Tax Cuts and Jobs Act of 2017

Tax Cuts and Jobs Act of 2017

Now that the Tax Cuts and Jobs Act has been approved and is now law, we can start summarizing the details of the legislation.  Below is a summary of the major highlights of this law. 

Individuals

Tax Rates

The prior tax rates ranging from 10% to 39.6% have been replaced by the following rates:

MFJ

Single

Rate

$0 to $19,050

$0 to $9,525

10%

$19,050 to $77,400

$9,525 to $38,700

12%

$77,400 to $165,000

$38,700 to $82,500

22%

$165,000 to $315,000

$82,500 to $157,500

24%

$315,000 to $400,000

$157,500 to $200,000

32%

$400,000 to $600,000

$200,000 to $500,000

35%

Over $600,000

Over $500,000

37%

The capital gains and qualified dividends tax rates are unchanged.

Alternative Minimum Tax

While the alternative minimum tax survived the bill and is still around, the exemption has been increased to $109,400 for joint filers, which will reduce the number of taxpayers subject to this tax.

Exemptions and Deductions

The new law eliminates the personal exemptions that taxpayers have grown accustomed to receiving.   Under prior tax law, taxpayers received a $4,150 deduction for every member of the household they were eligible to claim. 

However, with this change, the new law increases the standard deduction for all taxpayers. 

2018 Standard Deductions

$12,000

Single

$24,000

Married filing joint

$18,000

Head of Household

Itemized deductions had a few major changes.

·        Medical expenses deductions – The threshold to begin deducting medical expenses has been lowered back down to 7.5% of AGI for 2018 from the previous level of 10% of AGI.  This will allow more people to deduct qualified medical expenses.

·        Mortgage interest deduction – The amount of mortgage interest deductible has been lowered from interest on $1,000,000 of mortgage debt to $750,000 of mortgage debt on new mortgages.  Existing mortgages still are eligible for the $1,000,000 limit.  Home equity line of credit interest will no longer be deductible.

·        State and local taxes – Only the first $10,000 of state and local property and income taxes will be deductible in 2018.  Property taxes paid for business purposes will still be fully deductible for the business.

·        Miscellaneous itemized deductions – These are no long eligible to be deducted on itemized returns.

Individual Credits

Education credits – These credits were not changed by the tax law.

Child tax credits– These credits were raised to $2,000 per eligible child under 18.  There is also a $500 credit for non child dependents.  There are phase outs for these credits that begin for married filing joint taxpayers with income over $400,000.

Individual Shared Responsibility Payment

This has been eliminated. 

Businesses

Tax Rates

Corporate tax rate has been lowered for C-Corporations from 35% to 21%.  The corporate alternative minimum tax has also been repealed.

For passthrough businesses such as S-Corporations, LLCs, and sole propertierships, the tax is still paid at the individual rates, but the taxpayer receives a deduction of 20% of the business’s qualified business net income. 

Section 179

The limit on section 179 properties has been raised from $500,000 to $1,000,000 in qualifying property.

Bonus Depreciation

The limit on bonus depreciation has been raised on qualifying property from 40% to 100% in 2018.

Entertainment deductions

While qualifying business meals are still deductible at 50% of the cost, expenses incurred for entertainment or recreation no longer qualify.

Net operating losses

The amount of net operating loss that can be used is 90% of taxable income in 2018.  This is changed from 100% of taxable income in the old law.

Interest deductions

There is a new limit of 30% of the business adjusted taxable income to deduct interest expense.  However, this limit only applies to businesses with gross receipts over $25,000,000.

Vehicles

The limit on vehicle depreciation has been increased to $10,000 for year 1, $16,000 for year 2, $9,600 for year 3, and $5,760 for the following years.  This is increased from $3,160, $5,100, $3,050, and $1,875 for the same periods under prior law.

Domestic Production Activities Deduction

 The section 199 “Production Deduction” has been eliminated.

This is only a brief overview of some of the highlights of the new law.  Please contact me if you have any specific question about the law or any tip with the new law you may have been advised to do before you do it.  The new law is complex and individual circumstances vary.  This is for informational purposes only and should not be used as tax advice without directly consulting with me first about your individual circumstances.

I look forward to seeing everyone in the coming months. 

Have a Happy New Year!

Ryan Watson

Choosing the Right Filing Status

Choosing the Right Filing Status

It's important to use the right filing status when you file your tax return because the filing status you choose can affect the amount of tax you owe for the year.

