12/10/2018 2018 Tax Law Changes - Pro-active Year End Tax Planning Pavel Verbsky, CPA RLR, LLP 1235 Riverside Ave Evans, CO Cheyenne, WY Fort Collins, CO 970-304-9420 307-631-5598 970-692-5300 www.rlrcpas.com 1 Pavel Verbsky, CPA RLR, LLP Pavel Verbsky, CPA is a Full service CPA firm: partner at RLR, LLP. Tax preparation, tax • planning, IRS Pavel Verbsky was born in the representation Czech Republic. After graduating from the University of Small business accounting • Economics in Prague, he has worked in public accounting Quickbooks consulting • since 2003. In 2005, he joined RLR, LLP in Fort Collins. Payroll • New business formation • He enjoys working with small business owners and primarily Audits – Reviews - • focuses on tax return Compilations preparation, tax planning and general accounting consulting. 1
12/10/2018 Why tax planning? Understand where you are • Avoid costly tax mistakes • Take advantage of tax • deductions and tax credits Optimize taxes paid over • time Plan for future income & • taxes 3 Tax planning tools Avoid tax completely • Shift taxable income to a • different tax year Take advantage of low tax • brackets Optimize income to obtain • or retain tax or other benefits 4 2
12/10/2018 Many changes! • Generally effective after 12/31/17 • Most changes are temporary - Sunset after 2025 • Some guidance is out, but more needed • Future legislation? • State conformity to changes? 5 The basics • Still seven tax brackets – 10%, 12%, 22%, 24%, 32%, 35%, 37% • No more dependent exemption • Higher child tax credit ($2,000) – New $500 non-child dependent credit • Increase in standard deduction • Individual AMT not repealed – But exemption amounts have increased 6 3
12/10/2018 2017 Tax Brackets 2018 Tax Brackets Rate Single Married Rate Single Married 10% $0 - $9,325 $0 - $18,650 10% $0 - $9,525 $0 - $19,050 15% $9,326 - $37,950 $18,651 - $75,900 12% $9,526 - $38,700 $19,051 - $77,400 25% $37,951 - $91,900 $75,901 - $153,100 22% $38,701 - $82,500 $77,401 - $165,000 28% $91,901 - $191,650 $153,101 - $233,350 24% $82,501 - $157,500 $165,001 - $315,000 32% $157,501 - $200,000 $315,501 - $400,000 33% $191,651 - $416,700 $233,351 - $416,700 35% $416,701 - $418,400 $416,701 - $470,700 35% $200,001 - $500,000 $400,001 - $600,000 39.6% Over $418,400 Over $470,700 37% Over $500,000 Over $600,000 Standard Deduction Amounts Personal Single Married HOH exemptions 2017 $6,350 $12,700 $9,350 $4,050 = GONE 2018 $12,000 $24,000 $18,000 7 Dividend and capital gains rates unchanged • The top tax bracket for qualified dividends and capital gains is 20% (23.8% if the net investment income tax applies). 15% for MFJ taxpayers Here’s the breakdown: 0% for MFJ taxpayers with between $77.2k and $479k taxable with < $77.2k taxable income income 20% for MFJ taxpayers with taxable income greater than $479k 8 4
12/10/2018 Dividend and capital gains – tax strategies Tax strategies: • Harvesting capital losses to offset other capital gains • Trigger capital gains in low income year to “step up” basis • Installment sales to stretch income into multiple years • Like Kind Exchanges to defer income • Inheritance basis step up 9 Tax strategies: Itemized deductions changes • HSAs, FSAs • Deducting health insurance for business • Repeal of the overall limitation on itemized deductions owner (SEHI) • Medical deduction threshold is 7.5% for 2017 & 2018 • HELOC/home mortgage as – Reverts to 10% starting in 2019 investment or rental interest, interest to • Mortgage interest limited to $750k of debt purchase stock in small – Debt prior to 12/15/17 is grandfathered business – interest tracing rules • Home equity interest no longer deductible • ‘Bunch’ charitable • State and local tax deduction is limited to $10k ($5k if MFS) donations or larger one time donations to donor • Misc. deductions subject to 2% threshold no longer deductible advised funds • Charitable IRA rollover (age 70 ½) 10 5
12/10/2018 Misc. itemized deductions subject to 2% AGI Tax strategies: • EBE – get reimbursed • Unreimbursed employee expenses from the business • Tax prep fees – • Tax prep fees allocate to rental or • Hobby expenses business activity • Investment fees/expenses • Hobby vs business? Hobby income vs • Legal fees related to producing income expense reimbursement? • Safe deposit fee • Pay IRA fees from within regular IRA accounts … are no longer deductible • Attorney fees – what are they for? 11 20% pass-through deduction • 20% of qualified business income • Qualified business income definitions – Qualified trade/business income – from sole proprietorship, partnership, or S-corporation • Not a specified trade/business (architectural and engineering, manufacturing, construction, retail, wholesale, restaurant, etc.) • Specified trade/business involving performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, “celebrities” flowchart 12 6
