GORDON H. ZiNK CPA BLOG
Changes to Fringe Benefits
With the new tax reform law, Tax Cuts and Jobs Act (TCJA), several programs are affected; specifically, fringe benefits. It is important for both employers and employees to be aware of these changes since both will feel the impact either through employee deductions or through the company’s bottom line. Listed below are three changes to fringe benefits to take notice.
- Entertainment and Meals The new tax law (TCJA), does not allow for deductions of entertainment. This applies to any expenses related to entertainment, recreation or amusement. Meals are still 50% deductible if:
- The food and beverages are not considered extravagant
- The taxpayer or an employee is present
- The meals are provided to a client, potential client or business contact
- Employee Achievement Awards Achievement awards can be excluded from employee wages if the award is tangible personal property.
- Qualified Moving Expenses Reimbursements Moving expense reimbursements must now be included in employee’s wages. The only exception applies to U.S. Armed Forces if certain requirements are met.
If you would like to discuss this issue further or other tax concerns you may have, consider contacting Gordon H. ZiNK, CPA. We offer a free 30 minute initial consultation. We take pride in providing outstanding service to our clients because of our dedication to our underlying values and principles. We are here to help.
Rules for Alimony
Certain criterion must be met for payments to be classified as alimony. Payments which meet this standard are deductible by the payer and must be reported as income by the recipient. Details of the alimony arrangement should be addressed in the divorce decree or separation instrument.
Presented below are additional requirements to help distinguish alimony from other non – deductible payments.
- The payment of alimony must be in cash or cash equivalents. The transfers of services or property other than cash do not qualify as alimony for income tax purposes.
- Payments must be to or on behalf of a spouse or former spouse. Payments may be made to third parties on behalf of the former spouse.This includes payments for medical expenses, tuition, taxes and housing costs.
- Alimony payments cease up the recipient’s death. Payments which continue after the death of the receiving spouse are not alimony for tax purposes.
- Both parties must file separate tax returns and not be members of the same household. The payer and recipient do not file a joint tax return together.
- The divorce or separation instrument does not state that the payment is NOT alimony for tax purposes.
- The payment cannot be disguised as child support. Child support should be addressed in the divorce decree.Child support payments are not alimony for tax purposes and are not deductible to the payer or taxable to the receiving spouse.
The Tax Cuts and Jobs Act (TCJA) tax treatment of alimony will impact divorces and legal separations after 2018. Under the TCJA rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony-paying spouse won't be able to deduct the payments, and the alimony-receiving spouse doesn't include them in gross income or pay federal income tax on them. It's important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019.
If you wish to discuss this issue or other tax concerns you may have, consider contacting Gordon H. ZiNK, CPA. We offer a free 30 minute initial consultation. We take pride in providing outstanding service to our clients because of our dedication to our underlying values and principles. We are here to help.
What's the difference between Accountants & Bookkeepers?
Accountants and bookkeepers are basically the same profession, right? Not necessarily. This common misconception can be explained by understanding the differences in how accountants and bookkeepers support the financial goals of a business. Therefore, let’s take a look at some of these differences.
- Education: Typically, a bookkeeper has only college level education although none is required.However, an accountant will have a bachelor’s degree and in most cases also a master’s degree.If the accountant is a Certified Public Accountant, this means the individual is certified and licensed by the state in which they practice and certain steps are required in earning this designation.
- Duties of a Bookkeeper: The bookkeeper helps keep a business running smoothly by managing financial transactions, maintaining a company’s financial records, and reconciling accounts.The work of a bookkeeper is supervised by an accountant or the business owner for whom the bookkeeper works.Although there are a wide range of tasks which bookkeepers carry out, here are a few duties which are typically performed by bookkeepers:
- Managing Payroll
- Preparing financial statements
- Processing and recording transactions
- Managing accounts payable and accounts receivable
- Duties of an Accountant: Similarly, accountants also facilitate businesses with continual maintenance of their financial records.However, there are some key differences which separate the two occupations.The role of the accountant is more advisory than that of a bookkeeper.Whereas the bookkeeper will record and keep the financial records up to date, it is the accountant who will analyze and use the financial information to help provide tax guidance and strategic tax and business planning.The following are just a sampling of duties which an accountant/CPA provides which a bookkeeper cannot.
