Tax Reform and What it Means for Your Personal Taxes

The Tax Cuts and Jobs Act was signed into law by the President Trump on December 22, 2017. The new law makes many changes to the tax code. Every taxpayer is impacted. A highlight of the changes follows:

Tax rates. Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.

Exemptions and the child tax credit. The deduction for personal exemptions is eliminated. An expanded child tax credit will help make up for the loss of personal exemptions for some families. The credit is increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500.

Standard deduction. The new tax reform law doubles the standard deduction. The higher standard deduction ($12,000 for singles, $18,000 for heads of household, and $24,000 for married filing joint) means that fewer taxpayers will benefit from itemizing deductions.

Itemized deductions. Itemized deductions for all state and local taxes, including property taxes, are capped at $10,000. The limit on mortgage debt for purposes of the mortgage interest deduction is reduced from $1,000,000 to $750,000 for loans made after Dec. 15, 2017. Loans made before Dec. 15, 2017 are grandfathered at the $1,000,000 debt limit. The interest on home equity borrowing is no longer deductible. The threshold for medical expense deductions is lowered to 7.5% of adjusted gross income (from 10%) for tax years 2017 and 2018. Miscellaneous itemized deductions subject to the 2% of AGI limitation are not allowed. Miscellaneous itemized deductions lost because of the new law include employee business expenses, investment adviser fees, union dues, and tax preparation fees. Personal casualty losses are not allowed unless the losses were suffered in a federally declared disaster area.

Alimony. The new tax reform law eliminates the alimony deduction for agreements signed after Dec. 31, 2018. Alimony income is not taxable for agreements signed after Dec. 31. 2018. There is no change to the law for agreements signed before Jan. 1, 2019.

Moving expenses. The new tax reform law eliminates the moving expense deduction and makes employer reimbursement of moving expenses taxable to the employee beginning in 2018.

AMT. The new tax reform law temporarily increases the alternative minimum tax (AMT) exemption for tax years 2018 through 2025. The increase in the exemption, as well as the elimination of major tax preferences (exemptions, state taxes above $10,000 and miscellaneous itemized deductions), means that fewer people will be subject to AMT under the new law.

Education. The new tax reform law modifies qualified tuition programs – §529 plans. Funds in the 529 plan can now be used to pay for grades K to 12 private school tuition. The above-the-line deduction for college
tuition expenses was renewed in later legislation, but only for 2017. The American Opportunity and the Lifetime Learning credits continue to be available.

Roth IRA conversions. The new tax reform law repeals the special rule permitting recharacterization of Roth IRA conversions. A conversion of a traditional IRA to a Roth IRA may still be advisable, but once the conversion is completed, it can’t be undone.
These are just a few of the changes included in the Tax Cuts and Jobs Act. Your 2018 taxes will be affected. That’s guaranteed by the scope of the changes. The degree of impact depends on your personal situation.

Questions we can answer for you.
o Will the new tax reform law help me or hurt me?
o Is my withholding enough so that I won’t have any surprises next Apr. 15th?
o Is there anything I can do now that will make my taxes less under the new tax reform law?

Please give us a call for answers and planning suggestions.

 

 

 

 

Disclaimer: This post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Voices Short-term rentals may bring long-term tax problems

By Rob Stephens

“Short-term rentals, often called vacation rentals, have exploded onto the travel scene, becoming hugely popular with homeowners and travelers alike. With the help of technology, it is incredibly simple for a property owner to broadcast their rental across the world.

Millions of people in the U.S. are currently renting their homes or apartments on Web sites such as HomeAway, VRBO and Airbnb. With this level of activity, it is vital that accountants and tax professionals have an understanding of property rentals and income tax implications. Though sometimes overlooked, sales and lodging taxes are an entire class of taxes that expose clients to a significant liability.

Home RentalA significant liability

Short-term rental property owners are required to collect and remit sales and lodging taxes on the gross rent collected from guests – the same taxes a hotel is required to collect. Short-term in most states is less than 30 days, but there are a handful of states that have 90-day definitions and a few, such as the popular travel states of Hawaii and Florida, where short-term is defined as up to six months.

The property owner or host is required to collect lodging taxes from the guest on any short-term stays. These taxes are typically 10 percent to 15 percent of the gross rent collected – overnight accommodations are heavily taxed. Sales and lodging taxes are a type of gross receipts tax and there are no deductions.

