Here you will find any updates or newsletters we send out as well as relevant tax information specific to the 2018 tax filing season.
****Any tax credit donations made after August 27, 2018 are no longer eligible to be deducted as charitable donations on Schedule A of the 1040 Federal Return.
This notice was mailed out to our clients in late December. It is designed to give you the guidance needed for understanding how the big new tax law changes will personally affect you; to dispel some myths that are floating around; and to provide some basic ideas for tax planning.
2018 Tax Changes for Individuals Everyone seems to think that the new “postcard” return will make income tax preparation easier! Not true. The Form 1040, previously 2 pages, now has an additional 6 pages/schedules. The recurring theme in all of our continuing education classes this year has been the 20% increase in time we can expect to properly complete client returns. Due to these drastic changes in tax laws, our fees must increase. We have always valued your business, and will continue to value it in the future. The best way that we know of to retain your trust and confidence is to inform you in advance of these and any other changes. Below you will find additional major changes that have occurred.
The new Federal withholding tables were designed to lower your total tax bill for the year by giving you a bigger paycheck throughout the year. Unfortunately, they were not designed to give you a refund at year end, and for those of you who did not come in to review your withholding, your refund will be very small (if any) because you already received it in bits and pieces through larger paychecks throughout the year. One of our simple recommendations for 2019 is that all married individuals fill out a W-4 reflecting “single and zero” withholding.
In late 2017 Congress passed the Tax Cuts and Jobs Act, which provides for a 20% tax deduction (among other things) when you have trade or business income. This deduction is called the Qualified Business Income or QBI deduction. We calculate this complex deduction on your individual income tax return Form 1040.
The Tax Cuts and Jobs Act reduced the personal exemption amount to zero and the dependency exemption (previously $4150 per dependent) was also repealed. The ability to itemize deductions has been dramatically decreased as well because the new law provides a much, much larger standard deduction. (You are allowed to deduct the greater of the two). However, we still need to accumulate the information on your medical, tax, mortgage interest, charity and other deductions in order to apply the new rules, and to complete your state tax returns.
A major change has occurred on home equity lines and 2nd mortgages, most of which are now not deductible. In order to get your largest deduction, we will need to know much more information on these amounts than in the past, such as amounts borrowed and use.
Employee work related business expenses are no longer deductible on the Federal return, but we may still need the information for your state return, and if you incur a lot of these types of expenses, you need to discuss the use of an accountable plan with your employer.
Most home-related energy efficiency credits are now expired, but an incredible 30% Federal credit still exists for solar, wind and geothermal costs; and a $7,500 Federal credit for buying a fully electric car still applies through the end of 2018.
If you are retired, over age 70 ½, and have an IRA you must utilize the direct IRA to charity transfer tool to make charitable contributions. This simple trick can save you hundreds of dollars in income tax.
With over 50% of working Americans now covered by health savings insurance policies, it is of absolute importance that you start a health savings account, even with $50, and discuss some excellent tax-savings ideas with us for these tax-beneficial plans. And yes, you were still required to maintain health insurance for every member of your family for 2018 or face a potential penalty.
Finally, in order to prepare your return this year we are required to obtain all of your W-2’s, 1099’s from retirement, interest, dividends and brokers, Forms 1095 for health insurance, bank Forms 1098 and any other official IRS documents.
2018 and Future Tax Planning Ideas
Every year we are told “I pay too much in taxes” or “I want some of the tax loopholes that rich people get”. We can answer both statements with one answer. Rich people get no more tax deductions or “loopholes” than anyone else, they just take advantage of what is there to keep their taxes at a low legal level. The single greatest tax “loophole” that they use, which few average people use to its limit is the ability to defer nearly $20,000 into a 401-K if your employer has one. If your employer has a 401-K and you are not putting the maximum deferral in it, there is no reason to even think about other tax planning ideas.
In the current tax era of greatly increased requirements to itemize deductions, a tax “bunching” strategy is absolutely mandatory. The “bunching strategy” recognizes that the best tax deductions are obtained by putting deductions in one year rather than spreading them amongst several years. For example, in years where your charitable contributions are very low, hold off until the next year to catch up, then also pay the full amount of the next year’s contributions in the “catch up” year in order to double your chances of itemizing. Similarly, few Americans receive medical deductions anymore, but if you incur a large expense for say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental and vision exams, check-ups, etc.
Check into your employer’s handbook to see what employer provided fringe benefits are available. Taxpayer’s are often surprised at the available benefits, or at our explanation of what some benefits really mean.
As always we will be sending out our tax organizers in the coming weeks. If you have not received one by late January, please call the office to request one for 2018. We will also offer blank organizers here on our website in late January.
While you are always encouraged to drop off, email or mail in your tax information, if you need to meet with us, please secure your appointment time as early as possible. The last day to schedule this year will be March 29th. All tax appointments will be ½ hour, and will be used to collect information and answer any questions you may have.
We are happy to meet with you throughout the year for tax planning, retirement and similar income tax related issues, and sincerely appreciate your continued business each year. We hope you and your family have a joyous holiday and happy new year!
Ben D Stanton
Stanton Financial Services