- Tax planning and business advice
- Financial management advice
- Prepare audits, reviews, and compilations
- Corporate compliance reporting
It is common for business to outsource their bookkeeping and accounting needs to CPA firms. If you are interest in outsourcing these functions for your business or looking to learn more about what a CPA firm has to offer your business, call GORDON ZiNK CPA, P.A. at (239)936-1120. We are here to help you streamline and grow your business.
Thinking of Selling Your Home?
With the economy on the rise and the housing market trending in the right direction, many homeowners are having thoughts of selling their home. Often, we get questions from clients who are considering selling their homes, “how will selling my house impact my taxes?” In an effort to address some issues which are commonly seen, listed below are some tax tips to consider before you sell your home.
- Exclusion of gain – Part or all of your gain from your home sale may be excludable from your income if you meet the eligibility test. To meet this test you must have lived in your home for at least two out of the last five years before the date of sale.
- Maximum amount of gain to exclude – If filing single, the most income on gain to exclude is $250,000. Filing married jointly, the maximum income to exclude is $500,000. Therefore, only the income from the gain exceeding these amounts (depending on your filing status) is taxable.
- How often can you use this exclusion? The general rule is the exclusion of gain from the sale of your primary residence can only be utilized once every two years.
- Only for your main home. This exclusion only applies to your principle residence. Second, vacation, and rental homes are not subject to this rule.
- Home sold at a loss. Unfortunately, a principle/primary home sale incurring a loss is not a deductible item to the taxpayer since it is classified as a personal loss. Personal losses are not deductible.
If you are considering selling your home and would like to speak to someone further about the exclusion of income from gain on sale of a personal residence, then consider calling GORDON H. ZiNK, CPA, P.A. at (239)936-1120. You can depend on us for all your tax needs. We are here to help you.
Another deadline is quickly approaching. September 17th is a deadline compelled by the IRS for several types of entities to file tax returns. If this date is missed, failure to file penalties and interest will immediately ensue.
- S Corporations – a 2017 income tax return … 1120S, is due if an extension had been requested prior to March 15th.
- Partnerships – same as S Corporations.A partnership tax return…Form 1065, is due if an extension had been requested prior to March 15th.
- Individuals – a reminder to make your third installment of your 2018 estimated tax payments.These estimated payments to the IRS are necessary if you do not have withholdings throughout the year.
- Corporations – a third installment towards 2018 estimated taxes should be made.
Next month on October 15th, Individual tax returns are due from those who filed timely extensions before April 17th.
If you have any questions regarding deadlines from the IRS or other tax matter questions, do not hesitate to contact us. You can depend on team at GORDON H. ZiNK, CPA for all your tax needs. We are here to help you.
Business or a Hobby??
It is not uncommon to have a hobby which eventually turns into a business. For tax purposes, it is important to be able to distinguish and defend, in case of an audit, whether the taxpayer is operating a business or a hobby. The cause for this distinction is due to the different tax implications regarding each. In the case of a hobby, losses are only deductible to the extent of the generated income from the hobby. However, with a business, deductible losses can exceed income and thereby allow the resulting loss to offset other income.
So how does a taxpayer distinguish between whether they are operating a hobby or a business? The answer to this question is largely based on whether an activity is seeking a profit. An activity is presumed for profit if it makes a profit in at least three of the last five tax years. Though “profit motive” is a major determinate, listed below are a few more factors to help you determine whether your activity is a business or a hobby.
- Do you depend on the income from this activity?
- Does this activity make a profit in some years?
- Have you made changes in how you operate your activity to improve profitability?
- Does a profit motive outweigh any elements of personal pleasure or recreation associated with the activity?
Though these questions are not all inclusive and no single factor alone is decisive, they can help you make the proper determination.
