2018 Tax Law Changes - Pro-active Year End Tax Planning Pavel - - PDF document

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2018 tax law changes pro active year end tax planning
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2018 Tax Law Changes - Pro-active Year End Tax Planning Pavel - - PDF document

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12/10/2018 2018 Tax Law Changes - Pro-active Year End Tax Planning Pavel Verbsky, CPA RLR, LLP 1235 Riverside Ave Evans, CO Cheyenne, WY Fort Collins, CO 970-304-9420 307-631-5598 970-692-5300 www.rlrcpas.com 1 Pavel Verbsky, CPA RLR,

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2018 Tax Law Changes - Pro-active Year End Tax Planning

Pavel Verbsky, CPA RLR, LLP

1235 Riverside Ave Fort Collins, CO 970-692-5300 www.rlrcpas.com Evans, CO 970-304-9420 Cheyenne, WY 307-631-5598 Pavel Verbsky, CPA is a partner at RLR, LLP. Pavel Verbsky was born in the Czech Republic. After graduating from the University of Economics in Prague, he has worked in public accounting since 2003. In 2005, he joined RLR, LLP in Fort Collins. He enjoys working with small business owners and primarily focuses on tax return preparation, tax planning and general accounting consulting.

Pavel Verbsky, CPA RLR, LLP

Full service CPA firm:

  • Tax preparation, tax

planning, IRS representation

  • Small business accounting
  • Quickbooks consulting
  • Payroll
  • New business formation
  • Audits – Reviews -

Compilations

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Why tax planning?

  • Understand where you are
  • Avoid costly tax mistakes
  • Take advantage of tax

deductions and tax credits

  • Optimize taxes paid over

time

  • Plan for future income &

taxes

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Tax planning tools

  • Avoid tax completely
  • Shift taxable income to a

different tax year

  • Take advantage of low tax

brackets

  • Optimize income to obtain
  • r retain tax or other

benefits

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Many changes!

  • Generally effective after 12/31/17
  • Most changes are temporary
  • Sunset after 2025
  • Some guidance is out, but more

needed

  • Future legislation?
  • State conformity to changes?

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The basics

  • Still seven tax brackets

– 10%, 12%, 22%, 24%, 32%, 35%, 37%

  • No more dependent exemption
  • Higher child tax credit ($2,000)

– New $500 non-child dependent credit

  • Increase in standard deduction
  • Individual AMT not repealed

– But exemption amounts have increased

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Rate Single Married

10% $0 - $9,525 $0 - $19,050 12% $9,526 - $38,700 $19,051 - $77,400 22% $38,701 - $82,500 $77,401 - $165,000 24% $82,501 - $157,500 $165,001 - $315,000 32% $157,501 - $200,000 $315,501 - $400,000 35% $200,001 - $500,000 $400,001 - $600,000 37% Over $500,000 Over $600,000

Rate Single Married

10% $0 - $9,325 $0 - $18,650 15% $9,326 - $37,950 $18,651 - $75,900 25% $37,951 - $91,900 $75,901 - $153,100 28% $91,901 - $191,650 $153,101 - $233,350 33% $191,651 - $416,700 $233,351 - $416,700 35% $416,701 - $418,400 $416,701 - $470,700 39.6% Over $418,400 Over $470,700

2017 Tax Brackets 2018 Tax Brackets Single Married HOH 2017 $6,350 $12,700 $9,350 2018 $12,000 $24,000 $18,000 Standard Deduction Amounts

Personal exemptions $4,050 = GONE

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Dividend and capital gains rates unchanged

  • The top tax bracket for qualified dividends

and capital gains is 20% (23.8% if the net investment income tax applies). Here’s the breakdown:

0% for MFJ taxpayers with < $77.2k taxable income 15% for MFJ taxpayers with between $77.2k and $479k taxable income 20% for MFJ taxpayers with taxable income greater than $479k

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Dividend and capital gains – tax strategies

Tax strategies:

  • Harvesting capital losses to offset other capital

gains

  • Trigger capital gains in low income year to

“step up” basis

  • Installment sales to stretch income into

multiple years

  • Like Kind Exchanges to defer income
  • Inheritance basis step up

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Itemized deductions changes

  • Repeal of the overall limitation on itemized deductions
  • Medical deduction threshold is 7.5% for 2017 & 2018

– Reverts to 10% starting in 2019

  • Mortgage interest limited to $750k of debt

– Debt prior to 12/15/17 is grandfathered

  • Home equity interest no longer deductible
  • State and local tax deduction is limited to $10k ($5k if MFS)
  • Misc. deductions subject to 2% threshold no longer deductible

Tax strategies:

  • HSAs, FSAs
  • Deducting health

insurance for business

  • wner (SEHI)
  • HELOC/home

mortgage as investment or rental interest, interest to purchase stock in small business – interest tracing rules

  • ‘Bunch’ charitable

donations or larger one time donations to donor advised funds

  • Charitable IRA rollover

(age 70 ½)

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  • Misc. itemized deductions subject to 2% AGI
  • Unreimbursed employee expenses
  • Tax prep fees
  • Hobby expenses
  • Investment fees/expenses
  • Legal fees related to producing income
  • Safe deposit fee

…are no longer deductible

Tax strategies:

  • EBE – get reimbursed

from the business

  • Tax prep fees –

allocate to rental or business activity

  • Hobby vs business?

