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Your Income Taxes

 
Old 12-29-2018, 07:18 PM
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It's almost time for the annual ritual of preparing your income taxes. This year taxes are further complicated by the Tax Cuts and Jobs Act of 2017. There have been a number of changes that you need to know about. Over the next few nights/weeks I plan on discussing some of these changes so that you can better prepare yourself when you visit your CPA or tax preparer. As always, the earlier you see your accountant or tax preparer the better it is for everyone. I'm a bit prejudiced, but I believe that there is no substitute for a CPA.

Some of the changes that you will need to know about are:

1. The $10,000 limitation on your State and Local Tax (commonly called the SALT Tax) deduction. The effect of this, of course, is that your itemized deduction will be significantly less. The Standard Deduction, however, has been increased to $24,000 for married filing jointly or $12,000 for Single filers. The chances are if you don't live in one of the high tax states (ie: New Jersey, New York, Mass., Connecticut or California) you might be better off.

2. While it hasn't been eliminated, the Alternative Minimum Tax (AMT) is no longer the threat that it was before. The exemption amount has been increased, and because of the limitation on the Real Estate Tax and State Taxes, which were the prime triggers of AMT, most people won't pay AMT taxes.

3. Deduction for SALT taxes through reduced still exists, as does mortgage interest deduction (although changed, especially as related to home equity loan interest) also still exists. Charitable contributions all still exist as deductions and medical dedctions still exist. All of the 2% deductions, such as estate planning, the fee for income tax preparation and etc. no longer are available.

4. For those of you filing business returns, or if you have a sole proprietorship or a single member LLC and file a schedule C on your personal income tax return, you can still deduct meal at 50% but you can no longer deduct entertainment. So if you take a client to a baseball game, you can deduct the cost of the hot dogs and beers, but you cannot any longer deduct the price of the tickets to the game.

5. The rates and brackets have been reduced. Most of the projections I've seen so far have benefited from this.

6. While the Kiddie Tax still exists, the rate is no longer based on the parent's return. Now it is based on the rates for a trust return. Now the children's returns can be filed without waiting for the parents return to be completed.

7. The Qualified Business Income Deduction (Section 199A, commonly known as QBI) is new and gives most small business the same or similar advantage as a C-Corporation.

8. The forms have changed. While they still look somewhat the same they are fragmented and appear in a different order.

These are some of the changes that have occurred. There are many more. Over the next few weeks I'll discuss them here. You are welcome to add your comments and ask questions. The more comments and questions that appear, the more interesting this thread becomes, and we all get a chance to learn something. The only thing that I'll ask is that this thread remain informative and not become political. Nobody likes paying taxes, but that's not the point of this thread.

Disclaimer
As always, nothing in this thread is to be considered authoritative. The point of this thread is to give you some guidance in preparing your information for your CPA or tax preparer. If you do your own taxes the point of this thread is simply to show you what to look for in the process. As always you should consult with your CPA or tax professional.
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Old 12-29-2018, 07:34 PM
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I don’t understand #7 as it relates to comparing the flow thru rate to a C-Corp. Still have two levels of tax with C-Corps. It’s not as simple as comparing the 21% C-Corp rate to the QBI deduction and flow-thrus. It’s much more complicated than that.

Good information otherwise. Thanks for sharing.
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Old 12-29-2018, 07:59 PM
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Originally Posted by ssbfgc View Post
I don’t understand #7 as it relates to comparing the flow thru rate to a C-Corp. Still have two levels of tax with C-Corps. It’s not as simple as comparing the 21% C-Corp rate to the QBI deduction and flow-thrus. It’s much more complicated than that.

Good information otherwise. Thanks for sharing.
Yes, it is much more complicated. My intention was simply to introduce it for discussion in a later post and I only wanted to give an overview. Sorry if I caused any confusion.
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Old 12-30-2018, 03:56 AM
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thanks Rob, you reminded me to go invest in vaseline and Y stock.

and #1 will be a real killer. it stills peeves me that I can Voluntarily tithe to the church and it is deductible but a Mandatory tax is not.
Maybe I can call my town a religious organization.
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Old 12-30-2018, 04:05 AM
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Thank you for posting this information Rob. I actually just got my organizer from my accountant in the mail this week. I agree with you having a good cpa is worth the investment.
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Old 12-30-2018, 05:02 AM
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Rob;
I'll be following this topic.
I was aware of the changes you mentioned that apply to us but I'm hoping you'll mention a few more cuts/changes we can use.
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Old 12-30-2018, 09:08 AM
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I agree on using a CPA and thanks for sharing this information Rob. I heard that anyone over 65 gets an additional $2600 if they take the standard deduction. Is that true. Also, can I still write off my business expenses for my detailing business if we take the standard deduction. Thanks.
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Old 12-30-2018, 09:17 AM
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Originally Posted by boltonblue View Post
thanks Rob, you reminded me to go invest in vaseline and Y stock.

and #1 will be a real killer. it stills peeves me that I can Voluntarily tithe to the church and it is deductible but a Mandatory tax is not.
Maybe I can call my town a religious organization.
When the tax code was changed a lot of people and municipalities, especially those in the high tax states, were talking about somehow creating a not for profit enterprise so that people could donate the tax amount to it and it in turn would fund the municipality. Within a very short period of time the IRS announced that this would not be allowed and the talk stopped.

A few people are wondering if the tax code will be changed back to allow for the full deduction of the SALT taxes once the Democrats take over the house, but most people think it's unlikely. Certainly not for tax year 2018.

So far, what I've seen in the projections that I've done, because of the lowering of the rates and the lessening of the AMT threat together with the increased standard deduction, most individual taxpayers are more or less no worse off than they were in 2017. How this actually shakes out remains to be seen when the finalized tax returns are completed.
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Old 12-30-2018, 09:35 AM
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Originally Posted by S2KRAY View Post
I agree on using a CPA and thanks for sharing this information Rob. I heard that anyone over 65 gets an additional $2600 if they take the standard deduction. Is that true. Also, can I still write off my business expenses for my detailing business if we take the standard deduction. Thanks.
Yes it is true. If you file single and are over 65 you get an additional $1,600, if you are married but only one of the spouses is over 65 you get an additional $1,300, if both are over 65 you get an additional $2,600.

Your business expenses probably has nothing to do with the Standard or Itemized Deduction. I would expect that your detailing business appears on a Schedule C (Profit or Loss From Business) of your individual tax return. If that's the case, nothing has changed from 2017 except that you can no longer claim entertainment as an expense, only meals. In the past people claimed "Meals and Entertainment" as a business expense for when they took out clients. Meals were deducted at 50%. Meals are still allowed at 50% but entertainment is no longer allowed as a deduction. If you are claiming your expenses on a form 2106, (unreimbursed business expenses) you can no longer write them off. If your detailing business is your business as a sole proprietor the proper form for it is the Schedule C, not the 2106. Your business expenses probably should not appear on the Schedule A Itemized Deductions form. Please consult with your CPA or tax preparer about this. He/She knows your situation and can properly advise you.
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Old 12-30-2018, 04:04 PM
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Thanks Rob. My hope is that the lower rates fully offset the elimination or reduction of many deductions I have enjoyed in the past.
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