If you are looking for direction regarding whether your activity is a business or hobby, consider contacting Gordon H. ZiNK, CPA. We offer a free 30 minute consultation during which we can discuss this issue or any other tax issues you may have. We take pride in providing outstanding service to our clients because of our dedication to our underlying values and principles. We are here to help.
NEW WITHHOLDING REQUIREMENTS
With the passage of the Tax Cuts and Jobs Act, the amount that you are withholding from each paycheck may need to be adjusted. The Tax Cuts and Jobs Act made many changes including removing personal exemptions, increasing the standard deduction, changing the tax rates and brackets and increasing the child tax credit…just to name a few. Due to these changes to the tax law, we recommend taxpayers make sure they have the correct amount of federal tax withholding taken out of their paychecks.
To help taxpayers determine if they are withholding too much or too little federal tax, the IRS has an updated calculator which is designed so that employees can ascertain the right amount of tax to withhold dependent upon their personal state of affairs.
This is the link to the IRS withholding calculator:
In order to successfully use the calculator, you will need your most recent pay stub along with a copy of your 2017 tax return.
Once you have determined that you need to change your withholdings, a W-4 should be completed with the updated withholding amount and submitted to your employer.
We hope this is a helpful planning tool for you. If you are in need of more assistance or would like to consult a trusted Certified Public Accountant, please contact the team at Gordon H. ZiNK, CPA. We are here to help.
A Few Highlights from "The Tax Cuts and Jobs Act"
President Trump promised, when he was on the campaign trail, that he would push for tax reform legislation. On Dec, 22, 2017, he signed The Tax Cuts and Jobs Act into law, the first major tax reform in 31 years. The new tax reform law makes many changes to the tax code. Your business will be impacted. Tax benefits include a reduction in the corporate tax rate, increase in the bonus depreciation allowance, an increase in the §179 expensing amount and the repeal of the corporate alternative minimum tax. Owners of S corporations, partnerships, LLCs, sole proprietorships and farms are allowed a deduction of 20% of qualified business income, subject to a number of limitations. A few highlights follow:
Corporate taxes. Beginning in 2018, the new tax reform law reduces the C corporate tax rate to 21%, from a top rate of 35%. Corporate alternative minimum tax was repealed.
Bonus depreciation. The new tax reform law temporarily increases the 50% bonus depreciation allowance to 100% for qualifying property placed in service after Sep. 27, 2017, and before Jan. 1, 2023. A phase-out of the deduction begins Jan. 1, 2023. The new law also removes the requirement that the original use of qualified property must begin with the taxpayer. For the first time, bonus depreciation will be allowed on the purchase of used property.
Section 179 expensing. The new tax reform law increases the §179 expensing amount to $1 million and the investment limitation to $2.5 million. Additional real property, such as a roof on a non-residential property, can qualify for a §179 expensing deduction.
Pass-through businesses. The new tax reform law allows non-corporate taxpayers to deduct up to 20% of domestic qualified business income from an S corporation, partnership, LLC, sole proprietorship or farm. In some situations, net rental income can qualify for some or all of the 20% deduction. Limitations apply based on wages paid or if the qualified business income is from a specified service business (like law, accounting, medical, etc.) Neither limitation applies if the taxpayer’s taxable income on his nor her Form 1040 is less than $157,500 for a single person ($315,000 for a married filing joint couple.)
Listed property. The new tax reform law increases the depreciation for passenger automobiles placed in service after Dec. 31, 2017. The maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service; $16,000 for the second year; $9,600 for the third year; and $5,760 for the fourth and later years. The new law removes computers and peripheral equipment from the definition of listed property. Therefore, laptop computers, for example, are not subject to the strict substantiation requirements that apply to other listed property.
Tax deferred exchanges. The tax deferred exchange rules in §1031 will only apply to real property. Personal property, such as autos, machines, tractors, equipment, etc. will no longer qualify under the tax deferred exchange rules.
Deductions and credits. The entertainment deduction has been repealed. The costs of tickets to concerts, football games or the ballet are no longer deductible. The §199 domestic production activities deduction is eliminated. The new tax reform law retains the research and development credit, but will require five-year amortization of research and development expenditures. The new tax reform law creates a temporary credit for employers paying employees who are on family and medical leave.
