One of the biggest surprises in the new tax is that of Alimony:
- Effective 2019 Alimony is no longer deductible by the payer spouse and includible in income by the recipient spouse. This rule only applies for divorce or separation instruments executed on or before December 3, 2018 but modified after that date to include these new provisions.
Bicycle Commuting Reimbursement
- The exclusion from gross income and wages for qualified bicycle commuting reimbursements up to $20 is suspended.
Wagering Losses
- The meaning of losses from wagering transactions is clarified to include other expenses incurred by the individual in connection with the conduct of that individual’s gambling activity such as travel expenses to or from a casino.
- The penalty for failing to maintain minimum essential coverage for individuals (individual mandate) is repealed beginning in 2019.
IRA Re-characterizations
- The special rule allowing a contribution to one type of IRA to be re characterized as a contribution to the other type of IRA no longer applies to a conversion contribution to a Roth IRA.
- Thus, re characterization cannot be used to unwind a Roth conversion. However, re characterization is still permitted with respect to other contributions. For example, an individual may make a contribution for a year to a Roth IRA and, before the due date for the individual’s income tax return for that year, re characterize it as a contribution to a traditional IRA.
- In addition, an individual may still make a contribution to a traditional IRA and convert the traditional IRA to Roth IRA.
Sexual Harassment or Sexual Abuse Settlements
- Effective December 23, 2017, this new law adds the following to the list of non-deductible expenses:
- No deduction is allowed for any settlement payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement.
Tax Rate Schedule for C Corporations (Form 1120)
- Effective 2018, for tax years beginning after 2017, all taxable income of a C Corporation is taxed at a flat rate of 21%. There is no longer a separate tax rate for personal service corporations. There is no longer a separate maximum tax rate on net long-term capital gains.
- The 70% dividends received deductions is reduced to 50%. The 80% dividends received deduction is reduced to 65%.
- Special rules apply to the normalization method of accounting for regulated public utilities.
Bonus Depreciation
- The prior law phase-down of bonus depreciation still applies for property acquired before September 28, 2017 but placed in service after September 28, 2017. The new law increases the bonus depreciation to 100% for property acquired (and placed in service) after September 27, 2017, with a new phase-down schedule for years after 2022. For a taxpayer’s first year ending after September 27, 2017 (the 2017 tax year for calendar year taxpayers), a taxpayer can elect to apply the 50% allowance instead of the 100% allowance.
- New and Used Property – The new law removes the requirement that the original use of qualified property must commence with the taxpayer. Thus, bonus depreciation is allowed for both new and used property.
There you have it, these three blogs have given you the nuts and bolts of most of the tax changes that apply to the average tax payer… This new law overhauls the Internal Revenue Code by lowering tax rates and eliminating numerous tax provisions. Supporters claim that it will help the economy and create jobs. Critics point out that according to the House and Senate Conference Committee report, the new law will add $1,456 trillion to the federal deficit during the years 2018 through 2027. Supports claim that figure will partially offset through future economic growth, resulting in potential new tax revenue. We will have to see how this all plays out. In the meantime, give Bourke Accounting a call at 502-451-8773 or stop by and see us so we can help you with all of your tax and accounting needs. See you soon!
If you sell your business you might owe a hefty income tax on the appreciated interest.
Saving grace: At least you may be able to avoid the 3.8% Medicare surtax on net investment income (NII), depending on the exact circumstances.
But what about your kids and other family members who are shareholders? They could get walloped by the surtax.
Strategy: Hire family members who are co owners (if they don’t already work for the company). Keep them on payroll until you sell the business.
As a result, when the deal finally closes, the relatives with business interests should be able to squeeze through the same tax loophole as you, the business owner.
Here’s the whole story: The 3.8% surtax applies to the lesser of NII or the excess above modified adjusted gross income (MAGI) of $200,000 for single filers and $250,000 for joint filers. For this purpose, NII interest, dividends, royalties, rents, gains from dispositions of property and income from passive activities, but not tax-free interest or distributions from qualified retirement plans and IRAs.
