The new Tax Cuts and Jobs Act (TCJA) scales back deductions for certain itemized deductions, including state and local tax (SALT) payments and mortgage interest. But another lesser-noticed crackdown may be just as significant. Effective for 2018 through 2025, the TCJA completely eliminates the Schedule A deduction for miscellaneous expenses and Un-Reimbursed Employee Expenses. This change can be especially harmful to employees who pay job-related expenses out of their own pocket.
The Internal Revenue Service is granting relief to taxpayers who have family coverage under a high deductible health plan and who contribute to a health savings account. For 2018, taxpayers with family coverage under a high deductible health plan, or HDHP, can treat $6,900 as the maximum deductible contribution to their HSA. A change in the inflation adjustment calculations for 2018 under the new tax reform law, the Tax Cuts and Jobs Act, decreased the maximum deductible HSA contribution for taxpayers with family coverage under an HDHP by $50, to $6,850.
The IRS announced the relief Thursday in Revenue Procedure 2018-27 for affected taxpayers and allows the $6,900 limitation to remain in effect for 2018. The $6,900 annual limitation was originally provided in May of last year in Revenue Procedure 2017-37. The new revenue procedure provides relief for taxpayers with family coverage under HDHPs in terms of the annual deductible contributions limit for their 2018 HSAs under Section 223 of the tax code. The maximum for family coverage was originally issued as $6,900 on May 4, 2017. On March 2, 2018, the limit was reduced to $ 6,850 for taxpayers with family coverage under HDHPs under the tax reform legislation that changed the calculation for 2018 and future years.
The new guidance allows taxpayers to continue to treat the 2018 limit as $6,900. It also clarifies how taxpayers who have already received a distribution from an HSA of an excess contribution based on the $6,850 deduction limit can treat the distribution as a mistake and repay the HSA without any tax or reporting consequences. The latest guidance also clarifies how to treat a distribution of an excess contribution (and earnings) based on the $6,850 deduction limit.
Alimony payments for divorce agreements entered into after 2017, the deduction is no longer available to payors, nor is alimony taxable to recipients. However, payments under pre-2019 agreements remain deductible by payors and taxable to those who receive it. And, if an older agreement is modified before 2019, the tax consequences remain the same. The message for clients who are getting divorced or separated in 2018 is clear. Incorporate this into your negotiations to arrive at the intended results for any given situation.
Finally, there’s one more noteworthy point about the new rules for alimony payments. Unlike most other tax changes for individuals that sunset after 2025, this provision is permanent. Once the ink on the agreement’s signatures dries, there’s no going back.
Only a few days into the filing season, the IRS has already identified a new scam that began with cybercriminals accessing several tax professionals’ computers, stealing data, and then filing fraudulent tax returns.
In a few cases, the fraudulent returns used taxpayers’ actual bank accounts for the direct deposit of the refund. A woman posing as a debt collection agency official then contacted the taxpayers to say a refund was deposited in error to their bank account and asked the taxpayers to return the money to her.
When there is a suspected data theft, it is important that both FTB and IRS are notified. When notified immediately, both FTB and IRS can take steps to help protect taxpayers from tax-related identity theft.
The new tax law passed last month has led to confusion as it eliminates many provisions of the tax code such as personal exemptions. The IRS has issued a notice providing guidance on what to do with the Form W-4 under the new Tax Cuts and Jobs Act. The effective period of Forms W-4 furnished to claim exemption from income tax withholding has been extended until February 28, 2018 and temporarily allows employees to claim exemption from withholding for 2018 by using the 2017 Form W-4. The IRS has updated the withholding tables and promises further guidance is on the way including an online tax withholding calculator posted on its website.
The Internal Revenue Service today released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the tax reform legislation enacted last month. This is the first in a series of steps that IRS will take to help improve the accuracy of withholding following major changes made by the new tax law. The updated withholding information posted today on IRS.gov, shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
Beginning on January 1, 2018, the standard mileage rates used to calculate deductible costs of operating a vehicle have increased. These rates apply to cars, vans, pickups and panel trucks.
Notice 2018-03 published by the IRS contains all of the requirements and restrictions of the standard mileage .
