On December 22, 2017, President Donald Trump signed into law H.R. 1, known as the Tax Cuts and Jobs Act of 2017, which makes widespread changes to the Internal Revenue Code. Almost all of its provisions, including a lower corporate tax rate of 21% and lower individual income tax rates, go into effect Jan. 1.We have outlined the differences between current law and the conference report.
TAX CUTS AND JOBS ACT OF 2017
This table compares the predominate changes made by the “Tax Cuts and Jobs Act of 2017” to the tax law as it was during 2017 for individuals and small businesses.
Tax CutS & Jobs Act (2018)
|$4,050||Suspended through 2025 (effectively repealed)|
Head of household: $9,350
Married filing joint: $12,700
Add’l Elderly & Blind
Joint & Surviving Spouse: $1,250
Head of household: $18,000
Married filing joint: $ 24,000
Add’l Elderly & Blind
Joint & Surviving Spouse: $1,300
|Medical – Allowed in excess of 10% of AGI||Retained for 2017 and 2018 with an AGI threshold of 7.5% regardless of age. Threshold increases to 10% after 2018. 7.5% threshold also applies for AMT purposes for ’17 and ’18.|
|Taxes – Property taxes and state and local income taxes are deductible. Taxpayers can elect to deduct sales tax in lieu of state income tax.||The deduction for taxes is retained but capped at $10,000 for the year. Foreign real property taxes may not be included. The Act prohibits claiming a 2017 itemized deduction on a pre-payment of income tax for 2018 or another future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.|
|Home Mortgage Interest – Allows interest on $1M of acquisition debt on primary and second home and interest on $100K of home equity debt.||Allows interest on $750K of acquisition debt on the primary and secondary home. Grandfathers interest on up to $1M of acquisition debt for loans prior to 12/15/2017. Repeals the deduction for home equity debt.|
|Charitable Contributions – Allows charitable contributions generally not exceeding 50% of a taxpayer’s AGI.||Continues to allow charitable contributions and increases the 50% of AGI to 60%. Bans charitable deduction for payments made in exchange for college athletic event seating rights. Also repeals certain substantiation exceptions.|
|Gambling Losses – Allows a deduction for gambling losses not exceeding gambling income.||Continues to allow a deduction for gambling losses not to exceed the gambling income. Clarifies that “gambling losses” includes any deduction otherwise allowable in carrying on any wagering transaction.|
|Personal Casualty & Theft Losses – Casualty and theft losses are allowed to the extent each loss exceeds $100 and the sum of all losses for the year exceeds 10% of the taxpayer’s AGI.||Suspends personal casualty losses through 2025, except for casualty losses attributable to a disaster declared by the President under Sec 401 of the Robert T Stafford Disaster Relief and Emergency Assistance Act.|
|Tier 2 Miscellaneous – Includes deductions for employee business expenses, tax preparation fees, investment expenses and certain casualty losses.||Suspends all tier 2 (those subject to the 2% of AGI threshold) itemized deductions through 2025.|
|Phase-out of Itemized Deductions – Itemized deductions are phased out for higher-income taxpayers.||The phase-out is suspended through 2025.|
|Teachers’ Deduction – Allowed up to $250 (indexed) for classroom supplies and professional development courses.||Continues to allow this deduction.|
|Moving Deduction & Reimbursements – Allows a deduction for moving expenses for a job-related move where the commute is 50 miles further and the individual is employed for a certain length of time. Qualified moving expense reimbursements are excluded from the employee’s gross income.||A deduction is suspended through 2025 except for a military change of station. Employer (other than military) reimbursement would be included as taxable wages.|
|Alimony – Allows the payer of alimony to claim an above-the-line deduction for qualified payments; recipient reports the income.||For divorce agreements entered into after December 31, 2018, or existing agreements modified after that date that specifically includes this amendment in the modification, alimony would no longer be deductible by the payer and would not be income to the recipient.|
