What’s new: Year-end review and planning

1. TAX identity theft is a significant threat. Fraudsters are more sophisticated and large breaches happening so frequently like the 2017 Equifax incident which affected many Americans, so beware if you:

1) Receive a notice or letter from the IRS regarding a tax return, tax bill or income that you are unaware or not familiar. Someone could have possibly filed a false return using your Social Security number (SSN) to claim a refund or get a job.

2) Unsolicited email or other form of communication asking for your bank account number or financial details and personal information. Remember that the IRS will not contact taxpayers using email, text or other social media channels.

3) Aggressive robocalls insisting you must call back and settle your tax bill. The IRS will contact you first through official correspondence by mail and will not: demand immediate payment over the phone, threaten to arrest you, demand your credit or debit card number, or use of gift card to pay your taxes.

4) Report any suspicious communications from the IRS by calling 800.366.4484 or completing the IRS Impersonation Scam Reporting Form.

2. IRS penalties for underpayment of estimated taxes. IRS charges penalties and interest for not paying the appropriate amount of taxes throughout the year. Make sure to pay the required payments before the end of the year to avoid penalties and any surprises come filing season.

3. Tax Cuts and Jobs Act (TCJA). To learn how these changes affect you check out the IRS’s tax reform. Here is a summary of important developments you should be aware of:

a) 2018 increase in standard deduction for all filers. It is highly recommended to consider filing a new Form W-4 for withholding to reflect your actual tax liability under the new tax law.

b) The new 20% deduction available for individuals that have qualified business income from a partnership, S corporation or sole proprietorship. This is effective for tax years 2018 through 2025.

c) The increase in child tax credit to $2,000 per 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.

d) For mortgages that originated in 2018, the interest deduction is limited to interest on debt up to $750,000 ($375,000 for married taxpayers filing separately). Interest on home equity loans is only deductible if the funds are used for home improvements or traced to business, investment or passive activity expenditures.

e) 529 plans now allow for up to $10,000 in annual distributions for tuition at public, private, or religious elementary and secondary schools.

f) The overall limit of $10,000 for property taxes and state and local income taxes or sales tax in lieu of income taxes.

g) The Domestic Production Activity Deduction (DPAD) was repealed for tax years beginning after Dec. 31, 2017.

h) Entertainment expenses are no longer deductible. You may continue to deduct 50% of the cost of business meals if you or your employee are present at the event and the food or beverages are not considered extravagant.

i) You can claim a larger 100% first-year depreciation deduction on qualified property new or used. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold to $2.5 million from $2 million.

j) Small businesses can use the cash method of accounting starting in 2018. To qualify as a small business, taxpayers must satisfy a gross-receipts test. The gross-receipts test is satisfied if, during a three-year testing period average annual gross receipts do not exceed $25 million (prior year $5 million).

k) Beginning January 2019, the carryback of net operating losses (NOLs) can now be carried forward indefinitely. NOLs generated after 2017 cannot reduce taxable income by more than 80%.

4. The Affordable Care Act (ACA). Beginning in 2019 the TCJA repealed the shared responsibility payment penalty that the ACA imposes on individuals do not have health insurance. Other aspects of the Affordable Care Act are still in place.

5. Alternative Minimum Tax (AMT). AMT for corporate taxpayers has been repealed but still applies to individuals taxpayers. Many taxpayers are required to add back certain non-taxable income and deductions they’ve taken. That exemption increased in 2018 to $70,300 for single and head of household taxpayers and to $109,400 for married couples filing jointly.

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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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