Mary Bamburg, CPA - for Individuals and Small Businesses

Tax Organizers for 2018 Returns:
 
The 2018 Tax Organizer is available in Word or PDF format.  PDF must be printed and filled out, Word document can be completed in soft copy and sent electronically: 
 





  
Additional organizers for income, credits, deductions and more specific tax items:

 














Highlights of 2018 Tax Laws/Changes:
Overview of the Tax Cuts and Jobs Act

Major tax reform that affects both individuals and businesses was enacted in December 2017. It’s commonly referred to as the Tax Cuts and Jobs Act, TCJA or tax reform. The IRS estimates that they will create or revise more than 400 taxpayer forms, instructions and publications for the filing season starting in 2019. It’s more than double the number of forms that would be created or revised in a typical year. 

New Form 1040
 
Form 1040 has been redesigned for tax year 2018. The revised form consolidates Forms 1040, 1040A and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.
 
The new form uses a “building block” approach that can be supplemented with additional schedules as needed. Taxpayers with straightforward tax situations will only need to file the Form 1040 with no additional schedules.

Changes in Tax Rates

For 2018, most tax rates have been reduced. The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

In addition to lowering the tax rates, some of the changes in the law that affect you and your family include increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, and limiting or discontinuing certain deductions. Most of the changes in this legislation take effect in 2018 for federal tax returns filed in 2019.

Capital Gain Tax Rates

In 2018 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).
 
The long term capital rates vary by filing status and income level:
 
·   0% rate – Single  (0-$38,600); Married Filing Joint (0-$77,200); Head of Household (0-$51,700); Married Filing Separately (0-$38,600)

·   15% rate – Single ($38,601-$425,800); Married Filing Joint ($77,201-$479,000); Head of Household ($51,701-$452,400); Married Filing Separately ($38,601-$239,500)

·   20% rate – Single ($425,801+); Married Filing Joint ($479,001+); Head of Household ($452,401+); Married Filing Separately ($239,501+)
 
Changes to Standard Deduction

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. The standard deduction reduces the income subject to tax. The Tax Cuts and Jobs Act nearly doubled standard deductions. When you take the standard deduction, you can’t itemize deductions for mortgage interest, state taxes and charitable deductions on Schedule A, Itemized Deductions.

Starting in 2018, the standard deduction for each filing status is:

Single - $12,000 (up from $6,350 in 2017)

Married filing jointly/Qualifying widow(er) - $24,000 (up from $12,700 in 2017)

Married filing separately - 12,000 (up from $6,350 in 2017)

Head of household - $18,000 (up from $9,350 in 2017)

The amounts are higher if you or your spouse are blind or over age 65. 

Changes to Itemized Deductions

In addition to nearly doubling standard deductions, the Tax Cuts and Jobs Act changed several itemized deductions that can be claimed on Schedule A, Itemized Deductions:

Deduction for medical and dental expenses modified. You can deduct certain unreimbursed medical expenses that exceed 7.5% of your 2018 adjusted gross income. Before this law change, unreimbursed medical expenses had to exceed 10% of adjusted gross income for most taxpayers in order to be deductible. If you plan to itemize for tax year 2019 your unreimbursed medical and dental expenses will have to exceed 10% of your 2019 adjusted gross income in order to be deductible.

Deduction for state and local income, sales and property taxes modifiedYour total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if Married Filing Separate). Any state and local taxes you paid above this amount cannot be deducted.

Deduction for home mortgage and home equity interest modified. Your deduction for mortgage interest is limited to interest you paid on a loan secured by your main home or second home that you used to buy, build, or substantially improve your main home or second home.
New dollar limit on total qualified residence loan balance. The date you took out your mortgage or home equity loan may also impact the amount of interest you can deduct. If your loan was originated or treated as originating on or before Dec. 15, 2017, you may deduct interest on up to $1,000,000 ($500,000 if you are married filing separately) in qualifying debt. If your loan originated after that date, you may only deduct interest on up to $750,000 ($375,000 if you are married filing separately) in qualifying debt. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.

Deduction Limit for charitable contributions modified. The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your adjusted gross income.

Deduction for casualty and theft losses modified. Net personal casualty and theft losses are deductible only to the extent they’re attributable to a federally declared disaster. Claims must include the FEMA code assigned to the disaster. The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your AGI. In addition, you can still elect to deduct the casualty loss in the tax year immediately preceding the tax year in which you incurred the disaster loss.

The previous deduction for job-related expenses or other miscellaneous itemized deductions that exceeded 2 percent of your adjusted gross income is suspended. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel, as well as any deductions you may have previously been able to claim for tax preparation fees and investment expenses, including investment management fees, safe deposit box fees and investment expenses from pass-through entities. The business standard mileage rate listed in Notice 2018-03 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses during the suspension.

