Filing Requirements for Children

When should you file a tax return for your child? If your child receives a W-2 and the amount is greater than $6,350 then a return is required. Also if withholding was done on your child's W-2 then you should file a return to obtain a refund even if the W-2 amount is less than $6,350. You don't want to let the government keep it. If your child receives a 1099 with box 7 filled out which is nonemployee compensation, then a return is required if the amount is $400 or more because self employment tax of 15.3% is due on net self employment income. The IRS considers interest, dividends, and capital gains unearned income and your child is required to file a return if the amount of such income is greater than $1,050.

1099's and W-2's

The season of 1099's and W-2's is now here for 2017. You are supposed to receive them by 1/31/2018. In the next two weeks you will be receiving many 1099's and W-2's relating to interest and dividend income, social security income, wage income, other income, mortgage interest, college tuition payments, pension and IRA distributions, etc. Make sure you save all of these tax documents as they have been reported to the IRS and you will be subject to penalties if you don't report the same amounts on your return. Give these documents to me for your 2017 tax return. I make a computer copy for your file in case you get a notice from the IRS in the future regarding your tax return.

Mileage Rates for 2018

The IRS has changed the mileage rate for business miles starting January 1, 2018 from 53.5 cents per mile to 54.5 cents per mile. The medical and moving rate is up one cent to 18 cents per mile. Charitable mileage remains at 14 cents per mile.

Obamacare Question on the 2017 Tax Return

Unfortunately you won't have the option of not answering the question concerning your qualified health care coverage during 2017 like you did on the 2016 income tax return. The IRS is now going to force you to answer the question. This means that you will will have to pay a substantial penalty if you didn't have qualified health insurance unless you qualify for one of the exemptions such as low income or only a two month break in coverage.

Expired Tax Breaks

The provisions below expired at the end of 2016 and won't be available for the 2017 tax return.
1. The $4,000 tuition and fees deduction for adjusted gross income is no longer available.
2. The cancellation of mortgage debt for a principal residence which allowed up to a $2 million  income exclusion from taxable income has expired.
3. The personal energy property credit up to $500 has finally expired.
4. The mortgage insurance premium deduction is gone.

Tax Cut and Jobs Act of 2017

The President has signed the Tax Act and it is now law. It is the most sweeping change in tax law in 30 years. Below are some of the major provisions in the new law which are effective 1/1/2018 unless otherwise noted.

1. The top corporate rate on C corporations changes to 21% from 35%.
2. The top individual rate goes to 37% on taxable income over $500,000 for single returns and over $600,000 for joint returns.
3. Unearned income will no longer be taxed at the parents' rates for kids but under the rate schedule for trust and estates.
4. The additional deduction for joint returns goes to $24,000 and for single returns to $12,000. Those over age 65 also still get the additional standard deduction.
5. The deduction for personal exemptions is repealed.
6. The child tax credit is increased to $2,000 for qualifying children under 17. There is another $500 credit for dependents over 17.
7.  Section 529 plans can now cover up to $10,000 of Elementary and High School tuition per student.
8. The 3% of adjusted gross income phase out of itemized deductions has been repealed.
9. The deduction of miscellaneous itemized deductions has been repealed.
10. The limit for mortgage loans for deductible  interest for first and second homes has been reduced to $750,000 for loans incurred after 12/15/2017. Home equity loan interest is no longer deductible.
11. There is a new state and local tax cap of $10,000.
12. The deduction for personal and casualty losses has been repealed except for Presidentially declared disaster losses.
13. Any gambling deductions are limited to gambling winnings even for professional gamblers.
14. Charitable contributions are retained and the adjusted gross limitation increases to 60% from 50%. The 80% deduction for donations for getting the right to buy tickets to college athletic events has been repealed.
15. The medical expense deduction subtraction goes to 7.5% from 10% for 2017 and 2018.
16. Income inclusion and deduction for alimony has been repealed for divorces executed after 2018.
17. No deduction is allowed for moving expenses except for members of the armed forces.
18. The estate tax exemption amount goes to $11,200,000 and is indexed for inflation.
19. The alternative minimum tax exemption for joint returns has been increased to $109,400 from $86,200. For single returns the exemption is now $70,300. The threshold for the phase out of the exemption has also been increased significantly.
20. The Obamacare penalty has been reduced to 0 beginning in 2019 for having nonqualified health insurance coverage.
21. Individuals with pass through businesses such as proprietorships, Sub S corporations, and partnerships get a new 20% deduction from taxable income on their net business income if their taxable income is under $157,500 single or $315,000 joint. If taxable income is above those amounts, then the deduction is phased out completely for businesses in the fields of health, law, accounting, actuarial science, performing arts consulting, athletics, financial services, and brokerage services. Not included in the phase out are engineering and architecture firms.  Other businesses which are not subject to the phase out have a limitation on the deduction of the greater of 50% of wages paid or 25% of wages paid plus 2.5% of business tangible depreciable property. The 20% deduction is not allowed for self employment tax purposes.
22. The section 179 depreciation cap goes to $1,000,000.
23. The bonus depreciation rate is 100% beginning 9/28/17 and includes used property if it is the taxpayer's first use of the property.
24. The new tax act repeals the domestic production deduction.
25. No deduction is allowed for entertainment, amusement, or recreation activities. The 50% deduction for meals and beverage expenses associated with operating a business is still good.
26. The 3.8% Obamacare investment tax has been retained.

Reduce Your Taxes for 2017 Right Now

Very significant tax legislation will likely pass Congress tomorrow. I have prepared a list of key things to do before year-end to minimize your taxes. Please note that failure to take advantage of these opportunities may result in loss of significant tax dollars. For example if you do not qualify to itemize in 2018 (90% of taxpayers won't) then losing the benefit available in 2017 will waste your hard earned money.

1. Pay your 2017 estimated state income and property taxes in full. Make your estimate high to avoid losing benefits.
2. Consider making some or all of your estimated charitable contributions expected for 2018 in 2017.
3. Clean out your garage and your closets. Make donations of clothing and household goods to Goodwill. Keep the receipt and a record of items donated and use the valuation guide at salvationarmyusa.org to value the donation.
4. Organize your tax documents in one file folder for 2017.
5. If you have a business on the cash basis, delay mailing bills until late December so that the payments won't be received until 2018.
6. Buy office supplies and equipment for your business.
7. Increase your 401k contributions to the maximum.
8. Donate appreciated stock to a charity.
9. Do a qualified direct contribution of your required minimum distribution from your retirement account to a charity.
10. Sell securities with losses to offset your capital gains.