Your marital status on December 31 is your status for the whole year. Sometimes more than one filing status may apply to you. If that happens, choose the one that allows you to pay the least amount of tax.

The easiest and most accurate way to file your tax return is to consult a tax professional who is able to choose the right filing status based on your circumstances. Here's a list of the five filing statuses:

1. Single. This status normally applies if you aren't married. It aksi applies if you are divorced or legally separated under state law.

2. Married Filing Jointly. If you're married, you and your spouse can file a joint tax return. If your spouse died in 2016, you can often file a joint return for that year.

3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit you if it results in less tax owed than if you file a joint tax return. You may want to prepare your taxes both ways before you choose. You can also use it if you want to be responsible only for your own tax.

4. Head of Household. In most cases, this status applies if you are not married, but there are some special rules. For example, you must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Don't choose this status by mistake. Be sure to check all the rules.

5. Qualifying Widow(er) with Dependent Child. This status may apply to you if your spouse died during 2014 or 2015 and you have a dependent child. Other conditions also apply.

Unsure of which choice is best for you?  Contact Watson CPA

www.rwatsoncpa.com

Newsletter Information

Here we are already in March and you can definitely see signs of spring all around us. Spring break is in the near future and snow gear (mostly not used this year!) gets packed away to make room for rain boots, umbrellas, and sports equipment. In our home, we’re working on adding softball tournaments, football conditioning, work schedules, and summer school deadlines to the family on line calendar. Once nature starts turning green we know and anticipate the change in our schedules and it’s a welcome change even when the winter has been mild and almost snowless!

In our newsletter this month, you’ll read about information we’ve touched on before but worth reviewing again prior to completing your tax return this year. We review current scams again as this information is vital to avoid becoming a victim. We can never talk about this topic too much! Also included in the newsletter is information on what income is taxable and overlooked tax breaks. It never hurts to review overlooked tax breaks to see if you qualify for any this year!

If you do not yet receive our newsletter, contact us and we’ll get you signed up. We only send one email per month!

Starting Your Own Small Business

A couple of weeks ago we did a series of posts on Facebook regarding starting your own small business. We’ve gone ahead and condensed those posts here on the blog for convenience. There are numerous links throughout the blog for you to reference regarding whichever area of your small business you are focusing on right now or if you are just in the beginning phases of planning your business, you can move through the blog in order to help you create your own business.


When starting your own business, take an honest assessment of your skills, time, and desire to be successful in this new venture.

  • Are you a self-starter?
  • Can you stay focused and devote adequate time to your business if you’re working at home?
  • Do you have the necessary self-discipline to maintain schedules?
  • Can you deal with the isolation of working from home?
  • Can you deal with the business being in the middle of your home?

If at all possible, it’s best to dedicate a certain area/space within your home to your small business. It also works well to set a schedule for yourself on when you’ll have dedicated time to work on your business from home.

5/29 Day

Those of you who read the April newsletter probably noticed that the intro was missing; it was written but in the craziness of April 15, we forgot to add it to the newsletter before it went out. Sorry about that! We’re happy to welcome the month of May and all that comes with this month including better weather and great events happening out at IMS. My wife and I love the Indy 500. We consider it a bit of a fun reward following the busy schedule of April. We usually take the day off and head out to the track for Carb Day and then we also go with a group to the race every year – I think this might be our 16th year in a row! I’ll also get out to the track one more day when I help chaperone my son’s 6th grade class field trip. There is nothing like the sound of the IRL cars going around the track!

And since it is May, I’d like to remind everyone about 5-29 day. It’s a catchy way to remember to contribute to your 529 plan or if you don’t have one, it reminds you that it’s never too early (or late) to set one up for your children. A 529 plan is an education savings plan created to set aside funds for future college costs. Not only are you saving for college but there are also tax benefits to having a 529 plan. If you don’t have one set up yet, contact us and we can help you.

5-29 day isn’t just for families with children. Grandparents, aunts, uncles, godparents, etc can all contribute to your child’s 529 plan. A contribution to the plan is a great gift idea for children of all ages. It is, perhaps, not as exciting to unwrap, but it truly is a great gift and one that can come with tax benefits to the giver. If you’d like more information, give your CPA a call.

We hope you enjoy the month of May and that you have a great Memorial Day weekend!

IRS Scam

As people work towards gathering their documents and completing their tax returns, it is also the time of year when IRS scams become more prevalent. One particular scam is for someone to call you claiming to be from the IRS. These scammers are very good at what they do. They will set it up so that the call looks like it is coming from the IRS and they are direct and forceful. It is important that everyone be wary of unsolicited phone calls from the IRS.