|Performing Artists Expenses – An employee with an AGI of $16,000 or less who receives $200 or more from each of two or more employers in the performing arts field can deduct their performing arts expenses that exceed 10% of AGI as an above-the-line deduction.||Retained – The House Bill would have repealed this deduction but the conference agreement retains it in its current form.|
|Government Officials’ Expenses – An official who is paid on a fee basis as an employee of a state or local government and who pays or incurs expenses with respect to that employment may claim the expenses as a deduction in calculating AGI.||Retained – The House Bill would have repealed this deduction but the conference agreement retains it in its current form.|
|Employee Fringe Benefits|
|Bicycle Commuting – Allows reimbursement of $20 per month as tax-free compensation||Suspended through 2025|
|Employer-Provided Housing – Allows an exclusion from income for the costs of housing provided an employee for the convenience of the employer||Retained – The House Bill would have limited the excludable amount, but the conference agreement retains the exclusion in its current form.|
|Dependent Care Assistance – Allows an exclusion from gross income of up to $5,000 per year for employer-provided dependent care assistance.||Retained – The House Bill would have repealed the excludable amount, but the conference agreement retains the exclusion in its current form.|
|Adoption Assistance – An employee can exclude a maximum of $13,570 (2017) for qualified adoption expenses paid or reimbursed by an employer. The exclusion is phased out for higher-income taxpayers.||Retained – The House Bill would have repealed the exclusion, but the conference agreement retains the exclusion in its current form.|
|There are seven tax brackets: 10, 15, 25, 28, 33, 35 and 39.6%.||There will continue to be seven tax brackets but at different rates and thresholds. The rates are: 10, 12, 22, 24, 32, 35 and 37%|
|Identifying Shares Sold|
|Under current law, a taxpayer who disposes of part of his shares in a corporation that was acquired at different times or for different prices is allowed to choose which shares are considered sold if they are adequately identified.||The Senate version of the bill would have required using the first-in-first-out (FIFO) method of selection for which shares were sold. However, the final bill does not include that requirement.|
|Child Tax Credit|
|Allows a credit of $1,000 per qualified child under the age of 17. The credit is reduced by $50 for each $1,000 the taxpayer’s modified gross income exceeds $75K for single taxpayers, $110K for married taxpayers filing joint and $55K for married taxpayers filing separately. Taxpayers are eligible for a refundable credit equal to 15% of earned income in excess of $3,000. There is also a special refundable computation when there are 3 or more qualifying children.||Retains the “under age 17” requirement and increases the child tax credit to $2,000, with up to $1,400 being refundable per qualified child. The credit phases out for taxpayers with AGI over $200,000 ($400,000 if married-joint). Thresholds are not inflation-indexed. The child must have a valid Social Security Number that is issued before the due date of the return to qualify for this credit.|
|Non-child Dependent Credit|
|No such provision||Allows a $500 non-refundable credit for non-child dependents. Same phaseout rule as for Child Tax Credit.|
|Alternative Minimum Tax (AMT)|
|Individuals – 2017 Exemption amounts are $84,500 for married taxpayers filing jointly, $42,250 for married filing separate, and $54,300 for single and head of household.
The exemption phase-out thresholds are:
$160,900 for married taxpayers filing jointly, $80,450 for married filing separate, and $120,700 for single and head of household.
|Retained, but the exemption amounts are increased to:
$109,400 for married taxpayers filing jointly, $54,700 for married filing separate, and $70,300 for single and head of household.
