Tax reform eliminated a number of deductions that many taxpayers counted on to reduce their taxable income. Here are four that could affect you.
1. Personal Exemptions
Personal exemptions enabled individual taxpayers to reduce taxable their income in addition to the standard deduction, but were repealed for tax years 2018 through 2025. While the standard deduction did increase significantly under tax reform to compensate - $12,000 for individuals, $24,000 for married taxpayers filing jointly, $18,000 for heads of household - some taxpayers could still lose out.
2. Tax Preparation Fees
Tax preparation fees, which fell under miscellaneous fees on Schedule A of Form 1040 (and were also subject to the 2% floor), were also eliminated for tax years 2018 through 2025 as well. Examples of tax preparation fees include payments to accountants, tax prep firms, and the cost of tax preparation software.
3. Unreimbursed Job Expenses
For tax years starting in 2018 and expiring at the end of 2025, miscellaneous unreimbursed job-related expenses that exceed 2% of adjusted gross income (AGI) are no longer deductible on Schedule A (Form 1040). Unreimbursed job-related expenses include union dues, continuing education, employer-required medical tests, regulatory and license fees (provided the employee was not reimbursed), and out-of-pocket expenses paid by an employee for uniforms, tools, and supplies.
4. Moving Expenses
Prior to tax reform (i.e., for tax years starting before January 1, 2018), taxpayers were able to deduct expenses related to moving for a job as long as the move met certain IRS criteria. However, for tax years 2018 through 2025, moving expenses are no longer deductible--unless you are a member of the Armed Forces on active duty who moves because of a military order.
If you have any questions about tax reform and how it affects your particular tax situation, don't hesitate to call.
If you're a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.
The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.
The tax credit is worth up to 50 percent of your contribution toward employees' premium costs (up to 35 percent for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $27,100 or less in 2019 ($26,600 in 2018). The smaller the business, the bigger the credit is. For example, if you have more than 10 FTEs or if the average wage is more than $27,100, the amount of the credit you receive will be less.
Note: The credit is available only if you get coverage through the SHOP Marketplace.
Here's an example: If you pay $50,000 a year toward workers' health care premiums--and you qualify for a 15 percent credit--you'll save $7,500. If you save $7,500 a year from tax year 2017 through 2018, that's a total saving of $15,000. And, if in 2019 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year.
To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs), and those employees must have average wages of less than $50,000 a year. This amount is adjusted for inflation annually and in 2018 was $53,200.
Let's take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10, not 20.
Now let's talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages, you divide $200,000 by 10--the number of FTEs--and the result is your average wage. In this example, the average wage would be $20,000.
Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.
If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That's both a credit and a deduction for employee premium payments.
If you can benefit from the credit this year but forgot to claim it on your tax return there's still time to file an amended return.
Businesses that have already filed and later find that they qualified in 2016 or 2017 can still claim the credit by filing an amended return for one or both years.
Don't hesitate to call if you have any questions about the small business health care credit.
Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable.
Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return.
Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.
Tip: If you receive Social Security benefits you should receive Form SSA-1099, Social Security Benefit Statement, showing the amount.
Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. In 2018, the three base amounts are:
Taxpayers filing an individual federal tax return:
Taxpayers filing a joint federal tax return:
Married taxpayers filing separate tax returns generally pay taxes on benefits.
Thirteen states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you're spending your retirement years.
If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits--the same as if you were still living in the U.S.
You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional or one who specializes in expat tax services.
Note: Even if you retire abroad, you may still owe state taxes--unless you established residency in a no-tax state before you moved overseas. Also, some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore it is prudent to consult a tax professional.
If you receive Social Security, a tax professional can help you determine if some - or all - of your benefits are taxable.
Obtaining a 6-month extension to file is relatively easy and there are legitimate reasons for doing so; however, there are also a few downsides. If you need more time to file your tax return this year, here's what you need to know about filing an extension.
An extension of time to file is a formal way to request additional time from the IRS to file your tax return, which in 2019, is due on April 15 (if you live in Maine or Massachusetts you may file by April 17). Anyone can request an extension and you don’t have to explain why you’re asking for more time.
Note: Special rules may apply if you are serving in a combat zone or a qualified hazardous duty area or living outside the United States. Please call the office if you need more information.
