income tax

2018 Tax Planning Tips

With a new tax law in effect as of January 1st, effective tax planning for the coming year will require a whole new approach. The Republican tax reform proposal that was voted into law at the end of 2017 includes some sweeping changes that affect both individuals and businesses. This being the case, taxpayers can only hope to maximize their tax advantage in the coming year by becoming familiar with the provisions of Trump’s tax bill and adjusting tax strategies accordingly. While it is always wise to look at what impact financial events of a previous year have had on taxes owed, this year that impact will have to be analyzed with an eye on the potential effects of the new tax law.

The following are helpful tax planning tips for the coming year:

1)      Be aware of the new tax brackets.

The new tax reform plan still has seven tax brackets (the same as the old plan), with the tax rates for each bracket mostly lower. However, the income limits of the tax brackets have changed significantly. These changes represent an important tax planning consideration, especially as they relate to realizing capital gains and capital losses and accelerating or deferring income.

2)     Become familiar with changes to 529 plans.

The limit for contributing to 529 plans without a gift tax assessment has been increased from $14,000 to $15,000. In addition, the new tax law allows taxpayers to use 529 funds to cover elementary and high school tuition with a limit of $10,000 per year per beneficiary. This new provision provides a significant tax saving opportunity for those individuals who are living in states where portions of 529 plan contributions are exempt from the state income tax.

3)     Make use of the more lenient medical expense deduction.

The new tax law allows taxpayers to deduct medical expenses that are in excess of 7.5 % of their adjusted gross income. This amount represents an increase in the medical expense deduction from 2017 which only allowed a tax deduction for unreimbursed medical expenses that were in excess of 10% of adjusted gross income.

4)     Weigh other changes to the tax code that may affect taxes owed.

In addition to the items outlined above, there are numerous other changes to the tax code that will impact taxpayers in different ways. For example, the tax deductions for job-related moving expenses and home equity loan interest have been eliminated and the threshold for writing off mortgage interest has been reduced. Because changes such as these will affect tax related decisions as they present themselves, it is important for taxpayers to be familiar with the provisions of the new tax bill as the year gets underway.

In addition to being aware of the tax changes initiated by Trump’s tax plan, it is important, as always, to keep good records and track tax-related expenses all year long rather than scrambling to get things together at tax time. This kind of careful record- keeping, combined with making use of the tax advantages that are built into the tax code, have the potential to provide a significant savings of tax dollars. With income tax representing one of the major expenses for many households, these tax-related tasks take on a very important role.

The licensed accountants and bookkeepers at Las Vegas Bookkeeping have the knowledge and expertise to help your business run smoothly and efficiently. Contact us by phone at (702)514-4048 or by email at tina@lasvegasbookkeeping.com to receive a free, no obligation consultation. Don’t wait! Streamline your business operations by contacting the professionals at Las Vegas Bookkeeping today.

IRS Reverses ACA Declaration Requirement

The IRS has recently announced that it will reverse its position on enforcing the ACA declaration requirement. Although the agency accepted tax returns that failed to indicate healthcare coverage during the 2017 filing season, they have recently stated that this information will be required in order for a return to be processed in 2018. An IRS spokesperson clarified the reason for the change, noting that the process “reflects the requirements of the ACA and the IRS’s obligation to administer the healthcare law.” They also maintain that declaring health coverage at the time a return is filed makes filing easier and reduces the possibility of a refund delay.

The requirements of the Affordable Care Act state that every taxpayer must demonstrate that they have “essential minimum” healthcare coverage. Forms of coverage that fulfill this requirement include Medicare, Medicaid, TRICARE, VA benefits, health insurance provided by an employer, privately purchased health insurance and health insurance obtained though the Health Insurance Marketplace. If one of these forms of coverage is not in place, the taxpayer must either obtain a waiver based on demonstrating a financial hardship or be subject to the assessment of a penalty. The penalty, which is referred to as the shared individual responsibility payment, is the greater of 2.5% of the taxpayer’s adjusted gross income or $695 per adult and $347.50 child up to a maximum of $2085.

