taxes

Taxes for 2018

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If by chance you didn’t see it… major tax changes were signed into law on December 22, 2017.  In life, two things are certain- 1) change and 2) taxes owed.   How much you owe, well that is to be calculated still for 2018. 

Let us know if you have questions and speak with your tax preparer with specifics to your situation.

All the Best in 2018,

Luke Fields, CFP®

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Tax Cuts and Jobs Act:

Impact on Individuals

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package that fundamentally changes the individual and business tax landscape. While many of the provisions in the new legislation are permanent, others (including most of the tax cuts that apply to individuals) will expire in eight years. Some of the major changes included in the legislation that affect individuals are summarized below; unless otherwise noted, the provisions are effective for tax years 2018 through 2025.

Individual income tax rates

The legislation replaces most of the seven current marginal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with corresponding lower rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The legislation also establishes new marginal income tax brackets for estates and trusts, and replaces existing "kiddie tax" provisions (under which a child's unearned income is taxed at his or her parents' tax rate) by effectively taxing a child's unearned income using the estate and trust rates.

Single

If taxable income is:                                   Then income tax equals:

Not over $9,525                                          10% of the taxable income

Over $9,525 but not over $38,700             $952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $82,500           $4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500          $14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000        $32,089.50 plus 32% of the excess over $157,500

Over $200,000 but not over $500,000      $45,689.50 plus 35% of the excess over $200,000

Over $500,000                                             $150,689.50 plus 37% of the excess over $500,000

Married Individuals Filing Joint Returns

If taxable income is:                                    Then income tax equals:

Not over $19,050                                         10% of the taxable income

Over $19,050 but not over $77,400           $1,905 plus 12% of the excess over $19,050

Over $77,400 but not over $165,000         $8,907 plus 22% of the excess over $77,400

Over $165,000 but not over $315,000        $28,179 plus 24% of the excess over $165,000

Over $315,000 but not over $400,000       $64,179 plus 32% of the excess over $315,000

Over $400,000 but not over $600,000      $91,379 plus 35% of the excess over $400,000

Over $600,000                                             $161,379 plus 37% of the excess over $600,000

Standard deduction and personal exemptions

The legislation roughly doubles existing standard deduction amounts, but repeals the deduction for personal exemptions. Additional standard deduction amounts allowed for the elderly and the blind are not affected by the legislation and will remain available for those who qualify. Higher standard deduction amounts will generally mean that fewer taxpayers will itemize deductions going forward.

2018 Standard Deduction Amounts

Filing Status                                    Before Tax Cuts and Jobs Act    After Tax Cuts and Jobs Act

Single or Married Filing Separately         $6,500                                       $12,000

Head of Household                                  $9,550                                        $18,000

Married Filing Jointly                               $13,000                                      $24,000

Itemized deductions

The overall limit on itemized deductions that applied to higher-income taxpayers (commonly known as the "Pease limitation") is repealed, and the following changes are made to individual deductions:

·         State and local taxes — Individuals are only able to claim an itemized deduction of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes (or sales taxes in lieu of income).

·         Home mortgage interest deduction — Individuals can deduct mortgage interest on no more than $750,000 ($375,000 for married individuals filing separately) of qualifying mortgage debt. For mortgage debt incurred prior to December 16, 2017, the prior $1 million limit will continue to apply. No deduction is allowed for interest on home equity indebtedness.

·         Medical expenses — The adjusted gross income (AGI) threshold for deducting unreimbursed medical expenses is retroactively reduced from 10% to 7.5% for tax years 2017 and 2018, after which it returns to 10%. The 7.5% AGI threshold applies for purposes of calculating the alternative minimum tax (AMT) for the two years as well.

·         Charitable contributions — The top adjusted gross income (AGI) limitation percentage that applies to deducting certain cash gifts is increased from 50% to 60%.

·         Casualty and theft losses — The deduction for personal casualty and theft losses is eliminated, except for casualty losses suffered in a federal disaster area.

·         Miscellaneous itemized deductions — Miscellaneous itemized deductions that would be subject to the 2% AGI threshold, including tax-preparation expenses and unreimbursed employee business expenses, are no longer deductible.