The average short-term rental will generate $20,000 to $30,000 per year in rent, thus amounting to $2,000 to $5,000 in sales and lodging taxes that must be collected and paid. This is a significant liability if your client is not compliant, especially if they are audited for three to five years of history. These lodging taxes can build into a huge hidden liability for unsuspecting or unknowing clients renting their primary or second homes.”

Read Full Article

Minimum Wage Increases for Seattle and Tacoma 2017

Businesses with employees in Seattle should be preparing to take the new minimum wage into account. Your particular minimum depends upon the size of your operation, and the benefits that you offer.

Effective January 1, 2017, Large Employers, defined as employers with over five hundred employees, will be expected to pay a higher minimum than Small Employers with five hundred or fewer employees. If you pay towards medical benefits, your minimum is $13.50 per hour. If you do not pay towards medical benefits, your minimum is $15.00 per hour.

Small Employers will be expected to pay a minimum of $13.00 per hour. However, if the employer pays $2.00 per hour towards medical benefits, or if a given employee earns at least $2.00 per hour in tips, the minimum is $11.00 per hour.

If you live in the City of Tacoma, your minimum wage is also on the rise as the following:

  • January 1st, 2017: $11.15 per hour.
  • January 1st, 2018: $12.00 per hour.
  • January 1st, 2019: Starting on this date, the minimum will continue to be adjusted annually, according to the rate of inflation.

This minimum applies to most people who work for 80+ hours per year within the city limits of Tacoma.

Additionally, employees who work for 80+ hours in a calendar year are guaranteed a certain amount of paid time off every year. They earn an hour of such time for every 40 hours worked within Tacoma, up to 24 hours. Employees have the option of carrying forward up to 24 hours of unused paid leave, and can use up to 40 hours in a single hear. However, they can only use their paid leave 180 days after the start of their employment.

Should you require any further information on your legal obligations this coming year, or if you are looking for additional help keeping your business’s finances in order, consult Seattle CPA Alisa Na during normal business hours.

*All information presented in this article may subject to change with or without notice. Please check with your city department for the detail.

Year End General Business Deductions 2016

The end of the calendar year is soon about to close, and many are wondering how to be able to pay less in taxes. It just takes a sit-down and figuring out your strategy. We think that a few components of an easy-to-follow game plan make powerful tools to realize your goal.

  1. Prepay expenses using the IRS safe harbor
  2. Stop billing clients/patients in December
  3. Catch holiday and end-of-the-year sales and buy office equipment
  4. Use your credit cards
  5. Don’t assume you are taking too many deductions

Firstly, where your taxes are concerned, business tax deductions are key. Don’t you go thinking you’ve got too many already. The more business tax deductions you claim, the less you pay in regular taxes. One strategy is to prepay your 2017 qualifying expenses now, before 2016 closes; you’ll be enjoying that tax deduction this year. Another time-tested strategy is to stop billing your customers until after the last day of 2016. Doing so is postponing paying taxes on your December income.

Another is buying your company’s new assets, like computers, photocopiers, or office tables and chairs, or use your company’s credit card to purchase some office supplies and other necessities before the close of December. It’s also a great time to get your hands on holiday deals. Like what we say, if you have legitimate deductions, by all means use them. Spend now to be able to enjoy those tax deductions for the current year and pay less taxes for them.

It’ll be good to know also for Washingtonians, that as a result of the recent November elections, the Washington state minimum wage will go up to $11 dollars starting January 1st, 2017. This should enable a reasonable boost in spending, and with the above strategy, pay less in regular taxes for the coming year.

Remember the Child and Dependent Care Credit This Summer

It is common nowadays for parents to be too busy to properly look after their children during the summer months, prompting them to seek out the help of daycare or day camps. If you make use of such services this summer, you may be eligible for a federal tax credit. Here is what you need to know about the Child and Dependent Care Credit:

1. Expenses Must Be for Qualifying Persons: The expenses you claim the credit for generally must be for the care of dependents under the age of thirteen.

2. Expenses Must Be Work-Related: Expenses only qualify if you require care for your dependents so that you can either work or look for work. If you file a joint return, this rule applies to your spouse as well. Your spouse meets this requirement if he or she is a full-time student, or if he or she is physically or mentally incapable of self-care.

3. Earned Income is Required: You must have earned income in the form of wages, salaries, or tips. This includes net earnings from self-employment. If you file jointly, your spouse must also have earned income unless he or she is either a full-time student or incapable of self-care.

4. Married Couples Must File Joint Returns: You must file jointly with your spouse, unless you are either legally separated or living apart.

