Despite other wholesale changes for individuals for 2018 through 2025, the main tax benefits for charitable donations have been preserved. If you expect to itemize this year, you can realize big write-offs, especially for contributing appreciated property to charity.
The lowdown on gifts of propertyFor starters, you may deduct the current fair market value (FMV) of property if you've owned it for more than a year. Otherwise, the deduction is generally limited to your initial cost. This provides a unique tax opportunity for donating property that has appreciated in value.
For instance, say you own a painting with a FMV value of $15,000 that cost you $5,000 10 years ago. If you donate it to a museum, you can deduct the entire $15,000. There's no tax on the $10,000 of appreciation while you owned the painting - ever!
Other rulesThere are special rules that may come into play. For instance, the property must be used to further the charity's tax-exempt mission. So, if the museum displays your painting to the public, you should qualify for a deduction.
And the rules differ slightly for property that has depreciated in value. Accordingly, your deduction is limited to the property's FMV, no matter how long you've owned it.
In Grainger v. Commissioner (TC Memo 2018 - 117), a taxpayer tried an innovative strategy. An avid shopper, she bought clothing items at discounted prices and immediately donated them to charity, claiming a deduction for the full retail price. But the tax court said she could only deduct her actual cost.
Donation reminder checklistIf you decide to donate property to charity, keep these points in mind:
Call if you have questions about your charitable gifts and how it'll affect your 2018 tax plan.
WASHINGTON — The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2019.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering their employees the option to sign up for an FSA this fall for participation that begins in 2019.
Interested employees wishing to contribute during the new year must make this choice again for 2019, even if they contributed in 2018. Self-employed individuals are not eligible.
An employee who chooses to participate can contribute up to $2,700 during the 2019 plan year. That’s a $50 increase over 2018. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.
Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year — for example, an employee with $500 of unspent funds at the end of 2019 would still have those funds available to use in 2020. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses — for example, March 15, 2020, for a plan year ending on Dec. 31, 2019. Employers can offer either option, but not both, or none at all.
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available on IRS.gov.
WASHINGTON — The Internal Revenue Service today reminded small business taxpayers that changes to the tax law mean they can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.
The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.
Section 179 expensing changes
A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.
Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.
New 100 percent, first-year ‘bonus’ depreciation
The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.
The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.
Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.
Business owners can refer to the Tax Reform Provisions that Affect Businesses page for updates.
The IRS reminds taxpayers there are steps they can take now to make sure their tax filing experience goes smoothly next year. Taking these steps will also help them avoid surprises when they file next year.
To help get people the information they need, the IRS just updated a special page on IRS.gov with steps to take now for the 2019 tax filing season.
Check withholding – do a Paycheck Checkup soon
Since employees typically only have one or two pay dates left this year, checking withholding soon is especially important. Because of the many changes in the tax law, refunds may be different than prior years for some taxpayers. Some may even owe an unexpected tax bill when they file their 2018 tax return next year. To avoid these kind of surprises, taxpayers should do a Paycheck Checkup to help them decide if they need to adjust their withholding or make estimated or more tax payments now.
The IRS urges all taxpayers to file a complete and accurate tax return by making sure they have all the needed documents before they file their return. This includes their 2017 tax return and:
Taxpayers should confirm that each employer, bank or other payer has a current mailing address or email address. Typically, these forms start arriving by mail – or are available online – in January. Check them over carefully, and if any of the information shown is inaccurate, the taxpayer should contact the payer right away for a correction.
Taxpayers should keep a copy of any filed tax return and all supporting documents for at least three years. Also, taxpayers using a software product for the first time may need the adjusted gross income amount from their 2017 return to properly e-file their 2018 return.
Choose e-file and direct deposit for a faster refund
Electronically filing a tax return is the most accurate way to prepare and file. Errors delay refunds, and the easiest way to avoid them is to e-file. Using tax preparation software is the best and simplest way to file a complete and accurate tax return. The software guides taxpayers through the process and does all the math. Combining direct deposit with electronic filing is the fastest way for a taxpayer to get their refund. With direct deposit, a refund goes directly into a taxpayer’s bank account. They don’t need to worry about a lost, stolen or undeliverable refund check.
Filing for individuals
Publication 5307, Tax Reform Basics for Individuals and Families
As you may have heard, a special deduction designed to stimulate the U.S. manufacturing sector and various other industries - the domestic production activity deduction (DPAD) - was repealed after major tax legislation at the end of 2017.
