Tax reform legislation enacted in December 2017 offers a new tax credit for employers who provide paid family and medical leave. Here are several facts about how this credit works and which employers are eligible to claim it:
The credit ranges from 12.5 percent to 25 percent of wages paid during an employee's leave.
For purposes of this credit, family and medical leave includes leave for one or more of the following reasons:
Please call us if you have questions or would like further information.
Safekeeping tax records helps for future filing, amended returns, audits
WASHINGTON — With the tax filing season quickly approaching, the Internal Revenue Service wants taxpayers to understand how long to keep tax returns and other documents.
This is the seventh in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS has recently updated its Get Ready Page https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-years-taxes with steps to take now for the 2019 filing season.
The IRS generally recommends keeping copies of tax returns and supporting documents at least three years. Employment tax records should be kept at least four years after the date that the tax becomes due or paid, whichever is later. Tax records should be kept at least seven years if a return claims a loss from worthless securities or a bad debt deduction. Copies of previously-filed tax returns are helpful in preparing current-year tax returns and making computations if a return needs to be amended.
Tax records should be kept safe and secure regardless of whether they are stored on paper or kept electronically. Paper records should be kept in a secure location, preferably under lock and key, such as a secure desk drawer or a safe. Records retained electronically should be backed up electronically and encrypted when possible. The IRS also suggests scanning paper tax and financial records into a format that can be encrypted and stored securely on a flash drive, CD or DVD with photos or videos of valuables.
Disposing of records
Tax records contain sensitive data such as Social Security numbers, income amounts and bank account information. Tax documents not properly disposed of can land in the hands of criminals and lead to identity theft. Once past their useful date, records should be disposed of properly. Paper tax returns and supporting documents should be shredded before being discarded. Old computers, back-up drives and media contain sensitive data. Deleting stored tax files will not completely erase them. Using special wiping software ensures the removal of sensitive data.
Taxpayers still keeping old tax returns and receipts stuffed in a shoe box may want to rethink their approach. When records are no longer needed the data should be properly destroyed.
More information is available on IRS.gov at How long should I keep records?
Most of the time, year-end tax planning is based on tried-and-true principles. For instance, people often end up accelerating deductions into the current year to offset their tax liabilities, while deferring income to the next year. But this year-end is much different than most.
Major tax legislation at the end of 2017 has suspended many prized deductions for 2018 through 2025, while cutting tax rates. As a result, your year-end tax planning will likely need some new moves. Here are a handful of the biggest changes to consider:
Altered and eliminated tax deductions
Enhanced tax deductions
Upcoming alimony change: If you're planning on divorcing at year-end, consider that alimony payment deductions are eliminated for divorce settlements reached on or after Jan. 1, 2019.
Depending on your total itemized deductions, it may or may not make sense to accelerate certain deductions into this year. A review of your year-to-date deductions should be completed before you make any moves.
Call today if you have questions about your 2018 year-end tax plan.
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.
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!