Congress let many tax provisions expire on December 31, 2017, making them dead for your already-filed 2018 tax returns.
In what has become a much too common practice, Congress resurrected the dead provisions retroactively to January 1, 2018. That’s good news. The bad news is that if you have any of these deductions, we have to amend your tax returns to make this work for you.
And you can relax when filing your 2019 and 2020 tax returns because lawmakers extended the “extender” tax laws for both years. Thus, no worries until 2021—and even longer for a few extenders that received special treatment.
Back from the Dead
The big five tax breaks that most likely impact your Form 1040 are as follows:
Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
Deduction for mortgage insurance premiums as residence interest
7.5 percent floor to deduct medical expenses (instead of 10 percent)
Above-the-line tuition and fees deduction
Non-business energy property credit for energy-efficient improvements to your residence
Congress extended these five tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020, so you’re good for both 2019 and 2020.
Other Provisions Revived
Congress also extended the following tax breaks retroactively to January 1, 2018, and they now expire on December 31, 2020 (unless otherwise noted):
Certain racehorses as three-year depreciable property
Seven-year recovery period for motorsports entertainment complexes
Accelerated depreciation for business property on Indian reservations
Expensing rules for certain film, television, and theater productions
Empowerment zone tax incentives
American Samoa economic development credit
Biodiesel and renewable diesel credit (December 31, 2022)
Second-generation biofuel producer credit
Qualified fuel-cell motor vehicles
Alternative fuel-refueling property credit
Two-wheeled plug-in electric vehicle credit (December 31, 2021)
Credit for electricity produced from specific renewable resources
Production credit for Indian coal facilities
Energy-efficient homes credit
Special depreciation allowance for second-generation biofuel plant property
Energy-efficient commercial buildings deduction
Temporary Provisions Extended
Congress originally scheduled these provisions to end in 2019 and has now extended them through 2020:
New markets tax credit
Paid family and medical leave credit
Work opportunity credit
Beer, wine, and distilled spirits reductions in certain excise taxes
Look-through rule for certain controlled foreign corporations
Health insurance coverage credit
Eight Changes in the SECURE Act You Need to Know
As has become usual practice, Congress passed some meaningful tax legislation as it recessed for the holidays. In one of the new meaningful laws, enacted on December 20, you will find the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).
The SECURE Act made many changes to how you save money for your retirement, how you use your money in retirement, and how you can better use your Section 529 plans. Whether you are age 35 or age 75, these changes affect you.
If your business has a 401(k) plan or a SIMPLE (Savings Incentive Match Plan for Employees) plan that covers 100 or fewer employees and it implements an automatic contribution arrangement for employees, either you or it qualifies for a $500 tax credit each year for three years, beginning with the first year of such automatic contribution.
This change is effective for tax years beginning after December 31, 2019.
Tax tip. This credit can apply to both newly created and existing retirement plans.
2. IRA Contributions for Graduate and Postdoctoral Students
Before the SECURE Act, certain taxable stipends and non-tuition fellowship payments received by graduate and postdoctoral students were included in taxable income but not treated as compensation for IRA purposes. Thus, the monies received did not count as compensation that would enable IRA contributions.
The SECURE Act removed the “compensation” obstacle. The new law states: “The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.”
The change enables these students to begin saving for retirement and accumulating tax-favored retirement savings, if they have any funds available (remember, these are students). This change applies to tax years beginning after December 31, 2019.
Tax tip. If your child pays no income tax or pays tax at the 10 or 12 percent rate, consider contributing to a Roth IRA instead of a traditional IRA.
3. No Age Limit on Traditional IRA Contributions
Prior law stopped you from contributing funds to a traditional IRA if you were age 70 1/2 or older. Now you can make a traditional IRA contribution at any age, just as you could and still can with a Roth IRA.
This change applies to contributions made for tax years beginning after December 31, 2019.
4. No 10 Percent Penalty for Birth/Adoption Withdrawals
You pay no 10 percent early withdrawal penalty on IRA or qualified retirement plan distributions if the distribution is a “qualified birth or adoption distribution.” The maximum penalty-free distribution is $5,000 per individual per birth or adoption. For this purpose, a qualified plan does not include a defined benefit plan.
This change applies to distributions made after December 31, 2019.
