Changes to the Georgia Income Tax rate

Effective 1/1/19, the Georgia rate goes to 5.75% from 6% and on 1/1/20 the rate drops to 5.5% if the legislature approves and the governor signs on to the 1/1/20 drop. They want to analyze the effect of the 2019 rate decrease on state revenues before approving the scheduled 2020 additional decrease. Both of these reductions are temporary and expire on 12/31/25 when the rate goes back to 6%. Hopefully the reductions will stay permanent.

Mortgage Interest on Home Equity Loans, Home Equity Line of Credit, and Second Mortgages

If the borrowed funds were used to substantially improve your principal or second residence and your acquisition indebtedness does not exceed $750,000 then the mortgage interest on home equity loans is deductible. If the home equity loans existed at December 15, 2017 then the cap is $1,000,000 on acquisition indebtedness. However, if the home equity loan was used for anything other than improving your first or second home like a new car, then it will not be deductible under the new rules regardless of when you obtained the loan. In other words there is no grandfathering on home equity loans allowing a mortgage interest deduction if you use the funds for anything other than improving your home.

Constructive Receipt of Income

If your business receives a payment from a client on December 30 but you wait to deposit it in January, do you have to declare that income in 2018? Yes you do because you have control over the funds. You can choose when to deposit the money. One way to defer income to 2019 is by delaying your December billing so you won't receive payments until January.

Reduce Your Taxes for 2018 Right Now

You have less than a month to take action. What should you do? See below for some ideas:

1. 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.
2. Organize your tax documents in one file folder for 2018.
3. If you have a business on the cash basis, delay mailing bills until late December so that the payments won't be received until 2019.
4. Buy office supplies, stamps, and equipment for your business.
5. Increase your 401k contribution to the maximum. The employee deferral is $18,500 ($19,000 for 2019) for 2018 plus $6,000 more if you are at least age 50 by year end.
6. Donate appreciated stock to a  charity.
7. Do a qualified direct contribution of your required minimum distribution from your retirement account to a charity.
8. Sell securities with losses to offset your capital gains.
9. Consider setting up a donor advised fund to concentrate your charitable contributions in one year.
10. Check to make sure all of your estimated tax payments for 2018 have been made. The final one is due January 15, 2019.
11. Consider an opportunity zone investment to defer the tax on capital gains for 7 years. You have 6 months after the transaction to invest the capital gains so this is a step you could do in 2019 to reduce 2018 taxes. 
12. If you have a specified service trade or business and your individual taxable income exceeds $315,000 joint or $157,500 single, then it would be advantageous for you to take steps to reduce your income below those thresholds so you could benefit from the new 20% qualified business income deduction. Steps to take include conservation easements, oil and gas investments, retirement plan contributions, large charitable donations, and business equipment purchases.

U.S. Citizens Working Abroad

In 2018 taxpayers can exclude up to $104,100 in wages or earned income. To qualify you have to satisfy either the bona fide residence test or the physical presence test. To be a bona fide resident you have to be a resident for a full tax year in the foreign country. The physical presence test requires being present in a foreign country or countries 330 full days during a period of 12 consecutive months. Spending more than a month in the U.S. will cause you to fail the physical presence test.  If you only qualify for part of the tax year you get a pro-rated amount of the exclusion. You have to track the days you come back to the U.S. and whether it was work or vacation.

Extension of Time to Pay Tax

There is a way to extend your payment of tax for six months from the due date of your 1040 return. You have to file form 1127 and show that the payment would be an undue hardship. You have to show that you can't sell any assets without severe losses or borrow money under reasonable terms. If the extension is approved then you are not subject to the late payment penalty of .5% per month. You are still subject to interest charges.

Documentation of Cash Donations

If you make a cash donation under $250 to a charity, then all you need is a cancelled check or bank statement to support your tax deduction. However a donation of $250 or more requires a written acknowledgement from the charity dated prior to the filing date of the return to support the deduction. The acknowledgement letter indicates your tax deductible donation and if you received any goods and services in exchange for the donation which reduces the tax deduction. I like to keep a copy of your acknowledgement letters in your tax file to respond to any IRS audits of your tax return. Deductible charitable contributions also do not include political contributions, cost of raffle tickets, contributions to foreign organizations(except certain Canadian, Mexican, and Israeli charities), payments to nonprofit organizations other than 501(c)(3) organizations, and payments to individuals. If you make recurring payments to a charity under $250, but that total over $250 for the calendar year, the charities are not required to give you an acknowledgement letter which is one reason why I recommend you do lump sum contributions in December of every year.