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Tax Tip of the Week | No. 454 | New Tax Law (TCJA) – How It Will Affect Alimony Payments April 4, 2018

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Tax Tip of the Week | April 4, 2018 | No. 454 | New Tax Law (TCJA) – How It Will Affect Alimony Payments

These new changes take effect for divorces and legal separations after 2018.

Prior law:  Under the current rules, an individual who pays alimony can deduct the alimony or separate maintenance payments paid during the years as an “above the line” deduction. An “above-the-line” deduction is a deduction that a taxpayer need not itemize to deduct. These deductions are more valuable than an itemized deduction.

And, under current rules, alimony and separate maintenance payments are taxable to the recipient spouse.

Please note that the rules for “child support”—remain unchanged. Payers of child support don’t receive a taxable deduction. Recipients of child support don’t pay tax on those amounts.

New law:  A tax deduction for alimony no longer exists for the payor. Also, alimony is no longer taxable income to the recipient. So, for divorces and legal separations that are executed after 2018, the alimony-paying spouse will no longer be able to deduct these payments and the alimony-receiving spouse doesn’t include the payments in gross income.

Note: TCJA rules are not applicable to existing divorces and separations. It’s important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019.

Under a special rule, if taxpayers have an existing (pre-2019) divorce or separation decree, and that agreement is legally modified, then the new rules don’t apply to that modified decree, unless the new agreement expressly states that the TCJA rules are to apply. Situations may exist where applying the TCJA rules voluntarily is advantageous for the taxpayers.

If you wish to discuss the impact of these rules on your particular situation, please give us a call.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are very much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 452 | New Tax Law – The Common Misconceptions (That Can Get You Into Big Trouble) March 21, 2018

Posted by bradstreetblogger in : tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | March 21, 2018 | No. 452 | New Tax Law – The Common Misconceptions (That Can Get You Into Big Trouble)

Too often I am guilty of just reading the “headlines” and believing I have the whole story. If it were only that easy! If I had only read the “headlines” on this new tax law I would have been significantly mislead.

Some of my misconceptions follow:

MISCONCEPTION #1 – EVERYONE SAVES TAX DOLLARS UNDER THE NEW TAX LAW.

Not so. For a multitude of reasons, including the loss of personal exemptions and the ceiling on state and local income taxes, the new tax law will cost some taxpayers extra tax dollars. Some a significant amount!

MISCONCEPTION #2 – ALL BUSINESSES SHOULD BE A “C” CORPORATION.

We are led to believe that the new flat 21% tax rate for “C” Corporations is a silver bullet and will cause a mass exodus from S Corporations, LLCs, partnerships and sole proprietorships. That is not going to happen. Sure, the 21% “C” Corporation rate is well less than the 37% top bracket on individuals, but SO many other even more important considerations exist.

MISCONCEPTION #3 – No need for IRC Section 179 deductions any longer since both new AND used property now qualify for the IRC Section 168 (bonus depreciation) deduction.

Section 179 and Section 168 are not treated the same in many states. In many states, the Section 179 is a faster write-off than Section 168; therefore of a greater value.

Also, please note that Section 179 has never been allowed to create a net operating loss (NOL). Section 168 may do so. However, under the new tax law – NOLs may not be carried back, only forward. So don’t fall into the trap of believing you may “catch-up” on your equipment purchases, create a large NOL with Section 168 depreciation expense, and carry that loss back for a tax refund.

MISCONCEPTION #4 – THE PENALTY FOR NOT HAVING HEALTH INSURANCE HAS BEEN ELIMINATED FOR 2018.

It is true the health insurance penalty is gone, BUT not until 2019.

MISCONCEPTION #5 – ALL PASS-THROUGH ENTITIES AUTOMATICALLY RECEIVE A 20% DEDUCTION.

Many S Corporations, partnership, and LLCs will receive the 20% deduction. Some will not. The 20% deduction is not necessarily an all or nothing proposition. If a business qualifies (and not all do) the actual deduction, if any, is all formula driven.

MISCONCEPTION # 6 – BIG TAX INCREASES WILL RESULT FROM THE ELIMINATION OF MISCELLANEOUS EXPENSES AS ITEMIZED DEDUCTIONS.