Interest deductions. For businesses with gross receipts in excess of $25 million, the new tax reform law caps the deduction for net interest expenses at 30% of adjusted taxable income.
Stock options. The new tax reform law allows qualified employees of private companies to defer tax on the exercise of options for up to five years. CEOs, CFOs, highly compensated employees and 1% owners are not eligible for the deferral.
Net operating losses. The new tax reform law limits the net operating loss deduction to 80% percent of taxable income for losses arising in tax years beginning after Dec. 31, 2017. The carryback for NOLs is eliminated, except for qualifying farm losses. NOL loss carryforwards will be indefinite, subject to the percentage limitation.
These are just a few of the changes included in the new tax reform law. Your 2018 business taxes will be affected. That’s guaranteed by the scope of the changes.
We can answer your questions:
- Will my taxes increase or decrease because of the new tax reform law?
- Are my withholding and estimated tax payments correct considering the new tax reform law?
- Will I qualify for the new 20% business income deduction?
- Is this the year to buy additional equipment or a new vehicle for my business?
Please call our office at (239)936-1120 and we can look at your particular business and its tax planning needs. You can depend on GORDON H. ZiNK CPA, P.A. for all your tax needs.
WHAT TO DO?
Every so often, one of our clients will call to tell us about a suspicious phone call they received from someone claiming to be the IRS. Unfortunately, data theft and scams are becoming a common occurrence and may be something that you have already experienced.
So, what should you do in the event a suspicious phone call or email comes your way? Listed below are some steps to follow depending on the type of contact which you encounter.
- Bogus website claiming to be the IRS: In this case, the IRS would like you to notify them about the bogus website by sending the IRS an email to email@example.com with the link to the website. Be sure to include in the subject line of the email “Suspicious Website”.
- Email claiming to be the IRS: Do not reply, nor open any attachments or click on any links. Forward the email to the IRS (firstname.lastname@example.org) and then delete original email.
- A suspicious phone call claiming to be the IRS: Request from the caller their employee badge number along with a call back phone number. Then call the IRS at 800-366-4484 to determine if the caller was a legitimate IRS employee.
- A suspicious letter claiming to be from the IRS: Call the IRS at 800-366-4484 to confirm the letter is from them. Also, you may want to search the IRS website at www.irs.gov to determine whether the letter is a legitimate IRS letter.
We hope these suggestions are helpful to you in the event you encounter one of these scams. Remember, if you are looking for a Certified Public Accountant or need tax advice for you or your business, call Gordon H. ZiNK, CPA, P.A. We take pride in providing outstanding service to our clients because of our dedication to our underlying values and principles. We are here to help
Charitable Contributions of IRA Distributions
If you are 70 ½ or older, you are allowed to donate all or a portion of your Required Minimum Distribution (RMD) from your IRA account directly to an eligible charitable organization.
Limitations to consider would be the maximum amount to donate is $100,000 and the deduction is allowed only to the extent the distribution would otherwise be included in taxable income.
How would this affect your tax return? If you elect to have your RMD donated directly to a charity, the amount donated would not be included in your income for tax purposes. Since the amount is not reported in income, it would then not be available to report on your “Schedule A” charitable contributions supposing you itemize. Therefore, by making a charitable contribution of your IRA distribution, your adjusted gross income will be less which may help reduce your taxable Social Security benefits.
In order to take advantage of this type of distribution, the charitable contribution must be transferred directly from your IRA account by the IRA administrator to the eligible charity of your choice. However, if you first receive the distribution and then donate the amount of the distribution to charity, the distribution will be recognized in your income and the donation will be recorded on your “Schedule A” supposing you itemize.
If you have further questions concerning the Qualified Charitable Distribution or other tax related questions, please call Gordon H. Zink CPA, P.A. We are here to help you. ZiNK CPA – providing outstanding service to our clients because of our dedication to our underlying values and principles.
