvesting comes with costs in both transaction fees and time spent. One idea to reduce the hassle is to make tax-loss harvesting part of your annual tax planning strategy.
Remember, you can turn an investment loss into a tax advantage, but only if you know the rules.
Contact your tax preparer at (219) 769-3616, or email them, with your questions.