Individuals are automatically granted an additional six months to file their tax returns. In 2019, the extended due date is October 15. Businesses can also request an extension. In 2019, the deadline for S-corporations and Partnerships is September 16 and October 15 for C-corporations.
Caution: Taxpayers should be aware that an extension of time to file your return does not grant you any extension of time to pay your taxes. In 2019, April 15 is the deadline for most to pay taxes owed and avoid penalty and interest charges.
As with most things, there are pros and cons to filing an extension. Let's take a look at the pros of getting an extension to file first.
Pros
1. You can avoid a late-filing penalty if you file an extension. The late filing penalty is equal to 5 percent per month on any tax due plus a late payment penalty of half a percent per month.
Note: If you are owed a refund and file late, there are no penalties for late filing.
2. You can also avoid the failure to file penalty if you file an extension. if you file your return more than 60 days after the due date (or extended due date), the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.
3. You are able to file a more accurate--and complete--tax return. Rather than rushing to prepare your return (and possibly making mistakes), you will have an extra 6 months to gather up required tax records, especially if you are still waiting for tax documents that haven't arrived or need more time to organize your tax documents in support of deductions.
4. If your tax return is complicated then your tax preparer or accountant will have more time available to work on your return to make sure you can take advantage of every tax credit and deduction you are entitled to under the tax code.
5. If you are self-employed, you'll have extra time to fund a retirement plan. Individual 401(k) and SIMPLE plans must have been set up during the tax year for which you are filing, but it's possible to fund the plan as late as the extended due date for your prior year tax return. SEP IRA plans may be opened and funded for the previous year by the extended deadline as long as an extension has been filed.
6. Filing an extension preserves your ability to receive a tax refund when you file past the extension due date. Filers have three years from the date of the original due date (e.g., April 15, 2019) to claim a tax refund. However, if you file an extension you’ll have an additional six months to claim your refund. In other words, the statute of limitations for refunds is also extended.
Cons
1. If you are expecting a refund, you'll have to wait longer than you would if you filed on time.
2. Extra time to file is not extra time to pay. If you don't pay a least 98 percent of the tax due now, you will be liable for late-payment penalties and interest. The failure to pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. If you are not able to pay, the IRS has a number of options for payment arrangements. Please call the office for details.
3. When you request an extension you will need to estimate your tax due for the year based on information available at the time you file the extension. If you disregard this, your extension could be denied and if you filed the extension at the last minute assuming it would be approved (but wasn't) you may owe late filing penalties as well.
4. Dealing with your tax return won't be any easier 6 months from now. You will still need to gather your receipts, bank records, retirement statements and other tax documents--and file a return.
If you feel that you need more time to prepare your federal tax return, then filing an extension of time to file might be the best decision. If you have any questions or are wondering if you need an extension of time to file your tax return, don't hesitate to contact the office.
All income is taxable unless the law specifically excludes it, but as you might have guessed, there's more to it than that. With that in mind, let's take a closer look at taxable vs. nontaxable income.
Taxable income includes any money you receive, such as wages and tips, but it can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.
Tip Income. If you get tips on the job from customers, that income is subject to taxes. Here's what you should keep in mind when it comes to receiving tips on the job:
Bartering Income. Bartering is the trading of one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no exchange of cash. If you barter, the value of products or services from bartering is taxable income. Here are four facts about bartering that you should be aware of:
Here are some types of income that are usually not taxable:
In addition, some types of income are not taxable except under certain conditions, including:
If you have any questions or would like more information about taxable and nontaxable income, don't hesitate to contact the office today.
All of the names on a taxpayer's tax return must match Social Security Administration records because a name mismatch can delay a tax refund. Here's what you should do if anyone listed on their tax return changed their name:
1. Reporting Taxpayer's Name Change. Taxpayers who should notify the SSA of a name change include the following:
2. Reporting Dependent's Name Change. Taxpayers should notify the SSA if a dependent's name changed. This includes an adopted child who now has a new last name. If the child doesn't have a Social Security number, the taxpayer may use a temporary Adoption Taxpayer Identification Number (ATIN) on the tax return. Taxpayers can apply for an ATIN by filing a Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions.
3. Getting a New Social Security Card. Taxpayers who have a name change should get a new card that reflects a name change. File Form SS-5, Application for a Social Security Card. Taxpayers can get the form on SSA.gov or by calling 800-772-1213.
If you have any questions about reporting name changes or any other aspects of filing your tax return, please call the office as soon as possible for assistance.