Child tax credit

The child tax credit is doubled from $1,000 to $2,000 for each qualifying child under the age of 17. The maximum amount of the credit that may be refunded is $1,400 per qualifying child, and the earned income threshold for refundability falls from $3,000 to $2,500 (allowing those with lower earned incomes to receive more of the refundable credit). The income level at which the credit begins to phase out is significantly increased to $400,000 for married couples filing jointly and $200,000 for all other filers. The credit will not be allowed unless a Social Security number is provided for each qualifying child.

A new $500 nonrefundable credit is available for qualifying dependents who are not qualifying children under age 17.

Alternative minimum tax (AMT)

The AMT is essentially a separate, parallel federal income tax system with its own rates and rules — for example, the AMT effectively disallows a number of itemized deductions, as well as the standard deduction. The legislation significantly narrows the application of the AMT by increasing AMT exemption amounts and dramatically increasing the income threshold at which the exemptions begin to phase out.

2018 AMT Exemption Amounts

Filing Status                                     Before Tax Cuts and Jobs Act   After Tax Cuts and Jobs Act

Single or Head of Household                          $55,400                               $70,300

Married Filing Jointly                                      $86,200                               $109,400

Married Filing Separately                                $43,100                               $54,700

2018 AMT Exemption Phaseout Thresholds

Filing Status                                    Before Tax Cuts and Jobs Act    After Tax Cuts and Jobs Act

Single or Head of Household                          $123,100                              $500,000

Married Filing Jointly                                      $164,100                              $1,000,000

Married Filing Separately                                $82,050                               $500,000

Other noteworthy changes

·         The Affordable Care Act individual responsibility payment (the penalty for failing to have adequate health insurance coverage) is permanently repealed starting in 2019.

·         Application of the federal estate and gift tax is narrowed by doubling the estate and gift tax exemption amount to about $11.2 million in 2018, with inflation adjustments in following years.

·         In a permanent change that starts in 2018, Roth conversions cannot be reversed by recharacterizing the conversion as a traditional IRA contribution by the return due date.

·         For divorce or separation agreements executed after December 31, 2018 (or modified after that date to specifically apply this provision), alimony and separate maintenance payments are not deductible by the paying spouse, and are not included in the income of the recipient. This is also a permanent change.

Impact on Businesses

The Tax Cuts and Jobs Act, a $1.5 trillion tax cut package, was signed into law on December 22, 2017. The centerpiece of the legislation is a permanent reduction of the corporate income tax rate. The corporate rate change and some of the other major provisions that affect businesses and business income are summarized below. Provisions take effect in tax year 2018 unless otherwise stated.

Corporate tax rates

·         Instead of the previous graduated corporate tax structure with four rate brackets (15%, 25%, 34%, and 35%), the new legislation establishes a single flat corporate rate of 21%.

·         The Act reduces the dividends-received deduction (corporations are allowed a deduction for dividends received from other domestic corporations) from 70% to 50%. If the corporation owns 20% or more of the company paying the dividend, the percentage is now 65%, down from 80%.

·         The Act permanently repeals the corporate alternative minimum tax (AMT).

Pass-through business income deduction

Individuals who receive business income from pass-through entities (e.g., sole proprietors, partners) generally report that business income on their individual income tax returns, paying tax at individual rates.

For tax years 2018 through 2025, a new deduction is available equal to 20% of qualified business income from partnerships, S corporations, and sole proprietorships.

For those with taxable incomes exceeding certain thresholds, the deduction may be limited or phased out altogether, depending on two broad factors:

·         The deduction is generally limited to the greater of 50% of the W-2 wages reported by the business, or 25% of the W-2 wages plus 2.5% of the value of qualifying depreciable property held and used by the business to produce income.

·         The deduction is not allowed for certain businesses that involve the performance of services in fields including health, law, accounting, actuarial science, performing arts, consulting, athletics, and financial services.

For those with taxable incomes not exceeding $157,500 ($315,000 if married filing jointly), neither of the two factors above will apply (i.e., the full deduction amount can be claimed). Those with taxable incomes between $157,500 and $207,500 (between $315,000 and $415,000 if married filing jointly) may be able to claim a partial deduction.