The exemption phase-out thresholds are increased to: $1 Million for married taxpayers filing jointly and $500K for others.
|American Opportunity Credit (AOTC) – The AOTC provides a post-secondary education tax credit of up to $2,500 per year, per student for up to four years. 40% of the credit is refundable. The credit has a phase-out threshold of $160K for MFJ filers (no credit allowed for MFS) and $80K for others.||Retained – The House Bill would have extended the credit to a fifth year, but the conference agreement retained the credit in its current form.|
|Lifetime Learning Credit (LLC) – LLC provides an annual credit of up to $2,000 per family for post-secondary education. The credit has a phase-out threshold of $112K for MFJ filers (no credit allowed for MFS) and $56K for others.||Retained – The House Bill would have repealed the LLC, but the conference agreement retains the credit in its current form.|
|Coverdell Education Accounts – An annual non-deductible contribution of up to $2,000 is permitted and with tax-free accumulation if distributions are used for grammar school and above education expenses.||Retained – The House Bill would have barred any further contributions to Coverdells, but allowed a rollover to a Sec 529 plan. However, the conference agreement retains Coverdell accounts in their current form.|
|Sec 529 Plans – These accounts allow non-deductible contribution and provide for tax-free accumulation if distributions are used for post-secondary education expenses.||Amended to allow tax-free distributions of up to $10K per year for grammar and high school education tuition and expenses.|
|Discharge of Student Loan Indebtedness – Excludes from income the discharge of debt where the discharge was contingent on the student working a specific period of time in certain professions and for certain employers.||Modified to exclude income from the discharge of indebtedness due to death or permanent disability of the student.|
|Higher Education Interest – Allows an interest deduction of up to $2,500 for interest paid on post-secondary education loans.||Retained – The House Bill would have repealed the higher education interest deduction, but the conference agreement retains the deduction in its current form.|
|Tuition Deduction – Allows an above-the-line deduction for tuition and related expenses in years before 2017. The amount of the deduction is limited by AGI and the maximum deduction for any year is $4,000.||Retained – The House Bill would have repealed the tuition deduction, but the conference agreement retains the deduction in its current form. This means that the termination date of December 31, 2016, still applies, so this deduction would not be allowed for 2017 and later.|
|Employer-Provided Education Assistance – An employer is permitted to provide tax-free employee fringe benefits up to $5,250 per year for an employee’s education.||Retained – The House Bill would have repealed employer-provided education assistance, but the conference agreement retains the assistance in its current form.|
|Exclusion of Qualified Tuition Reduction – Employees of educational institutions, their spouses and dependents may receive a nontaxable benefit of reduced tuition.||Retained – The House Bill would have repealed the exclusion from income of tuition reductions, but the conference agreement retains the benefit in its current form.|
|Exclusion for Interest on U.S. Savings Bonds used for Higher Education Expenses – Interest earned on a qualified United States Series EE savings bond issued after 1989 is excludable from gross income to the extent the proceeds of the bond upon redemption are used to pay for higher education expenses. The exclusion is phased out for higher-income taxpayers.||Retained – The House Bill would have repealed the exclusion from income of U.S. savings bond interest used for higher education expenses, but the conference agreement retains the benefit in its current form.|
|Sec 529 – Able Account Rollovers||Distributions after 2017 from 529 plans would be allowed to be rolled over to an ABLE account without penalty, provided that the ABLE account is owned by the designated beneficiary of that 529 account, or a member of the designated beneficiary’s family.|
|Home Sale Exclusion|
|Generally, where a taxpayer owns and uses a home as his principal residence for 2 out of the 5 years prior to its sale, the taxpayer can exclude up to $250,000 ($500,000 for a married couple) of profit from the sale.||Both the Senate and House bills would have changed the qualifying period to 5 out of 8 years, and the House bill would have phased the exclusion out for higher-income taxpayers. The conference agreement retains the current law.|
|Roth Conversion Recharacterizations|
|Permits, within certain time limits, a Traditional to Roth IRA conversion to be undone.||The Act repeals the special rule that allows IRA contributions to one type of IRA (either traditional or Roth) to be recharacterized as a contribution to the other type of IRA. Thus, for example, under the provision, a conversion contribution establishing a Roth IRA during a taxable year can no longer be recharacterized as a contribution to a traditional IRA (thereby unwinding the conversion).|
|Estate & Gift Taxes|
|$5.49 Million (2017) is exempt from gift and/or estate tax. This is in addition to the annual gift tax exclusion, which for 2017 is $14,000 per gift recipient.||The exclusion is increased to $10 Million adjusted for inflation since 2011, which is estimated to be approximately $11.2 Million. The annual gift tax exclusion is retained. The House Bill would have repealed the estate tax for decedents dying in 2025 or later, but the conference agreement did not include this provision.|
|A taxpayer who can establish that entertainment expenses or meals are directly related to (or associated with) the active conduct of its trade or business, generally may deduct 50% of the expense.
