Dear Friends and Clients;
REED & DAILEY ASSOCIATES’
ANNUAL INCOME TAX UPDATE
Hello! Our annual Tax Update Newsletter is just a bit different this year. We have provided you a summary of the New Tax Law’s most common items of interest. You may want to keep it handy or pass it on to a friend. Please do so.
THE NEW FORM 1040 is re-designed for 2018 and there is no 1040A or 1040EZ anymore. Congress pressed the IRS to create a “One Page” Tax Return in postcard style. So the IRS did actually create a New Form 1040 on one page, but…only those with “simple returns” (Wages, Pension/IRA income, and without Tax Credits) will find the NEW 1040 as “easy” as the old 1040A or 1040EZ. ALL OTHER TAXPAYERS WILL FIND THE NEW FORM 1040 MORE CONFUSING THAN EVER.
ONE REASON FOR THE ADDED COMPLEXITY is the newly created SCHEDULES #1 to #6. These NEW SCHEDULES add extra steps and extra paperwork in reporting many other items of Income, Adjustments to Income, Credits, and Tax Payments that were not needed before.
ANOTHER REASON for the added complexity is that the New Form 1040 does not “Add and Subtract” all the line items in a logical and visible manner. There are “Hidden Items” that are computed on other forms and sometimes a box is checked instead of entering numbers that you would normally see next to a line. We could rant, but we choose not to. J
RELAX!…NO WORRIES! REED & DAILEY ASSOCIATES WILL PROVIDE YOU AN EASY TO UNDERSTAND “TAX SUMMARY FORM”. It will resemble the old Form 1040 so that you can see your results quickly and easily. Your professionally prepared tax return will start with the Tax Summary first. A copy of the New Form 1040, State, and Local returns with the many Schedules and Forms will follow. Our expert staff will help explain any questions you may have and help in any way possible.
BIG NEWS: Please sort your Mortgage Interest Statements (Form 1098) and identify which Mortgage Interest is for buying, building, or adding on to your Residence or Second Home. Otherwise, the Home Equity portion not used for the above is no longer tax deductible. This may be an inconvenience but IRS laws now require you to be able to “trace the loan proceeds”.
BY THE WAY: WHO WINS with the New Tax Law? You do, most likely. And- your family and your friends probably benefit. Most taxpayers save at least hundreds of dollars for 2018 tax returns (being filed now, 2019) and many with middle- to upper incomes save thousands! We estimate that our clients will average over $1,600 in tax savings per year.
WHAT HAPPENED? Congress, at the “urging” of President Trump, lowered tax rates across the board, increased TAX CREDITS for Dependent Children, created a new TAX CREDIT for other Dependents, increased the income levels where taxpayers start losing tax benefits (“Phase-out $$ amounts”), and much more than we can summarize in your annual newsletter.
WHERE is the greatest New Tax Break? It depends. For Families: The Child Tax Credit increased from $1,000 to $2,000 per child, and higher incomes now qualify. For Business: The New 20% Business Income Deduction allows most business and rental owners to escape Federal Taxes on 20% of annual net profits. High Incomes benefit with lower tax rates. Who gets no benefit under the New Tax Law: Those who pay $-0- Income Taxes. No Taxes? No Benefit.
WHEN did these New Tax Laws start? Do they End? Most provisions start for 2018 tax returns. Many provisions end in 2025 unless made permanent by Congress. It will be interesting to see how the changing political landscape affects the new lower tax brackets, business profit deductions, and the new restrictions on State and Local Tax Deductions for Itemizers.
HOW do I know if I benefit from the New Tax Law? You are provided a “Two Year Comparison” which shows your 2017 and 2018 Tax Return data side-by-side. That could be a simplified way of analyzing your taxes from year to year.
And…WHY does Congress seem to tinker with the Tax Laws so frequently? Politics is about “Change”. Change is constant.
SCH. A- ITEMIZED DEDUCTIONS Part I: (1) The TCJA limits the Schedule A Itemized Deduction for Taxes at $10,000. This is for all Real Estate Taxes, Sales Taxes, and State/Local Income Taxes, all combined. BIG LOSERS: High-tax states like NY, NJ, CA, MA (“Blue States”?) and those with high incomes and high Real Estate Taxes. (2) Home Equity Interest is no longer deductible. (3) Mortgage Interest for a Second Home: Remains deductible (4) New Home Mortgage Interest: (If home purchased after 2017) the first $750,000 of the loan- Interest is OK. After $750,000 loan: No deduction. **Mortgages taken out before 2018 retain their prior deduction status until paid off** (5) Mortgage Insurance Deduction-No deduction. (6) Personal Casualty and Theft Losses-No Deduction.(Except for Casualty Losses due to Federal Disaster Areas, which remain) (7) Miscellaneous Deductions- See Next…
SCH. A- PART II: Miscellaneous Deductions- Employee Business Expenses? No Deduction. Employees with auto and travel expenses, Union Dues, work tools, work clothes, and especially Truck Drivers with overnight meals lose big-time under the new law. Other Miscellaneous Deductions on Schedule A that are subject to a 2% floor: No Deduction.
