2018 Income Tax Changes

WASHINGTON – Adapted from IRS Newswire IR-2018-124   The Internal Revenue Service urges two-income families and those who work multiple jobs to complete a “paycheck checkup” to verify they are having the right amount of tax withheld from their paychecks.

The passage of the Tax Cuts and Jobs Act, which will affect 2018 tax returns that people file in 2019, makes checking withholding amounts even more important. These tax law changes include:

• Increased standard deduction
• Eliminated personal exemptions
• Increased Child Tax Credit
• Limited or discontinued certain deductions
• Changed the tax rates and brackets

Individuals with more complex tax profiles, such as two incomes or multiple jobs, may be more vulnerable to being under-withheld or over-withheld following these major law changes. The IRS encourages a “paycheck checkup” as early as possible to help taxpayers check if they are having the correct amount withheld for their personal financial situations.

Withholding Calculator

The IRS Withholding Calculator is the easiest, most accurate way for taxpayers with these complicated tax situations to determine their correct withholding amount. The tool allows users to enter income from multiple jobs or from two employed spouses. It also ensures that these taxpayers apply their 2018 tax deductions, adjustments and credits only once – rather than multiple times with different employers.  To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs available.

The calculator will recommend how to complete a new Form W-4 for any or all of their employers, if needed. If a couple or taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. Taxpayers can enter these amounts on their respective Forms W-4.

The calculator doesn’t request personally identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record information entered in the calculator. Taxpayers should watch out for tax scams, especially via email or phone, and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.

Adjusting Withholding

Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible.  Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

More information is available via the following links:

• Withholding Calculator Frequently Asked Questions
• Tax Withholding
• Tax Reform page on IRS.gov

Tax Time 2013

_____Now is the time to take stock of 2013, at least financially, by gathering your income and deduction records in preparation for filing your annual tax returns. The primary changes in tax law this year are the new taxes designed to help fund the Affordable Care Act. If you owe either of these taxes, congratulations—it means you are in the top 10% of income earners in the United States of America. If you have earned income in excess of $200,000 as a single person or over $250,000 as a couple filing jointly, you will pay an additional 0.9% tax on the excess toward the medicare system (single payer health care coverage for the elderly and disabled). If you have adjusted gross income in excess of those thresholds, you will pay an additional 3.8% tax on the smaller of your net investment income or the excess of your adjusted gross income above those levels. In this area, that tax will apply primarily to individuals who sold farmland and realized a large capital gain. Speaking of capital gains, the maximum tax rate on capital gains increased from 15% to 20% for 2013, but that is still just a hair over half of the maximum income tax rate on earned income, which is still 39.6%.

_____In the depreciation arena, for 2013, you can still expense up to $500,000 on up to $2,000,000 of eligible purchases, but this year (2014) you can only expense up to $25,000 on up to $200,000 of eligible purchases (IRC §179).

_____As was the case last year, you must have a contemporaneous written receipt for donations totaling over $250 to a particular charity. Also, I cannot prepare your tax return if you hold any assets outside of the United States. Identity theft continues to be a problem. Please do not send any documents by e-mail that contain social security numbers or bank account numbers, unless they are password protected. I am in the process of setting up a secure online drop box and will send you details if you e-mail me.

_____IRS requires mileage logs for vehicles with business use; standard mileage rates for 2013 are:

###############Federal *******Iowa
Business: . . . . . . . . . . 56.5¢/mi. . . . 56.5¢/mi.

Medical & moving: . . . 24¢/mi. . . . . 24¢/mi.

Charitable: . . . . . . . . . 14¢/mi. . . . . 39¢/mi.

_____You are required to send a Form 1099 to any individual, partnership or LLC that you paid $600.00 or more for services, rent or interest. Payments to cooperatives, banks and other corporate entities are excluded. Wages in excess of $150 in any quarter require the filing of Forms W-2 and W-3. If you would like us to prepare these forms, you will need to provide us with the information before January 25, 2014.

_____If you have questions on any of the above or other tax matters feel free to call, e-mail, or stop in. When you have your records ready you may let us know and we will set up an appointment that is convenient for you. Evening or Saturday appointments can be arranged.

_____Best Wishes for the New Year!

Pursuant to U.S. Treasury Regulations, you are hereby advised that any federal tax advice included in this communication is not intended or written to be used, and cannot be used, to avoid any U.S. federal tax penalties or to promote, market, or recommend to another party any transaction or matter. For further information, see IRS Circular 230.

Tax Time 2012

It is time again to be thinking of income taxes. IRS in its continuing effort to close the tax gap (the gap between income tax paid and the income tax that ought to be paid, estimated to be over $300 billion) is requiring increased documentation on capital gains (and a new Form 8949) and stepping up audits on capital gains. Congress has also stiffened reporting requirements and penalties on foreign held assets. Because the penalties are so high ($10,000 minimum for inadvertent misreporting; $100,000 or half the balance of the account, whichever is greater, for intentional misreporting), I cannot prepare your tax return if you hold any assets outside of the United States. On the positive side, conversions from traditional retirement plans to Roth IRAs are no longer limited by income and taxpayers with gross income less than $57,000 and access to the internet are eligible for free tax preparation and filing. IRS requires mileage logs for vehicles with business use; standard mileage rates for 2011: Jan 1 to June 30 July 1 to Dec 31 Iowa Business: 51¢/mi. 55.5¢/mi. “ Medical & moving: 19¢/mi. 23.5¢/mi. “ Charitable 14¢/mi. 14¢/mi. 39¢/mi. You are required to send a Form 1099 to any individual, partnership or LLC that you paid $600.00 or more for services, rent or interest. Payments to cooperatives, banks and other corporate entities are excluded. Wages in excess of $150 in any quarter require the filing of Forms W-2 and W-3. If you would like us to prepare these forms, you will need to provide us with the information before January 27, 2012. If you have questions on any of the above or other tax matters feel free to call, e-mail, or stop in. When you have your records ready you may let us know and we will set up an appointment that is convenient for you. Evening or Saturday appointments can be arranged. Pursuant to U.S. Treasury Regulations, you are hereby advised that any federal tax advice included in this communication is not intended or written to be used, and cannot be used, to avoid any U.S. federal tax penalties or to promote, market, or recommend to another party any transaction or matter. For further information, see IRS Circular 230.

Our Complicated Tax Code

If you wonder why I sometimes have a bewildered look when you ask a tax question, here is a clue: In her 2008 Annual Report to Congress, the National Taxpayer Advocate, Nina Olson, complained about the Tax Code’s complexity including (among many other examples) “at least 16 separate incentives to encourage taxpayers to save for retirement. These incentives are subject to different sets of rules governing eligibility, contribution limits, taxation of contributions and distributions.” She also criticized the constant changes, pointing out that amendments to the Tax Code were made at the rate of more than one per day in the five years from 2003–2008. Read her report: http://www.irs.gov/advocate/article/0,,id=202276,00.html [Vol. 11, No. 1 Choate’s Notes Spring 2009]

I don't have very much good to say about the Reagan Administration. If you want to see where our federal debt trouble began look there. However, one of the things it got right was the Internal Revenue Code of 1986. It closed a lot of loopholes and greatly simplified our income tax. It was far from perfect, but it was a great leap forward. Since then, we have lost a lot of ground.