The DPAD often ended up being a valuable deduction, equal to 9 percent of a company's qualified production activities income (including cost of goods, deductions, expenses and losses). That's why it's leaving a pretty big void for some businesses.
This may be especially true if you have a seasonal business relying heavily on holiday gift-shopping. While you may have gotten near-immediate tax benefits for producing goods at year-end in the past, that's no longer the case.
Other ways to saveNevertheless, there are other new tax law provisions that may be able to pick up some of the slack from losing the DPAD. Here are a few to consider:
Call if you have questions about implementing year-end strategies that optimize these tax benefits.
WASHINGTON – More families will be able to get more money under the newly-revised Child Tax Credit, according to the Internal Revenue Service.
This is the third in a series of reminders to help taxpayers get ready for the upcoming tax filing season. Additionally, the IRS has recently updated a special page on its website with steps to take now for the 2019 tax filing season.
The Tax Cuts and Jobs Act (TCJA), the tax reform legislation passed in December 2017, doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years. The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.
“As we approach the 2019 tax-filing season, I want to remind taxpayers to take advantage of this valuable tax credit if they are eligible to claim it,” said IRS Commissioner Chuck Rettig. “Tax reform changed the tax code significantly and doubling the Child Tax Credit is an example of how the changes impact taxpayers.”
Here are some important things taxpayers need to know as they plan for the tax-filing season in early 2019:
Child Tax Credit increased
Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.
Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid Social Security Number issued before the due date of the tax return, including extensions.
Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.
For more information, see Publication 972, Child Tax Credit, available soon on IRS.gov.
New Credit for Other Dependents
A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.
During the upcoming tax-filing season, the IRS urges taxpayers to use the agency’s Interactive Tax Assistant to see if they qualify for either of these credits. To find out more, visit IRS.gov.
Even though 2019 is just around the corner,
you still have time to take action and save on
your business tax bill.
Here are 10 ideas to consider:
1.Buy equipment. Generally, you can claim an immediate Section 179 deduction (plus bonus depreciation for any remaining cost) for qualified property placed in service within generous limits in 2018 - no matter how late in the year this occurs.
2.Stock up on supplies. If you pay for incidental office supplies before year-end, the full cost is deductible in 2018, even if you don't use all the supplies this year.
3.Throw a holiday party. Despite recent tax law changes, your business can still deduct 100 percent of the cost of a holiday party for your entire team.
4.Fix up the premises. Under recent regulations, you can deduct the cost of minor repairs, but capital improvements must be written off over time.
5.Dole out bonuses. Bonuses paid to your employees before 2019 are deductible in 2018, but are also taxable to the employees this year.
6.Move up business trips. If you accelerate a long-distance business trip planned for next year, you can increase your 2018 travel expense deduction, including write-offs for reasonable lodging costs and round-trip airfare.
7.Try to collect debts. By making genuine collection efforts, you can secure a deduction in 2018 for bad debts that have become worthless.
8.Switch inventory accounting. If prices in your industry are escalating, you might switch from the "First in, First Out" (FIFO) method to "Last In, First Out" (LIFO) to reduce your taxable gain.
9.Send employees to school. Your business can deduct education provided to employees under a qualified plan. Up to $5,250 of benefits are tax-free to employees.
10.Get a head start. Finally, if you're getting a business off the ground, you may take a deduction of up to $5,000 of qualified startup costs.
Please call our office if you have questions about your year-end business tax plan.
WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019. The IRS today issued technical guidance detailing these items in Notice 2018-83.
Highlights of Changes for 2019
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:
The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
Highlights of Limitations that Remain Unchanged from 2018
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
Detailed Description of Adjusted and Unchanged Limitations
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.
The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.
The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.
The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.
The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.
The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.
The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.
The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.
The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.
The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.
The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.
The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.
The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.
Each year, hurricanes and other natural disasters leave widespread damage in their wake. In addition to property losses, disasters can have an effect on victims’ taxes. The IRS wants taxpayers to know that when a disaster strikes, the agency is here to help.
Here are some resources taxpayers can find on IRS.gov:
The IRS has launched an easy-to-use webpage, IRS.gov/taxreform, with information about how the Tax Cuts and Jobs Act affects your taxes, with a special section focused on tax exempt entities.
The tax reform page features three areas designed specifically for:
Visit IRS.gov/taxreform often for the latest updates, guidance and FAQs issued for the Tax Cuts and Jobs Act.
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!