MORE TIME TO PAY?
In case you are living under a rock, taxes are due on Tuesday. Even if you owe and cannot pay the full amount, your tax return is still due. If you do not intend to file by tomorrow’s deadline, be sure you file an extension. This will push your deadline back to October 15th. However, if you will owe taxes, that amount is still due by Tuesday. Therefore, if you do intend to file for extension and owe taxes, be sure to send in a check with an estimated amount of tax you owe along with your request for extension.
So what should you do if you cannot afford to pay your entire tax bill? Here are some pointers which may help you if you find yourself in this predicament.
- File timely and pay as much as you can afford.Once the IRS processes your partial payment, you will receive a letter from them with the balance along with payment options for the remainder.
- Pay with a credit card.This will give you a little more time to pay and the interest involved with the credit card may be lower than interest and penalties from the IRS.
- Access the Online Payment Agreement tool through the IRS.Through this tool you can set up a payment plan along with direct debit, thereby eliminating the need to mail in checks.
- Always respond to an IRS letter.Do not ignore notices from the IRS.The IRS will work with taxpayers suffering financial hardship.
If you are looking for a Certified Public Accountant or need tax advice for your business or personal taxes, call GORDON H. ZiNK, CPA. We take pride in providing outstanding service to our clients because of our dedication to our underlying values and principles.
Required Minimum Distributions
Retirement funds cannot be kept in your account indefinitely. When a person reaches the age of 70 ½, they are required to make withdrawals from their IRA, SEP and Simple IRA retirement accounts. Failure to do so results in a hefty penalty of up to 50% on the amount which was required to be distributed. If you own a Roth IRA, these rules do not apply since withdrawals are not mandatory until the owner’s death.
The required amount which must be withdrawn each year is often referred to as a Required Minimum Distribution (RMD). The date for a person’s first RMD must be made by April 1st of the following year in which (s)he reaches 70 ½. Each subsequent RMD is then due by December 31st each year. If your first RMD is made April 1st, your next RMD will need to be taken 8 months later. Therefore, some tax planning may be in order to consider the effects of more income if two RMD’s are made in a single year. It may be a better tax advantage to take the first RMD immediately after turning 70 ½ and before the New Year so that the RMD’s fall in two different years.
RMD’s apply to the following types of retirement plans:
If you would like to speak to a tax professional further about any RMD questions or issues, you can call GORDON H. ZiNK CPA for experienced direction. ZiNK CPA – providing outstanding service to our clients because of our dedication to our underlying values and principles.
Pointers for a Worry Free Tax Season
While in the midst of tax season, anxiety may be running higher than usual. Perhaps the following pointers will help alleviate some of that pressure.
Do not put off till tomorrow what you can do today. This famous line from mothers everywhere and allegedly Ben Franklin also holds true during tax season.Getting an early start will not only keep the process calm but also mean you will receive your tax return sooner by avoiding the last-minute rush.
Collect and store all your tax records in one file/folder. As you receive your documents in the mail or other means, place them for safe keeping in a file with your other tax documents as they come in.This will help ensure no documents go missing.
Use your organizer provided by your CPA. The organizer is a useful tool in the gathering of your tax information, but only if you use it.Not only will it bring to your attention items that were present in the previous year which may be missing, but it will help notify your CPA to any major changes or issues to address for the current year.Thus, leading to a most accurate tax return.
In the case of a refund: E-FILE. Having your refund directly deposited into your account is safer and faster than receiving a check through the mail.In most cases, a direct deposit refund takes about 10 days to receive compared to approximately 6 weeks to receive a refund check when paper filing
What if I can’t pay my taxes? If you owe taxes, you have till April 17th to mail in your check before it would be considered late; regardless of how much earlier you may have filed the return.If you cannot pay the entire amount, pay in as much as you can.The IRS will then respond with a letter notifying you concerning the balance due.In this letter, options will be provided in setting up a payment plan for the remainder due.
File for an extension. By doing this, you are given till October 15th 2018 to file your tax return.However, if you are going to owe taxes, the money is still due by April 17th 2018.An estimated tax payment should then be sent in with your request of extension.