Deduction and Exclusion for moving expenses suspended. The deduction for moving expenses is suspended. During the suspension, no deduction is allowed for use of an automobile as part of a move. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station. Also, employers will include moving expense reimbursements as taxable income in the employees’ wages because the new law suspends the former exclusion from income for qualified moving expense reimbursements from an employer. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station as long as the expenses would qualify as a deduction if the government didn’t reimburse the expense. This means that unless you are a member of the U.S. military on active duty, you cannot deduct moving expenses and amounts reimbursed by an employer will be taxable income.

Alternative minimum tax (AMT) exemption amount increased

The AMT exemption amount is increased to $70,300 ($109,400 if married filing jointly or qualifying widow(er); $54,700 if married filing separately). The income level at which the AMT exemption begins to phase out has increased to $500,000 or $1,000,000 if married filing jointly.

Mileage rates.
 
For 2018, the mileage reimbursement rates are: 
  • 54.5 cents per mile for business miles driven
  • 18 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations
 
For 2019, the mileage reimbursement rates are:
  • 58 cents per mile driven for business use, up 3.5 cents from the 2018 rate
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the 2018 rate
  • 14 cents per mile driven in service of charitable organizations
 
Consumer Alerts on Tax Scams
 
‪Note that the IRS will never: 

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.


Filing your 2018 Return
 
The IRS will begin accepting electronic tax returns on Monday, January 28th, and reminds taxpayers claiming certain tax credits to expect a longer wait for refunds. Refunds, by law, cannot be issued before Feb. 15 for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. This applies to the entire refund — even the portion not associated with the EITC and ACTC. While the IRS will process the EITC and ACTC returns when received, these refunds cannot be issued before Feb. 15. Similar to last year, the IRS expects the earliest EITC/ACTC related refunds to actually be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2019, if they chose direct deposit and there are no other issues with the tax return.
 
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019, for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17 to file their returns.
 
What if You Cannot File on Time?
 
You can get an automatic 6-month extension if, no later than the date your return is due, you file Form 4868.  The IRS will NOT honor extensions that are not filed by the original due date.  Note:  An automatic 6-month extension to file does not extend the time to pay your tax. If you do not pay your tax by the original due date of your return, you will owe interest on the unpaid tax and may owe penalties.
 

Changes to Benefits for Dependents

Deduction for personal exemptions suspended

For 2018, you can’t claim a personal exemption deduction for yourself, your spouse, or your dependents. This means that you will not be able to reduce the income that is subject to tax by the exemption amount for each person included on your tax return as you have in previous years. However, changes to the standard deduction amount and Child Tax Credit may offset at least part of this change for most families and, in some cases, may result in a larger refund.

Child tax credit and additional child tax credit

For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly.

Credit for other dependents

A new credit of up to $500 is available for each of your qualifying dependents other than children who can be claimed for the child tax credit. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. The total of both credits is subject to a single phase out when adjusted gross income exceeds $200,000, or $400,000 if married filing jointly. This means that you may be able to claim this credit if you have children age 17 or over, including college students, children with ITINs, or other older relatives in your household.
 

Repeal of deduction for alimony payments

Alimony and separate maintenance payments are no longer deductible for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018, and modified after that date. Further, alimony and separate maintenance payments are no longer included in income based on these dates, so you won’t need to report these payments on your tax return if the payments are based on a divorce or separation agreement executed or modified after December 31, 2018.


Reporting Health Care Coverage

Under the Tax Cuts and Jobs Act, you must continue to report coverage, qualify for an exemption, or report an individual shared responsibility payment . For tax year 2018, the IRS will not consider a return complete and accurate if you do not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return. You remain obligated to follow the law and pay what you may owe at the point of filing. For tax year 2019, the shared responsibility payment is reduced to zero under TCJA for tax year 2019 and all subsequent years.



    BUSINESSES AFFECTED BY TCJA

    Nearly every business will be affected by this tax reform legislation. Businesses affected by TCJA include corporations, S corporations, partnerships (including limited liability companies or LLCs) and sole proprietorships. Changes to deductions, depreciation, expensing, credits, fringe benefits and other items may affect your business tax liability and your bottom line.

    Here are several changes that could affect the bottom line of many small businesses:
     
    Qualified Business Income Deduction

    Many sole proprietors and self-employed individuals, partners in partnerships, beneficial owners of trusts, and shareholders in S corporations may be eligible for a new deduction - referred to as Section 199A or the deduction for qualified business income - allowing them to deduct up to 20 percent of their qualified business income. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file in 2019. Qualified business income includes domestic income from a trade or business. It does not include employee wages, capital gain, interest and dividend income. The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of: 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income, or 20 percent of taxable income minus net capital gains. Deductions for taxpayers above the taxable income thresholds may be limited.

    Temporary 100 percent expensing for certain business assets

    Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
     
    Fringe benefits

    • Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
       
    • Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
       
    • Bicycle commuting reimbursements:  Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
       
    • Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax.  Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
       
    • Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.


    Interest Rates Increase for the First Quarter of 2019.
     
    Interest Rates will increase for the calendar quarter beginning January 1, 2019.  The rates will be:
     
    • six (6) percent for overpayments [five (5) percent in the case of a corporation];
    • three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000;
    • six (6) percent for underpayments; and
    • eight (8) percent for large corporate underpayments.