Taxpayers should keep the following in mind:

  • The IRS usually first contacts people by mail–not by phone–about unpaid taxes.
  • The IRS won’t ask for payment using a pre-paid debit card or wire transfer.
  • The IRS also won’t ask for a credit card number over the phone.
  • The IRS will never threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

Never give information – payment or personal – over the phone to an unsolicited phone call from the IRS. Call your CPA first and discuss if it even makes sense that the IRS would be calling you. If you completed your own tax return, call a local CPA and ask them to do a quick review and see if they can see any reason why the IRS would be calling you. If the IRS is trying to reach you, you’ll find a CPA invaluable during the process. And if it is a scam, the money spent on a CPA is well worth the savings.

Veteran Fast Launch Initiative

A couple of years ago I was asked to be a part of the AICPA initiative with SCORE to be one of the CPAs from across the country that volunteers time to be a part of the Veteran Fast Launch Initiative. I’ve included a link to a press release regarding this program at the end of this blog. The exciting part for me is that I have the opportunity to connect with other veterans and help them with their small businesses and building their dreams. As a small business owner and a veteran, it’s an incredible way for me to help pay it forward.

This program allows veterans from across the country to access a database and find a CPA available to assist them. The assistance needed varies depending on the needs of the veteran and his or her small business. The type of advice sought after is dictated by the veteran which in part is what makes this initiative so helpful as it’s not limited to one particular facet of building or starting a business. It could be that the veteran wants to start his or her own business but is unsure of paperwork or it could be the veteran who needs to expand or utilize new software and has questions regarding that particular need or area.

If you are a veteran and are interested in utilizing this service, please feel free to contact me or to visit the database of CPAs involved in the program at www.aicpa.org/veterans. If you know of a veteran who could benefit from this free service, please share this information with them. It’s a great resource for veterans that they may not be aware of and that could benefit them greatly!

Organizers

It’s that time of year when we send out the organizers to help you gather up your documents and paperwork so that you can hand those off to us and we can prepare your 2014 taxes. The organizers go out in the mail early next week. You can use these as much or as little as you want to help prepare your documentation. Once you are ready you have one of three ways to get that information to us.

  • You can drop off the documents and planner to our office anytime between 9am and 4pm, Monday through Friday.
  • You can use our secure portal to upload the documents onto our server.
  • Or you can mail your documents to us.

Whichever method you choose, just remember that we relocated our offices last May. We are now located in the brick four story building next to McDonalds on Carmel Drive.
As always, we’re also happy to meet with you in person to go over any tax questions or concerns you might have.

Happy New Year

In the Watson household, we celebrate the end of the year for two different reasons. First – the traditional New Year’s eve type celebrations but before we get to midnight, we spend the day celebrating our son’s birthday. That’s right – your CPA and his wife did some awesome tax planning 12 years ago when our son made his appearance late in the evening on December 31st. We earned the tax credit for his birth in that year and he’d only been around for it less than 3 hours! My wife always jokes that I got congratulated more for the tax planning and timing then she did for the birth of our son.

And speaking of tax planning, the IRS has listed the mileage rules for 2015. Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck are:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

Let us know if you have any questions about standard mileage rates and which driving activities you should keep track of as tax year 2015 begins. It’s always easier to start the year with the right method of tracking than to go back and try to fix it!
You can also find additional information regarding this subject as well as the tax change checklist for 2015 in our monthly newsletter. If you’re not signed up yet for that newsletter, send us an email and we’ll add you! It comes out just once a month so you won’t be slammed with tax information!

Tax Organizers

As we approach the end of the year this is the time we start to prepare tax organizers to send out to each of our clients. Tax organizers are a great tool for gathering all the information you will need to help us prepare and complete your 2014 taxes. Clients utilize their tax organizers in different ways – some as a reminder of what they need to gather ie as a checklist while others complete it in detail. You should utilize the tax organizer however works best for your needs. From experience we can share with you that clients who utilize a tax organizer find they remember more regarding deductions and income which in return allows us to complete the most accurate and detailed tax return possible.


Traditionally we send a paper copy and will continue to do so for those clients who prefer that method. Last year we started working towards a more environmentally friendly option of an electronic pdf tax organizer and we are happy to provide that option for those who are interested. If you would like an electronic option, just send us an email and we’ll get you set up.

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