Very few people received any benefit from miscellaneous itemized deductions, anyway. You may have observed them as a part of your itemized deductions on Form A. However, they are often blocked from being deducted since they must exceed 2% of adjusted gross income.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are very much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 449 | New Tax Law (TCJA) Restricts Like-Kind Exchange Rules for Non-Real Estate Property (Ouch!) February 28, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes , add a comment

Tax Tip of the Week | Feb 28, 2018 | No. 449 | New Tax Law (TCJA) Restricts Like-Kind Exchange Rules for Non-Real Estate Property (Ouch!)

In a like-kind exchange, a taxpayer generally does not recognize a taxable gain or loss on an exchange of like-kind properties provided both the relinquished property and the replacement property are held for productive use in a business or for investment purposes, and no cash(boot) is received in the exchange. For those exchanges completed after Dec. 31, 2017, the TCJA limits tax-free exchanges to exchanges of real property that is not held primarily for sale. Therefore, as previously allowed, exchanges of personal property and intangible property can no longer qualify as tax-free like-kind exchanges.

On the surface, you may think losing like-kind exchanges for personal and intangible property is not a big deal since we can instead use IRC Sections 168 and/or 179 to write-off the new or used equipment placed in service. This reasoning may be valid. BUT, what about those situations where some equipment or machinery is sold without buying a replacement? Under the new tax law, this scenario will cost you tax dollars since you most likely will have a gain on the sale. This is especially true if Sections 168 and/or 179 had been used on the asset sold.  In fact, the entire gain may all be taxable in the year of sale since your tax basis is zero.

Make your CPA aware of any significant asset sales during the year, especially the sale of any equipment or machinery for which a replacement won’t be purchased in the same tax year (of an equal or greater value). Otherwise, you may be in for an unpleasant surprise.

Thank you for all of your questions, comments and suggestions for future topics. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 447 | New Tax Law (TCJA) – Rules Significantly Eased for Code Section 168 & 179 February 14, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Feb 14, 2018 | No. 447 | New Tax Law (TCJA) – Rules Significantly Eased for Code Section 168 & 179

Good news for business owners!

The Tax Cuts and Jobs Act (TCJA) has very favorably changed the tax rules for “accelerated” tax depreciation expense under IRC Sections 168 and 179.

Prior Law:  Section 168 (bonus depreciation) – taxpayers were allowed to deduct 50% of the cost of most new tangible property other than buildings (with a few exceptions). This “50% bonus depreciation” was scheduled to be reduced to 40% for property placed in service in calendar year 2018, 40% in 2019 and 0% in 2020 and thereafter.

New Law:  For property placed in service and acquired after Sept. 27, 2017, the TCJA has raised the 50% rate to 100%.

Also, perhaps, even more importantly, under the TCJA the post-Sept. 27, 2017 property eligible for bonus depreciation may be new or used.

Prior Law:  Section 179 expensing – taxpayers could elect to deduct the entire cost of Section 179 property up to an annual limit of $510,000. For qualifying assets placed in service in tax years that begin in 2018, the adjusted limit was $520,000. This annual limit was reduced by one dollar for every dollar that the cost of all Section 179 property placed in service during the tax year exceeded a $2,030,000 threshold. For those assets placed in service in tax years that begin in 2018, the threshold was to be $2,070,000.

New Law:  The TCJA ratcheted up the annual dollar limit for expensing to $1 million and $2,500,000 as the new phase down threshold.

The new definition of qualifying property has been expanded for both Sections 168 and 179. More favorable depreciation lives were also made available, meaning faster tax write-offs.

Vehicles.  The TCJA triples the annual dollar caps on depreciation (and the Code Sec. 179 vehicle expensing) of passenger automobiles and small vans and trucks. Also, because of the extension in bonus depreciation, the increase for vehicles allowed bonus depreciation of $8,000 in the other-wise-applicable first year cap is extended through 2026 (with no phase-down).

Farm property.  More good news!  For items placed in service after 2017, the TCJA reduces the depreciation period for most farm equipment from seven years to five. It also allows many types of farm property to be depreciated under the 200% (instead of 150%) declining balance method.

