What’s new: Tax cuts and jobs act (Part 1)

• PERSONAL exemptions: the personal exemptions for you, your spouse, and dependents are suspended. This line item may not even show on your 2018 Form 1040.

• Credits for child and dependent

• Child tax credit increased to $2,000 for each qualifying child and $1,400 for additional tax credit and is subject to phase out of $200,000 for single and $400,000 for married filing jointly.

• $500 credit is available for each dependent who does not qualify for child tax credit. This is also subject to the same phase out.

• SSN is required for child tax credit and additional tax credit.

• Family leave credit: The credit is effective for wages paid during taxable years beginning January 1. 2018 and before December 31, 2019. The credit amount is a percentage of qualifying employees’ wages for up to 12 weeks annually while the employee is on family leave or medical leave. The family leave credit is available if the leave is for employee to care for employee newborn, care for family member serious health condition, employee serious health condition, and employee or family member called for duty in the armed forces.

Employer must: have written policy, provide at least two weeks of paid family and medical leave annually, provide at least 50% of employee wages, and be available to qualifying employees who work full time or prorate for part-time.

Employee must: be employed for at least one year, and must have not earned more than $72,000 in 2017 for 2018 or compensation in prior year do not exceed the threshold amount.

• Changes that affect high-income taxpayers

• Standard deduction almost doubled: $24,000 for married filing joint filers and $12,000 for singles.

• $10,000 cap for tax deduction: combining state and local property, sales and income taxes.

• New limits on deductions for some mortgage interest and home equity debt. 

•Higher limits on the percent of income a taxpayer can deduct as charitable contributions.

• Zero deduction for miscellaneous expenses: include investment expenses and un-reimbursed employee expenses such as travel, meals, entertainment and uniforms. In the past, this had to exceed 2 percent of taxpayer’s income to qualify.

• Itemizing versus standard deduction:  taxpayers previously itemized in the past may be better off and pay less tax in 2018 by taking the standard deduction.

• Why you should check your withholding now and complete Form W-4?  In response to the new law, it is recommended you review your paycheck withholding to avoid too little tax withheld ending huge tax liability plus penalty when file your taxes in 2019. IRS provided an enhanced withholding tax calculator in their website. Please visit IRS website: https://apps.irs.gov/app/withholdingcalculator/

• Section 199A deduction for qualified business income: The 20% deduction of qualified business income is available to sole proprietors, partnerships, trusts, and S-Corporations. Eligible taxpayers are those whose 2018 taxable income are below $315,000 for married filing joint and below $157,500 for single and other filers. Refer to Notice 2018-64 for methods for calculation and FAQs on Section 199A at IRS.gov.

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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

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Al-os & Associates  Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.    

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