Another exclusion from the definition of NII is critical to many family-owned businesses. It specifically doesn’t include gains from the sale of property owned in an active trade or business that is not a C Corporation.
That lets many owners who operate their businesses as Sole Proprietorship, LLCs, Partnerships and S Corporations off the hook. However, owners of these businesses who sit on the sideline will have to face the surtax if the business is sold.
Example: Your small business is operated as an S Corp and is currently valued at $12 million with an adjusted basis of $2 million. You and your spouse own 80% of the business and the remaining 20% is split evenly between your two adult children, a son and a daughter. So each child currently owns shares worth $1.2 million with a basis of $200,000.
Your son already works for the company, but your daughter doesn’t. Assuming you sell the business for $12 million, each child will reconize a taxable gain of $1 million ($1.2 million – $200,000).
According to the regulations, the gain from the sale won’t count as NII for your son because he is a material participant in the business. But your daughter will probably owe the 3.8% surtax on at least $1 million of NII (not even counting investment income from other sources). That comes to $38,000 on top of the regular income tax
This harsh result can easily be avoided if you hire your daughter to work for the business. Your daughter will owe taxes on wages, but will be eligible for tax-free fringe benefits.
Tip: The job must be legitimate. The surtax can’t be avoided simply by putting a child on the books.
At Bourke Accounting we can help you negotiate the murky waters of tax law. Give us a call at 502-451-8773 and make your appointment today to work through any and all tax issues.
Yes I know this is a late Christmas blog, but I felt since we are a Tax & Bookkeeping Service that my focus should be on the current tax changes….BUT since it is Christmas I felt I would do a fun blog about buying gifts for your partner at various relationship stages. Happy Holidays!
- When you’ve been together say 2 months… Chances are you are probably still putting your best foot forward after two months, so you want to get something thoughtful, but not go too far. You could always consider getting them a $100 gift certificate for a spa day or massage. hmmm
- When you’ve been together say 2 years… If you haven’t already bought them a ring, now may be the time. Otherwise, think about their passions and support them in some way. That could mean getting them something educational like a one-on-one with a personal organizer or guitar lessons if they’re a musician, hmmm
- When you’ve been together say 10 years… You’ve exchanged may gifts by now, but romance never gets old. Try buying tickets to see a band you both connected on early in your relationship, like the singer who was playing on the radio when you shared your first kiss. It’s nostalgic, romantic and really thoughtful. hmmm
- When you’ve been together say 40 years… What is your partner’s lifelong dream,? Make that dream a reality. Whether it’s a month long trip to Thailand, a few weeks at a villa in Italy or running with the bulls, help your partner cross something off their bucket list. they deserve it. hmmm
There you have it…at Bourke Accounting we are always available to give our opinion on pretty much an subject. We wish you all holiday happiness all year round. Come see us soon!
You can’t deduct the cost of the time and effort you spend on behalf of charity. BUT that doesn’t mean your good deeds will go for tax naught.
Strategy: Track your out-of-pocket costs. Even though you can’t deduct the value of your endeavors, you can write off actual expenses associated with charitable activities. Furthermore, you don’t have to be a board member or one of the charity’s biggest donors. This tax break is available to regular volunteers and others who help out sporadically.
What sort of expenses are we talking about? Here is a partial list.
- Transportation: If you use your car for charity, deduct the related costs attributed to gas and oil, repairs, insurance, etc. Alternative: You might opt for the flat-rate deduction of 4 cents per mile (plus related parking fees and tolls). Similarly, you can deduct plane, train or bus costs for traveling to charitable events.
- Telephone charges: You may deduct the full cost of long-distance telephone calls, faxes and cellphone charges made on behalf of a charity. If you install a landline in your home that you use solely for charitable purposes, the entire cost is deductible.
- Home entertainment: If you host a fundraiser or board meeting, you can deduct the entire cost of the catering expenses as a charitable deduction. Note: The 50% limit on entertainment and meal expenses doesn’t apply here.