Other Schedule A “No Deduction” Examples: Tax Prep fees, investment management fees, and investment expenses, legal fees to collect taxable income, and even safe deposit box fees: they all disappear under the new TCJA.
SCH. A- PART III: MEDICAL EXPENSES: Medical Expenses remain deductible. ANOTHER SURPRISE: The 10% of AGI threshold remains reduced to 7.5% for 2018, thereby increasing deductions. This is great news for elderly clients and those in nursing homes. After 2018 Medical Expenses must exceed 10% of AGI to be deductible.
MANY OF THE TCJA PROVISIONS EXPIRE AFTER DECEMBER 31, 2025, unless extended by Congress. Right now it would be too confusing to go point-by-point and show which changes stay and which ones are scheduled to go away. Of course, we will keep you informed each year about what’s going down. That’s why we do this.
BUSINESS OWNERSHIP HAS ITS REWARDS. Most BUSINESS OWNERS WIN BIG. Active Business Owners get to shave off up to 20% of their profit for Income Tax Purposes under the TCJA. Whether an active Partner, S-Corp Owner, or Self-Employed Owner you’ll get a deduction up to 20% of your Profit when you go to figure your Income Tax. No break on Self Employment Tax though. The deduction is only for the Federal Income Tax on your Profit.
CERTAIN HIGH-INCOME PROFESSIONAL SERVICE OWNERS GET “CAPPED” on the 20% “Profit Shave”. Accountants, Lawyers, Doctors, Financial Reps, and certain other Professionals (Athletes, Actors, Musicians, Creative Sorts…) have reduced tax benefits if their Taxable Income is over $315,000 MFJ (or $157,500 Single). This will not affect the vast majority of Professionals.
C-CORPORATE TAX RATES DROP DRAMATICALLY: Old Rule: C-Corporations were taxed on “graduated tax rates” starting at 15% up to a maximum of 35%. New Rule: C-Corporate Net Income is taxed at a flat 21% tax rate. This HUGE tax break for Big Business is expected to free up $Billions in Cash to be re-entered into the US Economy. Opinions vary on whether the cash will result in Economic Growth or if it will result in furthering US Budget Deficits, or a combination of each.
Other Tax Benefits that are retained: Educator Expense Deduction: $250 retained; Student Loan Interest Deduction: retained; Exclusion of Taxation on Tuition Waivers for Graduate Students: retained.
LANDLORDS: Finally, RENTAL PROPERTY OWNERS CAN GET IMMEDIATE TAX DEDUCTIONS for furnishings, fixtures, HVAC, appliances, and…ROOF REPAIRS using 100% Bonus Depreciation. Prior to January 1, 2018 Landlords had to depreciate over various time periods the above common capital expenditures. With the new change, Rental Deductions are put on par with Business deductions.
BACK TO BUSINESS: SECTION 179 DEDUCTIONS INCREASED AND MADE PERMANENT. The New Law increases the Sec. 179 Deduction Limit to $1,000,000 and is made permanent effective for purchases starting January 1, 2018. SECTION 179 APPLIES TO BOTH NEW AND USED QUALIFYING PROPERTY. This is contrasted with BONUS DEPRECIATION.
“BONUS DEPRECIATION” IS ENHANCED RETROACTIVE TO SEPT. 28, 2017, UP UNTIL DECEMBER 31, 2022. “Bonus Depreciation”, similar to Section 179 Deductions, allows Business to deduct 100% of the cost of “Qualifying Property” in the year placed in service. One major change is the definition of “Qualifying Property”. For Bonus Depreciation, “Qualifying Property” formerly meant New Property only. Used Property did not qualify for Bonus Depreciation. Now, with the TCJA Used Property qualifies for Bonus Depreciation (unless acquired from a related party, and a few other restrictions.)
BONUS DEPRECIATION IS THEN REDUCED IN FUTURE YEARS AFTER 2022 by 20% per year each calendar year starting in 2023. For instance, in 2023 first-year Bonus Depreciation is reduced to 80% of qualifying cost; in 2024 60% can be first-year Bonus Depreciation, and so on. Look for further extensions and refinement of the crazy Depreciation rules in years to come.