Thank you for all of your questions, comments and suggestions for future topics. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 445 | Tax Cuts and Jobs Act – Estate and Gift Tax Changes January 31, 2018

Posted by bradstreetblogger in : General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 31, 2018 | No. 445 | Tax Cuts and Jobs Act – Estate and Gift Tax Changes

Congress debated at length as to whether the estate and gift taxes would survive. And, if they did – what new look might they have. In the final version of the Tax Cuts and Jobs Act as signed into law by the President on December 22, 2017, the estate and gift taxes did survive but with significant increases to their exclusion amounts.

Pre-act law – The lifetime estate exclusion amount was originally $5,000,000 and adjusted for inflation after the year 2011. This exclusion amount was $5,490,000 for the 2017 year and scheduled to be $5,600,000 for 2018 or $11,200,000 for a married couple if portability was elected. The annual gifting exclusion is $14,000 for 2017. This exclusion is adjusted for inflation but our low inflation rates and the fact that it is adjusted only in increments of $1,000 has left it unchanged since 2013.

New law – After December 31, 2017 and before January 1, 2026 (a sunset provision), the Tax Cuts and Jobs Act has effectively doubled the previous lifetime exclusion amount. The new amount is expected to be about $11,200,000 in 2018 or $22,400,000 for a married couple.

Note: Although the Act is silent on generation skipping transfers one may expect to see an increased exclusion amount here as well.

The annual gifting exclusion is now $15,000 for gifts made in 2018. This change from $14,000 to $15,000 is not a result of the new tax law but a result of inflation adjustments.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 444 | New Tax Law – 20% Pass-through Business Deduction January 24, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 24, 2018 | No. 444 | New Tax Law – 20% Pass-through Business Deduction

For tax years beginning in 2018 and before 2026, the new 20% deduction is generally allowed by individuals, estates and trusts that have interests in pass-through business entities. These entities are sole proprietorships, partnerships, S corporations and limited liability companies (LLCs) and their income passes through and is taxed by another entity (generally taxed on your personal income tax return – Form 1040). This deduction will typically equal 20% of the qualified business income (QBI) provided personal taxable income is less than a threshold of $157,500 or, if married filing jointly, $315,000. Further limitations apply provided personal taxable income is in excess of these thresholds. Please note the QBI deduction isn’t allowed in calculating adjusted gross income (AGI), but it does reduce your overall taxable income. For all intents and purposes, QBI is treated as an itemized deduction.

QBI is income, gains, deductions and losses that are connected with a U.S. business. Some investment items, reasonable compensation to an owner or any guaranteed payments to a partner or LLC member are not considered QBI.

Limitations

For pass-through entities aside from sole proprietorships that exceed the above thresholds, the QBI deduction generally can’t exceed the greater of the owner’s share of:

•    50% of W-2 wages paid to employees by the qualified business during the tax year; or
•    The sum of 25% of W-2 wages plus 2.5% of the cost of qualified property.

Qualified property is the depreciable tangible property (including real estate) owned as of year-end and used by the business during the year for the production of qualified business income.

Another limitation is that the QBI deduction usually isn’t applicable for income from certain service businesses. These include businesses that involve investment-type services and most professional practices (exceptions are engineering and architecture).

Please note that other rules and limitations are applicable to the QBI deduction.

These rules are complex and will require careful planning to optimize any benefits.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 443 | New Tax Law Changes – Businesses January 17, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Preparation, Tax Tip, Taxes, Uncategorized , 1 comment so far

Tax Tip of the Week | Jan 17, 2018 | No. 443 | New Tax Law Changes – Businesses

A short recap of the new tax law changes that most commonly affect many businesses (for 2018) follows:

1)    C Corporations are now taxed at a flat rate of 21%.  No more brackets based on taxable income.
2)    Corporate Alternative Minimum Tax (AMT) is now history.
3)    New 20% deduction of qualified business income for pass-through businesses (this calculation is complex and far-reaching).
4)    Excess business losses are limited (aside from a corporation).
5)    Cash basis method of accounting has been extended to taxpayers with less than $25 million in average gross receipts. A change in accounting for inventory has also occurred.
6)    Completed contract method of accounting has been extended to businesses under $25 million in gross receipts.
7)    Like-kind exchanges are no longer allowed for any transactions aside from real property.  Ouch!!!
8)    Deductions for entertainment are gone.
9)    Depreciation amounts for luxury vehicles have increased.
10)  Businesses with sales in excess of $25 million will now have limited interest expense deductions. Excess may be carried forward.
11)  Section 179 expensing up from $510,000 to $1,000,000; but, phase out begins at $2,500,000.
12)  Definition of Section 179 property has been expanded. That is a good thing.
13)  Section 168 bonus property no longer has to be new property. The 50% has been increased to 100% on property placed in service after 9/27/17.
14)  Net operating losses (NOLs) can no longer be carried back (other than two years allowed for farming operations). They may now be carried forward indefinitely and are subject to an 80% income limitation.
15)  Domestic Production Activity Deduction (DPAD) is no longer allowed. Many businesses will be adversely affected by the loss of this provision.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 442 | New Tax Law Changes – Individuals January 10, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 10, 2018 | No. 442 | New Tax Law Changes – Individuals

We have attempted to recap some of the tax law changes that affect many individuals as below:

1)   We still have the seven–bracket individual tax structure but now with mostly lower tax rates.
2)    The marriage tax penalty has been effectively eliminated for all except for married couples with taxable income north of $400,000.
3)    Although, the higher standard deduction was billed as a tax cut, it really falls more into the realm of tax simplification. However, one must keep in mind that the personal exemption deduction was eliminated. So, for most people, what the government gives with one hand, they taketh away with the other.
4)    If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to income thresholds.
5)    Funds saved in a 529 savings plan may now be used for private school and tutoring (K – 12).
6)    Income thresholds for capital gains no longer match the tax brackets as before.
7)    People who don’t buy health insurance will no longer pay a tax penalty (effective in 2019).
8)    The net investment income tax of 3.8% remains the same.
9)    Interest on home equity debt may no longer be deducted.
10)  The Child and Dependent Care Credit remains in place.
11)  Some charitable donations may now be deducted up to 60% of income (up from 50%).
12)  Alternative Minimum Tax (AMT) is now adjusted for inflation and the AMT exemption amounts have increased.  Both are good.
13)  Estate tax exemption has effectively doubled to $11.2 million lifetime exclusion.
14)  Deductions that didn’t survive:
A.    Casualty and theft losses (other than a federally declared disaster).
B.    Unreimbursed employee expenses.
C.    Tax preparation expenses (still okay for businesses, rentals, and various investments, etc.).
D.    Moving expenses.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 438 | Planning For The New Proposed Tax Bill December 14, 2017

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Dec 14, 2017 | No. 438 | Planning For The New Proposed Tax Bill

2017 is coming to a close with sweeping new tax legislation on the horizon. While the changes don’t take effect until 2018. We want to alert you to some steps you might take before year-end to preserve the best possible tax results.

As you explore these ideas, mostly you will find they contain a common and time-tested theme: where possible, defer income and accelerate the payment of deductible expenses. The reason for relying on this oldest of strategies is because ordinary income tax rates should be lower next year and many expenses will either no longer be deductible or will be less valuable in light of higher standard deductions in 2018.