Hobby income vs expense reimbursement?

  • Pay IRA fees from

within regular IRA accounts

  • Attorney fees – what

are they for?

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20% pass-through deduction

  • 20% of qualified business income
  • Qualified business income definitions

– Qualified trade/business income – from sole proprietorship, partnership, or S-corporation

  • Not a specified trade/business

(architectural and engineering, manufacturing, construction, retail, wholesale, restaurant, etc.)

  • Specified trade/business involving performance of

services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, “celebrities”

flowchart

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20% pass-through deduction

  • Does not include capital gains, interest, dividends,

wages, guaranteed payments, retirement income, rental income

  • Phase-out limitations

– Taxable income exceeding > single: $157,500 to $207,500 > married filing joint: $315,000 to $415,000

  • Limitations based on

– taxable income (for specified service business) – 50% of wages – 25% wages plus 2.5% of adjusted basis in qualified property (certain depreciable assets)

Tax strategies:

  • Controlling

trade/business income

  • Controlling overall

taxable income

  • Adjusting wages for S-

Corporation owners

  • Multiple businesses

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Affordable Care Act impact

  • Penalty to maintain insurance coverage

(individual mandate) is repealed for 2019 and forward

  • HOWEVER, still in effect for 2017 and 2018
  • 2018 penalty:
  • Higher of 2.5% of yearly household income, or
  • $695 per person ($347.50 per child under 18)
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Estate and gift taxes changes

  • 2018 estate tax exemption: $11.2 million
  • 2018 gift tax annual exclusion: $15,000
  • Estate planning is more than minimizing estate taxes.

– Updating documents – Repurposing insurance – Privacy – Asset protection

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Education tax benefit changes

  • Sec 529 plan distributions for private

school tuition

  • Sec 529 plan assets can transfer to

ABLE accounts for family members

  • Student loan forgiveness will not be

taxable income to student upon death/total disability

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State and local tax issues

  • Total deduction limit of $10k ($5k if MFS)
  • Combination of income/sales and state/local

property taxes

  • Exceptions
  • Tax imposed at entity level
  • Property taxes for residential rental

property/business property

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Other individual changes to note

  • Casualty losses: only from federally-declared disasters
  • Alimony: deduction/inclusion repealed for divorces executed after

12/31/18

  • Moving expenses deduction repealed
  • Kiddie tax now at trusts/estate tax rates
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Questions

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Corporate rate changes

  • Flat rate of 21% (C-corporation)
  • Effective for years beginning after 12/31/17
  • Fiscal year corporations should apply Sec. 15
  • Personal service corporations taxed at same rate

(no more surtax)

  • Corporate AMT has been repealed
  • Dividends received deduction reduced
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Depreciation

  • Additional first year/bonus depreciation-

100% for property acquired after 9/27/17

  • Phase down schedule for years after

2022

  • Now allowed for new and used property
  • Qualified improvement property – new

definition and recovery life

  • Passenger auto depreciation limits

increased

  • Increases to Sec. 179 ($1M and

threshold $2.5M)

  • SUV Sec 179 limitation remains at

$25,000

  • Limits are indexed for inflation
  • Sec 179 now allowed for certain non-

residential real property (roofs, HVAC)

  • Allows residential rental property

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Net operating loss provisions

  • No longer allowed to carryback NOLs
  • Carried forward indefinitely
  • 80% of taxable income may be reduced by NOL
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Accounting methods for small taxpayers

  • Expanded availability of cash method ($25M)
  • Inventory tracking requirements
  • Sec. 263A threshold raised
  • Expanded availability of completed contract method

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Changes to fringe benefits/entertainment expense

  • Repeal of business entertainment expenses
  • Repeal of deduction for qualified transportation

fringe benefits

  • Repeal of exclusion for bicycle commuting

reimbursement

  • Repeal of exclusion for employee reimbursed

moving expenses

  • Other changes to employee fringe benefits
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Other changes to note

  • Changes for Sec. 1031 (Like Kind) exchanges
  • New credit for paid family and medical leave
  • Expenses for employer operating eating

facilities is now 50% (rather than fully deductible)

  • Lobbying costs no longer deductible

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Questions

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Thank you Thank you

RLR, LLP

1235 Riverside Ave Fort Collins, CO 970-692-5300 www.rlrcpas.com Greeley, CO 970-304-9420 Cheyenne, WY 307-631-5598