Some of the key provisions relating to businesses for 2018:
Retroactive Depreciation Changes Encourage Closing Deals Before Year End. The Tax Cuts and Jobs Act has changed the rules for bonus depreciation. Instead of 50% bonus depreciation it is now 100% and it will apply to used property. There will be serious pressure to close deals before the end of the year as this is one of the few provisions that is retroactive to September 27, 2017. via https://www.forbes.com/sites/peterjreilly/2017/12/21/retroactive-depreciation-changes-encourage-closing-deals-before-year-end/#7e832d3d6db6
Tax Reform Side-By-Side Comparison, Current Law to New Tax Law https://www.taxbuzz.com/blog/tax-reform-side-by-side-comparison-current-law-to-new-tax-law
Key changes you need to know about the GOP tax-overhaul bill https://www.taxprotoday.com/articles/everything-you-need-to-know-about-the-gop-tax-reform-bill
Tax Filing due dates along with the extension due date by return type
Most tax provisions are considered permanent unless specifically repealed; however, there is a group of tax credits knows as "The Extenders" that have specific expiration dates. Those set to expire at the end of 2017 still stand a good chance of getting extended or not, assuming pending legislation is approved. Some of those tax breaks include:
If you have a high adjusted gross income, for your 2017 tax return you may not be able to take all your itemized deductions, thanks to the Pease provision. Itemized deductions start to phase out at $156,900 if you are married filing separately ($261,500 for individuals, $287,650 if head of household, or $311,800 if filing jointly). Your itemized deductions are reduced by 3% of your adjusted gross income over these amounts, but they are never reduced by more than 80% of your otherwise allowable deductions.
The maximum amount of earned income on which you pay Social Security tax is now $127,200. When you reach that amount with one employer, they should stop withholding Social Security tax from your pay until the following year. If you work for more than one employer, and your total earnings are more than $127,200, you will receive a credit on your tax return for any over payment of Social Security taxes.
Larry Baker, EA will be opening a new office in Roseville as Baker Tax Services, formerly part of BakerWallen Tax Services in Rocklin. The Business will be open on January 1, 2018 for all new and returning customers!
For the upcoming 2018 filing season, the IRS will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act. The IRS will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.
For 2017, the standard deduction is $6,350 for single filers and for married persons filing separately, $12,700 for joint filers and qualifying widow(er)s, and $9,350 for heads of household.The amount for each exemption for 2017 is $4,050. Exemptions are reduced for taxpayers with AGIs in excess of the "applicable amount" ($313,800 for joint filers or a surviving spouse, $287,650 for a head of household, $261,500 for a single individual who isn't a surviving spouse, and $156,900 for marrieds filing separately).
In general, an individual who isn't an active participant in certain employer-sponsored retirement plans, and whose spouse isn't an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: A statutory dollar limit, or 100 percent of the compensation that's includible in his gross income for that year.
For 2017, the statutory dollar limit is $5,500, plus an additional $1,000 for those ages 50 or older. If an individual (or their spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified AGI (MAGI).
For 2017, a taxpayer may be able to take an IRA deduction if he was covered by a retirement plan and his 2017 MAGI is less than $72,000 ($119,000 if married filing jointly or qualifying widow(er)). If the taxpayer's spouse was covered by a retirement plan, but the taxpayer was not, he or she may be able to take an IRA deduction if 2017 MAGI is less than $196,000 .
The beginning of the school year is a good time for a reminder of the tax benefits for education. These benefits can help offset qualifying education costs. Here is information about two tax credits available to those who pay higher education costs for themselves, a spouse or a dependent.
The American Opportunity Tax Credit (AOTC) is:
The Lifetime Learning Credit (LLC) is:
You should file your tax return on time even if you can't pay what you owe. This will save you from potentially paying a penalty for a late filed return. Here are a few options if you can’t pay all your taxes by the due date.
File on time and pay as much as you can. You can pay online, by phone, or by check or money order. Visit IRS.gov for electronic payment options.
Get a loan or use a credit card to pay your tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. For credit card options, see IRS.gov.
Use the Online Payment Agreement tool. You don’t need to wait for IRS to send you a bill before you ask for a payment plan. You can use the Online Payment Agreement tool on IRS.gov or file Form 9465, Installment Agreement Request, with your tax return. You can even set up a direct debit agreement. With this type of payment plan, you won’t have to write a check and mail it on time each month.
Don’t ignore a tax bill. If you get an IRS bill, don’t ignore it as the IRS may take collection action. Contact the IRS right away to talk about your options. If you are suffering financial hardship, the IRS will work with you. Remember to file on time. Pay as much as you can by the tax deadline and pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. Also check out IRSVideos.gov/OweTaxes.
You may discover a mistake was made on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return to claim a tax credit or deduction.
When to amend. You should amend your tax return if you need to correct filing status, the number of dependents or total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return.
When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS will make corrections, such as math errors, for you. If you didn’t include a required form or schedule, for example, the IRS will mail you a notice about the missing item.
Form 1040X. Form 1040X is used to amend a federal income tax return that you filed before. It must be filed by paper; it cannot be filed electronically.
More than one tax year. If you need to file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS.
Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process.
When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?”