Although President Trump signed an executive order earlier this year giving executive departments and agencies the authority to roll back certain aspects of Obamacare, the IRS has actually stepped up enforcement. While 2017 tax returns were processed even when line 61 indicating health care coverage was left blank, this will not be the case in for the upcoming tax season. In fact the IRS recently issued an official statement indicating that the 2108 filing season will be the first time the IRS will not accept tax returns that omit healthcare information. They have said that electronically filled and paper returns with this omission will be thrown out, thus delaying the receipt of any refund associated with the return. In addition to stepping up enforcement for the current tax year, the agency has recently sent out letters to over 130,000 taxpayers who did indicate healthcare coverage on their 2014 and/or 2015 tax returns.

Only time will tell how all of this will play out. Republican Congressmen have launched several attempts to repeal and replace the Affordable Healthcare Act but, to date, have been unsuccessful. This means that the IRS requirement that taxpayers indicate their healthcare coverage on their 2017 tax returns will stand as the 2018 tax season approaches. Although none of the more serious tax collection techniques such as tax liens or tax levies apply to meeting this requirement, the threat of a withheld tax refund may well be enough to force taxpayers into compliance on this issue.

The licensed accountants and bookkeepers at Las Vegas Bookkeeping have the knowledge and expertise to help your business run smoothly and efficiently. Contact us by phone at (702)514-4048 or by email at tina@lasvegasbookkeeping.com to receive a free, no obligation consultation. Don’t wait! Streamline your business operations by contacting the professionals at Las Vegas Bookkeeping today

Income Tax Changes Affecting 2016 Tax Returns

Although Benjamin Franklin’s famous statement that “nothing can be said to be certain, except death and taxes” may still be true, his remark definitely does not refer to any of the specifics involved with filing and paying income taxes. In fact, Barbara Weltman, an editor for J.K. Lasser’s Income Tax 2017, recently reminded taxpayers that they should not assume that “what (they) relied on last year is necessarily the same.” Although there are no major changes to the tax filing parameters for 2016 tax returns, there are certain changes to tax penalties, mileage rates, tax exemptions, tax credits and tax brackets that tax filers should be aware of.

The following are some of the changes that affect the filing of 2016 tax returns:

Change in Tax Filing Deadline

Tax Day for 2107 is Tuesday, April 18th. This delay is due to the fact that the normal April 15th filing deadline falls on a Saturday followed by Emancipation Day on Monday.

Increase in Health Insurance Penalty

The 2016 penalty for not having health insurance is $695 per adult and $349.50 per child, with a maximum household penalty of $2085. These tax penalties are up over 100% from those tax penalties imposed in 2015.

Millage Rate Decrease

Taxpayers are allowed to deduct expenses involved with the use of their personal vehicle for certain specific purposes that include medical, charitable causes, moving and business. This tax break can be calculated in one of two ways, either by using the actual costs involved with operating the vehicle to service these various proposes or by using the mileage rate specified by the IRS. The mileage rate for 2016 tax returns has decreased form 57.5 cents per mile to 54 cents per mile for business and from 23 cents per mile to 19 cents per mile for medical and moving related use. It remains unchanged at 14 cents per mile when the vehicle is used for charitable reasons.

Tax Bracket Changes

The income limit for single taxpayers subjected to the maximum tax rate of 39.6% has been raised from $413,200 to $425,050 and from $464,850 to $466,950 for married couples filing jointly. The income limits for all other tax brackets have also been increased slightly.

Higher Personal Exemption

The personal exemption has increased from $4000 to $4050 for single taxpayers with adjusted gross incomes below $259,400 ($311,300 for married couple filing jointly). The income level at which this exemption fades out completely has also been increased.

Possible Refund Delay

Tax refunds will be delayed for taxpayers who are claiming either the Additional Child Tax Credit or the Earned Income Tax Credit. According to the provisions of the Protecting Americans from Tax Hikes (PATH) Legislation that was passed in 2015, refunds associated with tax returns claiming either of these two tax breaks must be held until February 15th in order to give the IRS time to match tax return information with forms W-2 and 1099-MISC submitted by employers.

Passport Revocation for Owing Back Taxes

Beginning this year, the State Department will have the right to revoke the passport of any taxpayer who has a back tax balance in excess of $50,000. This law was passed as an add-on provision of the Fixing America’s Surface Transportation (FAST) Act of 2015.

The licensed accountants and bookkeepers at Las Vegas Bookkeeping have the knowledge and expertise to help your business run smoothly and efficiently. Contact us by phone at (702)945-2757 or by email at tina@lasvegasbookkeeping.com to receive a free, no obligation consultation. Don’t wait! Streamline your business operations by contacting the professionals at Las Vegas Bookkeeping today.