We hope these pointers are useful to you as you prepare for this tax season. If you have further questions or need assistance, call GORDON H. ZiNK CPA, PA at (239)936-1120. We are here to help.
Let's Get This Party Started!
Whether you are ready or not, tax season is here. The IRS is now accepting tax returns and expects more than 155 million tax returns to be filed. Here are a few items to consider as you prepare to file your taxes.
- When receiving a refund, choosing to e-file and direct deposit is the safest and quickest way to file a tax return and to receive a refund.
- Taxpayers have until April 17th to file their 2017 tax returns and pay any taxes due.If filing an extension due October 15th, any taxes due need to be paid by April 17th.
- If you are receiving a refund and would like an update, you can go to IRS.gov and click on “Where’s My Refund? “ for the most current status.
- If your refund is in part due from the Earned Income Tax Credit or the Additional Child Tax Credit, these refunds will be available starting February 27th.
If you are preparing to file your taxes, we hope this little bit of information is helpful to you. Also, know that you can depend on GORDON H. ZiNK CPA, P.A. for all your tax needs.
Call us today at (239)936-1120 to schedule your free initial 30 minute consultation. We look forward to working with you.
Casualty Loss Deduction Restrictions
New limits have now been placed on individuals’ itemized deductions for casualty and theft losses due to the recently passed Tax Cuts and Jobs Act.
Prior to this new law, an individual could claim as itemized deductions certain personal casualty losses, not compensated by insurance or otherwise, including losses arising from fire, storm, shipwreck, or other casualty, or from theft. In order to qualify for this deduction, two restrictions were in place. The first: the loss must exceed $100. The other qualifier: the loss could only be deducted to the extent that it exceeded a floor of 10% of one’s adjusted gross income.
With the new Tax Cuts and Jobs Act, effective at the beginning of 2018, a deduction for a casualty loss can now only be deducted if it occurred in an area which the President has declared as a federal disaster area. Therefore, only a taxpayer who suffers a personal casualty loss located in a disaster area declared by the President will be able to make a casualty loss claim as an itemized deduction. If the taxpayer still qualifies, the two restrictions mentioned above will still apply; exceed $100 and exceed 10% of the taxpayer’s AGI.
Since the casualty loss deduction is essentially gone except for those in a federally declared disaster area; you may want to review your homeowner, flood, and car insurance policies to determine if you may need additional coverage.
If you would like to discuss this issue further, do not hesitate to call or email GORDON H. ZiNK CPA, PA. We look forward to helping you.
Hobby or a Business???
Has your hobby become a business? People follow their pursuits in the forms of hobbies simply because they find enjoyment and fulfillment in the activity. Sometimes, these hobbies can create income and therefore must be reported on a taxpayer’s tax return. There are rules on how to report income and expenses depending on the type of activity…whether it is a hobby or a business. In order to determine the manner in reporting the income, one must distinguish if indeed the activity is a hobby.
Is there a profit motive? This is the fundamental question to help determine if one is operating a business or a hobby. If the person is undertaking an activity for recreation and enjoyment without necessarily looking to make a profit, most likely they are engaged in a hobby. To contrast someone in business is motivated to make a profit from the onset.
This determination between a hobby and a business is important due to the manner how income is reported on a tax return. With a business, expenses can exceed ones income which then creates a loss. This loss can be deducted from other income. However, with a hobby, losses resulting from the hobby can only be deducted up to the amount of the hobby income. The remainder losses, above and beyond the hobby income cannot be deducted from other income.
How do you determine if you are operating a business or a hobby? Here are some questions to help clarify the differences:
- Do you depend on the income from this activity for your livelihood?
- Do you carry on the activity like a business by maintaining books and records?
- Has the activity made a profit in 3 of the last 5 tax years?
- Have you changed your methods of operation in an attempt to improve profitability?