- Fundraising dinners: Normally, you can deduct the portion of the cost that exceeds the fair market value of a fundraising dinner. For example, let’s say you and your spouse attend a dinner that costs $100 a head. If the meal is valued at $35 a head, you can deduct $130 ($200 cost – $70 value). Note: For amounts exceeding $75, obtain written documentation from the charitable organization.
- Uniforms: A deduction is allowed for the cost of uniforms used while performing charitable services as long as the clothing isn’t suitable for everyday wear. Classic example: You can write off the cost of Boy Scout or Girl Scout uniforms.
- Foreign exchange students: If you host a foreign exchange student in your home, you can deduct up to $50 per month for each month the child attends high school. To qualify, the student must live in your home under a written agreement with a qualified charity. Also, the exchange student can’t be a relative.
- Charitable conventions: You may be able to deduct the cost of attending a convention on behalf of a charity – such as meals and lodging – if you’re an official delegate to the convention. But the convention must be the primary purpose of the trip. The deductible amount includes meals and lodging while you attend the convention. Caveat: The cost of any side trips to tourist attractions isn’t deductible.
Tip: Individually, these deductions may be small, but collectively they add up. Keep the records you’ll need at tax return time. As always if you have any questions please don’t hesitate to call Bourke Accounting at 502-451-8773.
I’m one of those people that love to read…books, magazines, journals. I used to list reading as a hobby on those questionnaires that I would answer but too many people called me a nerd so I stopped and replaced “reading” with “fishing.” I find that in December there are so many lists that are published and some are pretty interesting to read, and some not so much. This list that I am blogging about today is a good one as it begins with the benefits of owning a dog.… so here are some of the things in our lives that are good for us…
Dogs as they help their owners live longer and healthier lives. A Swedish study involving more than 3.4 million participants found that people with a pooch had a lower risk of cardiovascular disease and premature death. The link was especially pronounced among people who lived alone. Those with dogs were 33 percent less likely to die early, and 11 percent less likely to suffer a heart attack.
Camping could help cure the grogginess and lethargy associated with poor sleep. In a University of Colorado, Boulder study, volunteers who went camping for a weekend slept almost two hours longer than normal during the trip; on their return, their melatonin levels started rising more than two and half hours earlier than before. Researchers believe this is because increased exposure to natural light helps reverse the adverse effects that modern indoor lifestyles have on the body’s internal clock.
Chili Peppers may help you live longer. In a study involving 16,000 people over about two decades, University of Vermont researchers found that those who routinely ate the hot pods were 13 percent less likely to die during that period than those who didn’t. They suspect that capsaicin the active ingredient that give peppers their heat, might boost metabolism and help prevent obesity, high blood pressure, inflammation and cancer.
Coffee does more than wake you up. Two large studies involving diverse groups of adults found that people with a daily coffee habit were less likely to die from heart disease, stroke, diabetes, or cancer. Over a study of 16 years, people who drank two to four cups of Joe a day – decaf or regular – were 18 percent likely to die. Researchers believe the drink’s health benefits stem from its complex mixture of powerful disease-fighting antioxidants.
Marriage could help ward off dementia. An analysis of 15 studies involving more than 800,000 people found that those who never married had a 42 percent higher risk for this form of mental decline than those who tied the knot. Married couples tend to encourage each other to stay active, follow a healthy diet, limit alcohol consumption, and stop smoking – habits associated with reduced risk for dementia.
Breakfast could be the most important meal of the day. A study involving 4,052 healthy men and women found that those who generally didn’t eat breakfast were more likely to develop atherosclerosis, or clogged arteries. Researchers say this is likely because breakfast-skippers tend to eat more calories and unhealthy foods later in the day.
Running for a couple of hours each week could reduce the risk of early death by nearly 40 percent. After analyzing existing evidence on the link between exercise and longevity, researchers calculated that one hour of running-even at a slow pace- lengthens life expectancy by seven hours. This adds up over time; people who run regularly tend to live about three years longer than their non-running peers.
And I would remiss of I did not mention….