In most cases, taxpayers who turned 70 1/2 during 2018 must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Monday, April 1, 2019.
The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by December 31. In other words, a taxpayer who turned 70 1/2 in 2018 (born after June 30, 1947, and before July 1, 1948) and receives the first required distribution (for 2018) on April 1, 2019, for example, must still receive the second RMD by December 31, 2019.
Affected taxpayers who turned 70 1/2 during 2018 must figure the RMD for the first year using the life expectancy as of their birthday in 2018 and their account balance on December 31, 2017. The trustee reports the year-end account value to the IRA owner on Form 5498, IRA Contribution Information in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70 1/2 in 2018 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer's only beneficiary. Both tables can be found in the appendices to Publication 590-B.
Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.
Now is the time to begin planning for distributions required during 2019. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2018 RMD, this amount would be on the 2018 Form 5498 that is normally issued in January 2019.
If you have any questions about RMDs, don't hesitate to call.
The Tax Cuts and Jobs Act has resulted in questions from taxpayers about many tax provisions including whether interest paid on home equity loans is still deductible. The good news is that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled.
Background
The Tax Cuts and Jobs Act of 2017, enacted December 22, 2017, suspends the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer's home that secures the loan. This suspension is in effect from 2018 through 2025.
Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer's main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
New dollar limit on total qualified residence loan balance
For anyone considering taking out a mortgage, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer's main home and second home.
For more information about deducting interest on home equity loans or the new tax law, please call.
Some taxpayers may be required to pay an Additional Medicare Tax if their income exceeds certain limits. Here are some things that you should know about this tax:
1. Tax Rate. The Additional Medicare Tax rate is 0.9 percent.
2. Income Subject to Tax. The tax applies to the amount of certain income that is more than a threshold amount. The types of income include your Medicare wages, self-employment income and railroad retirement (RRTA) compensation. See the instructions for Form 8959, Additional Medicare Tax, for more on these rules.
3. Threshold Amount. You base your threshold amount on your filing status. If you are married and file a joint return, you must combine your spouse's wages, compensation or self-employment income with yours. Use the combined total to determine if your income exceeds your threshold. The threshold amounts are:
3. Withholding/Estimated Tax. Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year. If you are self-employed you should include this tax when you figure your estimated tax liability.
4. Underpayment of Estimated Tax. If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty. For more on this, please call.
5. Form 8959. If you owe this tax, file Form 8959, Additional Medicare Tax, with your tax return. You also report any Additional Medicare Tax withheld by your employer on Form 8959.
If you have any questions about the Additional Medicare Tax, help is just a phone call away.
Under the Tax Cuts and Jobs Act (TCJA), there is an additional first-year depreciation deduction that applies to qualified property, including passenger automobiles, acquired and placed in service after September 27, 2017, and before January 1, 2027.
Generally, both the section 179 and the depreciation deductions for passenger automobiles are subject to dollar limitations for the year in which the taxpayer places the passenger automobile in service and, for each succeeding year. For a passenger automobile qualifying for the 100-percent additional first-year depreciation deduction, TCJA increased the first-year limitation amount by $8,000.
If the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction is allowed exceeds the first-year limitation, the excess amount is deductible in the first taxable year after the end of the recovery period.
While this may be somewhat confusing for taxpayers, guidance is now available for a safe harbor method of accounting for passenger automobiles. Here is how the safe harbor works:
The safe harbor allows a depreciation deduction for the excess amount during the recovery period. It is, however, subject to the depreciation limitations applicable to passenger automobiles.
To apply the safe-harbor method, the taxpayer must use the applicable depreciation table found in Appendix A of IRS Publication 946, How To Depreciate Property. Taxpayers should note that the safe harbor method does not apply to a passenger automobile placed in service by the taxpayer after tax year 2022, or to a passenger automobile for which the taxpayer elected out of the 100-percent additional first year depreciation deduction or elected under section 179 to expense all or a portion of the cost of the passenger automobile.
Taxpayers can use the safe harbor method of accounting by applying it to the depreciation deduction of a passenger automobile on their return for the first taxable year following the placed-in-service year.
For more information on the additional first-year depreciation deduction, don't hesitate to contact the office.
Job-costing is not just for contractors. While that's probably the most common understanding of this concept in QuickBooks, you can also use the software's jobs tools to track income and expenses for any related group of items and/or services.
