TCJA 2018 “quick facts”

TCJA 2018 “quick facts”

• Seven tax brackets (mostly "3% lower" tax rates)
• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%
• Standard deduction: 
• MfJ      24,000
• Single  12,000
• HoH     18,000
• In TY2017, 70% of taxpayers used the standard deduction
• In TY2018, estimated 94% of taxpayers will use the standard deduction
• Rev. Reg. §1.163-8T - interest tracing - HELOC interest NO longer deductible
• Use form 8801 AMT credit from prior-year - carry forward to current year to take an AMT credit in current year, provided you have No AMT tax in the current year
• There's No longer a Pease phase-out on itemized deductions. No limitation on income for itemized deductions for TY2018
• C-Corp 21% tax rate on first dollar and last dollar. 
• No QBI deduction for C-Corp’s because they already have the low flat 21% tax rate
• 20% QBI deduction cannot exceed 20% of taxable income. 
• use the correct SIC code. IRS is tracking SIC code for QBI purposes 
• 20% deduction 
• Not allowed in Computing AGI 
• Does not reduce self-employment tax 
• Is Allowed as a deduction reducing taxable income
• Keep your business taxable income under $315,000 to get full QBI deduction
• Because not all states adopted new federal law, there will be federal and state differences on medical expenses and other itemized deductions such as the SALT deduction
• Gambling winnings/losses. 
• Mileage to and from the casino is deductible as part of your gambling losses.
• Losses cannot exceed winnings. 
• Gamblers still have to itemize to deduct losses.
• Vehicle depreciation 
• 1st  year  10,000 
• 2nd year  16,000 
• 3rd year     9,600
• Thereafter 5,760
• Switch the straight-line depreciation in year straight-line exceeds accelerated depreciation
• Capital gains tax
• No significant changes
• Rates don’t match brackets exactly
• STCG still ordinary income
• 15% LTCG rate starts at 38,600 for single. 77,200 for MfJ
• 20% LTCG rate starts at 425,800 for single. 479,000 for MfJ
• NOLs limited to 80% of Taxable Income
• DPAD §199 (Domestic Production Activities Deduction) Repealed
• Inventory - Businesses under $25 million gross receipts need NOT account for inventory under §471. May treat inventory as non-incidental Materials and Supplies
• Marriage penalty eliminated for couples earning under $400K
• §179
• Is NOT depreciation
• Expensed
• Unadjusted Basis of Property equals ZERO
• §1231 “Like-kind exchange” NOW only for Real Estate
• New $500 credit for dependents 17 years or older
• §529 now okay for tutoring grades K - 12 and private school
• Mortgage interest - deduction on debt only up to $750K
• SALT capped at $10K MFJ, $5K Single
• Beginning 2019 Alimony NO longer deductible
• Prior to 2019 alimony grandfathered
• ACA
• 3.8% NIIT (same)
• 0.9% Medicare tax (same)
• No more ACA penalty (for lack of health insurance) after TY2018
• AMT exemption phaseout thresholds:
• $1MM MfJ
• $500K Single
• Medical Expenses
• 7.5% for TY2017 and TY2018 
• 10%  for TY2019

Footnote:

• Steve’s three accounting rules:
• Never take too much depreciation
• Bank transfers are never taxable
• Federal Income Tax (FIT) is never deductible
• Four types of Assets
• Inventory
• Capital 
• Real Estate 
• Depreciable (§1231, §1245, §1250)

Have a Blessed Day.

White House Proposal

White House proposal

(President President Trump Releases a One Page Plan):
Individual Tax Reform

• Reduce seven (7) tax brackets into three (3) tax brackets. 
• The current marginal rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. 
• Three new proposed rates of 10%, 25%, and 35%. 
• The administration has yet to identify the tax bracket income levels for these new rates? 
• Repeal the Affordable Care Act's (ACA) 3.8% net investment income tax imposed upon unearned income and capital gains of high-income taxpayers.
• Double the standard deduction.
• Limit itemized deductions to mortgage interest and charitable contributions.
• Repeal the estate tax.
• Repeal the Alternative Minimum Tax (AMT).
• Provide tax relief for families with child and dependent care expenses. 
• The administration has yet to clarify how this relief will differ from the current expenses under IRC §21.