1.    Maximize retirement deferrals. Be sure to fully fund your 401(k) and/or IRA to further reduce gross income for 2017. We can further discuss during the tax season fully funding 2017 SEPs and other retirement accounts that can be funded up to April 15 (or later).
2.    Business owners and consultants should delay billing. It isn’t proper to simply delay depositing checks received before year-end, but you generally won’t be paid for amounts you haven’t billed. Shift that mid- to late-December billing out until January 1 (for cash basis taxpayers).
3.    Prepay state income tax. This deduction may be eliminated beginning in 2018, so pay the fourth quarter estimate that is dated January 2018 by December 31, 2017. This strategy, however, requires that you know your status regarding alternative minimum tax (AMT). If you will be subject to AMT in 2017, it is likely that prepaying your state taxes will not reduce your 2017 taxes. In that case, with no benefit in either year, it makes better financial sense to make the payment later.
4.    Prepay property taxes. The deduction for property taxes is likely to be limited to $10,000 beginning in 2018. To the extent that you already have an assessment that isn’t due until after the first of next year, pay it by December 31. For taxpayers with high property tax bills and other large deductions such as mortgage interest and contributions, accelerating the 2018 property tax payment into 2017 may save a deduction due to disappear next year. Mid-range taxpayers may need a projection to see if this makes sense. And here again, the strategy won’t work for those in AMT in 2017.
5.    Bunching strategies. With the standard deductions possibly doubling in 2018, lower itemizers will need to begin to incorporate strategies to bunch deductible expenses every other year to “pop up” over the standard deduction and preserve tax benefits. In this case, you might warn your favorite charities as you contribute this year-end that your next contribution might not occur until January 2019. In that way, you can make double contributions at the beginning and end of 2019 to achieve deductions above the standard deduction that year.
6.    Make donations directly from IRA. If you are 70½ or older but your donations do not bring you over the new higher standard deduction, make those donations directly from your IRA as a custodial transfer.
7.    Delay business asset acquisition. First-year bonus depreciation for brand new assets may be 100% in 2018 (up from 50% in 2017). You may want to delay capital expenditures to take advantage of the more complete write-off on the acquisition.
8.    Complete trade-ins of business equipment, machinery, and autos before year-end. Section 1031 like-kind exchanges will only be available on real property beginning in 2018. If you have other business assets with low or no basis that you were considering trading in on the purchase of new, complete the transaction and place the new assets in service before year-end if possible.
9.    Complete large capital gains sales and prepay the state tax. You may want to accelerate this type of income into 2017 as long as it is accompanied by the payment of state tax. With capital gains rates remaining virtually the same under the new law, the net after-tax result can be better this year.

Individual situations are unique, and there are no one-size-fits-all tax planning strategies. If you would like to discuss these or other ideas that apply to your particular circumstances, please feel free to contact us.

With respect and encouragement,

The Staff at Bradstreet, CPAs

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

…until next week.

Tax Tip of the Week | No. 433 | Municipal Net Profit Tax Return November 15, 2017

Posted by bradstreetblogger in : General, tax changes, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Nov 15, 2017 | No. 433 | Municipal Net Profit Tax Return

There are over 600 Ohio cities and villages that levy a municipal income tax. These taxes are administered by the  individual municipalities or by third party administrators. Business taxpayers are required to file and pay tax in every municipality where income is earned. The new plan is for the state to administer the business net profit tax. Note, this would not include sole proprietors and single member LLCs. This could be a savings of $800 million to municipalities and businesses if all businesses file centrally.

According to the Tax Reform Plan, the business taxpayer will have the choice to file and have the net profit tax administered by multiple individual municipalities or to file with Ohio Department of Taxation. This is an ‘Opt-in’ choice and is not mandatory.

Advantages for ODT will be one uniform tax return and one consistent governing body which will allow filing multiple municipalities to one central location. ODT will provide taxpayer information to the municipalities.

ODT Role:
Propose rules
Prescribe forms
Issue bills, assessments, refunds
Conduct audits, certify debts
Handle appeals & other administrative matters

Municipality Role:
Retain responsibility for Employee Withholding & Individual filings
Retain control over tax rate and tax credits

Business taxpayers who want the cost savings of reporting and filing municipal tax are urged by the Ohio Tax Commissioner to sign up for a major new and convenient tax filing service. Businesses wanting to ‘opt-in’ for the centralized filing and state administration of the municipal net profit tax for the 2018 tax year can register now at the Department of Taxation’s website (www.tax.ohio.gov). Business taxpayers need to register specifically for the municipal net profit tax to take advantage of this new one-stop, cost-saving system, even if registered with the state to pay other taxes.

Municipal Net Profit Tax Reform Timeline:
By March 1, 2018 – business (calendar year filers) registers through OBG
By April 15, 2018 – business makes first quarterly estimated payment
By April 15, 2019 – business files Tax Year 2018 tax return

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

…until next week.