An Age To Remember

Quick tips

Knowing key tax birthdays can help trim your annual tax bills. Below are some ages worth noting:


If your child is born during the year, even as late as 11:59 p.m. on December 31, you can claim a dependency exemption for your child. This comes with one catch. You need to file for the child’s social security number (SSN) and include it on your tax return. If you don’t, the dependency exemption is denied, along with any potential for certain tax credits. If your dependent doesn’t have and can’t get an SSN, you must show the individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN) instead of an SSN.


The good news is you gain tax advantages by contributing to your employer’s flexible spending account to cover child care expenses, or you may qualify for a child care credit on your tax return. The bad news is that any investment income over $2,100 in your child’s name is taxed at your rate until the child reaches age 27. There is relief coming with this, however, beginning in TY2018. Be watching after the busy season for some information regarding the changes under the Tax Cut and Jobs Act of 2017.


Once your child reaches age 13, you no longer qualify to take the child care credit. Eligibility is determined on a daily basis.


This is the last year your child qualifies you for the $1,000 child tax credit.


If you own a business, you can pay your children to work for you and avoid paying Social Security and Medicare taxes on their wages. Once they reach age 18, you are required to withhold payroll taxes like any other employee.


At this age, children are taxed at their own rates on investment income. In addition, they are no longer eligible for their parents’ health insurance benefits.


Congratulations. Not only have you reached the half century mark, you can contribute an additional $1,000 to your IRA, bringing the total contribution limit to $6,500.


You and your covered spouse are eligible to make an additional $1,000 contribution to your HSA.


This is the magic age when you may take money from IRAs and retirement plans without incurring the additional 10% penalty for early distributions. There are exceptions to the penalties if you are younger, but this is the age when you may take penalty-free distributions for any reason.


Once you reach age 65, you qualify for an additional standard deduction and, if certain conditions exist, a tax credit. For tax purposes, you are considered to reach age 65 on the day before your 65th birthday.


At this age, you are required to begin distributions from your traditional IRA. If you have a Roth IRA, this rule doesn’t apply. If you have a retirement plan with your employer, you are still working, and you do not own more than 5% of the company, you can delay distributions even if you reach age 70½.

Automobile Expenses

Which is better, deducting the standard mileage rate or claiming actual expenses?

With the standard mileage at 53.5 cents per mile for 2017, it might be time to revisit what yields the more substantial deduction—the standard mileage rate for each business mile, or your actual car expenses. If this is the first year you have business use of an automobile, you don’t have to decide which method yields the better result until you file your return. If this is not the first year you have business use of an automobile, you cannot switch to the standard mileage rate in a later year if you started with deducting the actual expenses. On the other hand, if you started with deducting automobile expenses using the standard mileage rate, you can switch to the actual expense method.

Admittedly, claiming the standard mileage rate is a lot easier for most of us. All we have to do is keep track of our business miles and multiply them by the current rate. In addition, you may also deduct your costs for parking and tolls and, if you are self-employed, the interest on your car loan. Claiming actual expenses requires a bit more diligence in your recordkeeping. Doing so, however, may pay off in the end by giving you a larger deduction.

First, you must keep receipts for all your gasoline and oil, repairs, tires, licensing and registration fees, insurance, garage rent, lease fees, parking, tolls, and rental fees. If you are self-employed, you may also take the business portion of any interest you are paying on a car loan. Luxury and sales taxes are not deductible under any circumstance, although the amounts you pay can be added to your cost and recovered through depreciation.

Regardless of the method you choose, the expenses are limited to your business-use percentage. This percentage is calculated by dividing your total business miles by your total miles driven for the year. It’s wise to make note of your odometer reading on January 1 and again on December 31.


New Changes That May Affect Your 2017 Tax Filing

This morning President Trump signed a budget bill averting yet another government shutdown. Tucked in the Bipartisan Budget Act of 2018 are several extender provisions that expired but are now available retroactively through Dec. 31, 2017.

The most notable extenders include:

Exclusion for discharge of indebtedness on a principal residence. The provision extends the exclusion from gross income of a discharge of qualified principal residence indebtedness through 2017. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.

Premiums for mortgage insurance (PMI) deductible as mortgage interest. The provision extends the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction through 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000.

Above-the-line deduction for qualified tuition and related expenses. The provision extends the above-the-line deduction for qualified tuition and related expenses for higher education through 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Extension of credit for non-business energy property. The provision extends through 2017 the credit for purchases of non-business energy property. The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500 (life-time).

If your return has already been filed, and you feel that one of these changes will affect your situation, please send us an email with any information. Your return may need to be amended. The charge for an amended return is $50, plus any additional forms that need to be included.

Substantiating Business Expenses

Don’t forget to save those receipts

As a business owner, one of the most important things you should do is keep good records. Without them, the IRS may disallow some of the expenses you incur if it chooses your return for a closer look. Maintaining good records should be done throughout the year. Keeping receipts, credit card statements, bank statements, and canceled checks is a must. Set aside a spot in your office for expenses and sort through them periodically. Group similar expenses together and total them. Keep receipts for large purchases, such as equipment or capital improvements, separate because they are reported differently on your tax return. Staying organized will give you a better idea of the expenses you are incurring and what your bottom line will be. An added benefit is that when it comes time to file your tax return, you’ll be more prepared.