Business Tax Reform

• Lower the business tax rate to 15%. While the current corporate tax rate is 35%, many small businesses  (S-Corp's P-Ships)  pass through their income via K-1's to the individual level. 
• The administration has yet to identify any rules which may be established to prevent individuals from creating pass-through entities to avoid being taxed at a lower business rate, rather than higher individual rate?  But there would be rules established to prevent this practice from taking place?
• Establish a territorial tax system. 
• Foreign earned income would generally be excluded from this system.
• Eliminate tax breaks for special interests. 
• Establish a "one-time tax" on corporate earnings realized and held overseas (on which tax is deferred).

Source: NAEA E@lert Newsletter April 28, 2017

Net Investment Income Tax

Net Investment Income Tax
Starting in 2013, some taxpayers may be subject to the Net Investment Income Tax. You may owe this tax if you have income from investments and your income for the year is more than certain limits. Here are four things from the IRS that you should know about this tax:

1. Net Investment Income Tax.  The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.

2. Net investment income.  This amount generally includes income such as:

• interest
• dividends
• capital gains
• rental and royalty income
• non-qualified annuities

This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. Net investment income also does not include any gain on the sale of your main home that you exclude from your income.

After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960, Net Investment Income Tax for more on how to figure your net investment income or MAGI.

3. Income threshold amounts.  You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$250,000

4. How to report.  If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated tax penalty.

For more on this topic visit IRS.gov/aca. You can also get tax forms on IRS.gov or by mail by calling 800-TAX-FORM (800-829-3676)
Net Investment Income Tax FAQs
Tax Topic 559 - Net Investment Income Tax

Bitcoin News

Bitcoin

• New IRS guidance treats Bitcoins and other crypto-currencies not as money, but as property, for tax purposes and applies immediately to all returns. See the full text of Notice 2014-21. IRS Virtual Currency Guidance
• Regardless of what Bitcoin’s creators and promoters may say, as far as the IRS is concerned, bitcoin is not money or currency. The IRS will treat bitcoin holdings much like corporate stock or other property (IRS Notice 2014-21).
• Bitcoin are created by a digital “mining” process and is not backed or regulated by any government, central bank or other legal entity. Some claim this makes Bitcoin safer than traditional currency because its value can’t be manipulated by central banks or governments.
• Bitcoin can also be directly transferred anonymously across the Internet. This can make the Bitcoin a cheap way to settle international transactions because there are no bank charges to pay or exchange rates to deal with.
• No one has to accept Bitcoin as money. Nevertheless, a growing number of merchants are accepting them. In fact, a Manhattan real estate broker recently announced that it would start accepting payments in Bitcoin.
• Interestingly, people buy and sell Bitcoin for dollars on online exchanges — much like gold.
• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, Wage and Tax Statement, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
• Payments made using virtual currency will be subject to the same information-reporting rules as any other payment made in property.
• The IRS warns that taxpayers who treated virtual currencies in a manner inconsistent with IRS Notice 2014-21, before the date the notice was issued, will not get penalty relief, unless they can establish that their underpayment or failure to properly file information returns was due to "reasonable cause".

References:
inmanNEWS, "IRS’ Bitcoin Guidance Turns Every Transaction into a Reportable Capital Gain or Loss at Tax Time",  Stephen Fishman, Contributor, March 31, 2014

IRS Notice 2014-21

Journal of Accountancy, "New Guidance Clarifies Tax Treatment of Bitcoin and Other Virtual Currencies", Alistair M. Nevius, JD, March 25, 2014

Clarifying the 2013 Capital Gains Rates

Clarifying the 2013 Capital Gains Rates
It has been universally reported that under the newly passed American Taxpayer Relief Act of 2012, net capital gain tax rates have risen to 20% for taxpayers with taxable income greater than $400,000 for single filers and $450,000 for joint filers. To clarify this broad statement, under IRC §102 of the new law, the higher capital gains rate applies only to the gain that, when added to other taxable income, exceeds the threshold amounts. Taxpayers below the 39.6% taxable income threshold before capital gains are taken into account will have their capital gains taxed at 15% up to the taxable income threshold and 20% on the excess. The following two examples illustrate how the net capital gain tax rate is calculated:

In Example 1, joint taxpayers earn $400,000 of ordinary income and another $200,000 in net capital gains. Under the new law, the first $50,000 of net capital gains is taxed at the lower rate, with the remaining $150,000 taxed at the higher rate. The effective rate of 18.75% reflects the blending of the 15% and 20% rates.

