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Big tax changes coming for 2018: Find out if you’ll benefit

Posted by Gene Byler Posted on May 01 2018

Now that the 2017 tax season is over for most individuals and businesses, it’s time to turn attention to next year. Especially because the Tax Cuts and Jobs Act of 2017, which is considered to be the largest tax overhaul in 30 years, will have a significant effect on income tax returns next year.

The law will eliminate and change some deductions for the 2018 tax year. That means that when you filed your return just recently, that will be the last time you'll see several deductions on your tax forms, at least until 2025.

Here are a few of the deductions involved that will have the biggest impact on most individuals and businesses:

Standard $6,350 deduction

This might be the biggest piece of good news for you as a taxpayer. The standard deduction will increase starting next tax year. While single taxpayers were only eligible for a $6,350 standard deduction this year, that amount will nearly double in 2018 to $12,000 for individuals.

Married couples will get a standard deduction of $24,000 for 2018, up from $13,000 for 2017. Head of household filers will see a bump in their standard deduction from $9,550 to $18,000 in 2018.

Personal exemptions

Now for a little bad news. You will lose your $4,050 personal and dependency exemptions. These aren’t technically deductions, but these exemptions allow you (taxpayers) to subtract $4,050 from your taxable income for each dependent you claim.

The increase in the child tax credit my help offset this loss of personal exemptions, but it might not help everyone.  

Unlimited state and local tax deductions

Starting in 2018, deductions for state and local taxes – known as SALT deductions – will be capped at $10,000. While this will certainly benefit you if you live in Ohio or Pennsylvania, residents in South Florida, New York and California and other states where people pay high property taxes, will see the biggest boost.

Miscellaneous itemized deductions

Unreimbursed work expenses is just one of several miscellaneous itemized deductions that have been disallowed under the new law. Also gone are the unreimbursed qualified employee education expenses deduction, itemized deductions, include costs related to tax preparation services, investment fees and professional dues.

Deduction for moving expenses

If you relocated for a new job that year, you might have been able to deduct your moving expenses from your 2017 taxes, assuming you met criteria laid out by the IRS. This criteria states you must be moving to a job location at least 50 miles farther from your old house than the distance from your old house to your old job.

However, for 2018, that deduction is eliminated for everyone except armed forces members.

Alimony deduction

In the past, couples had the option to set up alimony agreements to allow the person making payments to deduct that money from their federal taxes. That won't be an option in 2019. The deduction is being eliminated for any divorce commencing after Dec. 31, 2018.

While some of these tax changes could benefit you, it’s clear that some are disappointing. If you think you’ll get the short end of the stick because of these changes, there is a silver lining - many provisions of the Tax Cuts and Jobs Act will expire in 2025 unless Congress votes to extend them. That means it could just be a matter of time before cost-saving deductions make a comeback.

To find out specifically how these changes (and others), will affect you going forward, speak to your accountant.

Tax Law Changes Will Affect Most Individuals, Businesses

Posted by Gene Byler Posted on Jan 10 2018

When it comes to the federal tax code, about the only thing most individuals and business owners understand is that everyone has to pay taxes. The questions about how much, how often and when, are complicated issues that accountants can help resolve.

Thanks to the recently passed Tax Cuts and Jobs Act, arguably the most significant change to the Internal Revenue Code in decades, the tax code just became a little more simplified for individuals and corporations. The law reduces tax rates for individuals and corporations and repeals many deductions until at least 2025. The changes take effect after December 31, 2017.

The changes include cuts and benefits for both individuals and corporations. Here are a few highlights of the significant changes affecting both individuals and corporations.

Individual Income Tax Changes

  • Maintains the same number of tax brackets, but reduces the tax rate for the top bracket from 39.6% to 37%. In addition, the Act adjusts the taxable income ranges for the tax brackets in a manner that reduces the effective tax rate for most taxpayers.
  • Provides a 20% deduction for qualified business income, which is generally income from a partnership, sole proprietorship, S corporation, as well as certain non-capital gain REIT dividends or publicly traded partnership income. Business that provide services in certain fields such as health, law, consulting, financial services and brokerage services are excluded from this preferential treatment.
  • Approximately doubles the standard deduction (for those that do not itemize deductions).
  • Suspends personal exemption deductions (currently, $4,050 each for taxpayer, spouse, and any dependents).
  • Increases the child tax credit to $2,000 (refundable up to $1,400), and provides for a $500 nonrefundable credit for the care of qualifying dependents other than children (for example, parents). 

 

Business Tax Changes 

  • Reduces the corporate tax rate to a flat 21%.
  • Repeals the corporate alternative minimum tax.
  • Allows corporations to expense fully and immediately 100% of the cost of qualified property acquired and placed in service after September 2017 and before January 1, 2023.
  • Increases the Section 179 expense amount from $500,000 to $1 million and the phase-out amount from $2 million to $2.5 million.
  • Disallows deduction for net interest expense in excess of 30% of the business’s adjusted taxable income (a comparable rule would apply to partnerships).  Disallowed losses are carried forward.
  • Provides that tax-free like-kind exchanges will only be available for real property.
  • Creates a 21% excise tax for tax-exempt organizations on the payment of compensation in excess of $1 million (as well as certain parachute payments) if paid to one of the five highest paid employees.
  • Repeals the deduction for entertainment expenses.