"Bonus" depreciation

The cost of tangible property used in a trade or business, or held for the production of income, generally must be recovered over time through annual depreciation deductions. For most qualified property acquired and placed in service before 2020, special rules allowed an up-front additional "bonus" amount to be deducted. For property placed in service in 2017, the additional first-year depreciation amount was 50% of the adjusted basis of the property (40% for property placed in service in 2018, 30% if placed in service in 2019).

The Act extends and expands first-year additional ("bonus") depreciation rules. Bonus depreciation is extended to cover qualified property placed in service before January 1, 2027. For qualified property that's both acquired and placed in service after September 27, 2017, 100% of the adjusted basis of the property can be deducted in the year the property is first placed in service. The first-year 100% bonus depreciation percentage amount is reduced by 20% each year starting in 2023 (i.e., the first-year bonus percentage amount will be 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026) until bonus depreciation is eliminated altogether beginning in 2027.

For qualified property acquired before September 28, 2017, prior bonus depreciation limits apply — if placed in service in 2017, a 50% limit applies; the limit drops to 40% if the property is placed in service in 2018, and to 30% if placed in service in 2019.

Note that the timelines and percentages are slightly different for certain aircraft and property with longer production periods.

Internal Revenue Code (IRC) Section 179 expensing

Small businesses may elect under IRC Section 179 to expense the cost of qualified property, rather than recover such costs through depreciation deductions. The Tax Cuts and Jobs Act increases the maximum amount that can be expensed in 2018 from $520,000 to $1,000,000, and the threshold at which the maximum deduction begins to phase out from $2,070,000 to $2,500,000. Both the $1,000,000 and $2,500,000 amounts will be increased to reflect inflation in years after 2018. The new law also expands the range of property eligible for expensing.

Foreign income

Under pre-existing corporate tax rules, U.S. companies were taxed on worldwide profits, with a credit available for foreign taxes paid. If a U.S. corporation earned profit through a foreign subsidiary, however, no U.S. tax was typically due until the earnings were returned to the United States, generally in the form of dividends paid. This system contributed to some domestic corporations moving production overseas, and may have led some multinational companies to keep profits outside the United States.

The new law fundamentally changes the way multinational companies are taxed, making a shift from worldwide taxation of income to a more territorial approach. Under the new rules, qualifying dividends from foreign subsidiaries are effectively exempted from U.S. tax. This is accomplished by allowing domestic C corporations that own 10% or more of a foreign corporation to claim a 100% deduction for dividends received from that foreign corporation, to the extent the dividends are considered to represent foreign earnings.

The new law also forces corporations to pay U.S. tax on prior-year foreign earnings that have accumulated outside the United States in foreign subsidiaries, through a one-time "deemed repatriation" of the accumulated foreign earnings. U.S. shareholders owning at least 10% of a specified foreign corporation* may be subject to a one-time tax on their share of accumulated untaxed deferred foreign income; deferred income that represents cash will be taxed at an effective rate of 15.5%, other earnings at an effective rate of 8%; the resulting tax can be paid in installments. The tax applies for the foreign corporation's last tax year that begins before 2018. The one-time tax is also not limited to C corporations; it can apply to all U.S. shareholders, including individuals (special rules apply to S corporations and REITs). After paying the one-time deemed repatriation payment, foreign earnings can be brought back to the United States without paying any additional tax.

*Includes controlled foreign corporations (CFCs) and non-CFC foreign corporations (other than passive foreign investment companies, or PFICs) if there is at least one 10% shareholder that is a U.S. corporation.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

This communication is strictly intended for individuals residing in the state(s) of OH. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Here are more details about the tax bill.

Why a big tax refund may not be as great as you think.

Why a big tax refund may not be as great as you think. Are you awaiting for or have you already received a big tax refund?  Most people who withhold taxes thru W-2 wage payments receive money back from the IRS.  I recently heard someone say with pride "I made out good... the government is paying me $x,xxx."  Well, sorry to tell you this but you didn't make out so well.  A tax refund is simply your money that you overpaid- being returned to you.  When you overpay your taxes you essentially just provided the government with an interest-free loan thru the course of the year. That is so generous of you.

Your goal should be to withhold as close as possible what you will end up owing.  Some people liken their refund to a "forced savings" plan, which can be understandable if living paycheck to paycheck.  For perspective though, a $3,000 refund equates to $250 or so that you can have in your pocket each month to use.  This is why it is advisable to adjust your W-4 withholding each year after tax filing.  The W-4 is a simple form you can use to provide to your HR/payroll department at work.