|No deduction is allowed for (1) an activity generally considered to be entertainment, amusement or recreation, (2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or (3) a facility or portion thereof used in connection with items (1) and (2). Also disallows a deduction for expenses associated with providing any qualified transportation fringe to the taxpayer’s employees. Employers may still deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel).|
|Electric Vehicle Credit – Provides a non-refundable credit of up to $7,500 for the purchase of a qualified electric vehicle.||Retained – the House Bill originally repealed this credit, but the credit is retained in the conference agreement.|
|Adoption Credit – Provides a credit of up to $13,570 for a child under the age of 18 or a person physically or mentally incapable of self-care.||Retained – the House Bill originally repealed this credit, but the credit is retained in the conference agreement.|
|Sec 1031 Exchange|
|There is non-recognition of gain when taxpayers trade properties of like-kind that are used for business or investment.||For exchanges completed after December 31, 2017, only real property will qualify for Sec 1031 treatment.|
|Real Estate Recovery Periods|
|Currently real property has a MACRS recovery period of 39 years for commercial property and 27.5 years for residential rental property.||The Senate version would have shortened the recovery period for real property. However, the conference agreement retains the 27.5 and 39-year recovery periods.|
|Net Operating Loss (NOL) Deduction|
|Generally, a NOL may be carried back 2 years and any remaining balance is then carried forward until used up or a maximum of 20 years unless the taxpayer elects to forego the carryback and carry the loss forward only.||The 2-year carryback provision is generally repealed after 2017 except for certain farm losses.
Beginning after December 31, 2017, the NOL deduction is limited to 80% of taxable income (determined without regard to the NOL deduction) for losses arising in taxable years beginning after December 31, 2017.
|Sec 179 Expensing|
|A taxpayer can elect to expense up to $510,000 of tangible business property, off the shelf software and certain qualified real property (generally leasehold improvements). The annual limit is reduced by $1 for every $1 over a $2,030,000 investment limit. The Sec 179 deduction for certain sport utility vehicles is capped at $25,000.||For property placed in service after 2017: The annual expensing and investment threshold limits are increased to $1,000,000 and $2,500,000, respectively, with both subject to inflation indexing. SUV cap to be inflation-adjusted.
Definition of Sec 179 property expanded to include certain depreciable tangible personal property – e.g., beds and other furniture, refrigerators, ranges, and other equipment used in the living quarters of a lodging facility such as an apartment house, dormitory, or any other facility (or part of a facility) used predominantly to furnish lodging or in connection with furnishing lodging.
Expands the definition of qualified real property eligible for Sec 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.