 

To learn specifically how the new tax law will affect your future personal or business taxes, contact a CPA at BWLK’s Salem office (330-332-4646) or East Liverpool location (330-385-2160). 

New Partnership Audit Rules Expected to Increase IRS Audits

Posted by Gene Byler Posted on Jan 28 2017

By Gene Byler

As a Certified Public Accountant (CPA), I am required to take continuing education requirements to keep up to date on the newest financial accounting and tax laws. State and federal laws and policies sometimes change often, and to best serve and protect our clients, we must stay current.

https://secure.emochila.com/swserve/siteAssets/site6533/images/GByler.site.jpgTo that end, I attended a two-day Ohio Society of CPAs conference in Cleveland. One of the updates I received was related to the new partnership audit rules that became law in November 2015. This is the biggest change affecting partnership taxation since the creation of the Limited Liability Company (LLC).

About the new partnership audit laws

Under prior audit rules, the IRS dealt with each individual partner in the partnership or LLC, which made the task difficult. So difficult that the IRS rarely conducted audits. However with the new law change, the IRS, in most cases, may assess any additional tax or its related penalties and interest against the partnership as a whole, thus eliminating the need to assess each partner.

Since this assessment will be made against the partnership in the year that the audit is concluded, and payment will be made from the partnership assets in that year, the assessment will be the responsibility of the partners in the year the audit is concluded. That’s instead of to those who were partners in the year under audit.

Any income difference will be taxed at the highest individual tax rate (currently 39.6%).  Although there are opt-out rules, there is no best solution.

This legislation also introduces the new role of “Partnership Representative” who will act on behalf of the partnership (and therefore the partners) when dealing with the IRS. This authority includes the ability to bind the partnership and the partners in audits and other proceedings, including settlement authority and decisions on procedural issues such as whether to proceed to litigation. These powers are significantly broader than the old Tax Matter Partner (TMP).

How it could affect partnership agreements

All these changes create significant issues that may require amendments to an LLC’s operating agreement. These modifications could include:

  • Opting out of the new rules
  • Partnership representative
  • Buy/sell issues
  • Allocation of tax responsibility
  • Restrictions on transfers

 

Consider a proactive response

These new rules are complex and are still evolving. A discussion with your tax adviser would help you make the best decisions for your partnership on how to best address them. It’s a matter of when, not if, that we will see a significant increase in partnership audits by the IRS. Your business could be next, and we can help you be proactive before it happens.

Strategies for Responding to the New Overtime Rules

Posted by Gene Byler Posted on July 09 2016

By Gene Byler

If you’re a business owner, chances are you are well aware of the legislation that will change how employers pay workers for overtime, effective December 1.

https://secure.emochila.com/swserve/siteAssets/site6533/images/GByler.site.jpgThe bad news is that your business will probably be affected at some point. The good news is that you have until Dec. 1 to develop a plan that allows your business to meet the new requirements while minimizing the negative financial impact to your bottom line.

New law basics

Let’s take a look at the legislation.

The last major change in the law regarding overtime pay was made in 2004. So you’ve been operating under those old rules for 12 years, unless your company hasn’t been around that long. The new regulations increase the salary threshold needed to qualify for overtime exemption from $455 per week ($23,660 per year) to $913 per week ($47,476 per year.) and affect 4.2 million workers.

The new law also automatically updates the salary threshold every three years, based on wage growth over time, increasing predictability.

Any business that employs workers with salaries under the new threshold should consider their best course of action or face paying thousands in higher wages. Your company could also be subject to employee lawsuits for failure to comply with the rules. Your business is NOT exempt, no matter how big or small it is.

These regulations may be in response to several recent lawsuits filed by mangers and assistant managers in recent years. Workers at Chipotle, Dollar General, JPMorgan Chase, Bank of America and Wells Fargo have filed lawsuits claiming their overtime hours are not being compensated appropriately. In many cases, the duties of hourly employees are being done by salaried personnel since they don’t get paid the overtime.

What can you do?

There is no one-size-fits-all way for businesses to prepare for the new overtime rules. Employers have a variety of choices, such as:

  • Raise your managers’ salaries to keep them exempt
  • Make no changes and simply pay out the overtime to the affected employees
  • Keep non-exempt salaried workers under 40 hours per week
  • Hire additional workers without benefits to cover the overtime previously worked by those managers.

Business owners need to start planning now in order to determine which response is best suited for their business. That process is best navigated with the assistance of an employment attorney and a professional accounting firm.

An accounting firm can assist you in determining which employees are likely to be affected, help with tracking non-exempt employees’ hours, help you update record keeping procedures, and advise on how to clearly communicate changes to policies and procedures to employees.

If you need help developing a plan to ensure that your business will comply with the new overtime rules, contact a CPA in our Salem or East Liverpool office.