Tax tip. A birth or adoption in 2019 can signal the start of the one year, allowing qualified birth and adoption distributions as soon as January 1, 2020.
5. RMDs Start at Age 72
Before the SECURE Act, you generally had to start taking required minimum distributions (RMDs) from your traditional IRA or qualified retirement plan in the tax year you turned age 70 1/2. Now you can wait until the tax year you turn age 72.
This change applies to RMDs after December 31, 2019, if you turn age 70 1/2 after December 31, 2019.
6. Open a Retirement Plan Later
Under the SECURE Act, if you adopt a stock bonus, pension, profit-sharing, or annuity plan after the close of a tax year but before your tax return due date plus extensions, you can elect to treat the plan as if you adopted it on the last day of the tax year.
Under prior law, you had to establish the plan before the end of the tax year to make contributions for that tax year. This change applies to plans adopted for tax years beginning after December 31, 2019.
How it works. You can establish and fund, for example, an individual 401(k) for a Schedule C business as late as October 15, 2021, and have the 401(k) in place for 2020.
7. Expanded Tax-Free Section 529 Plan Distributions
Distributions from your child’s Section 529 college savings plan are non-taxable if the amounts distributed are
investments into the plan (your basis), or
used for qualified higher education expenses.
Qualified higher-education expenses now include
fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act, and
principal or interest payments on any qualified education loan of the designated beneficiary or his or her siblings.
If you rely on the student loan provision to make tax-free Section 529 plan distributions,
there is a $10,000 maximum per individual loan holder, and
the loan holder reduces his or her student loan interest deduction by the distributions, but not below $0.
This change applies to distributions made after December 31, 2018 (not a typo—see below).
Tax tip. Did you notice the 2018 above? Good news. You can use the new qualified expense categories to identify tax-free Section 529 distributions that are retroactive to 2019.
8. RMDs on Inherited Accounts
Under the old rules for inherited retirement accounts, you could “stretch” out the account and take RMDs each year to deplete the account over many years.
Now, if you inherit a defined contribution plan or an IRA, you must fully distribute the balances of these plans by the end of the 10th calendar year following the year of death. There is no longer a requirement to take out a certain amount each year.
The current stretch rules, and not the new 10-year period, continue to apply to a designated beneficiary who is
a surviving spouse,
a child who has not reached the age of majority,
disabled as defined in Code Section 72(m)(7),
a chronically ill individual as defined in Code Section 7702B(e)(2) with modification, or
not more than 10 years younger than the deceased.
This change applies to distributions for plan owners who die after December 31, 2019.
Kiddie Tax Changes
In December 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA) and changed how your children calculate their tax on their investment-type income. The TCJA changes led to much higher tax bills for many children.
On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire.
Kiddie Tax Basics
When your children are subject to the kiddie tax, it forces them to pay taxes at a higher rate than the rate they would usually pay.
Here’s the key: the kiddie tax does not apply to all of a child’s income, only to his or her “unearned” income, which means income from
S corporation distributions, and
any type of income other than compensation for work.
For 2019, your child pays the kiddie tax only on unearned income above $2,100. For example, if your child has $3,000 of unearned income, only $900 is subject to the extra taxes.
Who Pays the Kiddie Tax?
The kiddie tax applies to children with more than $2,100 of unearned income when the children
have to file a tax return,
do not file a joint tax return,
have at least one living parent at the end of the year,
are under age 18 at the end of the year,
are age 18 at the end of the year and did not have earned income that was more than half of their support, or
are full-time students over age 18 and under age 24 at the end of the year who did not have earned income that was more than half of their support.
Calculating the Kiddie Tax
Under the TCJA, now valid only for tax years 2018 and 2019, any income subject to the kiddie tax is taxed at estate and trust tax rates, which reach a monstrous 37 percent with only $12,070 of income in tax year 2019.
Under the old rules before the TCJA, your child paid tax at your tax rate on income subject to the kiddie tax.
Kiddie Tax Choices
The SECURE Act, which the president signed into law on December 20, 2019, repeals the TCJA kiddie tax rules for tax years 2020 and forward and returns the tax calculation to the pre-TCJA calculation that uses your tax rate.
The new law also gives you the option to calculate the kiddie tax using your tax rate for tax years 2018, 2019, or both—it is your choice.