If you are running into this issue and would like to speak to a tax professional for help, please do not hesitate to call GORDON H. ZiNK CPA, P.A. The team at ZiNK CPA has the professional experience and knowledge concerning how to handle hobby/business issues. Call GORDON H. ZiNK CPA, P.A. today at (239)936-1120 to schedule your free initial 30 minute consultation.
Information for this page is from:
Tax Changes for 2018
Important Tax Changes for 2018
In 2018, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. Many others have been revised or eliminated due to the TCJA.
While the tax rate structure, which now ranges from 10 to 37 percent, remains similar to 2017 in that there are seven tax brackets, the tax-bracket thresholds increase significantly for each filing status. Standard deductions also rise significantly; however, personal exemptions have been eliminated through tax year 2025.
In 2018, the standard deduction increases to $12,000 for individuals (up from $6,350 in 2017) and to $24,000 for married couples (up from $12,700 in 2017).
Alternative Minimum Tax (AMT)
In 2018, AMT exemption amounts increase to $$70,300 for individuals (up from $54,300 in 2017) and $109,400 for married couples filing jointly (up from $84,500 in 2017). Also, the phaseout threshold increases to $500,000 ($1 million for married filing jointly). Both the exemption and threshold amounts are indexed for inflation.
For taxable years beginning in 2018, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,050 (same as 2017). The same $1,050 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2018 must be more than $1,050 but less than $10,500.
For 2018, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,100.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2018, a qualifying HDHP must have a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,650 for self-only coverage and $13,300 for family coverage.
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2018, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,300 (up $50 from 2017) and not more than $3,450 (up $100 from 2017), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,600 (up $100 from 2017).
Family coverage. For taxable years beginning in 2018, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,600 and not more than $6,850 (up $100 from 2017), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,400 (up $150 from 2017).
Penalty for not Maintaining Minimum Essential Health Coverage
Under the TCJA, the penalty for not maintaining minimum essential health coverage has been eliminated but only for months beginning after December 31, 2018.
AGI Limit for Deductible Medical Expenses
In 2018, the deduction threshold for deductible medical expenses is temporarily reduced (tax years 2018 through 2025) to 7.5% percent (down from 10% in 2017) of adjusted gross income (AGI).
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2018, the limitation is $420. Persons more than 40 but not more than 50 can deduct $780. Those more than 50 but not more than 60 can deduct $1,530 while individuals more than 60 but not more than 70 can deduct $4,160. The maximum deduction is $5,200 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2018, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2018, the foreign earned income exclusion amount is $104,100, up from $102,100 in 2017.
Long-Term Capital Gains and Dividends
In 2018 tax rates on capital gains and dividends remain the same as 2017 rates (10%, 15%, and a top rate of 20%); however threshold amounts are different in that they don’t correspond to new tax bracket structure as they did in the past. For taxpayers in the lower tax brackets (10 and 12 percent), the rate remains 0 percent; however, the threshold amounts are $38,600 for individuals and $77,200 for married filing jointly. For taxpayers in the four middle tax brackets, 22, 24, 32, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 37 percent, whose income is at or above $425,800 ($479,000 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.
Estate and Gift Taxes
For an estate of any decedent during calendar year 2018, the basic exclusion amount is $11,200,000, indexed for inflation (up from $5,490,000 in 2017). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $15,000.
Individuals - Tax Credits
In 2018, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,840 is available for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2018, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,444, up from $6,318 in 2017. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Child Tax Credits
For tax years 2018 through 2025, the child tax credit increases to $2,000 per child, up from $1,000 in 2017, thanks to the passage of the TCJA.
The enhanced child tax credit, which was made permanent by the Protecting Americans from Tax Hikes Act of 2017 (PATH), remains under TCJA. The refundable portion of the credit increases from $1,000 to $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. Under TCJA, a $500 nonrefundable credit is also available for dependents who do not qualify for the child tax credit (e.g., dependents age 17 and older).
Child and Dependent Care Credit
The Child and Dependent Care Credit also remains under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2018.For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2018 by ATRA but was made permanent by PATH in 2017. There was no change under TCJA. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return; however, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
Interest on Educational Loans
In 2018 (as in 2017), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($135,000 joint filers).
