Oct. 15 is almost here, and it's the last day to file for most people who requested an automatic six-month extension for their 2017 tax returns. These taxpayers should remember that they can file any time before Oct. 15 if they have all their required tax documents. They can also pay their tax bill in full, or make a partial payment, anytime, by visiting IRS.gov/payments. As extension filers prepare to file, here are some things they should know:
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If you use a vehicle for business driving, you have a tax choice: deduct your actual expenses or use an IRS-approved standard mileage rate. Frequently, the actual expense method will provide a bigger deduction, but it requires additional record keeping. Here's a breakdown of your options:
Did you just start using a new vehicle for business? If you buy a vehicle late in the year, the actual expense method usually provides a much larger deduction, due mainly to favorable depreciation rules. For example, say you drive 1,000 business miles monthly, and start using a car costing $50,000 on Oct. 1. The car is used 100 percent for business, so you can claim the maximum first-year write-off allowed under Section 179 expensing, and bonus depreciation of $18,000. Let's assume that your other business driving costs come to 40 cents per mile for a three-month total of $1,200 (3,000 miles x 40 cents). This would mean you can claim a whopping $19,200 deduction ($18,000 depreciation + $1,200) under the actual expense method, compared to a standard mileage deduction of only $1,635 (3,000 miles x 54.5 cents). If you've been using the standard rate in prior years, you can switch to the actual expense method in 2018. However, you can't switch to the actual expense method from the standard rate if you've previously claimed accelerated depreciation. Call us if you have deduction questions about your vehicle expenses. Do you work from home? Frequently, you can qualify for home office deductions offsetting taxable income from a sole proprietorship or other small business. However, if you're not careful, one misstep can cost you your deduction. Rules around home office deductions Generally, you may claim home office expenses only if part of your home is used regularly and exclusively as either:
Keep in mind that recent tax legislation eliminated the deduction for any miscellaneous expenses, such as unreimbursed employee business expenses, until 2026. That means employees can no longer deduct home office expenses if their offices are used for the employer's convenience. If you qualify You can deduct expenses directly attributable to the home office (e.g., business supplies) plus a portion of indirect expenses (e.g., utilities and depreciation) based on the percentage of business use. For instance, if a room used as an office makes up 10 percent of the home and you end up with $10,000 in indirect expenses, you can deduct $1,000. Alternatively, you may claim a simplified deduction of $5 per square foot of office space, up to a maximum of $1,500. Don't get tripped up by "regular and exclusive" The sticking point may be the requirement for business use to be “regular and exclusive.†In other words, if you use a room or a portion of a room for your business, you can't use the same area for personal purposes. Although the IRS doesn't expressly require physical separation of a business part of a room, that certainly bolsters your position. Suppose you use a computer in your home office both for business and personally. Technically, this taints your deduction because your business use is no longer exclusive. To be on the safe side, you might acquire another device for personal use and use the computer strictly for business. Questions about claiming the home office deduction? Call us and we can help you. "Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Monarch Accounting Group, Inc 145 Tower Drive, Suite 4 Burr Ridge, IL 60527 Phone (630) 320-3720 Taxpayers who support dependents that can’t be claimed for the child tax credit should head over to the Withholding Calculator on IRS.gov and do a “paycheck checkup” ASAP. They can use the calculator to make sure they are having their employers withhold the right amount of tax from their paychecks this year. The Tax Cuts and Jobs Act, which was passed last year, added a new tax credit: the credit for other dependents. This new credit is just one law change that can affect a family’s tax situation this year. So, checking and adjusting withholding now is important to do because it can prevent an unexpected tax bill and even penalties next year at tax time. The Credit for Other Dependents is available for dependents for whom taxpayers cannot claim the newly expanded 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. Families with qualifying children under the age of 17 should first review their eligibility for the expanded Child Tax Credit, which is larger. The new credit:
If a taxpayer needs to adjust their paycheck withholding amount, doing so sooner rather than later means there’s more time for withholding to take place evenly throughout the year. Waiting until later means there are fewer pay periods to make the tax changes. The Withholding Calculator is the most accurate way for most taxpayers to help determine their correct withholding amount. The tool allows taxpayers to enter their expected 2018 income, deductions, adjustments and credits – including the new credit for other dependents. For information about how to use the calculator and how to change withholding, taxpayers can check out the IRS Tax Reform Tax Tips on IRS.gov. Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state's department of revenue to learn more. Now that your teens are heading back to school this fall, it's a good time to start planning for their higher education. That means you may be interested in a Section 529 plan account that provides tax-favored savings. And if you have younger children you'll be happy to know that a recent tax law change has opened up Section 529 plans to kids attending elementary and secondary schools. Here's what you need to know about 529 plans Section 529 plans are sponsored by individual states, state agencies or educational institutions. There are two basic types:
With either type of plan, if you fund an account for a beneficiary (like your child or a grandchild), there's no current tax due on the earnings within the account. And when the beneficiary finally enters school, payments for qualified expenses are exempt from tax. The list of qualified expenses includes:
Your younger children may now benefit Beginning in 2018, the tax breaks for 529 plans are extended to tuition payments for grades K-12 at public, private or religious schools. For example, if you send your child to a prestigious college prep school, you can tap into the Section 529 account to pay for the tuition - with no tax consequences. However, there is a limit for these younger kids. Plan contributions can only be used for up to $10,000 in school expenses annually. It's helpful to note that you can roll over unused 529 plan funds for a beneficiary to an account for another beneficiary. This might benefit families who have one child completing college and another in high school. Call us if you have questions about 529 plans and how you can save with other education savings accounts and tax credits. It may be easier to qualify for a medical deduction in 2018 than before, assuming you'll itemize deductions. Specifically, the threshold for deducting un-reimbursed medical and dental expenses has been lowered to 7.5 percent of adjusted gross income (AGI). That means only the excess amount above the threshold is deductible. At the same time, other tax law changes increasing the standard deduction and reducing the tax benefits of itemized deductions might complicate your tax situation. As a result, a sizable medical deduction could tilt the scales in favor of itemizing. Look beyond typical medical deductions Certainly, you should bunch medical expenses in 2018 when it suits your needs. But you don't have to only count on typical costs for doctor visits and prescription drugs. Deductions for a wide variety of less common expenses have been approved by the IRS or the courts in the past, including amounts paid for the following:
Note that the costs may be large or small. For instance, deductions have been allowed for installing a swimming pool to alleviate the taxpayer's asthma as well as clarinet lessons to correct a child's overbite. Remember that the medical deduction threshold reverts to 10 percent-of-AGI in 2019. If you expect to clear the 7.5-percent mark in 2018 and will still be itemizing, move non-emergency expenses like medical exams and dental cleanings into this year. Otherwise, defer elective expenses to 2019, when you might have a shot at a deduction. Give us a call if you'd like help determining your tax savings with your medical deductions. "Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Monarch Accounting Group, Inc 145 Tower Drive, Suite 4 Burr Ridge, IL 60527 Phone (630) 320-3720 |
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