I realize that it is difficult to nail this number each year due to unexpected tax events that happen- children are born/leave the house, inheritances, bonuses, large deductions, etc.  Your CPA can help suggest your withholding or your can estimate using a calculator.

Self Employed and Don't use a W-4 Withholding

If you are self-employed don't forget that you need to pay estimated quarterly tax payments (due on the 15th of April, June, September and January) in order to avoid penalties.  These are to be 90% of your current year or 100% shown on your prior year's tax return filed, whichever is smaller.  

You have a refund, so what should you consider now?

  • Adjust your W-4 withholdings for the current tax year, as discussed above.

  • Pay offyour credit card, student loans or other high interest rate debt.

  • Build up your Emergency Fund.  Rainy days will happen.

  • Earmark your returnfor a "sinking fund," (a known expense) such as a car purchase or upcoming taxes.

  • Invest it.  Too many reasons why this is a good idea to list in this post, call me.

  • Okay-the last suggestion, which is rather common (and I have been guilty of in the past): use for a vacation!

 All the best,

Luke A Fields, CFP®

Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James.  You should discuss tax or legal matters with the appropriate professional.

About Stewardship Cents

Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it.  Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have.  Stewardship is a belief of responsible overseeing and protecting of important resources. Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981.  A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses.  He resides in Columbus, OH with his high school sweetheart, Beth and their three children.  Luke is an active member of his church, serving in leadership and finances.

Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter.You can always reach him with comments or questions at: luke.fields@raymondjames.com.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC

Two Things You Can be Certain of...

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Two Things You Can be Certain of...

Death and Taxes.  Yes, these are such fun topics to discuss.  No sarcasm here....

$100 Bill Ben Franklin

 

 

 

 

 

 

 

Good old Ben Franklin said it like this "but in the world nothing can be said to be certain except death and taxes."  Focus on the word "Certain."  It doesn't leave much room for exceptions; unless you happen to be Jesus or decide to criminally evade taxes (but we all know that's a BAD idea).

We just survived another eventful tax time and I recently faced the realities of death while standing at a graveside burial.  Both are certain to occur and both require thoughtful planning.  These are the realities all must plan for.

You can be Certain in your planning

Taxes and Death (estate planning) are not simple issues to address.  Taxes can invoke some to worry, stress and write large checks.  When considering death, it touches all of our humanly "levels" from the emotional, spiritual and of course the eventual physical end.

These events are certain to occur, but you can also be certain on how they play out. It should be your goal to be a good steward of your resources and have your wishes fulfilled. Tax planning should be efficient, aiding your accumulation of assets and withdrawal strategy.  Planning is especially imperative if you own a business, own valuable properties, have major life events occur (marriage, divorce, birth of children/grandchildren, inheritances, death, etc), own stock options or have an anticipated large taxable transaction approaching.  Estate Planning and evaluating your legacy wishes involves answering critical questions, such as: Who do you want to receive your estate?  How should they best receive it?  And when should it smoothly transact?  Your tax situation and the recipient's tax situation comes into play, the ages of your beneficiaries, possible special needs of your beneficiaries, desired requests to guide unwise heirs or protect from the "all too eager" inheritors.

Complete your Plans and Regularly Update

Although not licensed to perform your taxes or write your will and trust, I do help steer you along the way in regards to taxes and your estate plan so they compliment and fulfill your financial plan.  Then once we have your wishes determined, I work alongside your trusted CPA or Attorney (often recommending a qualified referral if you need one) to place your legacy plans into action.  Remember your financial plan encompasses numerous different areas and is the road map to implement your goals. 

Be Certain of that!

Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James does not offer tax or legal services and you should discuss any tax or legal matters with the appropriate professional.

About Stewardship Cents

 

Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it. Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have. Stewardship is a belief of responsible overseeing and protecting of important resources. Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981. A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses. He resides in Columbus, OH with his high school sweetheart, Beth and their three children. Luke is an active member of his church, serving in leadership and finances.

Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter. You can always reach him with comments or questions at: luke.fields@raymondjames.com.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC
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