Tax Cut and Jobs Act of 2017 - The General Impact

On Dec. 22, 2017, the Tax Cuts and Jobs Act was signed into law, enacting the most significant tax reform in decades. Many changes affecting individual taxpayers and businesses are taking effect in 2018. Most of the individual changes will expire at the end of 2025, meaning the old tax rates and deductions will return in 2026 unless Congress passes another law before then. Following are a few provisions of the new tax law and how they may impact you.

Tax Rates
Tax rates are lower for all taxpayers in all income brackets. There are now seven rates: 10%, 12%,
22%, 24%, 32%, 35% and 37%. Depending on your income and other deductions, you may see a larger refund or lower balance due as a result of these new rates. To accommodate the lower rates, the withholding tables have been revised. Review your pay stub and consider making any necessary adjustments to your withholding by completing a new W-4.

Standard Deductions
The standard deduction has doubled for all tax- payers. This increase may cause some of you to no longer have high enough deductions to itemize.
•  Married filing jointly - $24,000
•  Head of Household - $18,000
•  Single/Married filing separately - $12,000

You are entitled to an additional standard deduction of $1,600 ($1,300 if married) if you are age 65 or older, or blind.

Personal Exemptions and Credits
Personal exemptions are no longer allowed. In past years, you were allowed to deduct a certain
amount—$4,050 in 2017—for each person you could claim as a dependent. All is not lost, however, if you have children. The child tax credit has been increased to $2,000 for each child who is your dependent and under age 17. Up to $1,400 of this credit is refundable, meaning you may be eligible for a refund even though you paid in no tax. A nonrefundable $500 credit is available for other dependents who are age 17 and older.

Itemized Deductions
Itemized deductions have been trimmed under the new law and fewer taxpayers will find it beneficial to save all those receipts they’ve been trained to keep. Here’s what you can still deduct as itemized deductions:

• Medical expenses in excess of 7.5% of your adjusted gross income
• State and local income, property and sales tax up to $10,000
• Mortgage interest paid on up to $750,000 of debt on your primary or secondary home
• Casualty losses occurring in a federally declared disaster area
• Charitable contributions

The list of expenses that are no longer deductible is lengthy. They include all expenses that were subject to 2% of your adjusted gross income such as unreimbursed employee business expenses plus some other expenses you may be accustomed to deducting. Here are some of the more common items that are no longer deductible.

Deductions subject to the 2% floor:
• Tax preparation fees
• Safe deposit box rental
• Union and other professional dues
• Safety equipment and tools required for work as an employee
• Job search expenses
• Work clothes
• Work-related education expenses
• Home office deductions
• Legal fees
• Unreimbursed employee business expenses, such as mileage
• Investment expenses
• Hobby expenses to the extent of hobby income

The deduction for interest paid on a student loan stays. You are allowed a deduction of up to
$2,500 if your income is below certain limits ($65,000 if single; $135,000 for joint filers).
There were also no changes to the American Opportunity Credit or the Lifetime Learning Credit. The American Opportunity Credit allows you to claim a tax credit up to $4,000 per year for the first four years of college if you paid qualifying expenses and were enrolled at least half-time at a university or college. A 20% Lifetime Learning credit is allowed in any year you pay qualified expenses but is limited to no more than $2,000.

Eligible educators are permitted to deduct up to $250 of unreimbursed expenses incurred for their classroom. Eligible educators are elementary or secondary school teachers, instructors, counselors, principals, or aides in a school for at least 900 hours during a school year.

Section 529 Plans
Section 529 plans have long been a great way to save and pay for college. You can set up accounts for your beneficiaries, and typically there are no limits on the amount that you can contribute. Plus, contributions earn tax-free interest. Contributions on behalf
of any beneficiary, however, can’t be more than the amount necessary to provide for the qualified higher education expenses of the beneficiary.

The new law expands the rules regarding 529 plans to include allowing tax-free distributions to pay for elementary or secondary public, private, or religious school in addition to college.
Distributions for elementary or secondary tuition are limited to no more than $10,000 per student.

If you are divorced after Dec. 31, 2018, and are the recipient of alimony payments, they are not
considered taxable income. On the flip side, if you are required to pay alimony under a divorce or separation instrument executed after Dec. 31, 2018, you are not entitled to a deduction for those payments. If you were divorced prior to 2019, and your divorce decree was modified after Dec. 31, 2018, to include alimony payments, the above-mentioned new rules apply to you as long as the modification specifically states that amendments made by the Tax Cuts and Jobs Act apply.

Affordable Care Act
The Affordable Care Act requires all taxpayers to have health insurance that has minimum essential coverage. Unless you have an exemption from coverage, you are subject to a penalty. Beginning in 2019, this penalty is suspended. That doesn’t mean the requirement to have health insurance is gone; it merely means you will not incur a penalty for failing to have it.

Tax Planning
As your tax preparer, I’m here to assist you with understanding the implications that the new tax you and your family. As mentioned before, our focus is to get 2017 filed, and then move onto addressing how these tax changes affect your specific situation. With your tax return, I am hoping to have a two year comparison (2017 to the tax changes of 2018) as a start. Those clients requiring a more comprehensive analysis will need a separate appointment in May or June. If you would like to be a part of this, please make your appointment soon. The fee for this consultation is $150, but if you make your appointment before April 1st, we will be discounting the fee to $100. Please mention this when making your post-tax season appointment.