Individuals - Retirement
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $18,500. Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions increases to $275,000 (up from $270,000 in 2018).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $63,000 and $73,000, up from $62,000 to $72,000.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $101,000 to $121,000, up from $99,000 to $119,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $189,000 and $199,000, up from $186,000 and $196,000.
The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
In 2018, the AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $63,000 for married couples filing jointly, up from $62,000 in 2017; $47,250 for heads of household, up from $46,500; and $31,500 for married individuals filing separately and for singles, up from $31,000 in 2017.
Tips for Choosing a Tax Preparer
Happy New Year! As we all know, tax season is quickly approaching. During this time many taxpayers are searching for a professional tax preparer. If this is you, you may want to consider the following tips.
- Is the tax preparer qualified? By using the IRS Directory of Federal Tax Preparers, you can search listings of tax preparers to see their qualifications. Another option is to check their history and license status. For CPA’s, check with the State Board of Accountancy.
- Inquire about fees and e-filing. Avoid tax preparers who boast about bigger refunds than other tax preparers or base their fees on a percentage of a refund. Electronic filing of your tax return is the fastest way to submit your taxes and results in the quickest turnaround time when receiving a refund.
- Be sure your tax preparer is available. Search for a reputable tax preparer who is established in order to avoid fly-by-night preparers.
- Before signing…review it. Many choose to sign and submit their returns without first reading it. This is not recommended. Take time to review your return completely. If something is unclear, ask your tax preparer for further explaination. Be sure you receive your own copy of the return and that your bank routing and account information is correct in case of a refund.
- Confirm that your tax preparer signs and includes their PTIN on the tax return. All paid tax preparers must have a Preparer Tax Identification Number. Paid preparers, by law, must sign returns and include their PTIN.
If you are searching for a professional tax preparer, consider GORDON H. ZiNK CPA, P.A. The tax team at ZiNK CPA has been serving Southwest Florida since 1986, dedicating quality accounting services and year-round tax advice to corporations and individuals. Call us today for your FREE initial 30 minute consultation at (239)936-1120. We look forward to helping you.
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Protect Your Data
Here are some steps to keep your online data safe:
- Avoid unprotected Wi-Fi
- Shop only at familiar online retailers
- Use strong and unique passwords
- Encrypt data with a password
- Sign up for account alerts
Steps to take if you are victim of a data breach:
- Reset all passwords and online accounts
- Try to determine what information has been compromised
- Place a freeze on the account
- Consider using a credit monitoring service
Please consider these steps throughout the New Year, and especially during the holidays.
The team at ZiNK CPA has been in Southwest Florida for over 35 years dedicating quality accounting services and year-round tax advice to corporations and individuals. Contact us at 239.936.1120 for an appointment.
Estimated Taxes and Withholdings
The uncertainty of tax time can be stressful. Part of that uncertainty can result from not having enough federal tax withholding at the end of the year. Not paying enough tax throughout the year can lead to a larger tax bill and more penalties from the IRS.
Here are some tips which can help you avoid underpayment of tax throughout the year.
- Determine the amount to withhold. A withholding calculator can be found at IRS.gov. This calculator provides direction in determining an amount to withhold on Form W-4.
- Withhold more. If income with no withholding is present, increasing withholding on Form W-4 can offset additional taxes from this other income.
- Make estimated tax payments. For those who do not have any earned wages but have pass through income, investment income, and/or retirement income; estimated payments can be made to cover the related taxes, thereby avoiding any late penalties and interest.
- Use Form W-4P. With this form, retirees are able to withhold taxes directly from their pensions and annuity plans. Also, those collecting Social Security can also have taxes withheld from their monthly Social Security checks.
If you would like assistance on determining whether you have withheld enough taxes on your income, contact Gordon H. ZiNK CPA, P.A. at (239)936-1120 to set up your free initial 30 minute consultation. The team at ZiNK CPA can help you be ready and reduce the stress of tax time.
Gordon H. ZiNK CPA, P.A. is a proud member of the Florida Institute of Certified Public Accounts
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