Solo 401(k) Could Be Your Best Retirement Plan Option
Have you procrastinated about setting up a tax-advantaged retirement plan for your small business? If the answer is yes, you are not alone.
Still, this is not a good situation. You are paying income taxes that could easily be avoided. So consider setting up a plan to position yourself for future tax savings.
For owners of profitable one-person business operations, a relatively new retirement plan alternative is the solo 401(k). The main solo 401(k) advantage is potentially much larger annual deductible contributions to the owner’s account—that is, your account. Good!
Solo 401(k) Account Contributions
With a solo 401(k), annual deductible contributions to the business owner’s account can be composed of two different parts.
First Part: Elective Deferral Contributions
For 2020, you can contribute to your solo 401(k) account up to $19,500 of
your corporate salary if you are employed by your own C or S corporation, or
your net self-employment income if you operate as a sole proprietor or as a single-member LLC that’s treated as a sole proprietorship for tax purposes.
The contribution limit is $26,000 if you will be age 50 or older as of December 31, 2020. The $26,000 figure includes an extra $6,500 catch-up contribution allowed for older 401(k) plan participants.
This first part, called an “elective deferral contribution,” is made by you as the covered employee or business owner.
With a corporate solo 401(k), your elective deferral contribution is funded with salary reduction amounts withheld from your company paychecks and contributed to your account.
With a solo 401(k) set up for a sole proprietorship or a single-member LLC, you simply pay the elective deferral contribution amount into your account.
Second Part: Employer Contributions
On top of your elective deferral contribution, the solo 401(k) arrangement permits an additional contribution of up to 25 percent of your corporate salary or 20 percent of your net self-employment income.
This additional pay-in is called an “employer contribution.” For purposes of calculating the employer contribution, your compensation or net self-employment income is not reduced by your elective deferral contribution.
With a corporate plan, your corporation makes the employer contribution on your behalf.
With a plan set up for a sole proprietorship or a single-member LLC, you are effectively treated as your own employer. Therefore, you make the employer contribution on your own behalf.
Combined Contribution Limits
For 2020, the combined elective deferral and employer contributions cannot exceed
$57,000 (or $63,500 if you will be age 50 or older as of December 31, 2020), or
100 percent of your corporate salary or net self-employment income.
For purposes of the second limitation, net self-employment income equals the net profit shown on Schedule C, E, or F for the business in question minus the deduction for 50 percent of self-employment tax attributable to that business.
Key point. Traditional defined contribution arrangements, such as SEPs (simplified employee pensions), Keogh plans, and profit-sharing plans, are subject to a $57,000 contribution cap for 2020, regardless of your age.
Example 1: Corporate Solo 401(k) Plan
Lisa, age 40, is the only employee of her corporation (it makes no difference if the corporation is a C or an S corporation).
In 2020, the corporation pays Lisa an $80,000 salary. The maximum deductible contribution to a solo 401(k) plan set up for Lisa’s benefit is $39,500. That amount is composed of
Lisa’s $19,500 elective deferral contribution, which reduces her taxable salary to $60,500, plus
a $20,000 employer contribution made by the corporation (25 percent x $80,000 salary), which has no effect on her taxable salary.
The $39,500 amount is well above the $20,000 contribution maximum that would apply with a traditional corporate defined contribution plan (25 percent x $80,000). The $19,500 difference is due to the solo 401(k) elective deferral contribution privilege.
Variation. Now assume Lisa will be age 50 or older as of December 31, 2020. In this variation, the maximum contribution to Lisa’s solo 401(k) account is $46,000, which consists of
a $26,000 elective deferral contribution (including the $6,500 extra catch-up contribution), plus
a $20,000 employer contribution (25 percent x $80,000).
That’s much more than the $20,000 contribution maximum that would apply with a traditional corporate defined contribution plan (25 percent x $80,000). The $26,000 difference is due to the solo 401(k) elective deferral contribution privilege.
Example 2: Self-Employed Solo 401(k) Plan
Larry, age 40, operates his cable installation, maintenance, and repair business as a sole proprietorship (or as a single-member LLC treated as a sole proprietorship for tax purposes).
In 2020, Larry has net self-employment income of $80,000 (after subtracting 50 percent of his self-employment tax bill). The maximum deductible contribution to a solo 401(k) plan set up for Larry’s benefit is $35,500. That amount is composed of
a $19,500 elective deferral contribution, plus
a $16,000 employer contribution (20 percent x $80,000 of self-employment income).