Finding the Perfect Tax Accountant which will relieve undo stress when it comes to finances. At Bourke Accounting we know life is not black and white. We will work with you through life’s changes; those that are expected and those that are not. Our focus is on tax preparation and bookkeeping services, but our personalized service and dedication brings our clients back year after year. Give us a call today at 502-451-8773 and set up that appointment to let us help!
Say Your aging parents live in a home that has appreciated in value, but they’re no longer reaping any of the home ownership tax breaks during their retirement years. Sound familiar?
Good news: With one stroke of the pen, both you and your parents can win: They’d gain instant access to their home equity (without moving) and you’d pick up some generous new tax deductions.
How? Buy your parent’s house, and then rent it back to them – at the going rate.
Reasons for the sale/leaseback. Under the current home ownership set up, your combined family unit is overpaying the IRS.
Your parent’s mortgage is either paid off or the payments represent mostly principal at this point. Even if they still take interest deductions, your parent’s tax bracket might be low in retirement, so those deductions don’t provide much tax savings.
Here are two good reasons for your parents to opt into this plan:
- It puts cash in their pockets without them dipping into a home equity loan.
- It allows them to put their money into safer investments than the real estate market.
Transferring the house. To avoid gift-tax complications, pay a fair price for the home. Support the buying price for the home with a qualified and independent appraisal. Then, both sides should enter into a lease at a fair rental value.
One benefit: Courts have said that landlords can reduce their fair-market rent by 20% when renting to relatives. The lower rent reflects the savings in maintenance and management costs . (L.A. Bindseil, TC Memo 1983-411).
Don’t set the rent too low; the IRS might say the rental home is for your personal use. Therefore, your deductions might be limited to the mortgage interest and property tax, the same as if you owned a vacation home.
Taking deductions. Once you own your parent’s house, you’re entitled to reap the tax benefits of owning rental property.
That includes taking write-offs for operating expenses, such as utilities, maintenance, insurance, repairs and supplies.
You also can claim depreciation deductions for the home, but you can’t depreciate the cost of the property apportioned to land.
So obtain an appraisal allocating the price paid between the depreciable structure and the nondepreciating land. You can use these deductions to offset the rental income received from your parents. You can take any suspended losses when you sell the house.
Bonus benefit: Once you own the house, you may be able to write off occasional travel expenses you incur when visiting the house (your rental investment).
Endgame: Eventually, your parents won’t be able to live in the house. Then , you can sell it, rent it to another tenant or move in. If you move in and make it your principal residence for at least two years, you can sell it and shelter another $250,000 or $500,000 worth of capital gains: a true bonanza!
Taxpayers having a financial interest or signature authority over any foreign financial account such as a bank account, a securities account, or other types of financial accounts in a foreign country outside the U.S boarders must report these accounts to the Department of the Treasury if their aggregate balance exceeds $10,000 at any time during the calendar year. This is done by filing the Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
Those failing to properly file the FinCEN 114 may be subject to civil monetary penalties of up to 50% of the account balance at the time of the violation. Generally though, the IRS will not impose a penalty for failure to file FinCEN 114 if the income from the foreign accounts is properly reported and taxes are paid on the taxpayer’s U.S tax return.
Miss Odessa
Years after my kids are grown, I discovered that Section 529 plans are something I am now thinking about as my grandchild Odessa was born last month and there are only so many clothes and toys you can buy her, so I thought college…..
The amount you transfer to a Section 529 plan on behalf of a beneficiary qualifies for the annual gift-tax exclusion. Under the exclusion, you can give away up to $14,000 a year – or $28,000 for joint gifts made by a married couple – to an account for the beneficiary without paying any gift tax.
Strategy: Front -load your contributions to a Section 529 plan. The tax law allows you to give the equivalent of five years’ worth of contributions up front with no gift-tax consequences. The gift is treated as if it were spread out over the five-year period.
For instance, you and your spouse might together contribute the maximum $140,000 (5 x $28,000) on behalf of a grandchild this year without paying any gift tax. If you have five grandchildren entering college soon, together you can contribute $140,000 to their Section 529 plans, completely free of any gift-tax consequences.
Tip: Any excess above the annual gift-tax exclusion may be sheltered by the lifetime gift-tax exemption.