In Example 2, joint taxpayers now earn $200,000 of ordinary income and another $400,000 in net capital gains. Because a greater portion of the taxpayers’ taxable income has shifted from ordinary income to net capital gain, the effective net capital gain rate is lower than the previous example because a greater portion of the taxpayer’s below-the-threshold income is taxed at the 15% rate, leaving a smaller remainder subject to the 20% tax.

The above examples do not take into account the new 3.8 % medicare surtax on capital gains (and other net investment income) imposed by section 1411 of the Internal Revenue Code. Because the income threshold under that section is lower than the 39.6% tax rate threshold ($200,000 for single filers and $250,000 for joint filers), the surtax would apply to the entire net capital gain amounts in both examples, resulting in an effective rate of 22.55% and 20.68% respectively.

courtesy: Posted January 2, 2013 by Phil Karter, TaxBlawg.net

***

2013 Federal Capital Gain Tax Rates

Single Taxpayer Married Filing Jointly Capital Gain Tax Rate IRC §1411 Medicare Surtax Combined Tax Rate $0 - $36,250 $0 - $72,500 0% 0% 0% $36,250 - $200,000 $72,500 - $250,000 15% 0% 15% $200,000 - $400,000 $250,000 - $450,000 15% 3.8% 18.8% $400,001+ $450,001+ 20% 3.8% 23.8%

Starting in 2013, the tax rate on long-term capital gains will be 20% for filers making income over $400K(single)/$450K (MfJ). Starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates. 

• 20 PERCENT CAPITAL GAIN TAX IN 2013

The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extends the Bush-era tax cuts until the end of 2012.  Beginning January 1, 2013, the tax rate will revert from the current 15% rate back to the former 20% capital gain tax rate that was in effect prior to 2003.

Beginning in 2013, capital gain income will be subject to an additional 3.8% Medicare tax.  The net effect of both capital gain tax increases is a new 23.8 percent tax rate for higher earners—the highest rate for long-term capital gains since 1997. The Joint Committee on Taxation estimates the new Medicare tax on investments will cost taxpayers over $30 billion annually.

Higher-income taxpayers could see the capital gains tax go from the existing 15% to 23.8% in 2013.  Top investment earners next year could face a 43.4% tax on dividends: 39.6% maximum income tax rate plus the 3.8% health care surtax.

Reference: foxbusiness.com

Capital Gains

Capital Gains
• It is important for all taxpayers to understand what information must be reported to the IRS for tax purposes. This includes any gain or loss from the sale of capital assets. A capital asset is considered anything owned by an individual for investment or personal purposes. As a general rule, capital assets include property and investments which are not easily liquidated for cash. Real estate, equipment and other assets which contribute to business operations or personal use are considered capital assets; the sale of which must be reported on income tax returns.
• One of the biggest impacts of the recent tax revision was a change in the way capital gains are taxed. Capital gains can arise when you sell a "capital asset" at a profit.
• For most individuals, the largest single capital asset they own is their home. But capital assets also include investments such as stocks and bonds, and collectibles such as artwork, stamps, or coins.
• Under the new rules, the tax you will owe depends on the type of asset and the time you have held it. Here is a summary of the new rules and some tax planning pointers.

Investments and other assets
• Your capital gains on most other capital assets, such as stocks and bonds, investment real estate, and noncorporate business assets, will be taxed at a variety of rates as shown in the table. The rate you will pay depends on your personal tax bracket, the type of asset, and the holding period.
• Gains on assets held 12 months or less are generally taxed as ordinary income at your regular tax rates. Favorable rates apply to most assets held more than 12 months. Sales of these assets are taxed at 15% if you are in the upper brackets and at -0-% if you are in the 15% bracket for regular income.
• The favorable rates do not apply to collectibles, such as works of art, rugs, antiques, jewelry, and stamps (use 28%). Also, special rates may apply if you sell depreciated real estate (use 25% to recapture §1250 depreciation) and special rules apply to the sale of certain small business stock. Note that the new rules apply to individuals, estates, and trusts, but not to corporations.
• The 28% max tax rate applies to collectibles held more than one year, 50% of the gain on Section 1202 stock (qualified small business stock) held more than 5 years and to a long-term capital loss carryover. To the extent a taxpayer is in a tax bracket below 28%, the lower tax rate applies.
• The 25% max tax rate applies to unrecaptured Section 1250 gain on sale of property.• In 2010, the 15% rate (zero % for taxpayers in the 10% and 15% brackets) applies to qualified dividends received.
• In 2011 and 2012, the tax rate on qualified dividends is reduced to zero % for taxpayers in the 10% and 15% ordinary income tax brackets. If an individual has a regular income tax rate of 25% or higher, then qualified dividend rate is 15%.
• After December 31, 2012, so-called "qualified dividend" (except mutual fund capital gain distributions) will no longer be taxed at the same rate of long-term capital gains, but instead revert to ordinary income taxed at your highest marginal individual tax rates.