The $35,500 amount is well above the $16,000 contribution maximum that would apply with a traditional self-employed plan set up for Larry’s benefit (20 percent x $80,000). The $19,500 difference is due to the solo 401(k) elective deferral contribution privilege.
Variation. Now assume Larry will be age 50 or older as of December 31, 2020.
In this variation, the maximum contribution to Larry’s solo 401(k) account is $42,000, which consists of
a $26,000 elective deferral contribution (including the $6,500 extra catch-up contribution), plus
a $16,000 employer contribution (20 percent x $80,000).
That’s much more than the $16,000 contribution maximum that would apply with a traditional self-employed defined contribution plan (20 percent x $80,000). The $26,000 difference is due to the solo 401(k) elective deferral contribution privilege.
As you can see, in the right circumstances, the 401(k) can make for a great retirement plan.
In the early morning of December 2, the Senate passed by a 51-49 vote their version of the Tax Cuts and Jobs Act. Sen. Susan Collins (R-ME) agreed to a yes vote when several amendments she offered were incorporated into the bill, including the restoration of a $10,000 deduction for property taxes and a lower threshold for deducting medical expenses.
Previous Republican holdouts — Senators Jeff Flake (R-AZ), Steve Daines (R-MJT) and Ron Johnson (R-WI) threw their support behind the bill once they were assured their concerns were addressed – including increasing the deduction for pass-through entities from 17.4 to 23 percent and a gradual phase-out of §179 expensing. Also included was the return of the alternative minimum tax provisions for individuals and corporations. Thresholds would be increased and adjusted for inflation.
The Senate bill includes the repeal of the individual mandate clause of the Affordable Care Act, which requires most to have health insurance or pay a penalty. If the Senate's proposal remains in the final version, then beginning in 2019, there would be no penalty if taxpayers go without coverage. The penalty would remain for 2018.
The House and Senate are expected to work out the differences between the two proposals over the next weeks in joint committee. Several key differences remain. Once an agreement is reached between both chambers of Congress, the bill will go to the president for signature.
Sometimes other Professional's Articles are written so well, I feel like sharing them. This is from http://www.bakertilly.com
Paying your child for services performed in your family business can reduce your overall family tax bill, while shifting assets to your child without gift tax implications. As a business owner, you can take a deduction for the wages paid to your child, while your child can utilize his or her standard deduction (up to $6,300 in 2016) to offset those wages making them income tax-free (and possibly payroll tax-free). Additionally, the deduction might lower your adjusted gross income, which might favorably impact other deductions and credits that get phased out due to high adjusted gross income.
For example, a business owner in the 35 percent tax bracket hires their 14-year-old son to work in the office on weekends to help with filing, shredding, cleaning, etc. The child earns $6,300 in wages throughout the year and has no other earnings/income. Ideally, the child should receive a Form W-2 for the work performed. Since the full amount of the wages will be deductible as compensation paid by the business, the tax savings to the business owner is $2,205 ($6,300 x 35 percent), and the income tax to the child is $0, since all of these wages are offset by the child’s standard deduction. In addition, if the business income is subject to self-employment tax, there would be additional tax savings by way of reduced self-employment income.
Even if the wages exceed the standard deduction, the child is allowed to make an IRA contribution up to $5,500 in 2016 which, as an “above the line” deduction, could substantially reduce the child's taxable income. If the maximum traditional IRA contribution is made, the first $11,800 of the child's taxable wages will result no income tax liability ($6,300 standard deduction + $5,500 IRA deduction). And again assuming the parents’ 35 percent income tax bracket, the child's wages would produce an income tax savings of $4,130 to them.
If wages are paid to the child in excess of the $6,300 standard deduction, and a Roth IRA contribution is desired as opposed to a traditional IRA, any income in excess of the standard deduction will be taxed at the child’s tax rate. The lowest tax bracket of 10 percent applies to taxable income up to $9,275 for 2016. Assuming a traditional IRA contribution is not made, the child could earn up to $15,575 ($15,575 - $6,300 standard deduction = $9,275 10 percent bracket limit) before being pushed into the next tax bracket, assuming he or she earns no other income. Please talk to your financial advisor before deciding on whether a traditional IRA or Roth IRA is right for you.