5. Expenses Must Be for Qualifying Types of Care: You may qualify if you are paying for care in your home, at a daycare facility, or at a day camp. You may not claim the expenses for certain types of care, including the following:
    • Summer school tutoring costs.
    • Overnight camps.
    • Care provided by either your spouse or your child who is under the age of nineteen at the end of the year.
    • Care provided by a person you can claim as a dependent.
    • If you get dependent care benefits from your employer, special rules may apply.

6. Credit Amount: The credit equals between twenty and thirty-five percent of your allowable expenses, depending on your income. The total expense that you can claim in a single year is limited to $3,000 for one qualifying person, or $6,000 for two or more.

7. Keep Records: You should be prepared to keep all receipts and records pertaining to your expenses, including the name, address, and taxpayer identification number of your care provider. You will submit this information on Form 2441.

Should you require any assistance in preparing your taxes, please consult Seattle CPA Alisa Na for further information.

Minimum Wage Increases for Seattle and Tacoma

Businesses with employees in Seattle should be preparing to take the new minimum wage into account. Your particular minimum depends upon the size of your operation, and the benefits that you offer.

Large employers, defined as employers with over five hundred employees, will be expected to pay a higher minimum than employers with five hundred or fewer employees. If you pay towards medical benefits, your minimum is $12.50 per hour. If you do not pay towards medical benefits, your minimum is $13.00 per hour.

Many small employers will be expected to pay a minimum of $12.00 per hour. However, if the employer pays $1.50 per hour towards medical benefits, or if a given employee earns at least $1.50 per hour in tips, the minimum is $10.50 per hour.

If you live in the City of Tacoma, your minimum wage is also on the rise as the following:

  • February 1st, 2016: $10.35 per hour.
  • January 1st, 2017: $11.15 per hour.
  • January 1st, 2018: $12.00 per hour.
  • January 1st, 2019: Starting on this date, the minimum will continue to be adjusted annually, according to the rate of inflation.

Please visit City of Tacoma website for the full detail.

This minimum applies to most people who work for 80+ hours per year within the city limits of Tacoma.

Additionally, employees who work for 80+ hours in a calendar year are guaranteed a certain amount of paid time off every year. They earn an hour of such time for every 40 hours worked within Tacoma, up to 24 hours. Employees have the option of carrying forward up to 24 hours of unused paid leave, and can use up to 40 hours in a single hear. However, they can only use their paid leave 180 days after the start of their employment.

Should you require any further information on your legal obligations this coming year, or if you are looking for additional help keeping your business’s finances in order, consult Seattle CPA Alisa Na during normal business hours.

*All information presented in this article may subject to change with or without notice. Please check with your city department for the detail.

Understanding the Changing Obamacare Penalties

The Patient Protection and Affordable Care Act, more commonly known as Obamacare, imposes penalties on taxpayers who choose not to purchase qualifying health care coverage. These penalties were modest at first, but have been jumping up by large degrees. To make sure that you don’t get caught by surprise, consider the following summary of current penalties and how they are scheduled to progress in the near future:

In 2014, the first year that Obamacare penalties were in effect, they were relatively minor. The minimums were set at $95 per adult and $45.50 per child, capped at a total of $285. Higher income households could have a penalty as high as 1% of any income earned over the tax filing threshold.

The penalties increased for 2015. Currently, you can expect to pay $325 per adult and $162.50 per child, up to a limit of $975 or 2% of your household income above your tax filing threshold, whichever is higher.

Penalties are only going to get worse next year. Once 2016 rolls around, the rates will jump to $695 per adult and $347.50 per child, up to a limit of $2,085 or 2.5% of your household income above your filing threshold, whichever is higher. Following this, penalties shall go up by modest amounts according to the Consumer Price Index.

For more information on taxes, and how to avoid penalties, please consult Seattle CPA Alisa Na during normal business hours.

Important Tax Deadlines

Being aware of all of your important tax-related deadlines throughout the year is a good way to save time and avoid penalties in the long run. What follows is a list of important deadlines for businesses and individuals as they typically occur; remember that these days may be moved to accommodate federal holidays:

Filing Deadlines

Your deadline for filing taxes may vary, depending on the nature of the entity you represent:

  • April 15th: This deadline applies to individuals, sole proprietorships, single-member LLC’s, partnerships, real estate mortgage investment conduits, estates, and trusts.
  • March 15th: This deadline applies to corporations, S-corporations, homeowners associations, cooperative associations, and real estate investment trusts.

