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Tax Law Changed

2017 Year End Tax Tips!

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Tax Tips 2017!

I hope this note finds you well. As 2017 draws to a close, I wanted to send out some end of year tax tips, along with some articles that may be of interest.

Big changes in store for 2018, with, in the final analysis, some winners and some losers.

For a excellent article on some of the sweeping tax changes that will be in place for 2018, see this article-

https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

 

2017 YE Tax Planning Tips

1)      To deduct your property tax payments on your 2017 taxes, try to pay them in 2017, even though some may not be  due until 2018. In addition, the deduction for many State and local taxes is capped at $10,000 for 2018, and the deduction for our personal exemptions is eliminated, so take them in 2017 while you still can!

 

2)      If you cannot make a deductible IRA contribution in 2017, consider a nondeductible IRA and convert to ROTH if you don’t have a separate IRA. Never pay tax on that money again. There is some fine print on this one, so be sure to review it with me first.

 

3)      If your itemized deductions are less than your increased standard deduction will be for 2018, consider making your 2018 charitable giving in 2017.

4)    Capital Loss Harvesting. If you have a net capital gain in your investments this year, consider selling some investments that would generate a loss before year end. Doing so could reduce the amount net gains exposed to Capital Gain taxes. Remember, if you sell stock to realize these losses, you’re prohibited from purchasing substantially similar stock, or you risk losing the recognition of the loss under the wash sale rules.

5)      The difference between death and taxes is that death doesn’t get worse every time congress meets-Will Rodgers

6)      Social Security wage base is raised to $128,400 for 2018. If you have W2 income in excess of this amount, FICA taxes won’t be withheld for amounts earned over the wage base in 2018. As usual there is no cap on the 1.45% medicare tax application.

7)      FAST ACT legislation- If you owe over $50,000 to the IRS your passport could be revoked or not issued.

8)      Declutter your life by donating household items and clothing to charity and taking the fair value as a deduction for 2016.

9)      Make sure you are on your way to maximizing your Retirement Plan contributions to your 401k, IRA or deferred pension plan.

10)   Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills. The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule. You have to decide at the beginning of the year how much to contribute to the plan and, if you don’t use it all by the end of the year, you forfeit the excess. With year-end approaching, check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2017 set-aside money as late as March 15, 2018. If not, you can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.

 

Taxes- What will really happen in 2017?

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Here is a url to a good article in Forbes regarding sweeping tax reforms that will most probably occur in 2017.

http://www.forbes.com/sites/deanzerbe/2016/11/15/trump-and-taxes-whats-going-to-happen/#431225a54e63

A Christmas Present from Congress!!

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Protecting Americans from Tax Hikes Act of 2015

Permanent Extenders Package!

This week, Congress delivered a present to Taxpayers in the form of a permanent extenders package.  The Protecting Americans from Tax Hikes Act of 2015 passed in the House and is expected to be passed in the Senate.  President Obama has expressed support of the package and is expected to sign it into law.

The main tax benefit of “Protecting Americans from Tax Hikes of 2015 (PATH Act) is that it makes permanent several popular tax provisions that otherwise are subject to expiration each year.  Each year Congress would traditionally “play Chicken” to “negotiate” to extend the tax provisions, but would do so at the last minute through a temporary tax extenders package.  Taxpayers routinely faced uncertainty as to whether the provisions would be extended.  The PATH Act will make permanent tax extenders such as the earned income tax credit, the child tax credit, the American opportunity tax credit (for college tuition), the research credit, itemized personal income tax deductions for state and local sales tax, Section 179 expensing, and the subpart F active financing exception.  While not made permanent, the PATH Act also provides for extensions through 2019 of the new markets tax credit, the work opportunity tax credit, and first year bonus depreciation.

The PATH Act will also delay for two years the “Cadillac Tax” that was otherwise set to go into effect in 2018 on certain employer-sponsored health insurance plans.  In addition, any Cadillac tax paid will be deductible against income tax, which is not generally the case for excise taxes such as the Cadillac tax.

Newest Tax Haven for Wealthy Americans – Puerto Rico

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Newest Tax Haven for Wealthy Americans – Puerto Rico
Puerto Rico took a huge hit during the recession. Unfortunately, tourism, which once brought in big dollars to the region has not fully recovered leaving economic and government leaders to seek new alternatives to bring revenue and investments into communities large and small throughout Puerto Rico. One of the primary methods leaders chose for attracting new money revenue and investments into the region is through significant tax breaks.

Act 22

Act 22, known as the Act to Promote the Relocation of Investors to Puerto Rico, provides investors and traders who maintain residences in Puerto Rico for a minimum of 183 days per year to pay no local or federal taxes on capital gains. They also pay no local taxes on income resulting from most dividends or interest income for a period of up to 20 years. Even people who continue employment with a company on the U.S. mainland while living in Puerto Rico are exempt from paying U.S. federal taxes on their salaries.