COMPUTERS & PERIPHERAL EQUIPMENT ARE NO LONGER “LISTED PROPERTY” and are therefore not subject to the heightened substantiation requirements that used to apply to listed property. Still, keep a record of personal vs. business use.
WHEN A FAMILY MEMBER IS DECEASED Reed & Dailey Associates can file Estate Income Tax Returns (Form 1041) for the Estate of Deceased Persons. We work with several attorneys in the area and we are glad to be of service in the most sensitive of times. Please do not hesitate to call us for any questions, or for planning purposes to minimize future income taxes when a loved one passes. Please note that we cannot file PA Inheritance Tax Returns unless at the direction of an attorney.
TOP TEN TAX TIDBITS: (1) Don’t forget to send 1099’s to Non-employees paid $600 or more for the year by Jan. 31st. (2) The IRS does not allow “estimates” of Mileage, Travel, and Meals. Keep actual mileage and hotel receipts at the time incurred. (3) Standard Mileage Rates 2018/2019: Business use $.54 ½ /$.58. Medical $.18/$.20. Charitable $.14/$.14 (4) The 2018-2019 annual Gift Tax Exclusion is $15,000; (5) If you exceed the annual Gift Tax Exclusion you must report it on a Gift Tax Return, but no tax is due unless you gift over $5,400,000+ in your lifetime. (6) Gifts are not subject to Federal Income Taxes. (7) Always seek tax advice before you act, not after the fact. (8) IRA Required Minimum Distributions (RMD) can be taken from one IRA account or from several IRA accounts in a year. It is your choice. (9) Rollover mistakes cost taxpayers THOUSANDS OF DOLLARS each year. Call us first to avoid penalties and unnecessary taxes with proper planning. (10) We offer FREE INCOME TAX SERVICE to COMBAT ZONE military families. Please remember to support our Veterans in any way that you can.
DO YOU NEED HELP WITH YOUR INVESTMENTS: IRA’S, 401k ROLLOVERS, COLLEGE SAVINGS, ANNUITIES, TERM LIFE INSURANCE, OR LUMP SUMS OF MONEY? Donald Reed, Jr. and Matthew J. Dailey are Financial Advisers with Cetera Financial Specialists, LLC. If you need help with your financial and retirement planning goals and are a resident of PA, OH, or MD please call anytime. (These services are not affiliated with Reed & Dailey Associates, Inc.; Securities offered by Cetera Financial Specialists, LLC, member FINRA/SIPC; Branch Office 475 S. Buhl Farm Drive, Hermitage, PA 16148. Advisory services offered through Cetera Investment Advisers, LLC. Cetera is under separate ownership from any other named entity).
APPOINTMENTS: Please call us ASAP for appointments. Should you wish to DROP-OFF your information, please don’t call ahead of time to DROP-OFF. Jot down questions- we will call you back. WE HAVE ALL TAX FORMS ON COMPUTER SOFTWARE (Federal, State, and Local) so don’t wait for those to come in the mail.
REFERRALS are greatly appreciated! We say THANK YOU for sending great people our way. Please tell a friend if you are pleased with our service. We strive to offer you the best possible experience with our friendly staff!
MAY THE LORD BLESS YOU IN 2019 AND BEYOND
Donald G. Reed, Enrolled Agent Don Reed, Jr., CPA Matthew J. Dailey, CPA, MBA
JoLynn DeVries, General Manager Jill Seidel, Senior Staff Accountant
Cathy Kamovitch, Front Office Coordinator
STAFF TAX PREPARERS:
Gail Moore, Lynn Mathieson, LeaAnne Dumars
Jamie Dailey, Cheryl Whalen, Beth Luther, Kathy Murphy, Melody Perdian,
Michelle Parker, Stephanie Myers, Tiffany Sutton, Julee McCamey
*PLEASE FILL IN THE 2018 CLIENT INFORMATION SHEET FOUND ON THE REVERSE SIDE OF THIS FORM *
AND BRING IT WITH YOU, OR SEND IT IN ALONG WITH YOUR INCOME TAX INFORMATION.
PHONE: 724-981-7779 FAX: 724-981-3199
Tax/Accounting email: firstname.lastname@example.org
Please Visit our Website: www.reedtax1.com
Tax Season Office Hours:
Monday-Thursday 8:00AM- 8:00PM - Friday & Saturday: 8:00AM- 4:00PM