What Is A Capital Gain?
Capital assets include almost anything owned for the purpose of investment, pleasure or personal use. When a capital asset is sold, a capital gain or loss occurs. If the amount a capital asset is sold is higher than the original purchase price, the difference is a capital gain, or profit. Conversely, when the amount a capital asset is sold is less than the original purchase price, the difference is considered a loss.

Capital gains and losses are reported in the year the sale of the asset occurred. Capital losses may reduce taxable income up to $3,000 annually. If capital losses exceed the allowable deductible amount for the year, they can be carried over to the next year.

How To Report Capital Gains
Capital gains must be reported on your federal income tax return. Capital gains are subject to tax, the rate of which is determined by the length of time the asset was held. To report capital gains on your income tax return, use Schedule D, Capital Gains and Losses. Transfer information from the Schedule D to Form 1040, line 13. Capital losses from investment property may be deducted.

Capital Gain Classifications
Capital gains are classified by the amount of time you held the asset. Capital gains from assets held more than one year are classified as long-term. Capital gains from property held one year or less are classified as short-term. Long and short term classification of capital gains are important as it impacts rate at which they are taxed.

Short Term Capital Gain Tax Rates
Federal capital gains tax rates for short-term capital gains are usually the same rate applied to ordinary income reported the same year. This can range anywhere from 10% up to 35%. Starting in 2013, short term capital gains rates will increase to 15%-39.6% if tax breaks are not extended.

Long Term Capital Gain Tax Rates
Federal capital gains tax rates for long -term capital gains are usually lower than tax rates applied to ordinary income reported the same year. The special long-term capital gains rate is determined by the ordinary income tax bracket under which you fall. Tax rates for filers in the 10% or 15% tax brackets (including capital gain income) would be 0%. Income totals including capital gain income in the 25% or higher tax bracket will have gains taxed at 15%. In 2013 the long term capital gains rates will increase to 10%-20% if tax breaks are not extended and all dividends will be taxed at ordinary tax rates.

Capital Gain Rates
Through the year 2010, the long-term capital gains tax rates are -0-% and 15%. (25% for §1250 depreciation recapture and 28% for collectibles).

2009 & 2010 Capital Gains Tax Rate

2009-2010  Tax Bracket	2009-2010  Short Term CapitalGain Tax Rate	2009-2010  Long Term  Capital Gain Tax Rate
10%	10%	0%
15%	15%	0%
25%	25%	15%
28%	28%	15%
33%	33%	15%
35%	35%	15%

Bush Era Tax Cut -- Capital Gains/Dividends Tax Rates 

The Act extends the current maximum tax rate for qualified long-term capital gains and dividends (i.e. 15% for most taxpayers, and -0-% for taxpayers in the 10% to 15% tax brackets) through December 31, 2012.    

Capital Gains Rates  for Tax Years 2010, 2011 & 2012
Income Tax Rate	Short-Term Capital Gains  Tax Rate	Long-Term Capital Gains  Tax Rate
10%	10%	0%
15%	15%	0%
25%	25%	15%
28%	28%	15%
33%	33%	15%
35%	35%	15%

Starting in 2013, the tax rate on long-term capital gains will be 20% for filers making income over $400K(single)/$450K (MfJ). Starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates.
2013 Federal Capital Gain Tax Rates

Single Taxpayer	Married Filing Jointly	Capital Gain Tax Rate	IRC §1411 Medicare Surtax	Combined Tax Rate
$0 - $36,250	$0 - $72,500	0%	0%	0%
$36,250 - $200,000	$72,500 - $250,000	15%	0%	15%
$200,000 - $400,000	$250,000 - $450,000	15%	3.8%	18.8%
$400,001+	$450,001+	20%	3.8%	23.8%