In addition to the income tax savings, you may be able to save on payroll taxes if your business is unincorporated. If you operate as a sole proprietor or a husband-wife partnership without other partners, services provided by your child under the age of 18 would not be considered employment for FICA purposes; therefore, you would not be required to pay FICA and FUTA taxes on the child’s wages. Additionally, FUTA is not imposed in this situation if your child is under age 21. If your business is a corporation (or a partnership that contains non-parent partners), FICA and FUTA taxes are still required to be paid on your child’s wages (note, the reduction in income tax is still achieved). However, there is no extra cost to the business owner, as these taxes would be required to be paid if you would have hired someone for similar work anyway.
As a future planning concern in arranging for contributions made to an IRA established for a minor, it is important to keep in mind that once the child reaches the age of majority, he or she will be free to take funds from the IRA as he or she pleases, and can even close the IRA out. With a distribution from a traditional IRA, there will be taxable income to deal with and, most likely a 10 percent additional tax on the amount of the distribution on account of a premature distribution from the IRA. And, if the conditions applicable to a Roth IRA, including the holding requirements, are not met, penalties, in addition to tax on the investment earnings could apply, as well as that 10 percent additional tax on the amount of the distribution. Therefore, in establishing an IRA for a minor, it’s often best going into this strategy with the intention that the child is to maintain his or her IRA intact for a long, long time or that the IRA is to be used for a specific funding purpose.
One example of a specific funding purpose involves taking distributions from a traditional or Roth IRA for “adjusted qualified higher education expenses” (AQEE). In such a case, regular income taxes will be due on distributions from a traditional IRA but usually not from a Roth IRA. As to the application of the 10 percent additional premature distribution tax on account of AQEE, if the taxable part of the distribution is less than or equal to the AQEE, none of the distribution from the traditional or Roth IRA would be subject to the additional 10 percent tax; if the taxable part of the distribution is more than the AQEE, only the excess would be subject to the additional 10 percent tax. For purposes of this rule, AQEE include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Also included are expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. In addition, if the student is at least a half-time student, room and board would also be considered as AQEE.
In summary, there are good reasons to consider sheltering a portion of the child’s income in a traditional IRA or making after-tax contributions to a Roth IRA during the child’s minority period when presumably the exemption and the child’s income tax bracket are most favorable. In doing so, the parents/business owners will also want to consider the future strategy of the IRA as a basis for deciding whether to go with a traditional or Roth IRA, and that strategy should be communicated to the child. As a starting point, the strategy should involve steering clear of the application of the 10 percent additional income tax and maximizing any additional tax preference which would apply to a future distribution from the IRA.
Doing it the right way
When hiring your children, you need to be careful to treat them similarly to any other employee. This might include items such as:
Keeping detailed employment records, including timely tracking of weekly hours and wages that correspond to services provided
Issuing paychecks as you would a normal employee (e.g., bi-weekly)
Documenting that the services are legitimate and considered ordinary and necessary for the business
Ensuring the services provided do not include typical household chores
If your child is not treated like any other employee in a similar position, the IRS could potentially deem their wages as not ordinary and necessary, and disallow them as a deductible expense. In Patricia D. Ross v. Commissioner, TC Summary Opinion 2014-68, the IRS did exactly that.
Mrs. Ross operated several businesses, and hired her three children to perform services. The work performed by the children was mostly legitimate work and timesheets were prepared. Mrs. Ross filed the appropriate employment tax returns and the children’s income tax returns where required. While the above items were a good start, Mrs. Ross did not generally pay her children on a regular basis, but rather she often made payments to third parties for expenditures that her children “directed her to make” (most of which were meals at restaurants). Also, amounts "paid" to the children had no correlation to the amount of hours actually worked and there was no consistent wage rate (hourly rates ranged from $4-$30 per hour depending on the child and year). Based on all the facts and circumstances, the IRS determined that the arrangement between Mrs. Ross and her children was too dissimilar between that of a normal employer/employee relationship, and that all of the wages claimed as an expense were disallowed.