Think of them as projects. If you're an expert in business promotions, for example, you probably have multiple projects going on simultaneously that consist of materials you might need to order for your client (like special paper) and the actual work you do (design, content-creation, etc.). You could also have to track expenses like mileage, and you may price your services by the hour.
QuickBooks can handle all of this. If you're conscientious about documenting all of the pieces that go into every job, you'll be able to run reports that show you how much you spent and took in on each. This information can help you better price your services and manage your time to maximize profitability.
In part one of this of a two-column series, we're going to explore the basic elements that go into job-tracking. Keep in mind that there are many different ways to work with jobs. How you choose to do it will depend on the structure of your business.
First, let's look at a simple example. The first step involves setting up a job for an existing client. Even if you think you're only going to be doing one project for them, you can still set it up as a job so you can assign all related income and expenses to it. This will make it much easier if you get additional work from the customer down the line - and if you have to bill the customer for something that's not related to a specific project.
To create a job, open the Customers menu and select Customer Center. Make sure the Customers & Jobs tab is highlighted. Select the customer by clicking on it. Right-click the name and select Add Job from the drop-down list. When the New Job window opens, click the Job Info tab.
Fill in the Job Name field. In this example, we've selected a name that's broad enough that we'll eventually be able to break down into specific tasks. If your customer has an outstanding balance as of the current date, that amount will appear in the Opening Balance field.
Enter a Job Description. The Job Type field is optional, but creating these classifications can help with advanced reports that gauge profitability. Consult with us if you want to explore these.
Open the Job Status list and select the correct one, then choose a Start Date and Projected End Date. You'll document the End Date when you're finished. Click OK.
You may already know that if you buy and/or sell products and/or services, you have to set up individual records for each one so you can include them on sales and purchase forms. You'll need these to record income and expenses related to your Promotion job. If you're new to QuickBooks, here's how it works.
Open the Lists menu and select Item List. In the window that opens, click the arrow next to Item in the lower left corner and select New. A window like this will open:
The Item Type list will drop down. Select Service. In the example above, you're creating a record for a service you sell: Website Development. Enter that in the Item Name/Number field. Ignore the U/M Set field; this is not available in QuickBooks Pro or Premier.
Enter a Description and your hourly (or project) Rate. Choose the correct Tax Code status and select the Account. When you're done, click OK.
Warning: You may not have an Account in your Chart of Accounts that fits the specialized income and expenses you want to track. If you need assistance setting this up, don't hesitate to call.
You'll repeat this process for other types of promotional work you do (making flyers and brochures, designing and ordering branded products, general content creation, etc.).
Before you create your first job, spend time envisioning how you want it structured. Remember that every invoice or timed activity or other income or expense you enter will only be assigned to one Customer:Job, but you can include as many Items as you want. If you need help envisioning this, please call, and a QuickBooks professional will be happy to help you think this through and go through the setup with you
.Next month: a look at how the records you've created can be used.
Farmers and Fishermen - File your 2018 income tax return (Form 1040) and pay any tax due. However, you have until April 15 (April 17 if you live in Maine or Massachusetts) to file if you paid your 2018 estimated tax by January 15, 2019.
Employees who work for tips - If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February.
Partnerships - File a 2018 calendar year income tax return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065-B) or substitute Schedule K-1. To request an automatic 6-month extension of time to file the return, file Form 7004. Then file the return and provide each partner with a copy of their final or amended (if required) Schedule KÂÂÂ1 (Form 1065) by September 16.
S Corporations - File a 2018 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder's Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in tax.
S Corporation Election - File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2019. If Form 2553 is filed late, S corporation treatment will begin with calendar year 2020.
Electronic Filing of Forms - File Forms 1097, 1098, 1099 (except Form 1099-MISC), 3921, 3922, and W-2G with the IRS. This due date applies only if you file electronically. The due date for giving the recipient these forms generally remains January 31.
Electronic Filing of Form W-2G - File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2018. This due date applies only if you electronically file. The due date for giving the recipient these forms remains January 31.
Electronic Filing of Forms 8027 - File copies of all the Forms 8027 you issued for 2018. This due date applies only if you electronically file. Otherwise, see February 28.
Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1095-B - If you're an Applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of minimum essential coverage, file electronic Forms 1094-B and 1095-B with the IRS.
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