|For 2017 current law allows 50% of the cost of eligible new property to be deducted with the balance of the cost depreciable. This is commonly termed “bonus” depreciation. The bonus rate is scheduled to decline to 40% for 2018, 30% for 2019 and 0% thereafter.||Allows 100% unlimited expensing of tangible business assets (except structures) acquired after September 27, 2017 and through 2022. Applies when a taxpayer first uses the asset (does not need to be new).|
|“Luxury Auto” Depreciation Limit|
|Annual limits apply to passenger autos used for business on which depreciation is claimed. For vehicles placed in service in 2017 the limits are $3,160, $5,100, $3,050 and $1,875, respectively, for years 1, 2, 3, and 4 and later. If bonus depreciation is claimed, the first-year limitation is increased by an additional $8,000.||For passenger autos placed in service after 2017 the maximum amount of allowable depreciation is increased to the following amounts if bonus depreciation is not claimed: $10,000 for the placed-in-service year, $16,000 for the 2nd year, $9,600 for the 3rd year, and $5,760 for the 4th and later years. Amounts will be indexed for inflation after 2018.|
|To claim a business deduction for certain types of property, referred to as listed property, enhanced substantiation requirements must be followed and deductions are only allowed if business use of the property is more than 50%. Computers have been included in this category.||Computers and peripheral equipment placed in service after 2017 have been removed from the definition of listed property.|
|Deduction For Pass-Through Income|
|No such provision.||The Act provides a 20% deduction for pass-through income, limited to the greater of (1) 50 percent of wage income or (2) 25% of wage income plus 2.5% of the cost of tangible depreciable property for qualifying businesses, including publicly traded partnerships, but not including certain service providers. The limitations (both caps and exclusions) do not apply to joint filer’s with income below $315K and ratably phases out between $315K and $415K, For other filers the threshold is $157K and phases out between $157K and $207K.|
|Excess Business Losses For Individuals|
|Losses, other than passive losses, were allowed, and if a net loss was the result, a NOL deduction was created and carried back 2 years and then forward 20 years until used up.||A taxpayer other than a C corporation would not be allowed an “excess business loss.” Instead, the loss would be carried forward and treated as part of the taxpayer’s net operating loss (NOL) carryforward in subsequent taxable years. Excess business loss for a taxable year is defined in the Act as the excess of the taxpayer’s aggregate deductions attributable to the taxpayer’s trades or businesses for that year, over the sum of the taxpayer’s aggregate gross income or gain for the year plus a “threshold amount” of $500,000 for married individuals filing jointly, or $250,000 for other individuals. The provision will apply after taking into account the passive activity loss rules.|
|Domestic Production Deduction (Sec 199)|
|Sec 199 provides a deduction from taxable income (AGI in the case of an individual), equal to 9% of the lesser of the taxpayer’s qualified domestic production activities income or taxable income (determined without regard to the section 199 deduction) for the taxable year. The deduction is further limited to 50% of the W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts for the year.||Repealed, effective 2018|
|ACA Individual Insurance Mandate|
|Anyone who does not meet one of the limited exemptions must have health insurance or pay a penalty. In the tax code, this is referred to as the “shared responsibility payment.” The penalty is the greater of an inflation-adjusted flat dollar amount or 2.5% of the taxpayer’s household income. For 2018 the flat dollar amount is $695 per adult and $347.50 per child but not more than $2,085 per family.||Repealed, effective 2019.|
With tax time approaching, if you drive for Uber, Lyft or a competitor, here is some tax information related to reporting your income.
You are considered self-employed and will report your income and deductible expenses on IRS Schedule C to arrive at your taxable income for income tax and self-employment tax.
IRS Forms: Your driving income will be reported on IRS information Form 1099-K, which reflects the entire amount for your fares charged on credit cards through the Uber reporting system. So if the 1099-K includes the total charges, then it also includes the Uber fee and credit card fees, both of which are deductible by you on your Schedule C. To determine the amount of those fees, you must first add up all the direct deposits made by Uber to your bank account. Then subtract the total deposits from the amount on the 1099-K; the result will be the total of the Uber fees and credit card processing fees. If you drive for multiple services, you will have multiple 1099-Ks and deposits from multiple services. It is highly recommended that you keep copies of your bank statements for the year so you can verify deposits in case of an IRS audit.
You will also need to include in your income any cash tips you received that were not charged through Uber. You should keep a notebook in your vehicle where you can record your cash tips. Having a contemporaneously maintained tip logbook is important in case of an audit.