In no way should this case discourage a business owner from hiring their children and deducting the child's wages as an ordinary and necessary business expense. Rather, it should serve as a reminder on how to do it correctly. From an overall family tax standpoint, hiring your children is an effective tool in reducing taxes, but business owners should be mindful to treat them as they would other employees.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
Why do our clients establish S corporations? Is it the flow through taxation or limited liability? Is it the decent (but not great) fringe benefit write-offs or the ability to avoid all surtaxes for active owners? Is it the savings on Social Security tax on distributions or the single level of income tax? Its usually all of the above.
All of this may change if the House version of the 2017 Tax Bill is passed. Interestingly no one is talking about the potential end of “S” corporations. Why may they end after this year?
A hard to decipher provision on pages 49-52 of the House bill requires active owners of “S” corporations to allocate 70% of their flow-through income to ordinary tax rates, and subjects that amount to self-employment tax. You think that isn’t enough to end “S” corporations? Try this on for size: “S” corporations that are personal service type businesses in the fields of healthcare, engineering, architecture, law, accounting, consulting, performing arts or actuaries will pay SE tax on 100% of flow-through income!
If you are thinking that an LLC may be the best tax choice now, think again! The House bill also removes the limited partner exemption from self-employment tax!
We are watching these developments closely and will keep our readers informed. If the law is passed with this provision we will provide additional information to our clients to ensure they have the best entity choice.
This morning, the U.S. House of Representatives' Committee on Ways and Means introduced the Tax Cuts and Jobs Act of 2017. There will certainly be many negotiations over the provisions in the bill, and we expect changes along the way.
Here are some of the highlights that would be effective beginning January 1, 2018:
Consolidate the seven current individual tax brackets into four at 12%, 25%, 35%, and 39.6%, using the following tax brackets:
Proposed Tax Rates
* A summary of the bill provisions lists the threshold for this bracket at $230,000, but the current text of the bill would leave this bracket at $200,000. At this point, it is unclear which amount is the correct proposed amount.
Increase the standard deduction:
Joint filers: $24,000
Single filers with at least one qualifying child: $18,000
Single filers (and surviving spouse): $12,000
Increase the child tax credit to $1,600, and add a nonrefundable credit of $300 for non-child dependents and a new nonrefundable $300 personal credit;
Eliminate itemized deductions other than mortgage interest deductions, charitable contribution deductions, and property tax deductions of up to $10,000. All other state and local tax deductions are eliminated;
For new home purchases, mortgage interest deductions would be limited to interest on $500,000;
Eliminate the AMT for individuals and corporations;
Lower the corporate tax rate to 20%, and create a 35% maximum rate on passthrough business income; and
Increase the estate tax exemption to $10 million, and repeal the estate tax after six years.
U.S. HOUSE TAX CHIEF SAYS STATE INCOME TAX DEDUCTION WILL NOT REMAIN
By David Morgan and Jonathan Oatis
WASHINGTON (Reuters) - Republican tax legislation due to be released this week in the U.S. House of Representatives will not include a deduction for state and local income taxes, the top House Republican on tax policy said on Tuesday.
House Ways and Means Committee Chairman Kevin Brady said in a radio interview with commentator Hugh Hewitt that the emerging bill will offer relief only on property taxes. Brady spoke as House Republican leaders sought to broker an agreement with Republican lawmakers who want the state and local income tax deduction to remain.
Asked if there would be relief on the income side of state and local taxes, Brady replied: "The answer is 'no.' ... Our lawmakers in those high-tax states really believe their families are being punished most by property taxes".
Client Question 1
How many years of my life is my benefit based upon? The answer is that your personal social security benefit is based upon your highest 35 years of earned income. So, for people playing the S corporation low wage game, or wiping out income every year with bonus depreciation, or whatever, they will see a tremendously reduced monthly check at retirement.
Client Question 2
What is the average benefit I can expect? Social Security tells us the average benefit in America in 2017 for a single person is about $1,360 monthly. Do you know what it took to get this benefit? Thirty-five years of an average annual inflation-adjusted income of $25,000.
Client Question 3
What is the earliest age I can draw my benefit? Nearly everyone knows the generic answer to this, which is age 62 but there are other circumstances where you can draw earlier.
