2018 Year End Individual Tax Planning

Big changes went into effect in 2018 for both individual and business income taxes from both sides, federal and state. The new postcard format is smaller; but there are many accompanying forms and schedules.

To complicate it even further most individual tax provisions are temporary. They are set to expire after 2025. Here’s a broad brush summary:

• Standard deductions nearly doubled.
• Many deductions claimed by individuals have been axed.
• Personal Exemptions are repealed.
• Home mortgages have been nicked.
• State and local tax deduction has been squeezed.
• Several write offs have been removed
  • Job Related moves
  • Employee Business expenses
  • Hobby Expenses
  • Brokerage and financial fees
• The phase-out of itemized deductions is removed
  There are still seven tax brackets but with different rates.
• The child tax credit is doubled and the income phase-out thresholds are much higher.
• The annual gift tax exclusion for 2018 is $15,000 per donee.
• The kiddie tax is revamped.
• The taxation of all business has been revamped.
• There are enhanced write offs for business asset purchases. And there are limitations at the state level.
• Many other business breaks have been eliminated or pared back: business entertainment, NOL’s and like kind exchanges,among many others.

This is just touching the surface. We are anticipating an interesting tax year!  Please be patient with us as we all work through this and we will be patient with you! We are doing our best to be abreast of the new tax laws, the new policies and procedures at both the federal and state level. We will continue to make you, our clients, our priority.

In the meantime, have a joyous and peaceful holiday season.  We look forward to seeing you soon!

Mary Jo

REMINDERS and other Hints and Tips:

1. The 2018 IRA contribution can be made up until April 15, 2019.
2. The 2018 SEP contribution can be made through April 15 or until the date of tax filing extension.
3. Consider making 2018 distributions from trusts.  The 663(b) election, also known as the “65 Day Rule” enables a trust to make a distribution within the first 65 days of the year, and have it count as a distribution for the previous tax year.
4. If you are 70 ½ or older you can satisfy your RMD (required minimum distribution) from retirement accounts by making a charitable contribution directly to the charity from your IRA. (This has the potential to affect how much Social Security is taxed and how much you will pay for Medicare B and D).
5. If your income is too high to claim education credits for your children, you may have some opportunity in the last year of college. If your child lands that new job and provides more than half of his own support in the same year tuition is paid (for or by himself), he/she can be eligible for the $2,500 American Opportunity Tax Credit (and you can ask him/her or her to give it back.) Some colleges require payment for the spring semester in December of the prior year. If you opt for a tuition payment plan,you should be able to pay some of that in the current year.

TIP: Your college student may make his/her own decision to file his/her own tax return to get a highly anticipated refund. It is so important to discuss with them beforehand WHO will be claiming the dependency exemption; it most often is a greater benefit to the parent(s). It is complex reversing that decision.

Bottom line – before your college student files a tax return, know the ramifications.Call our office!

• If you are in a low tax bracket in a particular year, consider converting any traditional IRA to a Roth IRA. You will have to pay the tax on it now, but it will grow tax-free and you won’t be taxed when you take distributions in retirement. It is also a great way to reduce those required minimum distributions.
• Don’t forget to use any money you have contributed to a flexible spending account. These accounts are “use it or lose it” accounts. Some employers have grace periods or the option to roll over$500 to the following year. Check with your employer.

TIP: Don’t wait until 1099s and W-2s start arriving to begin gathering your data for filing. The top priority and most important tax-planning advice is to file as early as possible to avoid tax-return identity theft. Have all backup data possible in early January so that when your documents do arrive, you are ready to file.