U.S. citizens must still pay federal income taxes on dividends and interest income from mainland companies, but the tax savings are significant enough that major investors are taking interest – and inviting friends.

The Beauty of Puerto Rico as an American Tax Haven

These changes, combined with the modern infrastructure available in cities like San Juan, make Puerto Rico an attractive choice for investors – never mind the amazing weather and stunning beaches. As far as tax havens go, this is a beautiful choice when it comes to tax benefits easily reaching six figures for many investors and creature comforts alike.

The real beauty of turning to Puerto Rico as a tax haven for Americans is the fact that you don’t have to sacrifice your citizenship in order to do so.

What Does Puerto Rico Get out of this Deal?

Puerto Rico’s unemployment rate still remains high. The New York Times places it in the range of 13 percent which makes it one of the highest in the U.S. The per capita income, also according to the New York Times for Puerto Rico is also around $15,200, which is half of Mississippi’s per capita income. Mississippi is the poorest state in the U.S. to put things into perspective.

The plan is for the new investments and spending on the island to create jobs that will spur even more spending among the local population. The goal is to bring in high dollar investors who are millionaires, if not billionaires, in order to bring some of the fruits of their labors into Puerto Rico. With a growing discontentment among high income earners in the U.S., it may be an achievable goal.

Proceed with Caution

However, some tax experts are urging caution before diving right in. The U.S. is cracking down on what it considers tax dodging and those who have corporate interests on the mainland might want to avoid any appearance of becoming “unpatriotic” in the eyes of investors and consumers. Consider carefully and consult your accountant before taking the plunge to minimize your risks if this is something you’re considering.

Home Office Deduction is Now Simplified!

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Home Office Deduction is Now Simplified!
The home office deduction allows you to deduct certain expenses related to the operation of your home office from your taxable income. In past years, taking the home office deduction required you to make a variety of complex calculations. However, beginning in 2014 (tax year 2013), the IRS is offering a simplified home office deduction method.

The Regular Method

If you use the regular home office deduction method, you must keep track of all of the expenses related to the operation and/or maintenance of your home during the year. To determine the portion of these expenses that is deductible for your home office, you must calculate the percentage of your home that is used as an office and multiply this percentage by each of the expenses.

The Simplified Method

If you choose the simplified method of determining your home office deduction, only one calculation is required to determine the amount you can deduct. Simply multiply the number of square feet in your home office by $5. You don’t need to keep records of any specific expenses incurred, nor do you need to allocate them individually.

Considerations

Although the simplified method is useful for many taxpayers, it isn’t the right choice for everyone. Some taxpayers who have kept records of their expenses may be able to claim a larger home office deduction under the regular deduction method. In addition, whereas the regular deduction method allows for carryover into the following year, the simplified method does not. Finally, while the regular method includes a depreciation deduction for the business use of your home, the simplified method doesn’t allow a depreciation deduction.

Sources: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction.

When is a “Tax Cut” not a “Tax Cut”?

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When it raises your tax bill!!

Recently, the NC General Assembly passed House Bill 998, the most significant overhaul of NC tax law in a generation, claiming they have lowered your taxes. This bill was co-sponsored by Senator Bob Rucho, a Mecklenburg County representative. However a closer look reveals that for many NC residents, especially the small business owner, and the retired, this is actually a tax hike.

While the rate of tax is lowered to 5.8% (allowing them to say, “We lowered your taxes”) under this new law, many tax deductions are eliminated, and new taxes are created which allows them to INCREASE tax revenue. Of greatest concern to NC business owners is the small business tax exemption that allowed the first $50,000 in tax to be exempt from NC taxes. For a small business owner with $50,000 in profit, this saved him or her about $3,000, a much needed break for the over-taxed business owner/employeer/entrepreneur. Now, this deduction, and many others are gone, causing the business owners State tax liability to actually INCREASE. Yup, this tax decrease may actually be an increase, unless you are a highly compensated employee, then you may save thousands.

Other deductions/tax credits that are eliminated-

Retirement income, unreimbursed job expenses, and 529 plan contributions, repeal of tax credits for child-care expenses, non-itemized charitable expenses and education expenses.

Taxes that are being increased or new taxes-

New tax on movie tickets, sporting events, concerts, plays, museums, newspapers, college meal plans, and certain service contracts.

Who will pay more tax?

Senior citizens on retirement income and small business owners will pay more under these new laws.

Who will break even?

A married couple making just $20,000 with two kids will break even.

Who will pay less tax?

A married couple making $40,000 will see a slight decrease, while a single taxpayer making $250,000 will see a tax savings  of about $4,000.

Look out for the federal government to be using the same tactics to increase revenue by eliminating tax deductions so they can make similar claims!