Estimated Tax Payments

If you are self-employed or otherwise receive income that requires you to pay estimated taxes every quarter, there are four deadlines to be mindful of:

  • April 15th: 1st Quarter Payment Due
  • June 15th: 2nd Quarter Payment Due
  • September 15th: 3rd Quarter Payment Due
  • January 15th: 4th Quarter Payment Due

Tax Extension Deadlines

People who require more time to prepare their tax returns should take note of the following two deadlines:

  • April 15th: This is the last day to request a tax extension.
  • October 15th: Should you be approved for a tax extension, you will be required to file by this date.

IRA Deadlines

If you have an IRA, there are two deadlines to be aware of:

  • April 15th: This is the last day to contribute to a traditional or Roth IRA for the previous tax year. If you have a Keogh or SEP, and you are approved for a filing extension, you have until October 15th to put money into such accounts.
  • October 15th: If you converted your traditional IRA to a Roth and paid taxes on this conversion with your most recent return, this is the deadline for recharacterizing the conversion.

For further information on your taxes, or for help managing your finances, please contact Seattle CPA Alisa Na during normal business hours.

Deducting Your Moving Expenses

When you move for the sake of a job, some of the expenses relating to your move may be deductible on your tax return. Such expenses can include the costs of transportation and lodging incurred during your move, the costs of packing, shipping, storing, or insuring your property, and the cost of disconnecting or connecting utilities. You cannot deduct the cost of meals, the cost of your new home, costs associated with selling your home, or the cost of breaking or entering into a lease.

To find out if you are eligible to deduct your moving expenses, consider the following requirements:

  • The move must relate to the start of work. You can generally consider the moving expenses for your return if the move is made within one year of starting a job at a new location.
  • The move must meet the distance requirements. The new location of your job must be a minimum of fifty miles farther away from your old home than your previous job location.
  • Your job must meet the time requirements. The job requiring you to move must be a full-time position, and you must work in this job for at least thirty-nine weeks the first year following your move. Additionally, you must work full-time for a minimum of seventy-eight weeks throughout the first two years at the new job location. These rules also apply if you are self-employed. If your tax return is due prior to you meeting these requirements, but you expect to meet them later on, you can still claim the deduction for this tax year.

Any reimbursement that you receive from your employer regarding your moving expenses may need to be reported as income.

For further details, see Publication 521. Should you require any additional help with your taxes or finances, please contact Seattle CPA Alisa Na during normal business hours.

Dealing With Tax-Related Identity Theft

Identity theft can be one of the more infuriating crimes to find yourself the victim of. It can strike unexpectedly, and be very difficult to amend. Fortunately, the IRS works to help you overcome your tax-related identity theft so that you can return to your normal, secure life as quickly and easily as possible.

Tax related identity theft happens when your Social Security number is stolen and used to file a return, claiming your refund for another individual. Since this generally happens early in the year, you may not discover this theft until months after it has happened. You may receive a notice from the IRS that more than one return has been filed in your name, or you may find that you owe additional tax on wages from an employer you have never heard of.

Should you fall victim to identity theft, take the following steps:

  • File a report with law enforcement officials
  • Go to www.ftc.gov to report the theft
  • Close any accounts that have been opened or tampered with without your permission
  • Have a fraud alert placed on your credit records by contacting one of the three major credit bureaus:
    • Equifax, www.Equifax.com, 1-800-525-6285
    • Experian, www.Experian.com, 1-888-397-3742
    • TransUnion, www.TransUnion.com, 1-800-680-7289

If you know that your SSN is compromised, and suspect that you might be a victim of tax-related identity theft, take the following steps:

  • Fill out IRS Form 14039, Identity Theft Affidavit
  • Respond immediately to any notices you receive from the IRS
  • Continue to pay taxes and file returns as appropriate, even if you must do so by paper

You can reduce your risk of falling victim to identity theft by taking the following precautions:

  • Do not carry your Social Security card around on your person
  • Only give out your SSN to businesses and other entities if it is absolutely necessary
  • Secure your computer with a reliable antispyware program
  • Check your credit report and Social Security Administration earnings statement annually
  • Do not give out personal information over the phone, through the mail, or via the internet unless you initiated the contact or are confident about who you are sending it to
  • Remember that the IRS will never initiate contact with taxpayers via email to request personal information

You can learn more about identity theft by visiting identitytheft.gov. Should you require any further help with taxes or other financial business, please contact Seattle CPA Alisa Na during normal business hours.