Client Question 4
Shouldn’t I draw at age 62 and invest my money like my financial advisor suggests? Let’s see, the Social Security benefit increases by 8% every year you wait to draw after full retirement age. That increase is tax-free and that increase is risk-free. In your 60’s you cannot afford to take any risk, and an investment advisor suggesting this approach will need to earn 12% just to offset the tax difference, plus another 3-4% to offset the additional risk, meaning the investment advisor needs to earn 15% annually just to match the Social Security risk-free, tax-free increase. Since 1871 the S&P 500 has earned a little less than 6% annually. In my mind, taking the chance of obtaining a 15% return for a high-risk investment at retirement age is one of the single worst financial decisions that can ever be made.
Client Question 5
The biggest question of all is “When should I draw my own benefit?” That’s actually simple Madam client-just tell me what day you will die! This sarcastic answer is an answer to illustrate that there is no “one answer fits everyone”. There are three factors involved in the decision: first, what kind of average life expectancy do we have in America and in your ancestry?; second, what kind of personal health issues do you have that will affect your life expectancy?; and third, what kind of financial situation are you in and who will be drawing on this account besides you?
With the prospect of new lower individual tax rates on the horizon for 2018, the average taxpayer or business owner should generally accelerate deductions to 2017 and delay income until 2018. Often overlooked in the planning arena are the low capital gains rates experienced by many Americans.
2017 Capital Gain Rates (01/2013 Tax Act)
If net capital gain is from:
Then maximum capital gains rate is:
Gain on Qualified Small Business Stock Equal to the Section 1202 Exclusion
Un-recaptured Section 1250 Gain
Rate when taxpayer is in 39.6% personal bracket
Other gain & qualified dividends when the regular tax rate is higher than 15%
Other gain & qualified dividends when the regular tax rate is 15% or lower (Single <$37,650, MFJ <$75,300 taxable after exemptions)
When an individual is in the 15% or lower individual tax bracket in 2017, their capital gains rate is 0%, and if the capital gain is what causes their ordinary income tax bracket to go higher than 15%, only the excess capital gains are taxed at 15%.
With all of that in mind, in layman’s terms if an individual’s taxable income is less than the amounts below based on their filing status, their capital gains rate for 2017 is 0%.
Capital Gains Planning-2017 Amounts
Head of Household (+1 child)
Income at the top of the 15% bracket
Standard Deduction based on filing status
Personal exemptions based on filing status no children
Maximum taxable income (without itemizing) for 0% capital gains rate
Client Worksheet for Capital Gains Planning
Client Name: Filing Status: 2017
Filing status bracket limit
Filing status standard deduction
Additional Itemized deductions
# personal exemptions times $4,000
Maximum 0% capital gains taxable income limit
Less estimated taxable income
Equals amount of capital gains to recognize this year
Did you go green? You may get some back if you bought any of these:
Credit amounts for qualified vehicles. Following is a list of the credit amounts for qualified vehicles that are autos and are manufactured by well-known companies, using the latest data published by IRS (model years are in parentheses):
Audi A3 e-tron (2016-2017), $4,502
Audi A3 e-tron ultra (2016), $4,502
BMW i3 Sedan with Ranger Extender (2014-2017), $7,500
BMW i3 Sedan (2014-2017), $7,500
BMW i8 (2014-2017), $3,793
BMW X5 xDrive40e (2016-2018), $4,668
BMW 330e (2016-2018), $4,001
BMW i3 (60Ah) Sedan (2017), $7,500
BMW 740e (2017), $4,668
BMW 530e (2018), $4,668
BMW 530e xDrive (2018), $4,668
BMW 740e xDrive (2018), $4,668
MINI Cooper S E Countryman ALL4 (2018), $4,001
FCA North American Holdings, Fiat 500e (2013-2017), $7,500
Chrysler Pacifica PHEV (2017), $7,500
Ford Focus Electric (2012-2017), $7,500
Ford C-MAX Energi (2013-2017), $4,007
Ford Fusion Energi (2013-2018), $4,007
General Motors Cadillac ELR (2014, 2016), $7,500
General Motors Cadillac CT6 PHEV (2017), $7,500
General Motors Chevrolet Volt (2011-2018), $7,500
General Motors Chevrolet Spark EV (2014-2016), $7,500
General Motors Chevrolet Bolt (2017), $7,500
Kia Soul Electric (2015-2017), $7,500
Kia Optima PHEV (2017), $4,919
Mercedes-Benz smart Coupe/Cabrio EV (2013-2016), $7,500