Deductions: Your largest deduction on your Schedule C will be your vehicle expenses. The first step in determining the deduction for the business use of a vehicle is to determine the total miles the vehicle was driven, and then, of the total miles, the number of deductible business miles and non-deductible personal miles. Recording the vehicle’s odometer reading at the beginning of the year and again at year-end will give you the information needed to figure total miles driven during the year. Although the Uber reporting system provides you with the total fare miles, it does not include miles between fares, which are also deductible. Thus it is important that you maintain a daily log of the miles driven from the beginning of your driving shift to the end of the shift. The total of the shift miles driven will be your business miles for the year. If you know the business miles driven and total miles driven, you can determine the percentage of vehicle use for business, which is used to determine what portion of the vehicle expenses are deductible.
You may use the actual expense method or an optional mileage method to determine your deduction for the use of the vehicle. If you choose the actual expense method in the first year you use the vehicle for business, you cannot switch to the optional mileage method in a later year. On the other hand, if you choose the optional mileage rate in the first year, you are allowed to switch between methods in future years, but your write-off for vehicle depreciation is limited to the straight line method rather than an accelerated method. For 2017, the optional mileage rate is 53.5 cents per mile. The IRS generally only adjusts the rate annually. If using the optional mileage rate, you need not track the actual vehicle expenses (but you still need to track the mileage).
The actual expense method includes deducting the business cost of gas, oil, lubrication, maintenance and repairs, vehicle registration fees, insurance, interest on the loan used to purchase the vehicle, state and local property taxes, and depreciation (or lease payments if the vehicle is leased). The business cost is the total of all these items multiplied by the business use percentage. Since the vehicle is being used to transport persons for hire, it is not subject to rules that generally limit depreciation of business autos, allowing for substantial vehicle write-off in the first year where appropriate. However, if you converted a vehicle that was previously used only personally, the depreciation will be based upon the lower of cost or current fair market value, and no bonus depreciation will be allowed unless the conversion year was the same year as the purchase year.
Additional Deduction: Other deductions would include cell phone service, liability insurance and perks for your fares, such as bottled water and snacks. Depending on your circumstances, you may qualify for a business use of the home (home office) deduction. However, to qualify, the home office must be used exclusively in a taxpayer’s trade or business on a regular, continuing basis. A taxpayer must be able to provide sufficient evidence to show that the use is regular. Exclusive use means there can be no personal use (other than de minimis) at any time during the tax year. The office must also be the driver’s principal place of business.
Uber provides its drivers with detailed accounting information, and the only significant additional record keeping required is the miles traveled between fares, which is accomplished while in the vehicle. So justifying a home office is problematic. Even a portion of the garage where the vehicle is parked could qualify, but the use must be exclusive, which means the vehicle must be used 100% for business.
As a self-employed individual, you also have the ability to contribute to a deductible self-employed retirement plan or an IRA. Also, being self-employed gives you the option to deduct your health insurance without itemizing your deductions. However, these tax benefits may be limited or not allowed if you are also employed and participate in your employer’s retirement plan or if your employer pays for 50% or more of your health insurance coverage.
If you have additional questions about reporting your income and expenses, or the vehicle deduction options, please give this office a call.
From the desk of,
Your neighborhood friendly Accountant providing tax and accounting services in plain English
With year-end just around the corner, it is time to think about those last-minute actions you can take to improve your tax situation for 2017. Year-end tax planning is probably something you will want to deal with before the holiday season is in full force.
There are numerous steps that can be taken before January 1 to save a considerable amount of tax. Not all actions recommended in this article will apply to your particular situation, but you will likely benefit from many of them.
Maximize Education Tax Credits – If you qualify for either the American Opportunity or Lifetime Learning education credits, check to see how much you will have paid in qualified tuition and related expenses in 2017. If it is not the maximum allowed for computing the credits, you can prepay 2018 tuition as long as it is for an academic period beginning in the first three months of 2018. That will allow you to increase the credit for 2017. This technique is especially helpful when a student has just started college in the fall.
Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting some or all of your traditional IRA into a Roth IRA. The lower income results in a lower tax rate, which provides you an opportunity to convert to a Roth IRA at a lower tax amount.
Don’t Forget Your Minimum Required Distribution – If you are over 70.5 years of age and have not taken your 2017 required minimum distribution from your IRA or qualified retirement plan, you should do that before December 31 to avoid possible penalties. If you turned 70.5 this year, you may delay your 2017 distribution until the first quarter of 2018, but that will mean a double distribution in 2018 that will be taxed.
Advance Charitable Deductions – If you regularly tithe at a house of worship or make pledges to other qualified charities, you might consider pre-paying part or all of your 2018 tithing or pledge, thus advancing the deduction into 2017. This can be especially helpful to individuals who marginally itemize their deductions, allowing them to itemize in one year and then take the standard deduction in the next. If you are age 70.5 or over, you can also take advantage of a direct IRA-to-charity transfer, which will count toward your RMD and may even reduce the taxes on your Social Security income.
Maximize Health Savings Account Contributions – If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions earlier in the year. This opportunity applies even if you first become eligible in December.
Prepay Taxes – Both state income and property taxes are deductible if you itemize your deductions and you are not subject to the AMT. Prepaying them advances the deductions onto your 2017 return. So if you expect to owe state income tax, it may be appropriate to increase your state withholding tax at your place of employment or make an estimated tax payment before the close of 2017, and if you are paying your real property taxes in installments, pay the next installment before year-end.
Pay Tax-deductible Medical Expenses – If you have outstanding medical or dental bills, paying the balance before year-end may be beneficial, but only if you already meet the 10% of AGI floor for deducting medical expenses, or if adding the payments would put you over the 10% threshold. You can even use a credit card to pay the expenses, but if you won’t be paying off the full balance on the card right away, do so only if the interest expense on the credit card is less than the tax savings. You might also wish to consider scheduling and paying for medical expenses such as glasses, dental work, etc., before the end of the year.
Take Advantage of the Annual Gift Tax Exemption – You can give $14,000 to each of an unlimited number of individuals without paying gift tax each year, but you can’t carry over unused amounts from one year to the next. (The gifts are not tax deductible.)
Avoid Underpayment Penalties – If you are going to owe taxes for 2017, you can take steps before year-end to avoid or minimize the underpayment penalty. The penalty is applied quarterly, so making a fourth-quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters.
There are additional factors to consider for a number of the strategies suggested above, and you are encouraged to contact this office prior to acting on any of the advice to ensure that you will benefit given your specific tax circumstances.
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being a Freelance Accountant, Fluent in plain English”.
Every year we have clients who feel like their taxes are a mythical land of mystery. As if they are heading into uncharted territory. There are clients who are just overwhelmed, period. No matter how you may feel, we understand the level of anxiety that tax season brings every year. The team at Éclat Enterprises, LLC is prepared to help you overcome your tax fears in 2018.
Here are 10 tips to help you survive the tax season:
- Schedule a Tax Consultation: Call us at 414-301-2798 to schedule a tax consultation with Jeneen. This call will take all of 5 minutes at most. (Now, granted we are a bit biased, but give it a try.) Planning ahead is always best.
- Collect Documents: Find your most recent paycheck stub, earnings statement, or last year’s tax return.
- Come Prepared: Show up to your tax consultation with your documents from step 2! Spend 30 minutes to 1 hour with Jeneen to understand where you stand from a tax perspective. This is a great time to ask questions.
- Get and use a checklist: After your consultation, Jeneen will provide you the proper checklist based on your situation.
- Get Organized: Using your checklist, organize all the documents you received in January and February into one stack or folder. Sort these documents by type and use paper clips, post-its, etc. to help distinguish each document type. Store the docs in a safe place, but that is accessible enough for you to add more when needed.
