While the Tax Cuts and Jobs Act (TCJA) reduces most income tax rates and expands some tax breaks, it limits or eliminates several itemized deductions that have been valuable to many individual taxpayers.
Here are five deductions you may see shrink or disappear when you file your 2018 income tax return: Continue Reading Your Deductions May be Smaller When You File Your 2018 Tax Return
Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to The Playbook.
Frank: Thanks, Jen. It’s great to be back.
Jen: I know there’s an incentive for exporters: IC-DISC. How has that changed with tax reform?
Frank: That’s a good question. It’s been around for quite a while, as you know, the IC-DISC is nothing new. What propelled its novelty is the tax reform of 2003 where dividend rates were now coupled with capital gains rates. There’s been legislation on and off of repealing it or modifying it or limiting it in some kind of way, but oddly enough, tax reform did not change anything with regard to IC-DISC, so it’s still a viable option for exporters.
Jen: So Frank, how can the IC-DISC be helpful for our viewers?
When you file your 2018 income tax return, you’ll likely find that some big tax law changes affect you — besides the much-discussed tax rate cuts and reduced itemized deductions. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) makes significant changes to personal exemptions, standard deductions and the child credit.
The degree to which these changes will affect you depends on whether you have dependents and, if so, how many. It also depends on whether you typically itemize deductions.
Continue Reading These 3 TCJA Changes Affect Your 2018 Individual Tax Returns and More
The IRS opened the 2018 income tax return filing season on January 28. Even if you typically don’t file until much closer to the April 15 deadline, this year you should consider filing as soon as you can. Why? You can potentially protect yourself from tax identity theft — and reap other benefits, too.
What is tax identity theft?
In a tax identity theft scheme, a thief uses your personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.
You discover the fraud when you file your return and are informed by the IRS that the return has been rejected because one with your Social Security number has already been filed for the same tax year. While you should ultimately be able to prove that your return is the legitimate one, tax identity theft can cause major headaches to straighten out and significantly delay your refund.
Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected — not yours.
Continue Reading File Your 2018 Income Tax Return Sooner Rather Than Later…
Raffles are popular fundraisers for not-for-profits. But they’re subject to strict tax rules. State laws on nonprofit-sponsored raffles can vary significantly, but not-for-profits must comply with federal income tax requirements linked to unrelated business income, reporting and withholding.
Continue Reading What Not-for-Profits Need to Know About Raffles
If you’re like many Americans, letters from your favorite charities have been appearing in your mailbox in recent weeks acknowledging your 2018 year-end donations. But what happens if you haven’t received such a letter — can you still claim an itemized deduction for the gift on your 2018 income tax return? It depends.
Basic Requirements
To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.
Continue Reading Charity Donation Letters May Affect Your 2018 Income Tax Return
Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to The Playbook.
Frank: Thank you. It’s good to be back with you.
Jen: In a previous segment we went over transfer pricing, and we touched on it just a little bit, but I know we want to do a deeper dive. So, with tax reform and transfer pricing, what else do folks need to know?
Continue Reading A Closer Look at Transfer Pricing and the International Space
While the Tax Cuts and Jobs Act (TCJA) generally reduced individual tax rates for 2018 through 2025, some taxpayers could see their taxes go up due to reductions or eliminations of certain tax breaks — and, in some cases, due to their filing status. But some may see additional tax savings due to their filing status.
Unmarried vs. Married Taxpayers
In an effort to further eliminate the marriage “penalty,” the TCJA made changes to some of the middle tax brackets. As a result, some single and head of household filers could be pushed into higher tax brackets more quickly than pre-TCJA. For example, the beginning of the 32% bracket for singles for 2018 is $157,501, whereas it was $191,651 for 2017 (though the rate was 33%). For heads of households, the beginning of this bracket has decreased even more significantly, to $157,501 for 2018 from $212,501 for 2017.
