2018 Tax Rates Comparison to 2017 Tax Rates

There are 7 tax rates in both years going from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2017 to 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2018. Every tax bracket in 2018 is better than 2017 by 3 to 4 points except for the 10%, 32%, and 35% tax brackets which are basically the same for both years. The bracket spread in taxable income is better also. For example, the top rate for joint returns kicked in at $470,700 of taxable income in 2017 but now in 2018 it doesn't start until taxable income reaches $600,000.

When do You Have to Send 1099's?

If you have a business and use the services of an individual paying them $600 or more during a calendar year, then you need to send that person a 1099-Misc.  You don't have to worry about sending 1099's to corporations, when you buy merchandise, and when you make payments for personal services for your home. You should ask anyone providing services to your business to fill out a form W-9 before you make the first payment to them. This will give you their address and social security number for the 1099. It can be very difficult getting that information at the end of the year. Penalties for not filing  1099's are up to $250 per failure.

Pass Through 20% Deduction for 2018

The new 20% deduction for qualified business income is simple for those taxpayers with taxable income (line 43 on the 2017 form 1040) less than $315,000 filing joint or  $157,500 filing single. They get to deduct the lesser of 20% of qualified business income or 20% of taxable income minus net capital gains. Qualified business income is income from a US trade or business which can be a sole proprietorship, partnership, S corp, LLC, trust. or estate. Qualified business income is not W-2 wages, interest, capital gains or most dividends.

2018 Kiddie Tax

In order to prevent parents from shifting income from investments to their children who would be in a lower tax bracket, the IRS has devised the kiddie tax. Starting in 2018 the tax rates on such income are based on the the trust rates which get to the highest 37% bracket at only $12,501 and above. It used to be based on the parents top tax rate. There is a threshold for unearned income (interest, dividends, and capital gains) of $2,100. The kiddie tax only applies above the threshold. Kids also get a standard deduction of the greater of $1,050 or earned income (wages) plus $350 not to exceed $12,000. For example, say a child has wages of $2,000 and interest income of $7,000. His standard deduction would be $2,350 and his taxable income would be $6,650. The first $2,100 would be taxed at 10% which is the regular rate for single taxpayers. The next $4,550 would be taxed at the trust rates of 10% on the first 2,550 and the next $2,000 would be at the 24% rate for a total of $735. The total tax bill would be $945 vs a regular tax rate of $665(10%).