- Set a budget: Based on the insights you received during your consultation, create a monthly budget, and stick to it! After you’ve figured out what your net pay should be, the next step is creating a personal budget centered on your tax liability. Here’s Jéneen’s annual tax mantra: “My life changes every year, my taxes and budget should too”.
- Set a date: Schedule your tax prep as soon as February 1, 2018, with Eclat Enterprises, LLC. Use the phone number in step 1 or email us at firstname.lastname@example.org to schedule an appointment.
- Come to our office: Come to our home office in Butler, WI with your documents in tow, get your tax returns prepared and pay a straightforward flat-rate.
- Ask Questions: Ask more questions during your appointment! We get to talk as much as you want.
- Save your documents: Save your tax returns and the supporting documents. The IRS recommends that you keep your records for 3 years. We would recommend keeping them for eternity, to be on the safe side!
With this list, you can conquer the rough terrain that some call a tax return with ease. It is easier to prepare for a storm with a great forecast. The 2018 tax season will start in about 100 or so days. But who’s counting, right?
Just know if you get lost along the way we are here, by phone, by email, by web, and in person.
From the desk of,
Your neighborhood friendly Accountant providing tax and accounting services in plain English
Two questions that I am asked frequently by my clients are: “How much should I be paying in taxes on each paycheck?” and “How many exemptions should I claim for the year?” My answer is usually suited to the particular client as each client have very unique situations. However, as a tax professional, you can’t know everything. It’s impossible to even try to do so! The last time I was asked this question (started in person and ended via text) the conversation went a little something like this:
Question: “Hey I have a question. One of my co-workers says she changes her exempt status like once or twice a year to have extra money. But she changes her exemptions back right after. Do you recommend that?”
Answer: “It depends on the person, and how well they manage their money. It sounds like your co-worker has a handle on her finances. The common mistake most people make is forgetting to change the exemption back. And honestly, this should be done no more than twice a year after you have paid enough taxes to cover yourself. I personally think that if most my clients increased their exemptions by one, they would see extra money in every paycheck. But this idea is a hard-sell because it means they will have a small tax refund next year.”
Question: “How can I figure out how much I will have to pay in taxes?”
Answer: “Personally, I estimate my federal and state income taxes based on last year’s tax return and the current year’s tax brackets. Then I take that number and divide by the number of paychecks I expect during the year. I request that I pay a flat tax amount every pay period. By doing this, I see my “extra” money throughout the year instead of once a year.”
Question: “Ok. But see that’s you! How can I determine the number of exemptions I need to claim?”
Answer: “The easiest way to determine the the number of exemption to claim is by going to the IRS website and searching for the withholding calculator. When using this calculator you will need your most recent paycheck stub. It will only be effective as the information you put in the calculator. I use it myself periodically, and it has been on point for the last couple of years. Try it out, and let me know what you think”. (You can try it too! Click here).
Question: “Good morning…I just tried doing the calculator thingy you were talking about, which I hope I did it right but it said 3 allowances. I currently claim 1 if that info will help you.”
Answer: In this case you are allowed to claim up to 3 allowances without penalty, “I would claim two to be on the safe side. Tax laws change every year in November. It’s a good rule and habit to check your withholding every June and December”
The key to income tax and withholding is making sure enough is being withheld from every pay check. I know people who are having too much withheld, while others are paying too little income tax. The tax system was designed to balance to 0. Or the worst case: you would have either a small refund or owe a small balance. It is the responsibility of every taxpayer to find that balance, not our employers or the IRS.
Are you claiming the right number of Exemptions- Adjust your tax exemptions
Use these nifty calculators to see if you are on the right track with your taxes. You will need your most recent paycheck stub and prior year’s tax return.
Federal Income Tax Calculator
State Income Tax Calculator
If you want to find out what your net pay will look like, take a look at the Paycheck Calculator. This app will guide you through a line-by-line process and give you an accurate expectation of what you will take home each pay check.
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being a Freelance Accountant, Fluent in plain English”.