12/10/2018 20% pass-through deduction Tax strategies: • Does not include capital gains, interest, dividends, • Controlling wages, guaranteed payments, retirement income, rental trade/business income income • Controlling overall taxable income • Phase-out limitations • Adjusting wages for S- – Taxable income exceeding Corporation owners > single: $157,500 to $207,500 > married filing joint: $315,000 to $415,000 • Multiple businesses • Limitations based on – taxable income (for specified service business) – 50% of wages – 25% wages plus 2.5% of adjusted basis in qualified property (certain depreciable assets) 13 Affordable Care Act impact • Penalty to maintain insurance coverage (individual mandate) is repealed for 2019 and forward • HOWEVER, still in effect for 2017 and 2018 • 2018 penalty: • Higher of 2.5% of yearly household income, or • $695 per person ($347.50 per child under 18) 14 7
12/10/2018 Estate and gift taxes changes • 2018 estate tax exemption: $11.2 million • 2018 gift tax annual exclusion: $15,000 • Estate planning is more than minimizing estate taxes. – Updating documents – Repurposing insurance – Privacy – Asset protection 15 Education tax benefit changes • Sec 529 plan distributions for private school tuition • Sec 529 plan assets can transfer to ABLE accounts for family members • Student loan forgiveness will not be taxable income to student upon death/total disability 16 8
12/10/2018 State and local tax issues • Total deduction limit of $10k ($5k if MFS) - Combination of income/sales and state/local property taxes • Exceptions - Tax imposed at entity level - Property taxes for residential rental property/business property 17 Other individual changes to note • Casualty losses: only from federally-declared disasters • Alimony: deduction/inclusion repealed for divorces executed after 12/31/18 • Moving expenses deduction repealed • Kiddie tax now at trusts/estate tax rates 18 9
12/10/2018 Questions 19 Corporate rate changes • Flat rate of 21% (C-corporation) • Effective for years beginning after 12/31/17 • Fiscal year corporations should apply Sec. 15 • Personal service corporations taxed at same rate (no more surtax) • Corporate AMT has been repealed • Dividends received deduction reduced 20 10
12/10/2018 Depreciation • Additional first year/bonus depreciation- • Increases to Sec. 179 ($1M and 100% for property acquired after 9/27/17 threshold $2.5M) • Phase down schedule for years after • SUV Sec 179 limitation remains at 2022 $25,000 • Now allowed for new and used property • Limits are indexed for inflation • Qualified improvement property – new • Sec 179 now allowed for certain non- definition and recovery life residential real property (roofs, HVAC) • Passenger auto depreciation limits • Allows residential rental property increased 21 Net operating loss provisions • No longer allowed to carryback NOLs • Carried forward indefinitely • 80% of taxable income may be reduced by NOL 22 11
12/10/2018 Accounting methods for small taxpayers • Expanded availability of cash method ($25M) • Inventory tracking requirements • Sec. 263A threshold raised • Expanded availability of completed contract method 23 Changes to fringe benefits/entertainment expense • Repeal of business entertainment expenses • Repeal of deduction for qualified transportation fringe benefits • Repeal of exclusion for bicycle commuting reimbursement • Repeal of exclusion for employee reimbursed moving expenses • Other changes to employee fringe benefits 24 12
12/10/2018 Other changes to note • Changes for Sec. 1031 (Like Kind) exchanges • New credit for paid family and medical leave • Expenses for employer operating eating facilities is now 50% (rather than fully deductible) • Lobbying costs no longer deductible 25 Questions 26 13
12/10/2018 Thank you Thank you RLR, LLP 1235 Riverside Ave Greeley, CO Cheyenne, WY Fort Collins, CO 970-304-9420 307-631-5598 970-692-5300 www.rlrcpas.com 14
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