Married taxpayers, on the other hand, won’t be pushed into some middle brackets until much higher income levels for 2018 through 2025. For example, the beginning of the 32% bracket for joint filers for 2018 is $315,001, whereas it was $233,351 for 2017 (again, the rate was 33% then).
2018 Filing and 2019 Brackets
Because there are so many variables, it will be hard to tell exactly how specific taxpayers will be affected by TCJA changes, including changes to the brackets, until they file their 2018 tax returns. In the meantime, it’s a good idea to begin to look at 2019. As before the TCJA, the tax brackets are adjusted annually for inflation.
Contact your advisor for help assessing what your tax rate likely will be for 2019 — and for help filing your 2018 tax return.
Below is a look at the 2019 brackets under the TCJA:
Single individuals
10%: $0 – $9,700
12%: $9,701 – $39,475
22%: $39,476 – $84,200
24%: $84,201 – $160,725
32%: $160,726 – $204,100
35%: $204,101 – $510,300
37%: Over $510,300
Heads of households
10%: $0 – $13,850
12%: $13,851 – $52,850
22%: $52,851 – $84,200
24%: $84,201 – $160,700
32%: $160,701 – $204,100
35%: $204,101 – $510,300
37%: Over $510,300
Married individuals filing joint returns and surviving spouses
10%: $0 – $19,400
12%: $19,401 – $78,950
22%: $78,951 – $168,400
24%: $168,401 – $321,450
32%: $321,451 – $408,200
35%: $408,201 – $612,350
37%: Over $612,350
Married individuals filing separate returns
10%: $0 – $9,700
12%: $9,701 – $39,475
22%: $39,476 – $84,200
24%: $84,201 – $160,725
32%: $160,726 – $204,100
35%: $204,101 – $306,175
37%: Over $306,175
While most provisions of the Tax Cuts and Jobs Act (TCJA) went into effect in 2018 and either apply through 2025 or are permanent, there are two major changes under the act for 2019.
Here’s a closer look:
1. Medical Expense Deduction Threshold
With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that was already difficult for many taxpayers to meet, and it may be even harder to meet this year.
The TCJA temporarily reduced the threshold from 10% of adjusted gross income (AGI) to 7.5% of AGI. Unfortunately, the reduction applies only to 2017 and 2018. So for 2019, the threshold returns to 10% — unless legislation is signed into law extending the 7.5% threshold. Only qualified, unreimbursed expenses exceeding the threshold can be deducted.
Also, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018 through 2025, many taxpayers who’ve typically itemized may no longer benefit from itemizing.
2. Tax Treatment of Alimony
Alimony has generally been deductible by the ex-spouse paying it and included in the taxable income of the ex-spouse receiving it. Child support, on the other hand, hasn’t been deductible by the payer or taxable income to the recipient.
Under the TCJA, for divorce agreements executed (or, in some cases, modified) after December 31, 2018, alimony payments won’t be deductible — and will be excluded from the recipient’s taxable income. So, essentially, alimony will be treated the same way as child support.
Because the recipient ex-spouse would typically pay income taxes at a rate lower than that of the paying ex-spouse, the overall tax bite will likely be larger under this new tax treatment. This change is permanent.
TCJA Impact on 2018 and 2019
Most TCJA changes went into effect in 2018, but not all. Contact your advisor if you have questions about the medical expense deduction or the tax treatment of alimony — or any other changes that might affect you in 2019. We can also help you assess the impact of the TCJA when you file your 2018 tax return.
The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly.
With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea.
Taxation of Pass-Through Entities
These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:
Taxation of Corporations
These changes generally affect C corporations, personal service corporations (PSCs) and LLCs treated as C corporations:
Tax Break Positives
These changes generally apply to both pass-through entities and corporations:
Tax Break Negatives
These changes generally also apply to both pass-through entities and corporations:
Preparing for 2018 Filing
Keep in mind that additional rules and limits apply to the rates and breaks covered here. Also, these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact your advisor to learn precisely how you might be affected and for help preparing for your 2018 tax return filing — and beginning to plan for 2019, too.